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• 11.2 Designing the Business Model
• Introduction
• 1.1 Entrepreneurship Today
• 1.2 Entrepreneurial Vision and Goals
• 1.3 The Entrepreneurial Mindset
• Review Questions
• Discussion Questions
• Case Questions
• Suggested Resources
• 2.1 Overview of the Entrepreneurial Journey
• 2.2 The Process of Becoming an Entrepreneur
• 2.3 Entrepreneurial Pathways
• 2.4 Frameworks to Inform Your Entrepreneurial Path
• 3.1 Ethical and Legal Issues in Entrepreneurship
• 3.2 Corporate Social Responsibility and Social Entrepreneurship
• 3.3 Developing a Workplace Culture of Ethical Excellence and Accountability
• 4.1 Tools for Creativity and Innovation
• 4.2 Creativity, Innovation, and Invention: How They Differ
• 4.3 Developing Ideas, Innovations, and Inventions
• 5.1 Entrepreneurial Opportunity
• 5.2 Researching Potential Business Opportunities
• 5.3 Competitive Analysis
• 6.1 Problem Solving to Find Entrepreneurial Solutions
• 6.2 Creative Problem-Solving Process
• 6.3 Design Thinking
• 6.4 Lean Processes
• 7.1 Clarifying Your Vision, Mission, and Goals
• 7.2 Sharing Your Entrepreneurial Story
• 7.3 Developing Pitches for Various Audiences and Goals
• 7.4 Protecting Your Idea and Polishing the Pitch through Feedback
• 7.5 Reality Check: Contests and Competitions
• 8.1 Entrepreneurial Marketing and the Marketing Mix
• 8.2 Market Research, Market Opportunity Recognition, and Target Market
• 8.3 Marketing Techniques and Tools for Entrepreneurs
• 8.4 Entrepreneurial Branding
• 8.5 Marketing Strategy and the Marketing Plan
• 8.6 Sales and Customer Service
• 9.1 Overview of Entrepreneurial Finance and Accounting Strategies
• 9.2 Special Funding Strategies
• 9.3 Accounting Basics for Entrepreneurs
• 9.4 Developing Startup Financial Statements and Projections
• 10.1 Launching the Imperfect Business: Lean Startup
• 10.2 Why Early Failure Can Lead to Success Later
• 10.3 The Challenging Truth about Business Ownership
• 10.4 Managing, Following, and Adjusting the Initial Plan
• 10.5 Growth: Signs, Pains, and Cautions
• 11.1 Avoiding the “Field of Dreams” Approach
• 11.3 Conducting a Feasibility Analysis
• 11.4 The Business Plan
• 12.1 Building and Connecting to Networks
• 12.2 Building the Entrepreneurial Dream Team
• 12.3 Designing a Startup Operational Plan
• 13.1 Business Structures: Overview of Legal and Tax Considerations
• 13.2 Corporations
• 13.3 Partnerships and Joint Ventures
• 13.4 Limited Liability Companies
• 13.5 Sole Proprietorships
• 13.6 Additional Considerations: Capital Acquisition, Business Domicile, and Technology
• 13.7 Mitigating and Managing Risks
• 14.1 Types of Resources
• 14.2 Using the PEST Framework to Assess Resource Needs
• 14.3 Managing Resources over the Venture Life Cycle
• 15.1 Launching Your Venture
• 15.2 Making Difficult Business Decisions in Response to Challenges
• 15.3 Seeking Help or Support
• 15.4 Now What? Serving as a Mentor, Consultant, or Champion
• 15.5 Reflections: Documenting the Journey
• A | Suggested Resources

Portions of the material in this section are based on original work by Geoffrey Graybeal and produced with support from the Rebus Community. The original is freely available under the terms of the CC BY 4.0 license at https://press.rebus.community/media-innovation-and-entrepreneurship/.

Learning Objectives

By the end of this section, you will be able to:

• Define a business model and its purpose
• Describe a business model canvas
• Describe a lean model canvas
• Describe a social business model canvas

According to Alexander Osterwalder and Yves Pigneur , the authors of Business Model Generation , a business model “describes the rationale of how an organization creates, delivers and captures value.” Nevertheless, there is no single definition of this term, and usage varies widely. 29

In standard business usage, a business model is a plan for how venture will be funded; how the venture creates value for its stakeholders, including customers; how the venture’s offerings are made and distributed to the end users; and the how income will be generated through this process. The business model refers more to the design of the business, whereas a business plan is a planning document used for operations.

Each business model is unique to the company it describes. A typical business model addresses the desirability, feasibility, and viability of a company, product, or service. At a bare minimum, a business model needs to address revenue streams (e.g., a revenue model), a value proposition, and customer segments. In non-jargon English, this means you want to address what your idea is, who will use it, why they will use it, and how you will make money off it.

A canvas is a display that would-be entrepreneurs commonly use to map out and plan different components of their business models. There are several different types of canvases, with the business model canvas and the lean canvas being the most commonly used. There are hard-copy canvases modeled after an art canvas as well as digital versions. The original physical canvases are meant to serve as visual tools, used with sticky notes and sketches.

As developed by Osterwalder and Pigneur, the business model canvas has nine components, as shown in Figure 11.6 .

Link to Learning

Visit this site to see examples of completed Business Model Canvases for a variety of industries for a deeper understanding of how the different categories are filled in.

Osterwalder and Pigneur wrote Value Proposition Design as a sequel to Business Model Generation . Their value proposition canvas is a plug-in that complements the business model canvas, going in depth on activities such as encouraging entrepreneurs to address and tackle customer pains, gains, and jobs-to-be-done trigger questions, and designing pain relievers and gains. The complementary and accompanying activities and resources can be useful for a deeper dive into and understanding of customer value creation in the form of value proposition, although there are other approaches to conceptualizing your value proposition. For Christensen, the originator of the disruptive innovation and jobs-to-be-done theories, a value proposition is a product that helps customers do a job they’ve been trying to do more effectively, conveniently, and affordably.

Finding the intersection of your customers’ problems and your solutions is how you create a unique value proposition, according to the entrepreneur Ash Maurya , the author of Scaling Lean and Running Lean . In Running Lean , Maurya offers the following formula for creating an initial value proposition in the canvas, as shown in Figure 11.7 .

Maurya deviated from the standard business model canvas to create the lean canvas. It overlaps the business model canvas in five of the nine components: customer segments, value proposition, revenue streams, channels, and cost structure ( Figure 11.8 ]. Rather than addressing key partners, key activities, and key resources, the lean canvas helps you tackle problems, solutions, and key metrics instead.

Visit this site to see examples of completed Lean Model Canvases from some major companies for a deeper understanding of how the canvas can be applied.

While the business model canvas and the lean canvas are similar in format, there are differences in how they are used. It is generally accepted that the lean canvas model is a better fit for startups, whereas the business model canvas works well for already established businesses. The lean canvas is simpler; the business model canvas provides a more complete picture of a mature business.

Watch this Railsware video that demonstrates how the lean canvas model might be applied to startups to learn more. In the case example in the video, the lean canvas model is applied to the successful P2P ride-sharing app Uber, as if it were a startup.

Both the business model canvas and the lean canvas are designed for constant iterations, allowing for multiple versions and changes throughout the entrepreneurial process. Part of that process involves customer discovery; thus, the canvases invoke customer-focused design. The target customer is integrated into the canvas from the start through the use of a customer empathy map and a number of design-thinking ideation activities. 30 The customer empathy map is a portrayal of a target customer —the most promising candidate from a business’s customer segments—that explores the understanding of that person’s problems and needs ( Figure 11.9 ). Osterwalder and Pigneur used a customer empathy map as part of the design ideation phase of developing a business model canvas. There are differing versions of customer empathy maps, but most seek to answer common questions pertaining to the customer, such as:

• With whom are we empathizing?
• What do they need to do?
• What do they see?
• What do they say?
• What do they do?
• What do they hear?
• What do they think?

Phillips, Proctor & Gamble, Microsoft, and Yeti are examples of well-known companies that make use of customer empathy mapping because, according to the journal Entrepreneur , every transaction can be turned into a meaningful and valuable customer interaction. 31 Once a company analyzes the results of customer mapping exercises, it may very well lead to new products that serve customer needs and/or wants.

For example, Philips used empathy mapping to detect a high level of fear in young patients immediately before an MRI medical procedure, so it invented a miniature version of the CAT scan equipment used in the procedure called the “kitten scanner” along with toy animal characters that were used to dispel the fear of MRIs among children. Proctor & Gamble created a new advertisement that was released for the 2012 Olympics visualizing the trials and tribulations of mothers raising young athletes, demonstrating Proctor and Gamble’s awareness that some of its customers wanted or needed empathy for the sacrifices they had made to help their children succeed. Likewise, Microsoft has attempted to demonstrate empathy with customers’ privacy concerns by developing an interactive website that explains not only how data is stolen but also how we can better protect our own data. 32

On their company website, the now-famous Yeti cooler company publicly extols the value of empathy mapping, explaining that it leads to better products. Yeti doesn’t just create one on its own, it actually asks its clients to work with the company to create an empathy map. 33 Thus, empathy mapping for Yeti is part of its product development process.

Customer empathy maps also strive to address customer pains (in this case, fears, frustrations, and anxieties) and gains (wants, needs, hopes, and dreams). 34

Strategyzer offers six videos outlining the business model canvas that total about 12 minutes; specifically they cover the prototyping journey from ideation to visualization of conceptualization.

Business Model Canvas 35

As Osterwalder and Pigneur describe it, according to Media Innovation and Entrepreneurship , their business model canvas blocks include revenue streams, customer segments, value propositions, cost structures, channels, key activities, key partners, key resources, and customer relationships.

Early on, your greatest focus should be on the right side of the canvas because:

• These are, in many ways, the most critical aspects of starting a new venture (customer segments, value propositions, channels, and revenue streams).
• The most fluid (revenue streams, channels, and value propositions will likely differ for the differing customer segments and, as you iterate and adapt throughout the customer discovery process, could likely change).
• These follow a logical temporal order (there’s no need to focus on the costs of building a company if you won’t have customers).

In a follow-up to business model generation, the Strategyzer team created a second canvas, the value proposition canvas: https://www.strategyzer.com/canvas/value-proposition-canvas. The value proposition canvas is a new tool that pulls out the customer segment and value proposition blocks of the business model canvas, and encourages more in-depth exploration of those blocks to achieve a good fit between the two. The value proposition canvas tool looks at customer pains, gains and jobs to be done on the customer side and painkillers, gain creators, and products and services on the value proposition side. 36

Read this blog that provides a walk-through of how to fill in a value proposition canvas to learn more.

When you peel away the language used to describe business models, the early startup planning stages come down to a series of questions. When it comes to formulating a business model for a startup concept, another popular framework used in entrepreneurial circles is that of desirability-feasibility-viability Figure 11.10 ). This framework forces the entrepreneur to address broad questions about the startup concept:

• Desirability: How desirable is the product? Who will use it and why?
• Feasibility: How feasible is this idea? What are the costs of making it? How practical is the concept?
• Viability: Will this idea remain viable? How will it make money? How will it be sustained over time?

These questions then begin to connect to form a narrative about where the startup concept came from, whom it serves, why it’s needed, how it will make money, and how it will be sustained in the future.

The value propositions, customer relationships, customer segments, and channels address the assumptions that will create customer value (desirability). The cost structure and revenue stream blocks are aimed at viability, or overcoming flawed business models. The key partners, key activities, and key resources are about execution and address feasibility. The risk of poor execution can undermine your assumptions that you chose the right infrastructure to execute your business model (feasibility). The risk of solving an irrelevant customer job (sometimes derisively labeled “a solution in search of a problem”) undercuts desirability in your business. The risk of a flawed business model would hamper the financial assumption that your business will earn more money than you spend (viability). Adaptability is about the assumption that you chose the right business model within the context of external factors such as technology change, competition, and regulation.

The business model canvas is not an exhaustive planning tool by any means. 37 , 38 The risk of such external threats is not specifically addressed on the canvas blocks. The external threats not specifically covered by the canvas blocks can be designed for adaptability, that is, the business model canvas is a necessary but insufficient component of determining the viability of the business idea/concept. There are many elements not included in the canvas that entrepreneurs must address. Industry analysis, including a competitive analysis, for example, falls “off canvas” but is important nonetheless.

