Part 2 of the 3-part “Strategy and Enterprise Architecture” series that explores the link connecting strategy and business models to enterprise architecture and the underlying technology that executes the strategy. Understanding this link enables companies to align resources, people, and processes to transform themselves in response to market dynamics and maintain a competitive edge.
In Part 1 of this series, we reviewed business strategy and concluded that any strategy exercise must take into consideration the company’s present business model. Strategists should go further to ask whether changes to the existing business model are warranted or if conditions are just right for creating totally new business models.
Any strategy is built on the following basic building blocks:
- A value proposition that customers are willing to buy into because it addresses a job they need to get done
- Revenue streams, and consequently profit, as a result of delivering the value proposition to the market segment
- Business capabilities that ultimately execute on the strategy, delivering the value proposition at a profitable level
My intention is to cover an example of a business model exercise using a very well-known business model: a fast-food restaurant.
The business model helps structure the different dimensions of strategy and clarifies the necessary capabilities (key activities and resources) the business must develop or acquire to realize the strategy.
A business model is a description of how an enterprise creates and captures value. It describes the customer value proposition. How the company will organize its resources and partner network to produce that value. And how it will structure its revenue streams and cost structure to fund the operations and capture value to its stakeholders.
An organization can be described through the nine elements or building blocks of the business model canvas. The business model canvas helps you describe, map, discuss, design, and invent new business models.
The business model canvas was initially proposed by Alexander Osterwalder based on his earlier work on business model ontology.
The first step is to create a network view of the company, its customers, partners, and competitors, adding all relationships between the various business partners, as shown in Figure 1.
Figure 1 – Company’s network view
Once the network view is developed, we can build the business model using the business model canvas template shown in Figure 2.
One of the outputs of strategy planning is the customer segments we will focus on. For each segment, we transfer customers and partners from the network view to the business model canvas. Then, starting with the value proposition, we identify the individual value propositions the company offers for each customer segment. In the context of how the customer’s needs are reflected in the value proposition, we add information about the channels and the customer relationships that need to be built to deliver value to the different customer segments.
Figure 2 – The business model canvas template
We then move to identifying the necessary key activities and resources that transform inputs into value we will deliver to customers. This links to business capabilities. An important decision here is what to keep internally and what to transfer to partners in our business network.
Activities and resources are the actionable side of capabilities, comprising what we must do to create our value proposition, leveraging our unique capabilities. Finally, we can determine how to capture the value to the company and define the cost structure required to fund the key activities and resources required to operationalize the business model.
Let’s now perform this exercise using a generic fast-food company as an example. The fast-food company network view would look something like Figure 3.
Figure 3 – Business model network view
In the analysis of the company’s current business model, we describe how the company or business unit is embedded into its business network. We cannot cover the entire network; therefore, we should focus on important actors, distinguishing customers, partners, and competitors. Remember that one entity can have more than one role.
Based on the network view, we then build the enterprise view using the business model canvas as depicted in Figure 4.
Figure 4 – Business model enterprise view
The business model offers a view of the key elements of any enterprise: how we reach our customers to deliver our value proposition. A clear definition of how the stakeholder’s value is captured in the process of transforming key resources and activities into the vehicle that delivers the value: products and services. To execute the business model seamlessly, we require a clear understanding of the necessary capabilities – the subject I will unpack in the final blog in this series.
Learn how businesses can optimize the transition to an intelligent enterprise in the “Anatomy Of The Intelligent Enterprise” series.