A business model canvas describes how an enterprise develops, executes, and delivers value for its customers.
It is made up of nine building blocks that describe how an organization plans to deliver value.
These building blocks are:
- Key Partnerships.
- Key Activities.
- Key Resources.
- Value Proposition.
- Customer Relationships.
- Channels.
- Customer Segments.
- Cost Structure.
- Revenue Streams.
These building blocks are built on a business canvas that presents the relationship between the organization’s operations, finance, customers, and offerings.
The business model canvas also acts as a plan for executing a strategy.
A business model canvas can be used as a diagnostic and planning tool for strategy and projects.
As a diagnostic tool, the different components of the canvas provide a view into the current state of the business and the resources the organization is currently investing in different areas.
As a planning and monitoring tool, the canvas can be used as a recommendation and structure for understanding connections and priorities among groups and initiatives.
A business model canvas allows for the linking of programs and projects to the strategy of the enterprise.
In this scope, the canvas can be used to view where the enterprise is investing, where a specific initiative fits, and any connected initiatives.
A business model canvas can also be used to show where the achievements of different departments and work groups fit into the overall strategy of the enterprise.
There are nine building blocks of the business model canvas are:
- Key Partnerships: Key partnerships usually involve some level of proprietary information sharing such as technologies and successful key partnerships could eventually become mergers and acquisitions.
The advantages of partaking in key partnerships include:
- Maximization of resources and increased profitability.
- Decreasing risk and unpredictability.
- Possession of specific assets and activities.
- Absence of in-house abilities.
2. Key Activities: Key activities are those activities that are essential to the development, execution, and support of the business concerns of the enterprise.
Key activities can be categorized as:
- Value-added: these are the attributes, features, and business activities which the customer is prepared to pay for.
- Non-value-added: these are feature and activities which the customer is not prepared to pay for.
- Business non-value-added: these are actions which must be performed to fulfil regulatory requirements which the customer is not ready to pay.
3. Key Resources: these are the assets required to implement a business model.
They can be grouped into:
i. Physical: these include applications, locations, and machines.
ii. Financial: this is what is required to finance a business model. Examples include cash and lines of credit.
iii. Intellectual: these are any exclusive features that allow a business model to
succeed such as knowledge, patents and copyrights, customer databases, and branding.
iv. Humans: these are the people who are needed to implement a particular business model.
4. Value Proposition: A value proposition is what a customer is ready to trade to have their needs fulfilled.
The proposition could be made up of a single product or service, or a group of goods and services that are grouped together to fulfil the needs of a customer or customer segment to assist them with solving their problem.
5. Customer Relationships: customer relationships is defined as the process of acquiring and retaining customers.
The methods used in the initiation and maintenance of customer relationships vary based on the level of relationship desired and the means communication.
6. Channels: these are the ways in which an enterprise relates with and delivers value to its customers.
Some channels are very communication aligned such as a telemarketing while others are delivery aligned such as an email delivery list.
The enterprises uses channels to:
- Increase awareness about their products.
- Assist customers is assessing the value proposition.
- Let customers easily purchase a good or service.
- Assist the enterprise in delivering on the value proposition.
7. Customer Segments: Customers are usually grouped into segments based on their common needs and desires so that the enterprise can effectively and efficiently address the needs of each segment.
An organization within an enterprise may contemplate describing and targeting unique customer segments based on the following:
- Varying needs for each segment.
- Shifting profitability between segments.
- Varying distribution channels.
- Creation and maintenance of customer relationships.
8. Cost Structure: Every individual, product, or activity in an enterprise has a related cost, so enterprises keep searching for ways to decrease, minimize, or remove costs if possible.
9. Revenue Streams: A revenue stream is a means of generating revenue from each customer segment in exchange for value proposition realization.
Revenue is generated from both the single purchase of a good or service and
regular payments for a good, service, or ongoing support.
Some other types of revenue streams are:
- Licensing or Subscription fees: the customer has to pay for the right to retrieve a particular asset, either as a one-time fee or as a recurring cost.
- Transaction or Usage fees: the customer has to pay each time they use a
good or service. - Sales: the customer purchases the ownership rights to a specific product.
- Lending, Renting, or Leasing: the customer has temporary rights to use an asset.
The business model canvas has its strengths and limitations which include the following:
Strengths
- It is a broadly used and is an effective framework that can be used to understand and maximize business models.
- It is simple to use and easy to understand.
Limitations
- It does not consider other measures of value such as social and environmental impacts.
- The main focus on value propositions does not give a complete insight into the organizational business strategy.
- It does not include the planned purpose of the enterprise.