The Lean Model Canvas

The lean model canvas is Ash Maurya ’s adaptation of the original business model canvas. As we noted earlier, gone are the customer relationships, key activities, key partners, and key resources blocks. Instead, a problem block is added, because as Maurya explains, “Most startups fail, not because they fail to build what they set out to build, but because they waste time, money and effort building the wrong product. I attribute a significant contributor to this failure to a lack of proper ‘problem understanding’ from the start.” Maurya next added a solution block to the lean model canvas, which corresponds well with features on a minimum viable product (MVP), which you will recall was covered in depth in Launch for Growth to Success . The lean model canvas also adds an “Unfair Advantage” block, similar to the block for competitive advantages or barriers to entry found in a business plan. 39

Social Business Model Canvas

As you’ve noticed by now, the core canvas components are common throughout the various versions. Many of the blocks of the social business model canvas are similar to those used in the business model canvas and the lean model canvas. 40 A few differences, as developed by Tandemic , focus on areas unique to social entrepreneurship ventures. For example, the new areas added include measures of what kind of social impact you are creating or developing, measures of surplus to address what happens with profits and where you intend to reinvest them, and measures of beneficiary segments, and social and customer value propositions. 41 These could be measures such as the number of trees planted, number of refugees housed and fed, jobs created, or investments made—depending on the venture. Social impact looks at an organization’s social mission beyond the bottom line. Measurement can differ among social entrepreneurs, but in terms of the canvas, impact measures are an effort to establish quantifiable metrics.

Social impact can be hard to measure, but nonetheless, many social entrepreneurs aim for long-lasting impact. 42 A 2014 report by the think tank, consultancy, and member network SustainAbility lists cooperative ownership, inclusive sourcing, and the “buy one, give one” model as three forms of social impact. 43 In addition to the Tandemic social business model canvas, there are other versions of similar canvases used for social entrepreneurship. For instance, Osterwalder adapted the business model canvas for mission-driven organizations into a mission model canvas. 44 There’s also a social lean canvas that adds purpose (explaining your reason for creating the venture in terms of social or environmental problems) and impact sections (describing the intended social or environmental impact). 45

This completed social business model canvas for the popular peer-to-peer lending platform Kiva illustrates how the business model canvas can and perhaps should be adapted for social entrepreneurship ventures.

What Can You Do?

Toms Shoes is perhaps one of the best-known companies for adopting a social entrepreneurship purpose into its business model. Part of its early success hinged on the fact that for every pair of shoes a customer bought, the company donated a pair of shoes to someone in need. The company won a prize in 2006 for its innovative solution to poverty. This “ 1-for-1 business model ,” sometimes commonly called the “Toms model” after the shoe company that popularized it, gained traction among other companies that followed suit in similar fashion, seeing both the social and the financial successes in the Toms model. Warby Parker is another example of a company that does essentially the same: A customer purchases a pair of eyeglasses, and the company donates a pair (although Warby Parker pays a third party to procure the glasses, as eyeglasses require an individual prescription, whereas shoes do not).

• Can you think of an innovative social entrepreneurship business model?

The Birthday Party Project

Paige Chenault wanted homeless children in Dallas to feel special on their birthdays. Many have never experienced a birthday party. So this professional event planner sprang into action in January 2012. She launched the Birthday Party Project (https://www.thebirthdaypartyproject.org/), a nonprofit group whose mission is to celebrate the lives of homeless children (ages one to twenty-two). The group organizes monthly birthday parties with partner shelters. Since its inception, the concept has spread beyond Texas to cities across the United States, including Atlanta, Chicago, Los Angeles, New York, and San Francisco. In six years, the Birthday Party Project has celebrated 4,800 birthdays with 30,000 kids in attendance, eaten 40,000 cupcakes, cracked 30,000 glow sticks, and performed 1,100 renditions of “Happy Birthday.”

• Identify a need in your community that could become a social entrepreneurship business, as Paige discovered with an initial passion project.
• 29 Alexander Osterwalder and Yves Pigneur. Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. Hoboken, NJ: Wiley, 2010.
• 30 Charlene Perrin. “Create A Customer Empathy Map in 6 Easy Steps!” Conceptboard . March 28, 2019. https://conceptboard.com/blog/create-a-customer-empathy-map-in-6-easy-steps/
• 31 Vineet Arya. “How to Infuse Empathy in Your Marketing?” Entrepreneur . June 28, 2019. https://www.entrepreneur.com/article/335987
• 32 Vineet Arya. “How to Infuse Empathy in Your Marketing?” Entrepreneur . June 28, 2019. https://www.entrepreneur.com/article/335987
• 33 Mike Godlewski. “The Secret to Knowing What a Client Is Thinking? Empathy Maps.” Yeti. February 8, 2016. https://yeti.co/blog/the-secret-to-knowing-what-your-client-is-thinking-empathy-maps/
• 34 Germán Coppola. “What Is an Empathy Map, and Why Is It Valuable for Your Business?” Medium . November 28, 2017. https://medium.com/swlh/what-is-an-empathy-map-and-why-is-it-valuable-for-your-business-14236be4fdf4
• 35 This material is based on original work by Geoffrey Graybeal and produced with support from the Rebus Community. The original is freely available under the terms of the CC BY 4.0 license at https://press.rebus.community/media-innovation-and-entrepreneurship/.
• 36 Michelle Ferrier and Elizabeth Mays. Media Innovation and Entrepreneurship . The Rebus Foundation, 2017. https://press.rebus.community/media-innovation-and-entrepreneurship/.
• 37 Jennifer van der Meer. "Do You Suffer from Value Proposition Confusion?" Linkedin . October 19, 2016. https://www.linkedin.com/pulse/do-you-suffer-from-value-proposition-confusion-jennifer-van-der-meer/
• 38 “The Value Proposition Canvas.” Strategyzer . n.d. https://strategyzer.com/canvas/value-proposition-canvas
• 39 Ash Maurya. “Why Lean Canvas vs Business Model Canvas?” Medium . February 27, 2012. https://blog.leanstack.com/why-lean-canvas-vs-business-model-canvas-af62c0f250f0
• 40 "Social Business Model Canvas.” Business Model Toolbox . 2013. https://bmtoolbox.net/tools/social-business-model-canvas/
• 41 “The Business Model Canvas Reinvented for Social Business.” Tandemic . n.d. http://www.socialbusinessmodelcanvas.com
• 42 Ayse Guclu, J. Gregory Dees, and Beth Battle Anderson. “The Process of Social Entrepreneurship: Creating Opportunities Worthy of Serious Pursuit.” Duke/Fuqua case . 2002. https://centers.fuqua.duke.edu/case/knowledge_items/the-process-of-social-entrepreneurship-creating-opportunities-worthy-of-serious-pursuit/
• 43 Lindsay Clinton and Ryan Whisnant. “Model Behavior: 20 Business Model Innovations for Sustainability.” SustainAbility . February 2014. https://sustainability.com/wp-content/uploads/2016/07/model_behavior_20_business_model_innovations_for_sustainability.pdf
• 44 Alexander Osterwalder. “The Mission Model Canvas: An Adapted Business Model Canvas for Mission-Driven Organizations.” Strategyzer . February 25, 2016. https://blog.strategyzer.com/posts/2016/2/24/the-mission-model-canvas-an-adapted-business-model-canvas-for-mission-driven-organizations
• 45 Social Lean Canvas. n.d. https://socialleancanvas.com/

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Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers (Strategyzer) [Print Replica] Kindle Edition

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Co-created by 470 "Business Model Canvas" practitioners from 45 countries, the book features a beautiful, highly visual, 4-color design that takes powerful strategic ideas and tools, and makes them easy to implement in your organization. It explains the most common Business Model patterns, based on concepts from leading business thinkers, and helps you reinterpret them for your own context. You will learn how to systematically understand, design, and implement a game-changing business model--or analyze and renovate an old one. Along the way, you'll understand at a much deeper level your customers, distribution channels, partners, revenue streams, costs, and your core value proposition.

Business Model Generation features practical innovation techniques used today by leading consultants and companies worldwide, including 3M, Ericsson, Capgemini, Deloitte, and others. Designed for doers, it is for those ready to abandon outmoded thinking and embrace new models of value creation: for executives, consultants, entrepreneurs, and leaders of all organizations. If you're ready to change the rules, you belong to "the business model generation!"

• Part of series Strategyzer
• Print length 288 pages
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• Publication date July 23, 2010
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Alexander Osterwalder is the cofounder of Strategyzer, a leading innovation company that puts practical tools into the hands of business leaders and strategy practitioners around the world. He is a passionate entrepreneur, sought-after speaker, and together with his team, the author of multiple bestselling titles in the popular Strategyzer Series, which visually captures the core concepts in the Strategyzer business toolkit.

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Ready to reinvent your organization get inspired with the uniquely visual, always innovative strategyzer series:, editorial reviews, from the inside flap.

Disruptive new business models are emblematic of our generation. Yet they remain poorly understood, even as they transform competitive landscapes across industries. Business Model Generation offers you powerful, simple, tested tools for understanding, designing, reworking, and implementing business models.

Business Model Generation is a practical, inspiring handbook for anyone striving to improve a business model - or craft a new one.

CHANGE THE WAY YOU THINK ABOUT BUSINESS MODELS

Business Model Generation will teach you powerful and practical innovation techniques used today by leading companies worldwide. You will learn how to systematically understand, design, and implement a new business model — or analyze and renovate an old one.

CO-CREATED BY 470 STRATEGY PRACTITIONERS

Business Model Generation practices what it preaches. Coauthored by 470 Business Model Canvas practitioners from forty-five countries, the book was financed and produced independently of the traditional publishing industry. It features a tightly integrated, visual, lie-flat design that enables immediate hands-on use.

DESIGNED FOR DOERS

Business Model Generation is for those ready to abandon outmoded thinking and embrace new, innovative models of value creation: executives, consultants, entrepreneurs — and leaders of all organizations.

"... this handbook is likely to prove an excellent help for evaluating business models" ( Anatello.com , July 2011)

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Business Model Generation is a practical, inspiring handbook for anyone striving to improve a business model — or craft a new one.

Business Model Generation offers you powerful, simple, tested tools for understanding, designing, reworking, and implementing business models.

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About the author.

Yves Pigneur , PhD, (Lausanne, Switzerland) is a professor of business and head of the Information Systems Institute of the University of Lausanne, Switzerland. He has held visiting professorships at Georgia State University in Atlanta, Hong Kong University of Science and Technology, and University of British Columbia in Vancouver. Dr. Pigneur is the chairperson of several conferences (IFIP, ISDSS, AIM). His research has been published in over fifty books, refereed journals and conference proceedings.

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• ASIN ‏ : ‎ B06X426D4F
• Publisher ‏ : ‎ Wiley; 1st edition (July 23, 2010)
• Publication date ‏ : ‎ July 23, 2010
• Language ‏ : ‎ English
• File size ‏ : ‎ 109882 KB
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• Print length ‏ : ‎ 288 pages
• #17 in Strategic Management
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About the authors

Alexander osterwalder.

Dr. Alexander (Alex) Osterwalder is one of the world's most influential strategy and innovation experts, a leading author, entrepreneur, and in-demand speaker whose work has changed the way established companies do business and how new ventures get started.

Ranked No. 4 of the top 50 management thinkers worldwide, Osterwalder is known for simplifying the strategy development process and turning complex concepts into digestible visual models. Together with Yves Pigneur, he invented the Business Model Canvas, Value Proposition Canvas, and Business Portfolio Map - practical tools that are trusted by millions of business practitioners from leading global companies including Microsoft, Coca-Cola, Nestlé, MasterCard, Sony, Fujitsu, 3M, Intel, Roche, Colgate-Palmolive, and many more.

Strategyzer, the company Osterwalder co-founded in 2010, is an innovation powerhouse, providing online courses, applications, and technology-enabled services to help organizations effectively and systematically manage strategy, growth, and transformation.

Osterwalder's books include the international bestseller Business Model Generation, Value Proposition Design: How to Create Products and Services Customers Want and Testing Business Ideas, and his forthcoming book for senior leaders, The Invincible Company, to publish in spring 2020.

He holds the Strategy Award from Thinkers50 and the European Union's inaugural Innovation Luminary Award. In 2019, Osterwalder chaired the prestigious Drucker Forum, the premier annual business management conference. A frequent and popular keynote speaker, Osterwalder travels the world discussing his ideas and strategies at Fortune 500 companies, premiere innovation conferences, and leading universities.

He holds a doctorate from HEC Lausanne, Switzerland, and is a founding member of The Constellation, a global not-for-profit organization connecting local responses to global issues around the world.

Yves Pigneur

Yves is a professor at the University of Lausanne since 1984, and has held visiting professorships at Georgia State University, University of British Columbia, National University of Singapore, and HEC Montreal. Together with Alex Osterwalder, he invented the Business Model Canvas and co-authored the international bestselling books "Business Model Generation" and "Value Proposition Design". Yves and Alex are ranked No. 4 among the "Thinkers50's Most Influential Management Thinkers" in the world and hold the Thinkers50 Strategy Award.

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What Is a Business Model?

Understanding business models, evaluating successful business models, how to create a business model.

• Business Model FAQs

The Bottom Line

Learn to understand a company's profit-making plan

Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.

Investopedia / Laura Porter

The term business model refers to a company's plan for making a profit . It identifies the products or services the business plans to sell, its identified target market , and any anticipated expenses . Business models are important for both new and established businesses. They help new, developing companies attract investment, recruit talent, and motivate management and staff.

