Designing Business Models

To find a book, which is at the same time a very good read, visually appealing and useful as a real tool does not happen that often. Thanks to my colleague Johannes Kleske I came across one of those exceptions, which is called ‘Business Model Generation’. The essence of the book is to define the way business models work and how to transform them. This does not seem to be very spectacular but from my point of view, the book provides a framework for one of the most interesting topics in the in the marketing and agency industry. What all clients are really looking for, are creative business strategies or so called transformational business ideas. We could also just call it innovative thinking.

The key point is that everyone in the industry of professional service firms tries to deliver more than great communication or advertising ideas but real business ideas that are able to transform and improve our client’s business models. This is not just the most exciting part of the job but also the most challenging. Why has this become such a hot topic for all agency types alike? First of all, everyone knows, that classical marketing and advertising approaches have lost in impact and will do so even more in the future. Secondly new digital channels increasingly become part of the actual product experience.

That is why agencies like IDEO, coming from a product design background and being strongly connected with the actual product development process, are able to really deliver transformational business ideas. One of my favourite cases from IDEO is the ‘Keep the Change’ case that they did for Bank of America. This clearly demonstrates their way of thinking. Instead of creating a big advertising campagin, telling people to safe money for the future, they developed a new credit card prodcut, allowing people to safe with every transaction they do by, well keeping the change in their savings account. This is plain simple and brilliant. The IDEO philosophy is called Design Thinking. In his book Change by Design, IDEO CEO Tim Brown describes the different aspects of the approach. I will not go into detail of this book here. This is worth another post.

The theory itself though, is not new. I first red about the concept of Creative Business Strategies in the book Leap by Bob Schmetterer which is from 2003. Since then, I have been constantly working on projects, having the ambition to include this kind of thinking. This sometimes works to a greater or lesser extent. Nevertheless the topic of creative business strategies and transformational business ideas will be one of the key topics of s[cubed] – hence the subtitle.

The fact that Bob Schmetterer, former Chairman and CEO of the classical advertising agency network Euro RSCG Worldwide, wrote about creative business strategies in 2003, shows that not only product design consultancies think about business relevance and product innovations. There are a couple of successful examples of traditional agencies developing ideas that transform the clients’ business models. Crispin, Porter + Bogusky describe this theory in their book BakedIn – also worth another post.

Apart from a few number of product design firms and traditional agency models, I think that especially the digital agencies are the ones, that are able to thrive on transforming business models, because on the one hand, products and services increasingly become digital and on the other hand, these agencies have always been very close to design thinking in terms of their own products. As the role of digital agencies in the overall marketing strategy has grown over the last years, they also learned to speak at eye level about marketing and business issues with their clients. Some cases from AKQA and Razorfish clearly demonstrate that.

Now back to Business Model Generation. As a planner it is sometimes really helpful to use a good model, a framework to do several thinks – structuring your own thinking process, being able to share the thinking process with clients (e.g. in workshops) and making briefing sessions more tangible for the creative department. When talking about and trying to transform businesses of our clients, the first question that needs to get answered is, what is a business anyway? Or more to the point – what is a business model?

After doing some research and going through the material of my economics studies, I came across this book. Business Model Generation promises to be a book for visionaries, game changers and challengers and helps to systematically understand, design and differentiate business models. Not that I describe myself as the defined target audience of the book, I don’t know yet if the book really lives up to it’s promise. I am right now in the middle of giving it a try and working with the framework. As a tool to structure the thinking process of developing business and marketing strategies, it really works.

The core of business model generation is the canvas. According to the authors Alexander Osterwalder, Yves Pigneur and their 470 co-creators, a business model can best be described through nine building blocks. These are:

• Customer Segments
• Value Propositions
• Channels
• Customer Relationships
• Revenue Streams
• Key Resources
• Key Activities
• Key Partnerships
• Cost structure

In this video, Alexander Osterwalder describes the whole model in 7 minutes. Based on this simple structure, the canvas can be used as a tool to define the status quo of a business model. Having a business model literally on the wall makes it easier to play around with the elements – adding, subtracting, changing and finally transforming the business model.

The canvas structure is used throughout the whole book covering different topics – describing modern business models (long tail businesses, multi-sided platforms, free as a business model), the aforementioned design thinking theory (visual thinking, prototyping, storytelling), the strategy development process (evaluation, five forces industry analysis, SWOT, blue ocean strategy) and the business model designing process. Apart from that, the book covers not only the most recent topics in business and marketing strategy, it also covers a lot of case studies covering corporations from Netflix, eBay, YouTube, Facebook, Visa, Google, Flickr, Skype to Nintendo.

This really is a little nugget worth buying, reading and using as an additional and helpful tool for strategic planners, especially for the modern challenge of delivering creative business strategies. More information can be found on www.businessmodelgeneration.com including a 72-page preview.