The structure of Business Models.

Analysis and Update

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Table of contents
1. Introduction ...................................................................................................................................4
2. The structure of business models ..................................................................................................5
2.1 Osterwalder & Strategyzer.............................................................................................................6
2.2 Chesbrough ....................................................................................................................................7
2.3 Johnson ..........................................................................................................................................8
3. The TVE business model template .............................................................................................. 10
4. Example ....................................................................................................................................... 11
Bibliography........................................................................................................................................... 12

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 1. Introduction

In 2004, Alexander Osterwalder published his PhD thesis on Business Model Ontology, which gave a
thorough review of business models up to that point and integrated this in a conceptual model [1]. A
simplification of that model forms the basis of the business model template defined by Strategyzer1,
the company that Osterwalder created with his thesis supervisor Yves Pigneur [2].

Since then a few more templates for business models have been proposed. Henry Chesbrough
published a useful structure that can be used in developing business models for new technology [3]
and Mark Johnson published a structure for transforming your business model [4]. In this white
paper we compare these models and show how they have been included in the TVE business model
template.

1
https://www.strategyzer.com/

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 2. The structure of business models

A business model defines a conceptual model of how an enterprise creates, delivers and
captures value. There are four important concepts in this definition:
 Value
 Value creation
 Value delivery
 Value capturing.

You can therefore expect four parts in any business model template, corresponding to these four
elements. This is what we find in the templates. But all templates add a bit of information to make
the model more informative. For example, the TVE template has split value creation into two, value
creation logic and value creation technology, and has renamed value delivery into “value network” to
emphasize that businesses cooperate in a network to deliver value to the customer.

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 2.1 Osterwalder & Strategyzer

Table 1 shows the template defined in Osterwalders PhD thesis and the slight simplification of the
Strategyzer template.

Table 1. Osterwalder’s and Strategyzer’s business model templates compoared to the one of TVE
Osterwalder PhD thesis Strategyzer TVE
Product Value Value proposition Value proposition Offering (core, complements)
proposition of one business Customers segments
actor (customer identity, jobs to be
done)
Pain relievers and gain Unique selling points (e.g.
creators functionality, uality, service
level)
Customer Target Customer segments Part of VP
interface customer
Distribution Channels Part of network and
channel technology
Relationship Customer relationships Part of VP
Infrastructure Capability Key activities Value creation Value-adding activities
management (ability to logic required for the offering
execute a
repeatable
pattern of
actions)
Key partners Value network Business actors
Partnership Relations among actors
Financial Revenue model Revenue streams Profit model Pricing
aspects Cost structure Cost structure Cash flow scenarios
Risk
Infrastructure Value Key resources Technology Value creating technology
management configuration Data sharing technology
(Resources & Coordination technology
activities)

Infrastructure management in Osterwalder’s thesis contains in addition Capability, which is the

ability to execute a repeatable pattern of actions. This has been replaced in the Strategyzer template
by Key Activities and Key Resources. In Osterwalder’s thesis these were called Value Configuration.

The major difference of the TVE template with the other two is that the TVE template emphasizes
the network aspect of business models. The TVE template is supported by the e3value tool with
which one can design and analyze value networks [5]. This allows quantitative modelling of expenses
and revenues of all actors in the value network.

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 2.2 Chesbrough

Table 2. Comparison of Chesbrough’s template with that of TVE.

Chesbrough TVE
Value proposition Customer problem Value proposition of Offering (core, complements)
to solve one business actor
Market segment Customers segments (customer identity,
jobs to be done)

Competitive Unique selling points (e.g. functionality,

strategy quality, service level)

Value chain Value creation logic Value-creation activities required for the
offering
Value network Suppliers, Value network Business actors
customers,
complementors,
competitors
Target margin Profit model Expenses and revenues in the cash flow
model
Technology Value creating technology
Data sharing technology
Coordination technology

In his book about open innovation, Chesbrough published a useful structure that can be used in
developing business models for new technology [3]. Table 2 compares Chesbrough’s template with
that of TVE. Then correspondence is close, except that TVE has a more detailed subdivision of the
elements of the template.