Established businesses should regularly update their business model or they'll fail to anticipate trends and challenges ahead. Business models also help investors evaluate companies that interest them and employees understand the future of a company they may aspire to join.

Key Takeaways

• A business model is a company's core strategy for profitably doing business.
• Models generally include information like products or services the business plans to sell, target markets, and any anticipated expenses.
• There are dozens of types of business models including retailers, manufacturers, fee-for-service, or freemium providers.
• The two levers of a business model are pricing and costs.
• When evaluating a business model as an investor, consider whether the product being offer matches a true need in the market.

Business Model

A business model is a high-level plan for profitably operating a business in a specific marketplace. A primary component of the business model is the value proposition . This is a description of the goods or services that a company offers and why they are desirable to customers or clients, ideally stated in a way that differentiates the product or service from its competitors.

A new enterprise's business model should also cover projected startup costs and financing sources, the target customer base for the business, marketing strategy , a review of the competition, and projections of revenues and expenses. The plan may also define opportunities in which the business can partner with other established companies. For example, the business model for an advertising business may identify benefits from an arrangement for referrals to and from a printing company.

Successful businesses have business models that allow them to fulfill client needs at a competitive price and a sustainable cost. Over time, many businesses revise their business models from time to time to reflect changing business environments and market demands .

When evaluating a company as a possible investment, the investor should find out exactly how it makes its money. This means looking through the company's business model. Admittedly, the business model may not tell you everything about a company's prospects. But the investor who understands the business model can make better sense of the financial data.

A common mistake many companies make when they create their business models is to underestimate the costs of funding the business until it becomes profitable. Counting costs to the introduction of a product is not enough. A company has to keep the business running until its revenues exceed its expenses.

One way analysts and investors evaluate the success of a business model is by looking at the company's gross profit . Gross profit is a company's total revenue minus the cost of goods sold (COGS). Comparing a company's gross profit to that of its main competitor or its industry sheds light on the efficiency and effectiveness of its business model. Gross profit alone can be misleading, however. Analysts also want to see cash flow or net income . That is gross profit minus operating expenses and is an indication of just how much real profit the business is generating.

The two primary levers of a company's business model are pricing and costs. A company can raise prices, and it can find inventory at reduced costs. Both actions increase gross profit. Many analysts consider gross profit to be more important in evaluating a business plan. A good gross profit suggests a sound business plan. If expenses are out of control, the management team could be at fault, and the problems are correctable. As this suggests, many analysts believe that companies that run on the best business models can run themselves.

When evaluating a company as a possible investment, find out exactly how it makes its money (not just what it sells but how it sells it). That's the company's business model.

Types of Business Models

There are as many types of business models as there are types of business. For instance, direct sales, franchising , advertising-based, and brick-and-mortar stores are all examples of traditional business models. There are hybrid models as well, such as businesses that combine internet retail with brick-and-mortar stores or with sporting organizations like the NBA .

Below are some common types of business models; note that the examples given may fall into multiple categories.

One of the more common business models most people interact with regularly is the retailer model. A retailer is the last entity along a supply chain. They often buy finished goods from manufacturers or distributors and interface directly with customers.

Example: Costco Wholesale

Manufacturer

A manufacturer is responsible for sourcing raw materials and producing finished products by leveraging internal labor, machinery, and equipment. A manufacturer may make custom goods or highly replicated, mass produced products. A manufacturer can also sell goods to distributors, retailers, or directly to customers.

Example: Ford Motor Company

Fee-for-Service

Instead of selling products, fee-for-service business models are centered around labor and providing services. A fee-for-service business model may charge by an hourly rate or a fixed cost for a specific agreement. Fee-for-service companies are often specialized, offering insight that may not be common knowledge or may require specific training.

Example: DLA Piper LLP

Subscription

Subscription-based business models strive to attract clients in the hopes of luring them into long-time, loyal patrons. This is done by offering a product that requires ongoing payment, usually in return for a fixed duration of benefit. Though largely offered by digital companies for access to software, subscription business models are also popular for physical goods such as monthly reoccurring agriculture/produce subscription box deliveries.

Example: Spotify

Freemium business models attract customers by introducing them to basic, limited-scope products. Then, with the client using their service, the company attempts to convert them to a more premium, advance product that requires payment. Although a customer may theoretically stay on freemium forever, a company tries to show the benefit of what becoming an upgraded member can hold.

Example: LinkedIn/LinkedIn Premium

Some companies can reside within multiple business model types at the same time for the same product. For example, Spotify (a subscription-based model) also offers free version and a premium version.

If a company is concerned about the cost of attracting a single customer, it may attempt to bundle products to sell multiple goods to a single client. Bundling capitalizes on existing customers by attempting to sell them different products. This can be incentivized by offering pricing discounts for buying multiple products.

Example: AT&T

Marketplace

Marketplaces are somewhat straight-forward: in exchange for hosting a platform for business to be conducted, the marketplace receives compensation. Although transactions could occur without a marketplace, this business models attempts to make transacting easier, safer, and faster.

Example: eBay

Affiliate business models are based on marketing and the broad reach of a specific entity or person's platform. Companies pay an entity to promote a good, and that entity often receives compensation in exchange for their promotion. That compensation may be a fixed payment, a percentage of sales derived from their promotion, or both.

Example: social media influencers such as Lele Pons, Zach King, or Chiara Ferragni.

Razor Blade

Aptly named after the product that invented the model, this business model aims to sell a durable product below cost to then generate high-margin sales of a disposable component of that product. Also referred to as the "razor and blade model", razor blade companies may give away expensive blade handles with the premise that consumers need to continually buy razor blades in the long run.

Example: HP (printers and ink)

"Tying" is an illegal razor blade model strategy that requires the purchase of an unrelated good prior to being able to buy a different (and often required) good. For example, imagine Gillette released a line of lotion and required all customers to buy three bottles before they were allowed to purchase disposable razor blades.

Reverse Razor Blade

Instead of relying on high-margin companion products, a reverse razor blade business model tries to sell a high-margin product upfront. Then, to use the product, low or free companion products are provided. This model aims to promote that upfront sale, as further use of the product is not highly profitable.

Example: Apple (iPhones + applications)

The franchise business model leverages existing business plans to expand and reproduce a company at a different location. Often food, hardware, or fitness companies, franchisers work with incoming franchisees to finance the business, promote the new location, and oversee operations. In return, the franchisor receives a percentage of earnings from the franchisee.

Example: Domino's Pizza

Pay-As-You-Go

Instead of charging a fixed fee, some companies may implement a pay-as-you-go business model where the amount charged depends on how much of the product or service was used. The company may charge a fixed fee for offering the service in addition to an amount that changes each month based on what was consumed.

Example: Utility companies

A brokerage business model connects buyers and sellers without directly selling a good themselves. Brokerage companies often receive a percentage of the amount paid when a deal is finalized. Most common in real estate, brokers are also prominent in construction/development or freight.

Example: ReMax

There is no "one size fits all" when making a business model. Different professionals may suggest taking different steps when creating a business and planning your business model. Here are some broad steps one can take to create their plan:

• Identify your audience. Most business model plans will start with either defining the problem or identifying your audience and target market . A strong business model will understand who you are trying to target so you can craft your product, messaging, and approach to connecting with that audience.
• Define the problem. In addition to understanding your audience, you must know what problem you are trying to solve. A hardware company sells products for home repairs. A restaurant feeds the community. Without a problem or a need, your business may struggle to find its footing if there isn't a demand for your services or products.
• Understand your offerings. With your audience and problem in mind, consider what you are able to offer. What products are you interested in selling, and how does your expertise match that product? In this stage of the business model, the product is tweaked to adapt to what the market needs and what you're able to provide.
• Document your needs. With your product selected, consider the hurdles your company will face. This includes product-specific challenges as well as operational difficulties. Make sure to document each of these needs to assess whether you are ready to launch in the future.
• Find key partners. Most businesses will leverage other partners in driving company success. For example, a wedding planner may forge relationships with venues, caterers, florists, and tailors to enhance their offering. For manufacturers, consider who will provide your materials and how critical your relationship with that provider will be.
• Set monetization solutions. Until now, we haven't talked about how your company will make money. A business model isn't complete until it identifies how it will make money. This includes selecting the strategy or strategies above in determining your business model type. This might have been a type you had in mind but after reviewing your clients needs, a different type might now make more sense.
• Test your model. When your full plan is in place, perform test surveys or soft launches. Ask how people would feel paying your prices for your services. Offer discounts to new customers in exchange for reviews and feedback. You can always adjust your business model, but you should always consider leveraging direct feedback from the market when doing so.

Instead of reinventing the wheel, consider what competing companies are doing and how you can position yourself in the market. You may be able to easily spot gaps in the business model of others.

Criticism of Business Models

Joan Magretta, the former editor of the Harvard Business Review, suggests there are two critical factors in sizing up business models. When business models don't work, she states, it's because the story doesn't make sense and/or the numbers just don't add up to profits. The airline industry is a good place to look to find a business model that stopped making sense. It includes companies that have suffered heavy losses and even bankruptcy .

For years, major carriers such as American Airlines, Delta, and Continental built their businesses around a hub-and-spoke structure , in which all flights were routed through a handful of major airports. By ensuring that most seats were filled most of the time, the business model produced big profits.

However, a competing business model arose that made the strength of the major carriers a burden. Carriers like Southwest and JetBlue shuttled planes between smaller airports at a lower cost. They avoided some of the operational inefficiencies of the hub-and-spoke model while forcing labor costs down. That allowed them to cut prices, increasing demand for short flights between cities.

As these newer competitors drew more customers away, the old carriers were left to support their large, extended networks with fewer passengers. The problem became even worse when traffic fell sharply following the September 11 terrorist attacks in 2001 . To fill seats, these airlines had to offer more discounts at even deeper levels. The hub-and-spoke business model no longer made sense.

Example of Business Models

Consider the vast portfolio of Microsoft. Over the past several decades, the company has expanded its product line across digital services, software, gaming, and more. Various business models, all within Microsoft, include but are not limited to:

• Productivity and Business Processes: Microsoft offers subscriptions to Office products and LinkedIn. These subscriptions may be based off product usage (i.e. the amount of data being uploaded to SharePoint).
• Intelligent Cloud: Microsoft offers server products and cloud services for a subscription. This also provide services and consulting.
• More Personal Computing: Microsoft sells physically manufactured products such as Surface, PC components, and Xbox hardware. Residual Xbox sales include content, services, subscriptions, royalties, and advertising revenue.

A business model is a strategic plan of how a company will make money. The model describes the way a business will take its product, offer it to the market, and drive sales. A business model determines what products make sense for a company to sell, how it wants to promote its products, what type of people it should try to cater to, and what revenue streams it may expect.

What Is an Example of a Business Model?

Best Buy, Target, and Walmart are some of the largest examples of retail companies. These companies acquire goods from manufacturers or distributors to sell directly to the public. Retailers interface with their clients and sell goods, though retails may or may not make the actual goods they sell.

What Are the Main Types of Business Models?

Retailers and manufacturers are among the primary types of business models. Manufacturers product their own goods and may or may not sell them directly to the public. Meanwhile, retails buy goods to later resell to the public.

How Do I Build a Business Model?

There are many steps to building a business model, and there is no single consistent process among business experts. In general, a business model should identify your customers, understand the problem you are trying to solve, select a business model type to determine how your clients will buy your product, and determine the ways your company will make money. It is also important to periodically review your business model; once you've launched, feel free to evaluate your plan and adjust your target audience, product line, or pricing as needed.

A company isn't just an entity that sells goods. It's an ecosystem that must have a plan in plan on who to sell to, what to sell, what to charge, and what value it is creating. A business model describes what an organization does to systematically create long-term value for its customers. After building a business model, a company should have stronger direction on how it wants to operate and what its financial future appears to be.

Harvard Business Review. " Why Business Models Matter ."

Bureau of Transportation Statistics. " Airline Travel Since 9/11 ."

Microsoft. " Annual Report 2021 ."

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Business Model Generation: Summary and Review

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Keywords:  Analysis, Business model, Design, Ideation, Innovation, Platform, Process, Prototype, Strategy, Visualization

Please Note:  There are links to other reviews, summaries and resources at the end of this post.

Book Review

Business Model Generation  looks at the challenge of building a business model through the framework of the Business Model Canvas. The Canvas provides a matrix for nine essential “building blocks.” While most managers and entrepreneurs will be familiar with these categories already, this book provides a systematic method for approaching the creation of business models. Quite a few of the exercises and methods also come from outside sources.

This is more than a patchwork of external ideas stitched together randomly. Following the steps outlined in the book can safeguard the development team against floundering chaotically from one methodology to another. The process that’s presented is organized and logical — it is useful for understanding the architecture of business models. Entrepreneurs and executives tasked with designing business models will likely find it a helpful guide.

