F RAMEWORK OF BUSINESS MODEL

Alexander Osterwalder and Yves Pigneur developed the business model canvas in their book of BUSINESS MODEL GENERATION (2010). The researcher uses the business model canvas to design the new business models because it provides a business model concept that covers most of the elements of business model that everybody can easily understand and discuss. With the framework, it becomes easier to analyze each element in the business model and understand the relationships among them on a single page of paper. The framework not only thinks through the organization but it also compares with competitors or with any other enterprises. It could be reused and adjusted with progress instead of writing from scratch every time. Most importantly, it is possible to unbundle or combine different components in various business models, facilitating the creation and innovation of new business models. A business canvas normally consists of the following nine elements:

Customer segmentation

Customer segment is a group of customers that has similar characteristics in terms of needs, channels, relationships, and profitability. They are virtually regrouped so that the business model can be built specifically for this segment and to satisfy most of the targeted customers. A business model may define several customer segments and design a framework around them.

Value propositions

The value proposition is the reason why customers choose one company over another. It solves a customer problem or satisfies a customer need. The offer could be an innovative or disruptive offer, or an offer similar to existing ones but with added features

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or attributes. A value proposition creates value for a customer segment through one or a bundle of product(s) and service(s).

Channels

Channel is the interface on which a company reaches, communicates and interacts with customers. Channel’s functions are 1. Raising awareness of the company, including its products and services, among customers. 2. Helping customer evaluate the value proposition of the company. 3. Allowing customers to purchase the product and services.

4. Delivering the value proposition to customers. 5. Providing after-sales services.

Customer relationships

Customer relationships determine customer experience besides the value created by product and service. The purposes behind the choices of different types of customer relationships are customer acquisition, customer retention and boosting sales. A

Company should clarify the type of relationship it wants to establish with each customer segment.

Revenues streams

Revenue stream is the pricing mechanism of the product and services. There are mainly two types of them:

1. Transaction revenues resulting from one-time payment.

2. Recurring revenues resulting from repeated delivery of value propositions.

The flow of the revenues streams determines the continuity of the business model as a whole.

Key resources

Key resources are the most important assets required to make the business model work. They allow the company to offer and deliver the value proposition, reach the

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market, maintain customer relationships, and earn revenue. Different type of business model requires different key resources, which could be physical, financial, intellectual and human. A company does not necessarily own key resources; they could lease or acquire them as well.

Key activities

Key activities are the most important things a company must do to make its business work. They are the actions taken in every other block: to offer and deliver the value proposition, to reach the market, to maintain customer relationships, to earn revenue, to procure or recruit, to control the costs, and to ally with key partners.

Key partnerships

Key partnerships are the network of suppliers and partners that make the business model work. Companies create alliance in many forms, but for common purposes:

optimizing their proper business models, reducing risks and acquiring resources. There are mainly four types of partnerships:

1. Strategic alliance between non-competitors.

2. Cooptition alliance between competitors.

3. Joint ventures to develop new business.

4. Buyers and suppliers building supply chain together.

Cost structures

The cost structures describe all costs incurred to operate the business model,

including the costs in delivering value propositions, acquiring key resources, maintaining customer relationships, executing key activities, establishing key partnership etc. There are mainly two categories of them: cost driven and value driven. A company could run for both of them.

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In addition to the framework of business model, BUSINESS MODEL GENERATION also lists out several important patterns that share similar characteristics, thus facilitating the innovation and analysis of business model without needing to go through each

component every time. With the help of the pattern, one can focus on the most important part and reuse the common components.

In the end, the book describes the process of building a business model. The process has five phases: Mobilize, Understand, Design, Implement, and Manage. The process could be applied to different organizations that are at different points of its life and having different contexts and objectives. With the standardized process, it will be easier and faster for the business model designer to know in which step the situation is, so that he can take related measures.

This case study will apply the framework of business model canvas and the tools explained in BUSINESS MODEL GENERATION to collect the information, analyze the environment, dissect and integrate all the components in order to find the optimal combination of them and design a business model that is most suitable with all the available information.

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