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 2.3 Johnson

Table 3. Comparison of John son’s template with that of TVE.

Johnson TVE
Customer value Jobs to be done Value proposition Offering (core, complements)
proposition Offering of one business Customers segments
actor (customer identity, jobs to be
done)
Key processes Processes (design, development, Value creation logic Value-creation activities
sourcing, manufacturing, required for the offering
marketing, hiring, training, IT)
Business rules and success metrics Belongs to network
(requirements for investment, governance
credit terms, lead times, supplier
terms)
Behavioral norms (opportunity size
needed for investment, approach
to customers and channels)
Profit formula Revenue model (Price x quantity) Profit model Pricing
Investments
Target unit margin E3value models cash flows,
i.e. revenue and expenses,
Cost structure (direct costs,
overhead, economies of scale) and does not model cost
structure.
Resource velocity (lead times, Align capabilities across
throughput, inventory turns, asset actors.
utilization etc.)
Key resources People, technology, equipment, Value creation Value creating technology
information, channels, technology
partnerships, funding, branding Data sharing technology

Coordination technology

In his book about business model innovation, Mark Johnson published a structure for transforming
your business model [4]. Table 3 compares Johnson’s template with that of TVE. A major difference is
that Johnson does not mention the concept of value network, which is crucial for today’s businesses.

Part of the key processes in Johnson’s framework are

 Business rules and success metrics (requirements for investment, credit terms, lead times,
supplier terms) and
 Behavioral norms (opportunity size needed for investment, approach to customers and
channels).

We view this as part of business model governance, which is the set of activities needed for the
enterprise to survive and thrive in its ecosystem. Governance design is a crucial activity for an
enterprise, and hence its business model, to survive, but it is not part of business modelling, so it is
not part of the TVE template.

Johnson’s profit model has a number of interesting elements. We relate them to the e3value model
that underlies the TVE business model template.

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  The revenues of all actors are represented in the e3value network as part of value exchanges.
 E3value models expenses and revenues, and does not model costs. Expenses are represented
as part of value exchanges too.
 Simulation of an e3value model gives us the difference of expenses and revenues per actor.
 Part of the TVE business modeling method is the placement of value-adding activities over
actors in the network – outsourcing, from the point of view of a single actor. This is done
with a view to optimizing the difference between expenses and revenues.
 Resource velocity (lead times, throughput, inventory turns, asset utilization etc.) is an
important consideration when placing activities in different actors in a network. The
capabilities of each actor must match the required velocity and this must be aligned across
cooperating actors.

We view the placement and alignment of value activities as part of business model design and do not
list it separately as elements of a business model template.

Key resources for Johnson include people, technology, equipment, information, channels,
partnerships, funding, and branding. Some of these (funding and branding) can be found elsewhere
in the TVE template. (Funding is called “investment” in our template.) At the resource level we focus
on technology and ignore important aspects such as people and organization structure.

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 3. The TVE business model template

Table 4. The TVE business model template

TVE business model template

Value proposition Offering (core, complements)
Customers segments (customer identity, jobs to be done)
Unique selling points (e.g. functionality, quality, service level)
Value creation logic Value-creation activities required for the offering
Value network Business actors
Relations among actors
Profit model Pricing
Cash flow scenarios
Risk
Technology Value creating technology
Data sharing technology
Coordination technology

The TVE business model template starts with a value proposition that mentions

 the core offering (product or service) and, possibly,

 its complements,
 customers and their contexts, and
 unique selling points of the offering.

The list of USPs may be supported by a list of alternative offerings that the customer has and what
differentiates your offering from the alternatives.

A customer context is typically a job to be done, in other words a goal to be achieved. The offering
should help the customer achieve that goal. A scenario in which the product helps the customer
achieve a goal is often called a use case.

The offering is created using a value creation logic. For product this is a Porter value chain, for
services it is the problem-solving cycle, and for platforms is ecosystem enabling logic. See the value
creation logics blog for more information.2

Once we understand this logic, we can decide about the value network needed to produce the
product. This involves defining partnership and cooperation relations among business actors who
perform specific tasks in the value creation logic.