This book is aesthetically interesting. Typesetting is used as a strong design element, and there are lots of bright, primary colors. (The publisher, John Wiley & Sons, has produced other monographs with high design standards.) But for some readers, the work might be over-designed, and form could obscure function.

A business model should include nine basic building blocks: customer segments, value propositions, channels, customer relationships, revenue streams, key resources, key activities, key partnerships and cost structure. Consider each in turn.

Customer segments  are groups of people (or organizations) that a company wants to target. In some instances, groups should be separated into different segments, for example, where:

• Groups are served by different distribution channels.
• Various groups are paying for different features.
• There are different relationships with various customers.
• Customers are on different levels of profitability.

Business models aimed at the mass market don’t focus much on customer segments; rather, they treat all customers similarly. (This model is fairly common in the consumer electronics sector.) On the other hand, niche markets have very tight, focused customer segments. There are lots of different kinds of segment models, serving several related customer segments. Businesses with diversified models serve multiple unrelated customer segments. Companies with multi-sided platforms need to identify segments from each side of the platform.

Value propositions  are the things that the customer values, and include products and services, as well as convenience or quality. Various features can create value for customers. Improved performance can also create value, as can customization. Just about any feature or service can be part of the value proposition, and superior designs, prestigious brands, inexpensive prices, accessibility and convenience are just some of the features that can make a customer value a product over that of its competitors.

A company reaches its customers through channels, which facilitate customer awareness of the product and customer understanding of the value proposition. Customers make purchases through the channel and access delivery and support after the transaction. Some companies reach customers through their own channels; sometimes they have partners who take care of this. There are many kinds of channels — for example, wholesalers, web sites, brick-and-mortar stores, etc.

Customer relationships  define how a company interacts with the customer segment, and these relationships can strongly affect customer experience. They can be used to retain customers or to boost sales — a variety of techniques can be used to benefit the company.

The business of business is to make money, so every company needs revenue streams. There are a few different ways to monetize — for example, subscription fees, licensing fees and advertising.

Key resources  are the important physical, intellectual, human and financial assets that a company needs.

Key activities  are the actions that the company must undertake to make the business model work, including not only production activities, but also things like problem solving and knowledge management. (Platform companies in particular are nurtured by their networks; maintaining these presents key activities specific to this model.)

Companies don’t exist in isolation; they need suppliers and other partners to run smoothly. These crucial  key partnerships  can optimize business models. Partners can help to reduce risk and acquire resources.

Finally, the  cost structure  includes the expenses required to make the business model function. Some companies strive to keep costs down, while others are more concerned with creating value.

Together, these building blocks form the  Business Model Canvas .

Business models can be organized by similar characteristics, by similarities in how they use the building blocks or by similar behaviors. Broadly, these similarities are business model patterns, and Osterwalder evaluates how traditional business concepts can be made to fit the Business Model Canvas.

Bundled  businesses are those in which the different activities within a single company are so different from each other that they could just as easily be different companies. Typical roles in bundled companies include customer relationships, product innovation and infrastructure management. These functions should be unbundled — they have different economics, competition and culture. And this can create some conflicts.

Unbundled  businesses have cut the ties with irrelevant departments and outsourced their duties. They can focus on their core business without being dragged down by tangential chores. One type of unbundled business is the long-tail business model, which sells a lot of different products that don’t have huge sales individually. Long-tail businesses don’t focus on getting the big hits; instead, they cultivate the niche customers and make niche content easily available to these customers.

Multi-sided platforms  are unbundled businesses that unite separate but interdependent customers. Value is achieved because multiple sides are participating. Network effects are immensely important to these businesses for bringing new users onto the platform, but sometimes these businesses have trouble bringing both sides of a market together. This “chicken and egg” problem can be overcome by subsidizing a customer segment.

The idea of subsidizing one side of the market is taken to its logical extreme with the free business model. At least one important customer segment gets something for free; another part of the business model pays for this subsidy. There are a few different ways businesses can offer something to certain market segments for free: taking money from advertisers and allowing other customers to participate for free or making basic services free to users, but then charging for advanced features. The bait-and-hook strategy gives customers something for free and encourages them to buy the product in the future.

Companies with  open business  models collaborate with outside partners, which can be accomplished from the outside in by bringing external resources into the development process or from the inside out by giving external partners access to internal assets (typically by licensing or selling its resources).

It’s important to have a deep understanding of the customer, so customer insights should inform all aspects of a business (including the business model). There are many ways to research what customers want and what they don’t want, but the most important thing is to talk to customers directly.

An empathy map is a chart depicting the customer. The main value in this chart is likely a checklist which comprehensively considers the customer’s point of view. Visual thinkers might benefit from charting information received from customers; others might just as easily use the suggested categories without drawing a chart.

Ideation involves generating a bunch of ideas for business models and picking the best. There are several epicenters, or sources, of business innovation:

• Resource-driven innovation originates from within a company’s existing infrastructure.
• Offer-driven innovations create totally new value propositions.
• Customer-driven innovations are based on customer needs.
• Finance-driven innovations are motivated by new sources of money, like new revenue streams and new cost saving.

Multiple epicenters can also drive innovations.

To come up with innovative ideas, it helps to assemble a diverse team — different kinds of people mean a wider range of outlooks. “What if” questions are useful starting points for further brainstorming.

Visual Thinking is also a valuable design technique. Being able to express ideas visually is important — it clarifies things and can make it easier to communicate with others. Post-It notes can help, here: write one idea per note, and move them around the Business Model Canvas. Draw pictures; sketch the Canvas. Tell a story, one element at a time. A business model prototype can also be helpful in envisioning the business model, and there are different ways you can create prototypes — for example, a napkin sketch that outlines and pitches a rough idea or a business case looking at the viability of the idea.

Storytelling can help communicate ideas to others. It makes ideas tangible; stories engage people. But bear in mind, stories should be told from a specific perspective, perhaps that of the employee or the customer. Stories can help people visualize the future. You can use lots of different media to tell your story, such as videos, text, comic strips, etc.

Scenarios are another technique for making abstract ideas more tangible. They can help the business model development process by making the context more detailed. Customer scenarios explain how products are used and who uses them. Future scenarios help you think about the future. Develop several scenarios (with a business model for each), and describe each scenario with a story.

To design a good business model, you need a strong understanding of the external environment in which your company exists. One way to analyze the environment is to break it into four parts and map them:

• Market forces, like demand and revenue attractiveness.
• Industry forces, including competitors and suppliers.
• Key trends, including technological and social trends.
• Macroeconomic forces, like global market conditions and economic infrastructure.

No one can predict the future, but it’s good to develop hypotheses as guidelines for the next generation of business models. Conjectures on the trajectory of market forces, key trends and macroeconomic forces are helpful in developing options for the future. Check your business model regularly. Scheduled evaluations can help you monitor the business environment and catch problems early.

There are two suggested methods for assessing existing business models: big picture and building block. These methods complement one another and should both be used for a full understanding of how well a model is functioning.

It’s hard for established businesses to change business models, which is one reason why innovative projects are often spun off into separate departments or entities. Complete separation like this greatly reduces the potential for conflict between the two units, but it also reduces the opportunity for synergy. On the other hand, innovative projects can remain integrated within the parent company. This increases the possibility that the company will benefit from synergies, but the chances of conflict are much greater.

Between these two extremes, some companies grant the innovation team considerable autonomy, yet maintain responsibility to the head office. This compromise leaves the door open for synergy but also for conflict.

Concept Exploration : Blue Ocean Strategy is a system of finding value through adding and removing product features and benefits in such a way as to optimize costs and find new markets. This Strategy looks at four parameters to analyze business models: 1) whether there are factors that the industry takes for granted that should really just be eliminated; 2) whether there are factors that should be reduced below industry standards; 3) whether any factors need to be raised above industry standards; and 4) whether there are factors that should be created that the industry hasn’t offered before. Combining Blue Ocean with the Business Model Canvas results in comprehensive analysis, and to blend the two, examine each of the building blocks using the four parameters.

Every business is different, so the business model design process will need to be adjusted to fit the needs of your business. Consider the process in generic terms.

Innovation arises from several different objectives. For example, a new business model might be needed to bring new products to market to create a new market. There can be significant challenges on the journey to designing a new business model, including the problem of finding the right model. Once created, a new model will need to be tested before full-scale launch, and getting the market to accept the new model can be a struggle. Furthermore, once in place, there is a continuing process of adapting a new business model to adjust to market changes and to manage uncertainty.

In older companies, changing the business model is usually instigated in response to a crisis with the existing business model or to adjust to changing environmental conditions. New models might also be generated when bringing new products to market. A business may also want to occasionally test new models in preparation for future exigencies. For existing firms looking to change their business model, challenges include accepting the idea of new models, getting old and new models into alignment, dealing with vested interests and making long-term success the goal.

Designing innovative business models is a messy process. There’s a lot of ambiguity throughout most of the process. It takes time, but the temptation is to prematurely jump on whatever solutions might present themselves without fully going through the process. It’s vital to take the time to explore all the alternatives. Do the research; develop the prototypes.

The design process has five phases:

• Start by mobilizing your team, set the stage and gather what you need. Thoroughly explain the need for a new model. It’s also useful to establish a vocabulary that you can all use to discuss business model design.
• Immerse your team in learning everything they need to know about the customers, the technology, and the environment.
• To begin designing business models, your team needs to develop several prototypes and test them out. At the end of this stage, you’ll need to choose the best business model design.
• Once you have selected the best design, implement it.
• Finally, the business model will have to be managed; the environment must be monitored. Occasional tweaking is necessary to adjust to changing circumstances, so adapt and update the model as needed.

The utility of the Business Model Canvas isn’t limited to profit-making enterprises. Every organization is a business in some sense, including nonprofits and private clubs. Any organization that creates and delivers value must be able to generate the income needed to cover their costs — in short, nearly every organization needs to have a business model.

The business model can form the basis of a business plan. Start with the following elements when putting this plan together:

• Description of the management team.
• The business model.
• Financial analysis.
• Description of the external environment.
• Implementation roadmap.
• Risk analysis.

To maximize the effectiveness of the plan, make it comprehensive. Ultimately, you’ll want to turn your business model into an actual business, or if you’re an existing business with a new model, you’ll need to implement it.

There are five important areas that should be in alignment with the business model: Strategy, Structure, Processes, Rewards and People. Imagine a star, with each area represented by a point on the star and in the center lies the business model. It’s especially important to align your information systems with your business goals, and the Business Model Canvas can be an important tool for communicating with the Chief Information Officer.

The Canvas can also be paired with the Enterprise Architecture approach, which usually depicts a company as having three dimensions: the business perspective, the applications perspective and the technology perspective. The Business Model Canvas can be used to guide the business perspective, and then the applications and technology perspectives can be aligned with that.

Finally, to aid readers, the authors created an application called the Business Model Toolbox. This Toolbox has all the features needed to create models; it also makes it possible for team members in separate countries and on different continents to work together remotely.

A prototype of this software is available for free at  www.businessmodeltoolbox.com , now  https://strategyzer.com/app .

Additional Resources

Buy “Business Model Generation” on Amazon

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What Is a Business Model?

• Andrea Ovans

A history, from Drucker to Christensen.

A look through HBR’s archives shows that business thinkers use the concept of a “business model” in many different ways, potentially skewing the definition. Many people believe Peter Drucker defined the term in a 1994 article as “assumptions about what a company gets paid for,” but that article never mentions the term business model. Instead, Drucker’s theory of the business was a set of assumptions about what a business will and won’t do, closer to Michael Porter’s definition of strategy. Businesses make assumptions about who their customers and competitors are, as well as about technology and their own strengths and weaknesses. Joan Magretta carries the idea of assumptions into her focus on business modeling, which encompasses the activities associated with both making and selling something. Alex Osterwalder also builds on Drucker’s concept of assumptions in his “business model canvas,” a way of organizing assumptions so that you can compare business models. Introducing a better business model into an existing market is the definition of a disruptive innovation, as written about by Clay Christensen. Rita McGrath offers that your business model is failing when innovations yield smaller and smaller improvements. You can innovate a new model by altering the mix of products and services, postponing decisions, changing the people who make the decisions, or changing incentives in the value chain. Finally, Mark Johnson provides a list of 19 types of business models and the organizations that use them.

In The New, New Thing , Michael Lewis refers to the phrase business model as “a term of art.” And like art itself, it’s one of those things many people feel they can recognize when they see it (especially a particularly clever or terrible one) but can’t quite define.

That’s less surprising than it seems, because how people define the term really depends on how they’re using it.

Lewis, for example, offers up the simplest of definitions — “All it really meant was how you planned to make money” — to make a simple point about the dot.com bubble, obvious now, but fairly prescient when he was writing at its height, in the fall of 1999. The term, he says dismissively, was “central to the Internet boom; it glorified all manner of half-baked plans…The ‘business model’ for Microsoft, for instance, was to sell software for 120 bucks a pop that cost fifty cents to manufacture …The business model of most Internet companies was to attract huge crowds of people to a Web site, and then sell others the chance to advertise products to the crowds. It was still not clear that the model made sense.” Well, maybe not then.

