Ahhhh, business models. We love them. One simple, visual, powerful view of an organization on a page, that brings people together in understanding why an organization exists and what it does at the highest level.
Business models become even more powerful when coupled with business architecture. This installment of StraightTalk is a business architecture take on business models, and will explore what it means to leverage business models using a business architecture mindset as well as the role and value of business architects in creating and using business models.
What is a business model again?
“A business model describes the rationale by which an organization creates, delivers and captures value.”1 It is literally a one-page, high level articulation of an organization, sometimes represented quite graphically.
The business model canvas has become the defacto standard for representing business models and includes nine building blocks. An organization’s value proposition is right in the middle of the canvas. The right side of the canvas is where you can focus on value and includes building blocks for customer segments, customer relationships, customer channels and revenue streams. The left side of the canvas is where you can focus on efficiency and includes building blocks for partners, key activities, key resources and cost structures.
The concept of a business model applies equally to for-profit, non-profit and governmental organizations.
At what level do we create the business model for an organization?
Let’s bring a business architecture mindset to this question. Remember that the opportunity with business architecture is to unite an organization, to transcend business units and products, to look at the organization and the ecosystem in which it operates holistically. We have plenty of fragmented views of the business, but business architecture provides us with the mechanism and a new opportunity to look at the big picture. And business architects are advocates for the customer, the business, the whole enterprise and its ecosystem – not silos. (See Post No. 63 for important context on the big picture view of business architecture and the role of business architects as enterprise advocates.)
So, considering this mindset and intention, the answer to the question is that there should be one business model (and thus one business model canvas) for an organization – unless that organization truly has different, unique business models, which is indeed applicable in many cases (e.g., think about a company like Disney).
The key takeaway here is not create a separate business model for each individual business unit, product, region or any other delineation. Create separate business models when they are actually warranted.
Having said that, for each business model canvas, there may be multiple different value proposition canvases for different customer segments.
So, I should not create a business model for each department and team?
Following on from the mindset discussed above, through the business architecture looking glass, no. It can be very tempting but resist the urge. Stay true to the business architecture why.
Yes, we can do anything and yes, many people like the simple, visual nature of the business model canvas and value proposition canvas and they want to have a view for themselves. However, organizations already have plenty of siloed views and creating business models along the same lines will only serve to reinforce those silos – and perpetuate the blurred and competing definitions of things like what is a customer and what is a product. In the bigger picture, products are the goods and services we offer in the market (or equivalent for government or non-profit offerings) and customers (or the equivalent constituent, member, patient, etc.) are the people who purchase and/or benefit from those products. (Refer back to Post No. 63.) People appreciate views where they can “see themselves,” but the view we look at the least is the one that represents the full organization.
Now, two big IFs, acknowledging the real world.
- IF you want or need to create separate business models for business units, product areas or other delineations – Create the overall business models(s) for the organization first, and then decompose it into separate views, like layers of an onion. The business model decompositions should align with and inherit from the top business model. (And no, do not create individual business models first and roll them up. The results will not be the same and it will not create cross-organizational understanding and buy-in.)
- IF you want or need to create a separate business models for different teams (possibly including yours) – Be mindful of the organization’s business model(s), keep the enterprise mindset and create your team business model within that context. For example, do not use the word customer, but rather a more specific term that encompasses who they actually are like business leaders.
Should each initiative create its own business model?
Nope. For the same reasons as mentioned above.
If you are looking for a similar high-level, visual summary of an initiative on a page, make a different type of canvas that applies within an initiative context.
How are business models used?
Here are juuussst a few example uses for business models:
- Create a shared understanding and mental model about what an organization does and why, and the customers it serves
- Identify and communicate changes to a business model as a result of strategy, transformation or other sources of change
- Identify opportunities for value proposition invention/reinvention
- Identify opportunities for innovation, product design and new revenue streams
- Perform competitive analysis
- Identify opportunities for improvement (e.g. business model conflicts, weaknesses)
- Design and communicate the business model for a new legal entity
- Design and communicate the business models related to cross-organizational endeavors or changes such as new joint ventures, new business ecosystems, mergers, acquisitions or divestitures
Should business architects create business models?
A business model is a perfect Venn diagram between business direction and architecture. It’s entirely strategic and directional, yet it also represents an organization’s structure.
As a result, the ideal answer to who should create an organization’s business model is a partnership between leaders, strategists and business architects.
In reality, who creates an organization’s business model can vary based on a variety of factors, not the least of which is the level of buy-in for business models and business architecture. In some cases, business architects create and steward the business model. In other cases, it is a strategy team member or another role (e.g., an external consultant).
From a business architecture perspective, here are a few takeaways:
- Business leaders (and strategists if applicable for the organization) should define a business model
- Business architects should have an opportunity to inform a business model by sharing insights and questions
- The role(s) that facilitates business model creation sessions may vary
- The role that creates a business model initially may vary
- Business architects are excellent stewards of a business model on an ongoing basis, regardless of whether they were the original creator or not
- Business architects (along with everyone else in the organization) should consume a business model
In what other ways should business architects be involved with business models?
Once a business model is created, business architects can be valuable thinking partners and trusted advisors to help assess, evolve and innovate business models. When changes need to be made to a business model, business architects also play a critical role to translate those changes into a coordinated set of actions across the organization. Below is a brief summary of how.
- Assessing Business Models – Business architects can help facilitate objective analysis on a business model using techniques such as business model canvas-based SWOT analysis and business model type, pattern and archetype analysis. These techniques can uncover business model opportunities, conflicts or unfavorable tradeoffs.
