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Business Model Generation Exercise 1
Donovan Klein
Liberty University
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Business Model Generation Exercise 1
RQ1: What is a Business Model?
Despite the fact that every organization has adopted their own business model, the actual
definition of business model varies from one business to the next. According to Sabir, Hameed,
Rehman, and Rehman (2012), “scholars do not agree on the unified concept of business model”
(p. 160). As a result, the definition of a business model is vague at best.
Despite the vagueness of a unified definition of business model, the intention of a
business model remains the same from one company to the next. The purpose of a business
model is to make it possible for a company to allow management the opportunity to generate,
provide, and capture values. Doing so then allows the company to continually explore and
identify possibilities for future developments within the company.
RQ2: According to the Business Model Generation and/or Strategic Management Concepts
and Cases literature, what is a business model?
According to Osterwalder and Pigneur, “a business model describes the rationale of how
an organization creates, delivers, and captures value” (2010, p. 14). However, beyond this basic
definition, Osterwalder and Pigneur explain that a business model can best be described using
nine building blocks, which address four areas of business: “customers, offer, infrastructure, and
financial viability” (2010, p. 15). These nine building blocks include key partners, key activities,
key resources, value propositions, customer relationships, channels, customer segments, cost
structure, and revenue streams.
More specifically, the nine building blocks presented by Osterwalder and Pigneur (2010)
are further detailed here. The first building block is key partnerships, which refers to
relationships established outside of the company to conduct key activities. The second building
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block, key activities, refers to the specific activities which bring value and revenue streams to the
company. The third building block, key resources refers to the assets the company needs in order
to conduct business. The fourth building block, value propositions, seeks to determine what
products and service address a customer or customers’ specific need. The fifth building block,
customer relationships, deals with the relationships currently in place between the company and
the customer segments. It also seeks to determine the costs, if any, associated with these
relationships, as well as the benefits of establishing and maintaining these relationships.
The sixth of these building blocks, channels, refers to the methods through which value
propositions are delivered to customers. The seventh building block, customer segments, refers
to the individuals which a company serves. The eighth building block is cost structure, which
refers to how the business model structure focuses on costs, including cost driven versus value
driven. The ninth and final building block, revenue streams, refers to how revenue is generated
for the company by offering value propositions to customers.
The idea of building blocks being used to describe a business model, is one which has
surfaced in several other business journals and research studies as well (Bouwman, Vos, &
Haaker, 2008; Casadesus-Masanell & Ricart, 2010). For instance, a study conducted by Sabir,
Hameed, Rehman, and Rehman (2012) sought to look at the building blocks previously
mentioned by other studies in an attempt to determine if there was a common definition for the
term business model. Their findings determined there were 28 different building blocks used to
explain the various definitions of a business model currently in the literature.
RQ3: What role do value propositions perform in successful business models?
According to Osterwalder and Pigneur (2010), “The Value Propositions Building Block
describes the bundle of products and services that create value for a specific Customer Segment”
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(p. 22). More specifically, a value proposition is the specific goods or services a company can
provide a customer. These goods and services are intended to meet a specific need or want the
customer might have. The more likely a customer views a specific company’s value propositions
as meeting their specific needs or wants over that of another company, the more likely they are to
select that company over the competition.
For this reason, it is important for a company to seek to understand the specific needs and
wants of the customer segments. This is interwoven with the need to understand customer
relationships, which will help a company to not only maintain a current customer segment by
meeting their needs, but also offering insight into how a value proposition can be customized to
best meet the needs of a specific customer segment. Therefore, it is easy to see how each of these
building blocks not only plays a role in the overall business model, but is also dependent upon
one another in order for the business model to be successful.
RQ4: How does “Brainstorming New Business Models” by answering the “What If”
questions impact successful businesses?
Successful businesses recognize the need to continually evaluate their current business
model and to explore potential opportunities for future developments within the company. Doing
so allows the company to further fine tune their goals and ensure they make the necessary
adjustments to their business model to ensure the company is efficient in meeting its overall
goals. The use of the “Business Model Canvas” as presented by Osterwalder and Pigneur (2010),
is one tool useful for coming together with a group of people and discussing the various business
model elements.
A larger version of the canvas provided by Osterwalder and Pigneur (2010), is
recommended when working with groups, as well as post-it notes or board markers so
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individuals can brainstorm and pool together ideas collectively. However, the copy of the canvas
available online offers more detail, including specific questions under each building block. These
questions can help to facilitate the discussion between those individuals seeking to brainstorm
new business models, and help to ensure each question and building block of the business model
is addressed effectively. This canvas can be found at the following link:
http://www.businessmodelgeneration.com/downloads/business_model_canvas_poster.pdf
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References
Bouwman, H., Vos, H. D., & Haaker, T. (2008). Mobile service innovations and business
models. Springer Berlin Heidelberg. http://dx.doi.org/10.1007/978-3-540-79238-3_12
Casadesus-Masanell, R., & Ricart, J. E. (2010). From strategy to business models and onto
tactics. Long Range Planning, 43(2-3), 195-215. Retrieved from
http://dx.doi.org/10.1016/j.lrp.2010.01.004
Osterwalder, A. & Pigneur, Y. (2010). Business model generation. Hoboken, NJ: John Wiley &
Sons.
Sabir, M. S., Hameed, R. M., Rehman, K., & Rehman, I. (2012). Theoretical foundation of
business model and their building blocks. Journal of Management Research, 4(4), 160-
179. Retrieved from http://www.macrothink.org/journal/index.php/jmr/article/view/2083