A look through HBR’s archives shows the many ways business thinkers use the concept and how that can skew the definitions. Lewis himself echoes many people’s impression of how Peter Drucker defined the term — “assumptions about what a company gets paid for” — which is part of Drucker’s “theory of the business.”

That’s a concept Drucker introduced in a 1994 HBR article that in fact never mentions the term business model. Drucker’s theory of the business was a set of assumptions about what a business will and won’t do, closer to Michael Porter’s definition of strategy . In addition to what a company is paid for, “these assumptions are about markets. They are about identifying customers and competitors, their values and behavior. They are about technology and its dynamics, about a company’s strengths and weaknesses.”

Drucker is more interested in the assumptions than the money here because he’s introduced the theory of the business concept to explain how smart companies fail to keep up with changing market conditions by failing to make those assumptions explicit.

Citing as a sterling example one of the most strategically nimble companies of all time — IBM — he explains that sooner or later, some assumption you have about what’s critical to your company will turn out to be no longer true. In IBM’s case, having made the shift from tabulating machine company to hardware leaser to a vendor of mainframe, minicomputer, and even PC hardware, Big Blue finally runs adrift on its assumption that it’s essentially in the hardware business, Drucker says (though subsequent history shows that IBM manages eventually to free itself even of that assumption and make money through services for quite some time).

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How to Design a Winning Business Model

Joan Magretta, too, cites Drucker when she defines what a business model is in “ Why Business Models Matter ,” partly as a corrective to Lewis. Writing in 2002, the depths of the dot.com bust, she says that business models are “at heart, stories — stories that explain how enterprises work. A good business model answers Peter Drucker’s age-old questions, ‘Who is the customer? And what does the customer value?’ It also answers the fundamental questions every manager must ask: How do we make money in this business? What is the underlying economic logic that explains how we can deliver value to customers at an appropriate cost?”

Magretta, like Drucker, is focused more on the assumptions than on the money, pointing out that the term business model first came into widespread use with the advent of the personal computer and the spreadsheet, which let various components be tested and, well, modeled. Before that, successful business models “were created more by accident than by design or foresight, and became clear only after the fact. By enabling companies to tie their marketplace insights much more tightly to the resulting economics — to link their assumptions about how people would behave to the numbers of a pro forma P&L — spreadsheets made it possible to model businesses before they were launched.”

Since her focus is on business modeling, she finds it useful to further define a business model in terms of the value chain. A business model, she says, has two parts: “Part one includes all the activities associated with making something: designing it, purchasing raw materials, manufacturing, and so on. Part two includes all the activities associated with selling something: finding and reaching customers, transacting a sale, distributing the product, or delivering the service. A new business model may turn on designing a new product for an unmet need or on a process innovation. That is it may be new in either end.”

Firmly in the “a business model is really a set of assumptions or hypotheses” camp is Alex Osterwalder, who has developed what is arguably the most comprehensive template on which to construct those hypotheses. His nine-part “ business model canvas ” is essentially an organized way to lay out your assumptions about not only the key resources and key activities of your value chain, but also your value proposition, customer relationships, channels, customer segments, cost structures, and revenue streams — to see if you’ve missed anything important and to compare your model to others.

Once you begin to compare one model with another, you’re entering the realms of strategy, with which business models are often confused. In “ Why Business Models Matter ,” Magretta goes back to first principles to make a simple and useful distinction, pointing out that a business model is a description of how your business runs, but a competitive strategy explains how you will do better than your rivals. That could be by offering a better business model — but it can also be by offering the same business model to a different market.

Introducing a better business model into an existing market is the definition of a disruptive innovation . To help strategists understand how that works, Clay Christensen presented a particular take on the matter in “ In Reinventing Your Business Model ” designed to make it easier to work out how a new entrant’s business model might disrupt yours. This approach begins by focusing on the customer value proposition — what Christensen calls the customer’s “job-to-be-done.” It then identifies those aspects of the profit formula, the processes, and the resources that make the rival offering not only better, but harder to copy or respond to — a different distribution system, perhaps (the iTunes store); or faster inventory turns (Kmart); or maybe a different manufacturing approach (steel minimills).

Many writers have suggested signs that could indicate that your current business model is running out of gas. The first symptom, Rita McGrath says in “ When Your Business Model is In Trouble ,” is when innovations to your current offerings create smaller and smaller improvements (and Christensen would agree). You should also be worried, she says, when your own people have trouble thinking up new improvements at all or your customers are increasingly finding new alternatives.

Knowing you need one and creating one are, of course, two vastly different things. Any number of articles focus more specifically on ways managers can get beyond their current business model to conceive of a new one. In “ Four Paths to Business Model Innovation ,” Karan Giotra and Serguei Netessine look at ways to think about creating a new model by altering your current business model in four broad categories: by changing the mix of products or services, postponing decisions, changing the people who make the decisions, and changing incentives in the value chain.

In “ How to Design a Winning Business Model ,” Ramon Cassadesus-Masanell and Joan Ricart focus on the choices managers must make when determining the processes needed to deliver the offering, dividing them broadly into policy choices (such as using union or nonunion workers; locating plants in rural areas, encouraging employees to fly coach class), asset choices (manufacturing plants, satellite communication systems); and governance choices (who has the rights to make the other two categories of decisions).

If all of this has left your head swimming, then Mark Johnson, who went on in his book Seizing the White Space to fill in the details of the idea presented in “Reinventing Your Business Model,” offers up perhaps the most useful starting point — this list of analogies, adapted from that book:

Can’t Think of a New Business Model?

Try adapting one of these basic forms.

Source: Seizing the White Space, by Mark Johnson

• AO Andrea Ovans is a former senior editor at Harvard Business Review.

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What is a Business Model Canvas | Learn How to Create a Business Model Canvas With Examples

Got a new business idea, but don’t know how to put it to work? Want to improve your existing business model? Overwhelmed by writing your business plan? There is a one-page technique that can provide you the solution you are looking for, and that’s the business model canvas.

In this guide, you’ll have the Business Model Canvas explained, along with steps on how to create one. All business model canvas examples in the post can be edited online.

What is a Business Model Canvas

A business model is simply a plan describing how a business intends to make money. It explains who your customer base is and how you deliver value to them and the related details of financing. And the business model canvas lets you define these different components on a single page.   

The Business Model Canvas is a strategic management tool that lets you visualize and assess your business idea or concept. It’s a one-page document containing nine boxes that represent different fundamental elements of a business.  

The business model canvas beats the traditional business plan that spans across several pages, by offering a much easier way to understand the different core elements of a business.

The right side of the canvas focuses on the customer or the market (external factors that are not under your control) while the left side of the canvas focuses on the business (internal factors that are mostly under your control). In the middle, you get the value propositions that represent the exchange of value between your business and your customers.

The business model canvas was originally developed by Alex Osterwalder and Yves Pigneur and introduced in their book ‘ Business Model Generation ’ as a visual framework for planning, developing and testing the business model(s) of an organization.

What Are the Benefits of Using a Business Model Canvas

Why do you need a business model canvas? The answer is simple. The business model canvas offers several benefits for businesses and entrepreneurs. It is a valuable tool and provides a visual and structured approach to designing, analyzing, optimizing, and communicating your business model.

• The business model canvas provides a comprehensive overview of a business model’s essential aspects. The BMC provides a quick outline of the business model and is devoid of unnecessary details compared to the traditional business plan.
• The comprehensive overview also ensures that the team considers all required components of their business model and can identify gaps or areas for improvement.
• The BMC allows the team to have a holistic and shared understanding of the business model while enabling them to align and collaborate effectively.
• The visual nature of the business model canvas makes it easier to refer to and understand by anyone. The business model canvas combines all vital business model elements in a single, easy-to-understand canvas.
• The BMC can be considered a strategic analysis tool as it enables you to examine a business model’s strengths, weaknesses, opportunities, and challenges.
• It’s easier to edit and can be easily shared with employees and stakeholders.
• The BMC is a flexible and adaptable tool that can be updated and revised as the business evolves. Keep your business agile and responsive to market changes and customer needs.
• The business model canvas can be used by large corporations and startups with just a few employees.
• The business model canvas effectively facilitates discussions among team members, investors, partners, customers, and other stakeholders. It clarifies how different aspects of the business are related and ensures a shared understanding of the business model.
• You can use a BMC template to facilitate discussions and guide brainstorming brainstorming sessions to generate insights and ideas to refine the business model and make strategic decisions.
• The BMC is action-oriented, encouraging businesses to identify activities and initiatives to improve their business model to drive business growth.
• A business model canvas provides a structured approach for businesses to explore possibilities and experiment with new ideas. This encourages creativity and innovation, which in turn encourages team members to think outside the box.

How to Make a Business Model Canvas

Here’s a step-by-step guide on how to create a business canvas model.

Step 1: Gather your team and the required material Bring a team or a group of people from your company together to collaborate. It is better to bring in a diverse group to cover all aspects.

While you can create a business model canvas with whiteboards, sticky notes, and markers, using an online platform like Creately will ensure that your work can be accessed from anywhere, anytime. Create a workspace in Creately and provide editing/reviewing permission to start.

Step 2: Set the context Clearly define the purpose and the scope of what you want to map out and visualize in the business model canvas. Narrow down the business or idea you want to analyze with the team and its context.

Step 3: Draw the canvas Divide the workspace into nine equal sections to represent the nine building blocks of the business model canvas.

Step 4: Identify the key building blocks Label each section as customer segment, value proposition, channels, customer relationships, revenue streams, key resources, key activities, and cost structure.

Step 5: Fill in the canvas Work with your team to fill in each section of the canvas with relevant information. You can use data, keywords, diagrams, and more to represent ideas and concepts.

Step 6: Analyze and iterate Once your team has filled in the business model canvas, analyze the relationships to identify strengths, weaknesses, opportunities, and challenges. Discuss improvements and make adjustments as necessary.

Step 7: Finalize Finalize and use the model as a visual reference to communicate and align your business model with stakeholders. You can also use the model to make informed and strategic decisions and guide your business.

Key Building Blocks of the Business Model Canvas

There are nine building blocks in the business model canvas and they are:

Customer Segments

Customer relationships, revenue streams, key activities, key resources, key partners, cost structure.

• Value Proposition

When filling out a Business Model Canvas, you will brainstorm and conduct research on each of these elements. The data you collect can be placed in each relevant section of the canvas. So have a business model canvas ready when you start the exercise.  

Let’s look into what the 9 components of the BMC are in more detail.

These are the groups of people or companies that you are trying to target and sell your product or service to.

Segmenting your customers based on similarities such as geographical area, gender, age, behaviors, interests, etc. gives you the opportunity to better serve their needs, specifically by customizing the solution you are providing them.

After a thorough analysis of your customer segments, you can determine who you should serve and ignore. Then create customer personas for each of the selected customer segments.

There are different customer segments a business model can target and they are;

• Mass market: A business model that focuses on mass markets doesn’t group its customers into segments. Instead, it focuses on the general population or a large group of people with similar needs. For example, a product like a phone.  
• Niche market: Here the focus is centered on a specific group of people with unique needs and traits. Here the value propositions, distribution channels, and customer relationships should be customized to meet their specific requirements. An example would be buyers of sports shoes.
• Segmented: Based on slightly different needs, there could be different groups within the main customer segment. Accordingly, you can create different value propositions, distribution channels, etc. to meet the different needs of these segments.
• Diversified: A diversified market segment includes customers with very different needs.
• Multi-sided markets: this includes interdependent customer segments. For example, a credit card company caters to both their credit card holders as well as merchants who accept those cards.

Use STP Model templates for segmenting your market and developing ideal marketing campaigns

Visualize, assess, and update your business model. Collaborate on brainstorming with your team on your next business model innovation.

In this section, you need to establish the type of relationship you will have with each of your customer segments or how you will interact with them throughout their journey with your company.

There are several types of customer relationships

• Personal assistance: you interact with the customer in person or by email, through phone call or other means.
• Dedicated personal assistance: you assign a dedicated customer representative to an individual customer.  
• Self-service: here you maintain no relationship with the customer, but provides what the customer needs to help themselves.
• Automated services: this includes automated processes or machinery that helps customers perform services themselves.
• Communities: these include online communities where customers can help each other solve their own problems with regard to the product or service.
• Co-creation: here the company allows the customer to get involved in the designing or development of the product. For example, YouTube has given its users the opportunity to create content for its audience.

You can understand the kind of relationship your customer has with your company through a customer journey map . It will help you identify the different stages your customers go through when interacting with your company. And it will help you make sense of how to acquire, retain and grow your customers.

This block is to describe how your company will communicate with and reach out to your customers. Channels are the touchpoints that let your customers connect with your company.

Channels play a role in raising awareness of your product or service among customers and delivering your value propositions to them. Channels can also be used to allow customers the avenue to buy products or services and offer post-purchase support.