- Evolving and Innovating Business Models – Business architects can help facilitate efforts to evolve and innovate business models, not just from a creative perspective but also from a structured thinking perspective, using different focal points of the business model and business architecture. For example, an existing set of business capabilities can be leveraged in new ways to deliver new value propositions and products to the customer. These techniques can identify opportunities to expand, evolve or transform the business model for greater value.
- Communicating Business Models Changes – Business architects are a critical bridge between business direction and its execution. When an organization’s business model changes (or when a new one is introduced), business architects help to ensure that business objectives and courses of action across the organization are aligned. They also work with IT architects to assess impacts to the business and technology environment, frame necessary business and technology changes with architecture focal points, design target architectures (if applicable), and inform and shape initiatives. (See Posts No. 3, No. 50 and No. 71 for more on how business architecture bridges strategy and execution.)
Here’s a handy diagram for all of that.
How can business architects become more valuable thought partners?
To be a valued thinking partner and trusted advisor as described above, here are a few things you can do:
- Learn deeply. Learn the business model canvas and value proposition canvas techniques well so that you can consume, inform and potentially facilitate their creation and evolution. Learn and study business model assessment techniques and practice by applying them on other organizations’ business models.
- Become a student of business models. Continually study other organizations’ business models and reflect on what works well and what does not.
- Gain another perspective. Working in a large corporate organization can make it challenging to fully understand the concept of business models. Take or make an opportunity to work with a startup or small organization, where the business model becomes much more tangible and critical. This will help you gain a new perspective that can be applied within a bigger organization. (Not to mention it’s a great chance to help others while expanding your own skills.)
- Just do it. Leverage business model assessment and innovation techniques and apply them to your organization’s business model – even if you weren’t asked. Share your ideas and insights formally or informally.
- Say yes or initiate the idea for business model working sessions. If your organization is planning group working sessions to assess or innovate the business model, say yes to participate or try to get a seat at the table. If not, initiate the idea, bring people together and facilitate the session.
One. Use the business model and keep it top of mind within the organization. It shouldn’t be that cool exercise you did one time with a bunch of sticky notes on the wall where everyone felt great, aligned and productive. An organization’s model should be living and breathing, and ever present and top of mind – especially in today’s continually transforming and digital world. Here are a few questions to ask:
- Will all employees (and some partners) have access to the business model(s)? How? How will they be notified of updates?
- In which specific usages scenarios will the business model(s) be used ongoing? How will we embed it into our processes (e.g., strategy execution)?
- How will the business model(s) remain present and visible (e.g., onboarding, planned refreshes, posters and communications, vehicle to communicate changes, etc.)?
Two. Expand the perspective. The increasing focus on the coexistence of profit+purpose as well as the benefits of sustainability is becoming more and more relevant to an organization’s business model. (See Post No. 58 for more on sustainability and business architecture.) You can bring awareness and visibility to these concerns and start the conversation by adding two building blocks to the business model canvas. This includes a building block for social and environmental benefits (on the bottom right side of the canvas) and one for social and environmental costs (on the bottom left side of the canvas).
In closing, business models are one of the most important, strategic and fun areas for business architects to be involved. When coupled with business architecture and insights from business architects, business models become more informed, better designed, and truly actionable. Enjoy and go make a difference.
More Good Stuff...
5-Minutes With Linda Finley (StraightTalk podcast): Straight talk from an industry expert on how business models work with business architecture.
Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers (Alexander Osterwalder and Yves Pigneur): The book which introduced the business model canvas and methods for creating, assessing and reinventing business models. This one is a classic and a must-have.
Value Proposition Design: How to Create Products and Services Customers Want (Alexander Osterwalder, Yves Pigneur and others): A follow-on book from Business Model Generation which specifically focuses on value proposition. It is another must-have and the Value Proposition Canvas works hand-in-hand with the Business Model Canvas.
The Invincible Company: How to Constantly Reinvent Your Organization with Inspiration From the World's Best Business Models (Alexander Osterwalder, Yves Pigneur and others): This book highlights certain companies such as Amazon, IKEA, Airbnb, Microsoft, and Logitech, and describes how they have been able to create immensely successful businesses and disrupt entire industries. It presents practical tools for measuring, managing, and accelerating innovation, and strategies for reducing risk when launching new business models.
Testing Business Ideas: A Field Guide for Rapid Experimentation (David J. Bland and Alexander Osterwalder): A definitive guide book for business model testing.
Strategyzer website: A gold mine of complementary resources and methods related to the series of business model-related books above. Score.
Osterwalder explaining the Business Model Canvas in 6 Minutes (Video): Here’s a six-minute overview of the business model canvas with the guy who created it.
Linking Business Models with Business Architecture to Drive Innovation (Business Architecture Guild® White Paper): A Guild white paper that describes how business models and business architecture work together. See Public Resources page.
Business Architecture and Business Models (Section 3.3 of the BIZBOK® Guide): Here’s the official word on the topic of business models and business architecture. (Requires Guild membership.)
Do Some Business Models Perform Better than Others? A Study of the 1000 Largest US Firms (MIT): An interesting piece which introduces business model archetypes. These archetypes are good to be familiar with so that you can help organizations to understand, streamline and even reinvent what they do. Check out Figures 1 and 2 on page 31 in particular.
The Single Biggest Reason Why Start-Ups Succeed (TED Talk): An enlightening TED Talk by Bill Gross on the most important factor for start-up success – which can also apply to existing companies as they continue to innovate and reinvent themselves. Hint: It’s not the business model.
- 1. Source: Business Model Generation by Alexander Osterwalder and Yves Pigneur