The profit model models the value network quantitatively using e3value. This includes the design of
dependencies among transactions of an actor, which show which transactions must be performed to
satisfy a customer need. E3value models can be simulated to find the most viable configuration of
actors and activities to produce the offering.

2
https://www.thevalueengineers.nl/value-creation-logics/

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Value is created using technology. Instead of outsourcing a value creation activity to partners, you
can decide to automate it. Furthermore, the value network needs to be enabled, for which you need
to consider the opportunities for data sharing and the need to coordinate activities across partner.

4. Example

As an example, here is the business model of Netflix.

Table 5. Business model of Netflix using the TVE template

Value proposition of Offering: Global on-demand video streaming

Netflix
Customer contexts: watching streaming video at home or when traveling for
entertainment
Customers segments
 people who are too busy to go out and shop for movies,
 people who are frequent renters and movie buffs, and
 people who want to get the most value for their money.
Unique Selling Points
 Personalized recommendations
 Large content library, which i
 Includes content local to cultural areas and
 original content produced by Netflix.
Alternatives & differentiators
Other streaming providers such as Disney+ and HBO.
 Differentiators: Netflix is the oldest VoD brand, has the largest
repertoire of movies, has prize-winning content, supports a
wide range of devices including mobile, provides high-quality
connection, and has a simple subscription scheme.

Movie theatres.
 Differentiators: Netflix offers the comfort of home and has
different from movie theatres, including Netflix originals.

Cable TV.
 Differentiators: Netflix offers on-demand movie watching,
shows no ads, and allows binge-watching.
Value creation logic Licensed content is delivered by routine problem-solving logic:
 Obtain licenses
 Include licensed videos in catalog
 Provide video streaming service
 Evaluate video streaming quality
Original content is produced using value chain logic:
 Acquire contributing artists
 Produce original content
 Include original content in catalog
 Provide video streaming service
 Evaluate streaming service
Both value creation logics must be supported by standard processes such as marketing.
Value network Business actors include content producers (actors, writers, producers etc.), IP holders
(Warner Brothers, DreamWorks, Sony Pictures, etc.), competitors (Disney+, Hulu, Prime
Video, HBO, etc.), investors (Blackrock, Vanguard, Capital group and more), a rights
management organization (BMG), consumers, airlines who include Netflix in their

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 media offering, AWS who stores the videos, ISPs who stream videos, trade shows
where newest developments are shown, and more.
Relations among these actors have been modelled in another white paper, available
olnline.
Profit model The same paper shows also the e3value model of revenues, expenses and
dependencies among transactions in the Netflix value network. The major risk for
Netflix is that it bets on subscribers being attracted by its original content. Even though
this content is prize-winning, competitors like Disney+ have a very strong content
proposition too. And more Netflix users may have been attracted by its licensed
content than by its original content.
Value creation Information sharing
technology  Netflix shares technical knowledge with the world and benefits from
this in the form of feedback and new information obtained for
free.
 Netflix shares content with ISPs to store locally, to improve
streaming performance.
Coordination
 Netflix must distribute its app to app stores and provide a
support channel for customers.
 Netflix has defined the Open Connect standard for Streaming
content.
Value-adding technology
 To realize its core product (streaming), Netflix needs a high-
performing streaming network that connects it with customers.
 To achieve its unique recommendation capability (mentioned in
the value proposition), Netflix needs powerful analysis and
recommendation algorithms.

Bibliography

[1] A. Osterwalder, “The Business Model Ontology: A Proposition in a Design Science Approach,”
Université de Lausanne, 2004.

[2] A. Osterwalder and Y. Pigneur, “Business Model Generation,” Wiley, 2010.

[3] H. Chesbrough, Open Innovation. The New Imperative for Creating and Profiting from
Technology, Harvard Business Review Press, 2006.

[4] M. Johnson, Reinvent Your Business Model. How to Seize the White Space for Transformative
Growth, Harvard Business Review Press, 2018.

[5] J. Gordijn and H. Akkermans, “Value Webs - Understanding e-business innovation,” The Value
Engineers, https://www.thevalueengineers.nl/product/e3value-reference-book/, 2018.

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