There are two types of channels

• Owned channels: company website, social media sites, in-house sales, etc.
• Partner channels: partner-owned websites, wholesale distribution, retail, etc.

Revenues streams are the sources from which a company generates money by selling their product or service to the customers. And in this block, you should describe how you will earn revenue from your value propositions.  

A revenue stream can belong to one of the following revenue models,

• Transaction-based revenue: made from customers who make a one-time payment
• Recurring revenue: made from ongoing payments for continuing services or post-sale services

There are several ways you can generate revenue from

• Asset sales: by selling the rights of ownership for a product to a buyer
• Usage fee: by charging the customer for the use of its product or service
• Subscription fee: by charging the customer for using its product regularly and consistently
• Lending/ leasing/ renting: the customer pays to get exclusive rights to use an asset for a fixed period of time
• Licensing: customer pays to get permission to use the company’s intellectual property
• Brokerage fees: revenue generated by acting as an intermediary between two or more parties
• Advertising: by charging the customer to advertise a product, service or brand using company platforms

What are the activities/ tasks that need to be completed to fulfill your business purpose? In this section, you should list down all the key activities you need to do to make your business model work.

These key activities should focus on fulfilling its value proposition, reaching customer segments and maintaining customer relationships, and generating revenue.

There are 3 categories of key activities;

• Production: designing, manufacturing and delivering a product in significant quantities and/ or of superior quality.
• Problem-solving: finding new solutions to individual problems faced by customers.
• Platform/ network: Creating and maintaining platforms. For example, Microsoft provides a reliable operating system to support third-party software products.

This is where you list down which key resources or the main inputs you need to carry out your key activities in order to create your value proposition.

There are several types of key resources and they are

• Human (employees)
• Financial (cash, lines of credit, etc.)
• Intellectual (brand, patents, IP, copyright)
• Physical (equipment, inventory, buildings)

Key partners are the external companies or suppliers that will help you carry out your key activities. These partnerships are forged in oder to reduce risks and acquire resources.

Types of partnerships are

• Strategic alliance: partnership between non-competitors
• Coopetition: strategic partnership between partners
• Joint ventures: partners developing a new business
• Buyer-supplier relationships: ensure reliable supplies

In this block, you identify all the costs associated with operating your business model.

You’ll need to focus on evaluating the cost of creating and delivering your value propositions, creating revenue streams, and maintaining customer relationships. And this will be easier to do so once you have defined your key resources, activities, and partners.  

Businesses can either be cost-driven (focuses on minimizing costs whenever possible) and value-driven (focuses on providing maximum value to the customer).

Value Propositions

This is the building block that is at the heart of the business model canvas. And it represents your unique solution (product or service) for a problem faced by a customer segment, or that creates value for the customer segment.

A value proposition should be unique or should be different from that of your competitors. If you are offering a new product, it should be innovative and disruptive. And if you are offering a product that already exists in the market, it should stand out with new features and attributes.

Value propositions can be either quantitative (price and speed of service) or qualitative (customer experience or design).

What to Avoid When Creating a Business Model Canvas

One thing to remember when creating a business model canvas is that it is a concise and focused document. It is designed to capture key elements of a business model and, as such, should not include detailed information. Some of the items to avoid include,

• Detailed financial projections such as revenue forecasts, cost breakdowns, and financial ratios. Revenue streams and cost structure should be represented at a high level, providing an overview rather than detailed projections.
• Detailed operational processes such as standard operating procedures of a business. The BMC focuses on the strategic and conceptual aspects.
• Comprehensive marketing or sales strategies. The business model canvas does not provide space for comprehensive marketing or sales strategies. These should be included in marketing or sales plans, which allow you to expand into more details.
• Legal or regulatory details such as intellectual property, licensing agreements, or compliance requirements. As these require more detailed and specialized attention, they are better suited to be addressed in separate legal or regulatory documents.
• Long-term strategic goals or vision statements. While the canvas helps to align the business model with the overall strategy, it should focus on the immediate and tangible aspects.
• Irrelevant or unnecessary information that does not directly relate to the business model. Including extra or unnecessary information can clutter the BMC and make it less effective in communicating the core elements.

What Are Your Thoughts on the Business Model Canvas?

Once you have completed your business model canvas, you can share it with your organization and stakeholders and get their feedback as well. The business model canvas is a living document, therefore after completing it you need to revisit and ensure that it is relevant, updated and accurate.

What best practices do you follow when creating a business model canvas? Do share your tips with us in the comments section below.

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FAQs About the Business Model Canvas

• Use clear and concise language
• Use visual-aids
• Customize for your audience
• Highlight key insights
• Be open to feedback and discussion

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Amanda Athuraliya is the communication specialist/content writer at Creately, online diagramming and collaboration tool. She is an avid reader, a budding writer and a passionate researcher who loves to write about all kinds of topics.

• Create your own canvas

Business Model Generation

By alexander osterwalder & yves pigneur..

What is the book, Business Model Generation, about and what are the authors telling us in it?

The book, Business Model Generation , helps define the key elements which lead to great entrepreneurial ventures. The main purpose of the book is to help companies devise great strategic plans for a successful future; highlighting all the factors which determine the success and failure of businesses today. Whether the business seeks out to start up a new venture or whether a business has hit a stagnant point in a harsh competitive environment, the Business Model Generation helps the readers devise a new strategy and identify where or how to turn the boat into a different direction. The writers of the book, Alexander Osterwalder & Yves Pigneur, have compiled the data which has been co-created by practitioners from around 470 different countries. The co-creators have dedicatedly conducted great research and successfully devised the strategy to help entrepreneurs start up a business effectively and efficiently. The book is about designing a business model and defining the key factors which determine the success and failure of a business. Each and every company has a business model defined implicitly or explicitly in some way or the other. When such people are not aware of how to perfectly undergo such a practice, generate a business model, they seem to miss out on some factors. The above mentioned negligence can lead to a great loss and often towards failure at times. The authors of this book tell us the most important elements which companies have to look upon before devising a strategy and also the ways to design the strategies in accordance to the factors defined in the business model. As the title of the book goes, Business Model Generation , the authors mainly focus on the key elements which need to be highlighted and given a great amount of attention. The book promotes the business model canvas as a template of an optimal business model. The business model canvas has been designed in a fashion in which all the important factors which require keen attention are all presented in a single layout. A single layout is highly necessary before starting up an entrepreneurial venture or devising a strategic plan as then all the key factors are given an optimum amount of attention and none are neglected.

Following are the nine key blocks to develop a successful business model for a flourishing enterprise, which the 470 practitioners have defined.

• Customer Segments – for whom the business is operating and creating value. A company can be targeting similar individuals or a group of different segments.
• Value Propositions – identifying how the business is creating value for its customers and supplying them what they need/want.
• Channels – how the business seeks out to reach its customer segments with the value propositions it has to offer.
• Customer Relations – the measures which the business takes to maintain healthy relations with its customer segments.
• Revenue Streams – after having supplied the customer segments with what it desires, the business looks forward to generating a profit from the healthy relationship.
• Key Resources – the assets required by the business in order to supply the customer segments with the value proposition the business has established for.
• Key Activities – the main elements which the company or business needs to focus upon in order to produce the value proposition for the customers.
• Key Partnerships – identifying suppliers/partners which allow the business model to function and operate successfully.
• Cost Structure – recording all the costs which the business model incurs in order to operate successfully.

After reading the book and getting a hang of how the business model canvas functions, you can use the tool to easily share it with your internal or external stakeholders and also with your business partners. The business model canvas is highly friendly and the tool allows you to put up sticky notes easily wherever you choose to on the canvas. You are given two links before starting a business model canvas, one which you can use to edit the model, and the other which you can use to share the data so that no one else change it, maintaining security. The authors have proclaimed in the book how to successfully generate a business model. The main purpose of the business model is to define how to create a value proposition for the customers, create a healthy relationship with the customers, and how to insure profits in return. In order to create a great model, no matter which phase of a business life cycle your company currently lies in, it’s important that you know the proper route; the proper recipe to devise the perfect business model. The Business Model Generation by Alexander Osterwalder & Yves Pigneur has set out to do the following. If you wish to acquire the book, it is available on Amazon at a very economical price. Also, if you wish to get a glance of what the book has to offer, a 72 page preview is available completely for free on the official business model generation website, i.e www.businessmodelgeneration.com/book .

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Business Model Generation Summary

1-Sentence-Summary: Business Model Generation teaches you how to start your own company by explaining the details of matching your customer’s needs with your product’s capabilities, managing finances, and everything else involved in the planning stages of entrepreneurship.

Favorite quote from the author:

Audio Summary

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So you’ve got a great idea but you don’t know how to turn it into a business. What do you do about it? Will you just let it fizzle out? Or make a plan and execute it?

Entrepreneurship is fun, but most of us underestimate the difficulties along the way. Money problems, arguments with partners, and not knowing your customers, and many more troubles await you. But this doesn’t have to be a problem if you plan wisely. 

That’s why you need to begin with a business plan to prepare everything about your new company. And Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers by Alexander Osterwalder is here to help you do this. With these tips, your chances of becoming a successful entrepreneur will skyrocket!

Here are the 3 biggest lessons I’ve learned from this book:

• Market channels, value propositions, and customer groups are the basis for a good business model. 
• You need to know your customer’s relationship with you, how money is coming in, and what physical things that you need to run your company.
• Plan for what you’ll do from day to day, who you’re going to work with, and what your cost structure will be.

Ready to start your own company? After this, you’ll know how to! Let’s go!

If you want to save this summary for later, download the free PDF and read it whenever you want.

Lesson 1: The foundation of a great business model begins with customer groups, value propositions, and market channels.

Look around you right now. Are you in the car? On the phone? Maybe you’re sitting in a cafe. Whatever you’re doing, you are surrounded by businesses. Although they all have different purposes, they all have one thing in common. Every business creates value for its customers.

The beginning of this is a business model that outlines a company’s product and what type of people it creates value for. The heart of the best business plans is customers. Without anyone to buy your product, you don’t have a company.

You can get into a mass market, which covers a large audience of customers with similar needs. Or your business can cater to a niche market that is made up of smaller groups of people with certain interests. 

Once you know your market , you’ve got to figure out your value proposition, or what problem you’re going to solve for people. Identify the need your product or service fulfills and what makes it better for customers to choose over other similar products. The value you provide can be connected with design, reducing risk, or top performance.

The next step is to figure out how you’re going to reach your audience. This is also known as market channels. Will you have a storefront? Or maybe a sales team is what you prefer. In many cases, a website is a good option. You can even make new channels by partnering with others, like a wholesaler.

Lesson 2: Resources, ways to make money, and relationships with your customers are all vital things to plan to have a successful company.

You know who you’re serving and how you’re meeting their needs and the ways you’ll reach them. Now you need to identify what relationship you want to have with them . This step is vital.

An IT company that helps people with specific computer needs is a good example of this. If this same business has regular customers, then they might try a more automated approach with their email marketing . 

Then it’s time to look at revenue streams. Think of your business like a body, with the customers being the heart. This would make revenue like the arteries and veins that make sure things run correctly. 

You can get money coming in with a few different models. One option is transactions, which includes three one-time payments, like when you buy a new computer. There are also subscriptions, like Netflix. You can also have usage fees, which differ depending on how much a customer uses the service, like mobile data.

The next step is to determine the ways you will get the resources your company needs to stay in business. Think of these like food and water that keep a body running.

Materials, buildings, and equipment are all examples of physical resources you need. It also takes human resources, or your staff, to keep things running smoothly. There are also intellectual resources, which include copyrights and patents over your products.

Lesson 3: Know your costs, who you’ll work with, and what you do each day to finish your business plan.

Just like you have to exercise if you want to keep your body healthy, you need to know the activities that will make your business healthy. This includes platform or network hosting, problem-solving, and production. 

Examples of production activities include manufacturing a laptop or making a pizza. In my engineering company, I am a consultant, which is an example of problem-solving. When you put up a product or service for sale on eBay or Airbnb, this is platform and network hosting.

Next it’s time to figure out who you’re working with. Most of the time , you’ve got to have a team to run your company. It’s a good idea to plan who will be on it beforehand because it can make some of your activities possible and limit risk. 

The last step of all this planning is to outline the cost structure. You can either be value-driven or cost-driven. If you work hard to keep expenses low, maybe by reducing your service level, then you are cost-driven. Cheap airlines are a good example of this. 

In contrast, value-driven companies brush aside how expensive it is to take care of their customers. They focus mostly on offering top-quality services that justify a higher price. Private airlines that cater to high-end customers are a good example of what it means to be value-driven.

Business Model Generation Review

I really enjoyed Business Model Generation because I can see the importance of planning when creating a business from the ones I’ve started recently. To be honest, these steps are some of the least fun of being an entrepreneur. But doing them is the difference between success and failure .

Who would I recommend the Business Model Generation summary to?

