Book Review – Business Generation Model by Alexander Osterwalder and Yves Pigneur

Business Generation ModelBusiness Generation Model is one of the most practical business books I’ve read. Well researched, easy to understand and colourful, this is a book I believe every business person should have. Even if you are starting something really small this book will give you some solid ideas. The book focuses on business models and according to the authors, this book will give you deep insight into the nature of business models. It describes traditional and bleeding-edge models and their dynamics. Written way back in 2010, its content is still very fresh and relevant to the current business environment and feels like it was written and published yesterday. What gives the book even more credibility is the fact that it was co-created by 470 other people from 45 different countries who contributed comments.

The book contains five main sections, an outlook and afterword all covered in 278 visual appealing pages. Following is a brief review of each section.
Section one – The Business Model Canvas: A shared language for describing, visualizing, assessing, and changing business models.
A business model describes the rationale of how an organization creates, delivers, and captures value. The business model canvas is a template that helps to define a business model in a way that is easy to understanding. It has nine building blocks which all together can be used to develop and analyse business models. Here are the building blocks:

1. Customer Segments: An organization serves one or several customer segments – customers are the lifeblood of any business. Without customers businesses can’t succeed. A business model may define one or more customer segments and an organization must clearly define what customer segments to serve. Some examples of different customer segments are, mass market, niche market, segmented, and diversified.

2. Value Propositions: It seeks to solve customer problems and satisfy customer needs with value propositions – this describes the bundle of products and services that create value for a specific Customer Segment. It’s the reason why customers choose one product or service over another. It serves to solve a customer problem or meet a need. Value Propositions from organisations may meet a customers need through, newness, customisation, performance, design, price or cost reduction.

3. Channels: Value propositions are delivered to customers through communication, and sales channels – this describes how a company communicates with, and reaches its Customer Segments to deliver its Value Proposition. Channels serve functions such as:
a. Raising awareness about products and services
b. Helping customers evaluate an organisation’s Value Proposition.
c. Delivering a Value Proposition to customers.

4. Customer Relationships: Customer relationships are established and maintained with each customer segment – describes the types of relationships a company develops with specific Customer Segments. It specifies that a company should clarify the type of relationship it wants to establish with each Customer Segment.

5. Revenue Streams: Revenue streams result from value propositions successfully offered to customers -this represents the cash a company generates from each customer segment. Business models can involve two types of Revenue Streams:
a. Transaction revenues
b. Recurring revenues

6. Key Resources: Key resources ate the assets required to offer and deliver the previously described elements… – describes the most important assets required to make a business model work. Every company needs key resources to create and offer a Value Proposition, reach markets, maintain relationships with Customer Segments and earn revenues.

7. Key Activities:…by performing a number of key activities – describes the most important things a company must do to make its business model work. These are the most important actions a business must take to operate successfully.

8. Key Partnerships: Some activities are outsourced and some resources are acquired outside the enterprise – describes the network of suppliers and partners that make the business model work. Companies forge relationships to optimize their business models, reduce risk or acquire resources.

9. Cost Structure: The business model elements result in the cost structure – this is the last building block and it describes costs involved in operating a business model. Creating and delivering value, maintaining Customer Relationships and generating revenue incurs costs.

There is a template which allows you to define the nine building blocks and the section ends with an example using the building blocks and template to define Apple’s business model. There are also some comments from various people on how they have used the canvas. Here are two of the comments:

  1. I consult with small companies on using the freemium business model. This model involves giving core products away for free, which is very counterintuitive to most business people. Thanks to the Business Model Canvas, I can easily illustrate how it makes financial sense. 
  2. A close friend was looking for a new job. I used the Business Model Canvas in order to assess her personal business model. Her core competencies and Value Proposition were outstanding but she failed to leverage strategic partners and develop appropriate Customer Relationships. This adjusted focus opened new opportunities.

From the comments, it’s clear that the Business Model Canvas is applicable in all types of sectors

Section two – Patterns
This section describes business models with similar characteristics and behaviours. Five models are described using the language of the Business Model Canvas. The models described are:
1. Unbundling business models
2. The long tail
3. Multi-sided platforms
4. FREE as a business model
5. Open business models

Each business model is defined and described in detail using the Business Model Canvas. Examples are also used to illustrate how the models work.

Section three – Design
Describes techniques and tools from the world of design that ca help to design better and more innovative business models. The techniques described are customers insights, ideation, visual thinking, prototyping, storytelling and scenarios.

Section four – Strategy
This section shows how to re-interprete strategy through the lens of the Business Model Canvas. According to the authors, this will help you constructively question established business models and strategically examine the environment in which your own business model functions. Four areas of strategy are explored and they are:
1. The business model environment
2. Evaluating business models
3. A business model perspective on Blue Ocean Strategies
4. How to manage multiple business models within an enterprise

Section five – process
This last section ties together the concepts and tools from the book to simplify the task of setting up and executing a business model design initiative. It proposes a business model design process which goes through five phases: mobilize, understand, design, implement and manage. It explains each phase in detail.

The Outlook section describes some further topics. An important one is how the Business Model Canvas can be applied to public and non-profit sectors. It also describes the benefits of using computer-aided business model design applications. The authors have a web application based on the canvas which can used instead of a paper based canvas. You can access it at, strategyzer.com.

There’s also a brief discussion on the relationship between business models and business plans and how to better achieve business model and IT alignment.

This is a book packed full of great business tools, and the first section which describes the Business Model Canvas is worth the price of the book. Depending on your business goals you can dip and out of the book, but the first three chapters are really worth reading.

Start something lesson
Going through book can feel a bit heavy because it is very much aimed at mid-size to large businesses, but some of the tools can be used for businesses of any size. Even a venture with just one person. My lesson from the book is from the first section.

It is adapting the Business Model Canvas for use in small businesses and projects. What I would like to do is turn each building block into a question, and answering the question will aid someone doing something small to create a business model for their project.

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