How to maximize the use of Business Canvas Model? (Part 3)
Figure 1. Business Canvas Model
Many organizations have used a Business Canvas Model to innovate their business models to adapt to the dynamic and highly competitive environment. Therefore, understanding this tool as well as knowing how to maximize its potential is the most important initial step. Continuing the previous two discussions, we will investigate the last three blocks of the model: Key activities, Key partnerships, and Cost structure.
#7: Key activities
This block contains the most essential things an organization must do to ensure its business operations run successfully. Key activities, key resources and revenue streams are required for creating and offering value propositions towards customer segments as well as maintaining customer relationships.
One of the most widely used key activities is Problem solving. An organization focuses on coming up with new and sustainable solutions to customer problems. This can clearly be seen in service sectors like consultancies & agencies, hospitals, beauty services, etc. This key activity goes along with relying heavily on salesperson (as a key resource and direct channel) to reach certain customer segments. Revenue streams can stem from consultation fees, advertising, brokerage fees, etc.
Another kind of key activity is Manufacturing. An organization, in this category, invests in designing, R&D, creating, innovating and delivering products to a particular customer group. This can be linked with competitive strategy where business models are either cost-driven or value-driven, resulting in different directions in this key activity. For example, a pharmaceutical manufacturer of common medicine like Paracetamol doesn’t necessarily invest in R&D compared with the one that produces treatments for chronical diseases. Therefore, quality and price are also distinct between the two groups of firms. Key resources to perform this key activity are physical and intellectual.
Finally, Platform provision is a key activity that an organization offers to its customer segments. Visa Inc. provides its users a transaction platform, while Microsoft has developed software and operation platforms for individuals and businesses. E-commerce marketplace is a digital platform facilitating buyers and sellers. Social media, namely Instagram and Twitter, develop networking platform.
#8: Key partnerships
Business is a chain of relationships, from suppliers to customers. We have previously discussed how to manage relationships with customers, so now let’s analyze the relationships with suppliers and partners of an organization. Four different types of partnerships are described as follows:
- Strategic alliances between non-competitors: an arrangement among at least two organizations to take on mutually beneficial projects while each retains its independence (Kenton et al., 2022). This approach helps when a company enters a new market or to gain advantage over another competitor. An example is a strategic alliance between Starbucks and Barnes & Nobles (B&N – an American bookseller) when a customer can enjoy a hot beverage when visiting B&N physical stores.
- Coopetition (strategic partnerships between competitors): this term could be understood as cooperative competition – a cooperation between competing companies to support each other. This kind of partnership is commonly seen in the technology industry. Coopetition between Apple and Samsung has become well-known because of their patent-infringement case. For more information about the case, you can read this article “Competition dynamics between giant entrants and incumbents in a new convergent segment: a case in the smartphone industry” (Park and Kim, 2020).
- Joint ventures to develop new businesses: a separate business unit established by at least two organizations in order to accomplish a particular goal. A short overview of this type of partnership can be found in the article “Guide to joint ventures“. BMW and Toyota established a joint venture to research hydrogen fuel cells and ultra-lightweight materials.
- Buyer-supplier relationships: this kind of partnership indicates that a procurer can have a single source or multi source suppliers depending on its strategy and product portfolio. This relationship can be found in almost all businesses nowadays. For more details, you can read more articles with related keywords such as “Procurement Process”, “Buyer-vendor relationships”, etc.
#9: Cost structure
This aspect demonstrates all costs incurred to run a business operation. Two common kinds of most important costs are:
- Fixed costs are stable regardless the volumes of goods and/or services. Salaries, rent, insurance, interest and loan payment are some examples of fixed costs.
- Variable costs change when the volume changes. Examples are advertising costs, service costs, raw material/component costs, inventory costs, shipping costs, scrap & spoilage, etc.
It could be possible that costs are fixed for some businesses and variable for others. For example, fuel is a fixed cost for a food truck while it is a variable cost for package courier like DHL. Besides, it’s recommended to investigate costs by using ABC analysis in order to learn which costs account for the highest proportion of total costs, followed by the average cost and least cost proportion. Specially, you can check a balance sheet of an organization, then calculating the individual cost percentage by dividing individual costs by the total costs. Doing this helps understand a business model while seeking for ways to minimize (unnecessary) costs as much as possible. For example, in cost structure of a manufacturer, labor and production costs may account for the largest amount while scrapping costs lie somewhere at the bottom yet having a tendency to increase. Scrapping costs account for a small amount of cost, but these costs seem to increase gradually – assumed historical data shows that these costs accounting for 0,5% of total cost are now increasing by 1,5% and projected to go up more in the future. The manufacturer can then look into different supply chain links discovering the bottlenecks and fixing them (e.g. adopt the LEAN principle, adjust demand planning, etc.).
Now, let’s apply this knowledge into practice. Try to analyze your organization by filling in these three blocks. If you haven’t read the post related to another three block of this model, I highly recommended you to do so, in order to gain a more fulfilled picture of the Business canvas model. An example is shown in Figure 2, which may give you some inspirations.
Figure 2. Business canvas model for MS Teams (made by the author)
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Book “Towards sustainable innovation – A five step approach to sustainable change” (Pastoors et al, 2017)
Image 1 source: https://www.pinterest.com/pin/315040936405544097/
Series Business Canvas model
Business Canvas model: key activities, key partnerships, cost structure + A relevant example
Business Canvas model: customer relationships, revenue streams, key resources.
Business Canvas model: customer segments, value propositions and channels.