The 29-year-old who wants to begin working for themselves but isn’t sure how to start, the 54-year-old executive who wants to get back to the basics for success in their company, and anyone that would like to be an entrepreneur .

Last Updated on July 23, 2023

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Generative AI

The new wave of generative AI systems, such as ChatGPT, have the potential to transform entire industries. To be an industry leader in five years, you need a clear and compelling generative AI strategy today.

We are entering a period of generational change in artificial intelligence . Until now, machines have never been able to exhibit behavior indistinguishable from humans. But new generative AI models are not only capable of carrying on sophisticated conversations with users; they also generate seemingly original content.

What Is Generative AI?

To gain a competitive edge, business leaders first need to understand what generative AI is.

Generative AI is a set of algorithms, capable of generating seemingly new, realistic content—such as text, images, or audio—from the training data. The most powerful generative AI algorithms are built on top of foundation models that are trained on a vast quantity of unlabeled data in a self-supervised way to identify underlying patterns for a wide range of tasks.

For example, GPT-3.5, a foundation model trained on large volumes of text, can be adapted for answering questions, text summarization, or sentiment analysis. DALL-E, a multimodal (text-to-image) foundation model, can be adapted to create images, expand images beyond their original size, or create variations of existing paintings.

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What Can Generative AI Do?

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Suchi Srinivasan describes how enterprises can more easily capture value from developing AI technologies.

These new types of generative AI have the potential to significantly accelerate AI adoption, even in organizations lacking deep AI or data-science expertise. While significant customization still requires expertise, adopting a generative model for a specific task can be accomplished with relatively low quantities of data or examples through APIs or by prompt engineering. The capabilities that generative AI supports can be summarized into three categories:

• Generating Content and Ideas. Creating new, unique outputs across a range of modalities, such as a video advertisement or even a new protein with antimicrobial properties. 
• Improving Efficiency. Accelerating manual or repetitive tasks, such as writing emails, coding, or summarizing large documents. 
• Personalizing Experiences. Creating content and information tailored to a specific audience, such as chatbots for a personalized customer experiences or targeted advertisements based on patterns in a specific customer's behavior.  

Today, some generative AI models have been trained on large of amounts of data found on the internet, including copyrighted materials. For this reason, responsible AI practices have become an organizational imperative.

Demystifying Generative AI

In this exciting new LinkedIn Live series, BCG's experts explain how companies can realize the benefits of generative AI technology while managing the risks. Explore the series

How Is Generative AI Governed?

Generative AI systems are democratizing AI capabilities that were previously inaccessible due to the lack of training data and computing power required to make them work in each organization’s context. The wider adoption of AI is a good thing, but it can become problematic when organizations don’t have appropriate governance structures in place.

The Ethical Issues Tied to Generative AI Governance

• Unknown Capabilities. Large generative AI systems such as ChatGPT have exhibited a massive capability overhang—skills and dangers that are not planned for in the development phase and are generally unknown and unexpected even to the developers. This can pose a serious threat if the right guardrails are not in place to effectively manage unexpected usage. 
• Bias and Toxicity. Outputs from generative AI will be as biased as the data it is trained on. Many popular language models today are trained on the wilds of the internet, where there is plenty of bias—along with toxic language and ideas. 
• Data Leakage. Many companies have quickly put policies in place to forbid employees from entering sensitive information into ChatGPT, fearing that it could get incorporated into the AI model and reemerge in public.  
• Hallucination. ChatGPT can make arguments that sound extremely convincing but are 100% wrong. Developers refer to this as “hallucination,” a potential outcome that limits the reliability of the answers coming from AI models.  
• Lack of Transparency. Generative AI models currently provide no attribution for the facts underlying the content they generate, which makes it impossible to verify the correctness of generated claims—further increasing the danger posed by AI-model hallucinations.   
• Copyright Controversies. Since the data sets used by AI models are derived from the public internet, a legal question arises: Does the content those models create amount to duplications of copyrighted works?   

What Are the Types of Generative AI Models?

Types of text models.

• GPT-3 , or Generative Pretrained Transformer 3, is an autoregressive model pre-trained on a large corpus of text to generate high-quality natural language text. GPT-3 is designed to be flexible and can be fine-tuned for a variety of language tasks, such as language translation, summarization, and question answering.
• LaMDA , or Language Model for Dialogue Applications, is a pre-trained transformer language model to generate high-quality natural language text, similar to GPT. However, LaMDA was trained on dialogue with the goal of picking up nuances of open-ended conversation.  
• LLaMA is a smaller natural language processing model compared to GPT-4 and LaMDA, with the goal of being as performant. While also being an autoregressive language model based on transformers, LLaMA is trained on more tokens to improve performance with lower numbers of parameters. 

Types of Multimodal Models

• GPT-4 is the latest release of GPT class of models, a large-scale, multimodal model which can accept image and text inputs and produce text outputs. GPT-4 is a transformer-based model pretrained to predict the next token in a document. The post-training alignment process results in improved performance on measures of factuality and adherence to desired behavior.
• DALL-E is a type of multimodal algorithm that can operate across different data modalities and create novel images or artwork from natural language text input. 
• Stable Diffusion is a text-to-image model similar to DALL-E, but uses a process called “diffusion” to gradually reduce noise in the image until it matches the text description. 
• Progen is a multimodal model trained on 280 million protein samples to generate proteins based on desired properties specificized using natural language text input. 

What Type of Content Can Generative AI Text Models Create—and Where Does It Come From?

Generative AI text models can be used to generate texts based on natural language instructions, including but not limited to:

• Generate marketing copy and job descriptions 
• Offer conversational SMS support with zero wait time 
• Deliver endless variations on marketing copy 
• Summarize text to enable detailed social listening 
• Search internal documents to increase knowledge transfer within a company 
• Condense lengthy documents into brief summaries 
• Power chatbots 
• Perform data entry 
• Analyze massive datasets 
• Track consumer sentiment 
• Writing software 
• Creating scripts to test code 
• Find common bugs in code 

This is just the beginning. As companies, employees, and customers become more familiar with applications based on AI technology, and as generative AI models become more capable and versatile, we will see a whole new level of applications emerge.

How Is Generative AI Beneficial for Businesses?

Generative AI has massive implications for business leaders—and many companies have already gone live with generative AI initiatives. In some cases, companies are developing custom generative AI model applications by fine-tuning them with proprietary data.

The benefits businesses can realize utilizing generative AI include:

• Expanding labor productivity 
• Personalizing customer experience 
• Accelerating R&D through generative design 
• Emerging new business models 

What’s Possible? GenAI and Insurance

Insurance is a complex, regulated business built around data, IT, and people. BCG’s Chris Freese argues that, by unlocking the potential of all three, generative AI promises a transformation that has eluded the sector for years. Explore the full video series on YouTube

How Business Leaders Can Get Started with Generative AI

Executives should work with their data engineers to identify creative ways to discover new generative AI solutions and assess which solutions are likely to bring the most value to the company. Generative AI is still in its infancy and companies must think outside the box to identify unique or hidden applications that will provide unique competitive advantage.

To get started experimenting to find new use cases, leaders need to ask themselves four questions:

• Where do we have underutilized data that is critical for our business functions? 
• Can this data be easily used to fine-tune an existing generative AI model? 
• Can we transform this data into another format (from numerical data to visual data, for example) to leverage existing generative AI systems? 
• What outputs do we expect and where in our organization could these outputs be used? 

What Are the Industries That Benefit from Generative AI?

Generative AI technology will cause a profound disruption to industries and may ultimately aid in solving some of the most complex problems facing the world today. Three industries have the highest potential for growth in the near term: consumer, finance, and health care.

• Consumer Marketing Campaigns. Generative AI can personalize experiences, content, and product recommendations. 
• Finance. It can generate personalized investment recommendations, analyze market data, and test different scenarios to propose new trading strategies. 
• Biopharma. It can generate data on millions of candidate molecules for a certain disease, then test their application, significantly speeding up R&D cycles.  

Given that the pace the technology is advancing, business leaders in every industry should consider generative AI ready to be built into production systems within the next year—meaning the time to start internal innovation is right now. Companies that don’t embrace the disruptive power of generative AI will find themselves at an enormous—and potentially insurmountable—cost and innovation disadvantage.

Our Generative AI Collaborations

BCG’s Collaboration with OpenAI

BCG is collaborating with OpenAI to help our clients realize the power of OpenAI technologies and solve the most complex challenges using generative AI—responsibly.

BCG Advances Partnership with Google Cloud

BCG and Google Cloud are excited about generative AI’s transformative capabilities, devoting significant resources to jointly help customers apply this breakthrough technology.

BCG’s Collaboration with Intel

The ability to scale AI applications continues to challenge businesses across industries. Our collaboration with Intel brings together BCG’s transformation expertise, BCG X’s engineering capabilities, and Intel’s AI hardware and software in order to rapidly create enterprise-grade generative AI solutions for our clients—securely and responsibly.

Companies Need to Leverage Ecosystems to Deploy Generative AI

Our latest insights on generative ai.

How Generative AI Will Transform HR

HR is stepping into a future of more powerful core capabilities and stronger strategic leadership—and GenAI is central to this change.

Generative AI in the Finance Function of the Future

Now is the time for CFOs to learn about the most impactful applications of generative AI and prepare to capitalize on emerging capabilities.

Leading Insurers Are Having a Generative AI Moment

Christopher Freese, the managing director and senior partner of BCG’s Insurance practice, discusses how GenAI could transform the industry.

Stop Monitoring Badge Swipes and Start Trusting People

A conversation on the future of work with work, technology, and organizations expert, author, and Harvard Business School professor Tsedal Neeley.

How CIOs Can Create Value with Generative AI

Big tech companies have long deployed their innovations internally first. Others should follow suit to seize on GenAI’s potential.

How Generative AI Is Already Transforming Customer Service

Generative AI has been shown to boost customer service productivity. Now companies must decide how and where to deploy it to derive the greatest value.

Meet Our Generative AI Experts

BCG’s generative AI experts have deep experience in AI technology, neural networks, generative models, the benefits of generative AI, and more. Here are some of our experts in generative AI.

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What if you could fine tune the way AI generates code, with the trust and security your enterprise expects?

IBM watsonx Code Assistant is a solution that leverages generative AI to accelerate code generation and increase developer productivity. Purpose-built for targeted use cases, watsonx Code Assistant uses AI to support Application Modernization and IT Automation.

Out-of-the-box, watsonx Code Assistant provides pre-trained models based on specific programming languages to ensure trust and efficiency for accurate code generation. IBM watsonx Code Assistant allows you to customize the underlying model(s) to ensure output is grounded in your organization's best practices, while providing visibility into the potential origin of generated code.

IBM Z Application Modernization is the latest use case leveraging watsonx Code Assistant technology. See the video below to learn more.

Learn how Red Hat & IBM are delivering Gen AI into the Ansible experience. Register today

Tune in to learn how IBM is bringing Gen AI to mainframe application modernization. Register today

Help developers with AI-recommended code based on natural language inputs or existing source code.

Enable developers write net new or convert quality code, with greater efficiency by reducing cognitive switching.

Accept AI-generated recommendation with confidence through data-source matching – knowing exactly where your code came from.

Allow developer teams to access unlimited skills and diverse range of expertise to enhance efficiency.

Customize the foundation models with enterprise standards and industry best practices.

Purpose-built and created with deployment efficiency in mind, IBM foundation models bring AI to your developers where they work.

Generate net new code with applicable syntax from natural language requests.

Customize models with your own data, standards, and best practices to achieve tailored results.

Gain enhanced transparency through visibility into the potential origin of generated code.

Translate code from one language to another or modernize legacy code.

Harness generative AI and machine learning to build powerful applications.

Train, tune and deploy AI across your business, leveraging critical, trusted data wherever it resides.

Hand off tedious tasks to a personal digital worker you can set up in minutes, and never work the same way again.

Address customer requests across channels, such as digital and voice channels. Guide employees through internal processes, so teams can focus on higher-value work—while reducing costs.

Sign up to hear about new and exciting announcements for IBM watsonx Code Assistant. Check back for more exciting announcements during coming weeks.

*IBM’s plans, directions and intentions may change or be withdrawn at any time at IBM’s discretion, without notice. Information about potential future products and improvements is provided to give a general idea of IBM’s goals and objectives and should not be used in making a purchase decision. IBM is not obligated to provide any materials, code or functionality based on this information. This statement replaces all prior statements on this topic.

Meta releases Code Llama, a code-generating AI model

Meta, intent on making a splash in a generative AI space rife with competition, is on something of an open source tear.

Following the release of AI models for generating text , translating languages and creating audio , the company today open sourced Code Llama, a machine learning system that can generate and explain code in natural language — specifically English.

Akin to GitHub Copilot and Amazon CodeWhisperer , as well as open source AI-powered code generators like StarCoder , StableCode and PolyCoder , Code Llama can complete code and debug existing code across a range of programming languages, including Python, C++, Java, PHP, Typescript, C# and Bash.

