The Business Model Canvas as a Strategic Tool

Chapter 8
 INTRODUCTION

• In today’s business environment, another tool used as part of strategy formulation is

called the Business Model Canvas.
• This tool is often used to simplify overall planning and obtain a holistic view of the
organisation.
• Not necessarily a strategy formulation tool – used as a model to assist organisations to
understand where their competitive advantage lies and what the focus areas of the
organisation should be.
• Useful tool for comparing two organisations in order to evaluate where the competitive
advantage for each lies.
 THE SCOPE AND EXPLANATION OF
THE BUSINESS MODEL CANVAS
• The Business Model Canvas is used to assist managers in crafting strategy in a
more effective way than traditional methods.
• Takes a holistic approach.
• Breaks up the business into nine elements, each of which can be evaluated
separately in order to focus on value-adding activities.
• Elements are divided into two main areas: cost impact versus revenue generation.
• The canvas model consists of nine building blocks (frameworks).
• Each represents a critical part of an organisation’s business model.

Each of these building blocks needs to be completed or populated in order to

complete the full “value chain” of the organisation. It therefore forms a “canvas”
representing the bigger picture
 The scope and explanation of the business model canvas (continued)

Figure 8.1 Business Model Canvas

Source: https://medium.com/be-hyper-bssa-crew-2/pain-gains-of-the-business-model-canvas-c84c-67d5445f (Accessed on 5 August 2018
Figure 8.2 The nine elements of the Business Model Canvas

Source: Ungerer, Ungerer & Herholdt (2016a)

 THE SCOPE AND EXPLANATION OF THE
BUSINESS MODEL CANVAS

Customer segments
The customer segments represent the various groups and segments of
customers on which the company focuses its efforts (selling its products or
delivering its services).
– Customer attributes and behaviours
– Customer trends
– The different channels/markets customers are reached through
• In the customer segment of the canvas model, there are important
considerations
This is also referred to as the target audience and includes aspects like:
– Price points – what are these clients willing to pay?
– The specific need and therefore offering to the clients
– The demographic differences
– The geographical spread of customers
Value propositions
• Describes the combination of products and/or services that is supplied to the
customer group (customer segment)
• Shows the benefits an organisation provides and which in turn satisfy the
customers’ needs or problems
• Value can be created in various forms but is always dependent on the specific
client needs
• Some of the features that create value as part of the value proposition include
certain elements
 THE SCOPE AND EXPLANATION OF THE
BUSINESS MODEL CANVAS

The secret behind the sustainability of a business model lies in

1. the decisions that are made
2. the strategies that are used to create the value proposition for the client
3. how quickly this value proposition can be duplicated or destroyed by competitors.

Channels
• The route to market or pathways used to communicate, market, sell and distribute the
organisation’s products or services
• All engagements and interactions between organisation and customer are done
through these channels
 THE SCOPE AND EXPLANATION OF THE
BUSINESS MODEL CANVAS

This customer engagement or interaction usually occurs in six different

phases:
1. Awareness
2. Evaluation
3. Purchase
4. Delivery
5. Use
6. After-sales support
 THE SCOPE AND EXPLANATION OF THE
BUSINESS MODEL CANVAS

Customer relationships
Through proper customer relationships organisations attract customers,
retain them and convince them to become returning customers – thus
spending more money on the organisation’s products or services.

• Maintaining good customer relationships is a capability.

• This capability should be woven into the overall business model (canvas in this
case) to ensure longevity and a sustainable long-term relationship.
 THE SCOPE AND EXPLANATION OF THE
BUSINESS MODEL CANVAS
Revenue streams
• A revenue stream - ultimate source of income for any organisation.
• This element of the canvas model is of critical importance and is not always easy
to manage.
Revenue income may be classified into the following categories:
• Once-off transactions – payment for products sold or services rendered once-off
per customer per transaction
• Recurring transactions – ongoing payments by clients where a service is delivered
for a period of time and specific value is added on an ongoing basis (could include
after-sales service support)
• Direct revenues – actual products or services delivered
• Indirect revenues – third party sources not directly related to the organisation’s
product or service, like advertising, etc.
 THE SCOPE AND EXPLANATION OF THE
BUSINESS MODEL CANVAS

Key resources
• The key resources of a company are those things an organisation needs to
function and to deliver value to the customer.
• Resources are categorised into four main areas: physical, human, financial and
intangible resources.
Most resources can be divided into two types of capabilities, meaning resources have
the capability to meet the requirements of customers.
• These two types of capability are called
– threshold capabilities
– distinctive capabilities
 THE SCOPE AND EXPLANATION OF THE
BUSINESS MODEL CANVAS
• Another important factor to consider with resources is the VRIO tool
(also see Chapter 5).
– This tool considers four factors through which resources can provide a
competitive advantage, namely: Value, Rarity, Inimitability and Organisational
support.
» Value – Resources should provide capabilities that are of value to the client
– either generating higher revenues or lower costs.
» Rarity – In this case these resources are possessed by only one
or a few organisations.
» Inimitability – This happens when competitors struggle to imitate or
substitute the resource capabilities possessed by the organisation.
» Organisational support –This could mean the necessary systems, skills or
structures within the organisation.
Key activities
• There are hundreds if not thousands of activities taking place in any given
organisation at any given point in time.
• These activities are often depicted in the value chain (see Chapter 5 where
Porter’s value chain is discussed).

The range of activities in the value chain spreads across the whole business
operation from raw material, inbound logistics, operations, through to the
outbound logistics, distribution, marketing, sales and all the support functions
like human capital, systems/ information technology, finance, etc.
• All these activities are the backbone of the business model and each incurs costs.
• Cost advantages over competitors are achieved by performing these activities
more effectively and efficiently than the competitors.
Key partnerships
• Often organisations cannot just rely on organic growth as a source of increasing
revenue and turnover but have to rely on key strategic partnerships.
• This can take place by
– sharing resources with partners in order to bring down costs
– sharing activities and infrastructure in such a way that economies of scale are
ensured.
This results in lower costs and higher productivity.
• These key partnerships take many forms, for example:
– Strategic alliances among competitors
– Alliances with suppliers or customers down the supply chain
– Joint ventures
• However, it is critical that partnerships are chosen carefully. Partners need to have
a similar vision and future ideals
• Reputational risk and financial risk are important factors to consider when choosing
key partners
In order to help understand this important matter in a business, Osterwalder defines
two types of cost-structure models in his canvas model:

1. Cost-driven models – these are all about cost minimisation and trying to create
low-price benefits for customers.
2. Value-driven models – in this case the focus is more on the value created for the
client.

• Various factors can affect the cost structure of an organisation and these need to
be well understood and managed.
During strategic planning a more holistic view of the organisation is often needed.
• The nine elements of the model each highlight some key advantages or
disadvantages the particular business might have.
• Another effective use of the tool is to compare a business’s current model and
strategy with that of a competitor(s).
Engage critically with the content in Chapter 8, and read
the Shoprite Cohesion Case Study (Chapter 1 provided).

Case Study
Draw up a Business Model Canvas for Transpharm, one of the
divisions of Shoprite Checkers.

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