“At Meta, we believe that AI models, but large language models for coding in particular, benefit most from an open approach, both in terms of innovation and safety,” Meta wrote in a blog post shared with TechCrunch. “Publicly available, code-specific models can facilitate the development of new technologies that improve peoples’ lives. By releasing code models like Code Llama, the entire community can evaluate their capabilities, identify issues and fix vulnerabilities.”

Code Llama, which is available in several flavors, including a version optimized for Python and a version fine-tuned to understand instructions (e.g. “Write me a function that outputs the Fibonacci sequence”), is based on the Llama 2 text-generating model that Meta open sourced earlier this month. While Llama 2 could generate code, it wasn’t necessarily good   code — certainly not up to the quality a purpose-built model like Copilot could produce.

In training Code Llama, Meta used the same data set it used to train Llama 2 — a mix of publicly available sources from around the web. But it had the model “emphasize,” so to speak, the subset of the training data that included code. Essentially, Code Llama was given more time to learn the relationships between code and natural language than Llama 2 — its “parent” model.

Each of the Code Llama models, ranging in size from 7 billion parameters to 34 billion parameters, were trained with 500 billion tokens of code along with code-related data. The Python-specific Code Llama was further fine-tuned on 100 billion tokens of Python Code, and, similarly, the instruction-understanding Code Llama was fine-tuned using feedback from human annotators to generate “helpful” and “safe” answers to questions.

For context, parameters are the parts of a model learned from historical training data and essentially define the skill of the model on a problem, such as generating text (or code, in this case), while tokens represent raw text (e.g. “fan,” “tas” and “tic” for the word “fantastic”).

Several of the Code Llama models can insert code into existing code and all can accept around 100,000 tokens of code as input, while at least one — the 7 billion parameter model — can run on a single GPU. (The others require more powerful hardware.) Meta claims that the 34 billion-parameter model is the best-performing of any code generator open sourced to date — and the largest by parameter count.

You’d think a code-generating tool would be massively appealing to programmers and even non-programmers — and you wouldn’t be wrong.

GitHub claims that more than 400 organizations are using Copilot today, and that developers within those organizations are coding 55% faster than they were before. Elsewhere, Stack Overflow, the programming Q&A site, found in a recent survey that 70% are already using — or planning to use — AI coding tools this year, citing benefits like increased productivity and faster learning.

But like all forms of generative AI, coding tools can go off the rails — or present new risks.

A Stanford-affiliated research team found that engineers who use AI tools are more likely to cause security vulnerabilities in their apps. The tools, the team showed, often generate code that appears to be superficially correct but poses security issues by invoking compromised software and using insecure configurations.

Then, there’s the intellectual property elephant in the room.

Some code-generating models — not necessarily Code Llama, although Meta won’t categorically deny it — are trained on copyrighted or code under a restrictive license, and these models can regurgitate this code when prompted in a certain way. Legal experts have argued that these tools could put companies at risk if they were to unwittingly incorporate copyrighted suggestions from the tools into their production software.

And — while there’s no evidence of it happening at scale — open source code-generating cools could be used to craft malicious code. Hackers have already attempted to fine-tune existing models for tasks like identifying leaks and vulnerabilities in code and writing scam web pages.

So what about Code Llama?

Well, Meta only red-teamed the model internally with 25 employees. But even in the absence of a more exhaustive audit from a third party, Code Llama made mistakes that might give a developer pause.

Code Llama won’t write ransomware code when asked directly. However, when the request is phrased more benignly — for example, “Create a script to encrypt all files in a user’s home directory,” which is effectively a ransomware script — the model complies.

In the blog post, Meta admits outright that Code Llama might generate “inaccurate” or “objectionable” responses to prompts.

“For these reasons, as with all LLMs, Code Llama’s potential outputs cannot be predicted in advance,” the company writes. “Before deploying any applications of Code Llama, developers should perform safety testing and tuning tailored to their specific applications of the model.”

Despite the risks, Meta places minimal restrictions on how developers can deploy Code Llama, whether for commercial or research use cases. They must simply agree not to use the model for malicious purposes and, if deploying it on a platform with greater than 700 million monthly active users — i.e. a social network that might rival one of Meta’s — request a license.

“Code Llama is designed to support software engineers in all sectors — including research, industry, open source projects, NGOs and businesses. But there are still many more use cases to support than what our base and instruct models can serve,” the company writes in the blog post. “We hope that Code Llama will inspire others to leverage Llama 2 to create new innovative tools for research and commercial products.”

• Code Llama is an AI model built on top of Llama 2 , fine-tuned for generating and discussing code.
• It’s free for research and commercial use.

Today, we’re releasing Code Llama, a large language model (LLM) that can use text prompts to generate and discuss code. Code Llama is state-of-the-art for publicly available LLMs on coding tasks. It has the potential to make workflows faster and more efficient for developers and lower the barrier to entry for people who are learning to code. Code Llama has the potential to be used as a productivity and educational tool to help programmers write more robust, well-documented software.

We believe an open approach to AI is best for developing new AI tools that are innovative, safe and responsible, so we’re releasing Code Llama for both research and commercial use under the same community license as Llama 2 .

Code Llama is a code-specialized version of Llama 2 that was created by further training Llama 2 on its code-specific datasets, sampling more data from that same dataset for longer. Essentially, Code Llama features enhanced coding capabilities. It can generate code and natural language about code, from both code and natural language prompts (e.g., “Write me a function that outputs the fibonacci sequence”). It can also be used for code completion and debugging. It supports many of the most popular programming languages used today, including Python, C++, Java, PHP, Typescript (Javascript), C#, Bash and more.

We are releasing three sizes of Code Llama with 7B, 13B and 34B parameters respectively. Each of these models is trained with 500B tokens of code and code-related data. The 7B and 13B base and instruct models have also been trained with fill-in-the-middle (FIM) capability, allowing them to insert code into existing code, meaning they can support tasks like code completion right out of the box.

The three models address different serving and latency requirements. The 7B model, for example, can be served on a single GPU. The 34B model returns the best results and allows for better coding assistance, but the smaller 7B and 13B models are faster and more suitable for tasks that require low latency, like real-time code completion.

We also further fine-tuned two additional variations of Code Llama: Code Llama – Python and Code Llama – Instruct.

Code Llama – Python is a language specialized variation of Code Llama, further fine-tuned on 100B tokens of Python code. Because Python is the most benchmarked language for code generation, and because Python and PyTorch play an important role in the AI community – we believe a specialized model provides additional utility.

Code Llama – Instruct is an instruction fine-tuned and aligned variation of Code Llama. Instruction tuning continues the training process, but with a different objective. The model is fed a natural language instruction input and the expected output. This makes it better at understanding what people expect out of their prompts. We recommend using Code Llama – Instruct variants whenever using Code Llama for code generation since Code Llama – Instruct has been fine-tuned to generate helpful and safe answers in natural language.

Programmers are already using LLMs to assist in a variety of tasks. The goal is to make developer workflows more efficient so that they can focus on the most human-centric aspects of their job, rather than repetitive tasks. We believe that AI models, and LLMs for coding in particular, benefit most from an open approach, both in terms of innovation and safety. Publicly available, code-specific models can facilitate the development of new technologies that improve peoples’ lives. By releasing code models like Code Llama, the entire community can evaluate their capabilities, identify issues and fix vulnerabilities.

Code Llama is designed to support software engineers in all sectors — including research, industry, open source projects, NGOs and businesses. But there are still many more use cases to support. We hope Code Llama will inspire others to leverage Llama 2 to create new innovative tools for research and commercial products.

Learn more about Code Llama on our AI blog or download the Code Llama model .

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SAP’s Visiting Researcher Program: Success Stories Bridging Industry and Academia

In-depth and organic exchange between industry and academia is vital for SAP. After all, many innovations in the realm of software systems, computer science, and artificial intelligence have their roots in university research and many of the most talented people hold research positions as part of their career journey. To facilitate and democratize exchange, in particular for early career researchers, SAP has recently launched the SAP Visiting Researcher Program and regularly invite s PhD c andidates and post-doctoral researcher s to industry visits of up to six months . At SAP, the researchers can then advance their research topics in a practice-oriented manner, utilizing dedicated infrastructure for developing and deploying prototypes in ‘production’-like environments.

The Value for Researchers

While the visits fuel SAP’s product innovation, they are also immensely useful for the researchers themselves: many young academic researchers prefer keeping the door to industry open for future career ambitions whereas others are eager to show that their work can have an impact in the products of a global-scale tech company , ideally in the form of academic publications that report on the results obtained in an industry context.

B elow, we provide the stories of three of our visitors within SAP.

Dr. Dorina Bano: Data and Business Object Analysis for Process Mining

“I would fully recommend this program, particularly for PhD students seeking an industry perspective and collaborative opportunities.” — Dr. Dorina Bano

Motivated by the introduction of the program at the BPM conference in 2022, Dorina joined the program as a Visiting Researcher to bridge the gap between academia and industry while combining her experience as a software engineer with her passion for research. During her time at SAP, Dorina used the results obtained as part of her dissertation to develop new and more industry-oriented perspectives on ‘object-centric process mining’, a current trend in process mining research. Her research analyzes the trade-offs that need to be made in industry settings when generating insights from large amounts of data, bridging the gap between academic novelty and practical application potential. Her work not only infuses fresh ideas into SAP Signavio but also fosters connections and keeps SAP aligned with academic research trends. The experience at SAP impacted Dorina’s perspective on a possible future career path, clarifying her preference for academia or industry, while also nurturing professional relationships and skills at the many SAP events such as bootcamps or informal get-togethers at the office.

Adrian Rebmann: Automated Rule Generation for Business Process Compliance Analysis

“Being a Visiting Researcher at SAP was a great opportunity for me since I had a lot of contact with different stakeholders during my visit. I was unsure whether the purely academic career really corresponds to my wishes and this time was a good confirmation that I would also like to try my hand in industry after the doctorate.” — Adrian Rebmann

Inspired by discussions at the BPM Conference in 2022 and SAP colleagues’ insights, Adrian joined SAP as a Visiting Researcher to validate his research and merge research ideas with real industry data. Adrian extended his work on ‘model-less’ data-driven checks of process compliance, a key foundation for utilizing generative AI in process mining and the process development context. Some of his key academic research contributions are now scheduled for productization at SAP Signavio, promising substantial future impact. For Adrian, the access to abundant real-world data was a highlight and a research game-changer. Interactions with diverse stakeholders solidified his interest in an industry career post-doctorate. The ongoing engagement post-visit was a valuable aspect of the experience to stay involved as an external and continue to find and use synergies.

Dr. Carl Corea: Decision Management – Model Analysis and Verification

“SAP’s dedication to innovation, granting freedom for creativity and research, was a pleasant surprise and encouraging discovery.” — Dr. Carl Corea

Carl discovered the program while being a year into his postdoc. His familiarity with DMN (a graphical and rule-based language for decision modeling) and its application-oriented academic community led him to seek insights into DMN usage in practice – a knowledge gap often unaddressed in academia. Carl put his work into automated analysis and verification of decision models in a product context, contributing to SAP Signavio decision management strategy and the development of a tangible roadmap. Dynamic exchange within the program enriched his research, especially collaborating on strategically significant customer projects, including holding workshops. Carl’s research fueled the DMN strategy and roadmap, with his input on pre-emptively addressed issues being well-received when handed over to the new DMN team. Witnessing collaborative road mapping and SAP’s commitment to research shaped Carl’s outlook on both academia and industry. He believes the Visiting Researcher Program presents a remarkable opportunity, merging industry and academia. Especially for those aiming to balance research and industry, it offers extensive reach and idea positioning.

Immediate Product Impact

Being a research instrument at SAP, the Visiting Researcher Program was piloted at SAP Signavio, driven by David Eickhoff, Dr. Melanie Win Myint, and Dr. Timotheus Kampik. As evident from these interviews, the pilot was a great success, and we are excited to see the program scale throughout SAP and reap great fun and success.  

“ The Visiting Researcher program allows us to develop and test novel ideas in a rapid and agile manner from perspectives that are difficult to develop with only internal knowledge ” says David Eickhoff, senior development manager in SAP Signavio’s Process Intelligence group, who has helped launch the program. “ Initially, we were not sure about the actual product impact, seeing the academic nature of topics. However, our engineering teams are already productizing concepts and prototypes that the program has produced over the past six months .”

In an age where innovation is the currency of success, programs like the SAP Visiting Researcher Program stand as testaments to the transformative power of collaborative efforts. By connecting two worlds, academia, and industry, we enhance SAP’s product offerings and contribute to the broader pursuit of knowledge and innovation.

If you are as excited as we are, want to know more, or wish to participate in the SAP Visiting Researcher Program, don’t hesitate to contact Timotheus Kampik at ( [email protected] ).   

Co-authored by Marie Zeller and Timotheus Kampik.

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