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Denis Oakley & Co

Denis Oakley & Co

I HELP BOLD LEADERS TRANSFORM THEIR BUSINESSES AND THE INDUSTRIES THEY COMPETE IN

February 10, 2018 By Denis Oakley

Key Activities in the Business Model Canvas

Key activities are important things your business needs to do to run. It’s even more specific than that. Key activities are the key things that you need to do in order to deliver your value propositions to customers . In this lesson, we look at what key activities are within the context of the business model canvas and how to identify them and use them correctly.

key activities

Key Activities Video

Here’s a video where I run through what the key activities are and how they fit into the business model canvas

Identifying the key activities that you need for your valuation is important. It’s equally important to consider which key activities you need to do yourself. Changing these can be a great source of business model innovation , especially when faced with business model depreciation and disruptive market changes .

Finding the Key Activities

To find your key activity the best place to start is your value proposition

  • What’s are the most important actions to build your product or service?
  • What’s most important to distribute your product and service?
  • What kinds of activities are important if we want to maintain customer relationships? (Personal Service, Your Office, Sharing Experience etc..)
  • What kinds of activities are fundamental to your revenue streams? (Credit Limit, Fast Payment, Trust etc..)

What Key Activities Do Your Value Proposition(s) Require?

First of all look at your value proposition. What are the key things that you need to do to make it work? If you have a florist you need to

  • buy the flowers,
  • prepare them and
  • deliver them.

You also need to manage your promotional channels so that customers come to the shop.

If you run a plastics factory your key activities are likely to revolve about:

  • maintaining production,
  • keeping the operations safe, and
  • working out how to reduce costs and improve productivity to keep pace with market changes.

Here there are many many more things that you could be doing. Key activities are the critical things that you absolutely must do in order to develop and maintain your competitive advantage .

Small businesses and startups will often list tasks or processes at this stage because they are fairly simple. When you look at the business model of large enterprises that may comprise hundreds of companies and tens of thousands of employees the key activities need to be captured at a far higher level of abstraction.

It is just the same as looking at a map at different scales. One of the keys is using the right scale to look at your business in its stage of development

What Do You Have to do Everyday?

What key activities do you have to do every day? This is a really good approach for helping you to figure out what is a key activity and what is not. If you or your staff are doing the same activities every day then there is a good chance that they are critical for the delivery of the value proposition. For a supermarket (looking at the unit rather than the enterprise) restocking is a key activity. When customers go into the supermarket they expect to find goods on the shelves to buy. Without them, the business model falls apart.

For a company like Google the key activities are improving its code base and then examine all the data that it has gathered to help it improve search results and let advertisers sell better-converting adverts.

For a company like IKEA, the key activities are optimising its logistics chain to ensure that every store has all the furniture that people in that market are buying. It also works on reducing the cost of its products so that it can maintain it’s market-leading position in flat packed self-assembled furniture.

Is Your Business Based Around Producing or Making Something?

Where a company is involved in making something the key activities usually centre on getting the raw materials, transforming them and then shipping or distributing the finished products.

A dairy farmer’s key activities are feeding the cows, checking them for health, milking them and then storing the milk ready for collection. Nestle’s key activities (if we look at the Yoghurt product line) are collecting the milk, processing it into yoghurt, packaging it into containers and then sending it out into its distribution network.

Space X’s key activities are all about designing and manufacturing ever larger rockets, building more effective rocket control and telemetry systems and selling orbital delivery services to its customers.

The key activities tend to vary quite widely based on the type of customer and the manufacturing process used. Where manufacturing is continuous or mass sales tend to be a far smaller portion of the key activities as these are delivered by channels. When products are very large or highly customised then sales tend to be far more complex and take longer.

Some examples of business models based around production include

Is Your Business Based Around Solving Problems for Customers?

Companies which are problem-orientated tend to have a different set of activities. These companies are often consultants, lawyers and other types of knowledge workers.

A lawyer, for example, has client consultations, pleading and case law review as his critical activities. Activities such as billing are generally not key activities because these are common for all businesses and provide little competitive advantage.

The deeper message of key activities is that these are the activities that provide a competitive advantage. Case law review is something that all lawyers do. How can this be a key activity/ Can you do it faster? Do you have a better process for doing it? Is one of your key resources a software system that allows you to assess more cases than would be possible or feasible by hand.

Problem-solving business models are knowledge-intensive. The key is understanding, in the business model, how this knowledge is obtained, processed and packaged to solve the customers’ problem.

Is your Business Based Around Building a Platform or Network for Other People to Use?

When we look at platforms, what we are doing is analogous to providing a meeting hall for people to use. If it is a market place the meeting hall has to have tables for sellers to display their wares. It has to have all the facilities that buyers need to make purchases.

When we look at the key activities we can see that there is often a build once-optimise continually process. Facebook , for example, was built once. Mark Zuckerberg only ever built a single Facebook. Over time almost all the original code has been upgraded, expanded, replaced and optimised as the value proposition has changed over time.

It’s tempting to just say build and optimise the platform. That is doing too little work. What is far better is to delve down into the details and say – what is it about the way that we build and optimize the platform that gives us the amazing results?

The other aspect to bear in mind with platforms is that you are often serving two or more customer segments simultaneously using the platform. There will be platform-centric key activities. There will be key activities that are focused on each of the customer segments (or groups of them under certain conditions)

If you want to see some examples of platform key activities have a look at these business models

Deciding the Key Activities in Your Business Model

When I design business models for clients the key activities are one of the last parts of the business model canvas that I work on.

For most startups, there aren’t normally more than 2-3 key activities. That is mainly because if an activity is key it should be consuming most of a person’s time. Startups have few people and limited time and resources. They can’t as a result have too many key resources. They are unable to deliver on them if they do.

Having lots of key activities is also an indication of sloppy thinking and an inability to prioritise what is really important. Focusing on just a few activities allows you to get really good at them and find a source of competitive advantage . Being very good at some activities is also a great way of defending against threats to your business model .

One way of prioritising is to imagine that no-one has come into the office. You are the only person in there.

What are the first three things that you do?

Those will normally be your key activities

So for example when I worked at a food delivery company as the VP of operations I cared about three things

  • Are the chefs cooking?
  • Are my delivery riders here?
  • Has the website and app sent me lots of customer orders to fulfil

That translated to

  • Platform build & Optimisation

in our business model canvas.

Are you an Entrepreneur?

Are you copying a business model?

Are you creating a new one?

I can help you get it right

How to Build a Great Business Model Canvas – The FREE Course

  • Introduction 
  • Value Propositions
  • Marketing & Distribution Channels
  • Customer Relationships
  • Key Resources
  • Key Activities
  • Key Partners & Suppliers

About Denis Oakley

Explorer | Trail Runner | Mountain Lover

'Big' companies are civilisation. I stay in the wilderness guiding entrepreneurs and startups on their journey to becoming 'Big'.

Then I head back to the frontier

Strategy | Marketing | Operations

Ready to start?

Key Activities in the Business Model Canvas

I help entrepreneurs transform their industries through wiser choices

Outcome : More Traction, Bigger Rounds, Better Products

Method : Problems, Customers, Business Models, Strategy

business model canvas key activities

  • Key Activities Block in Business Model Canvas

business model canvas key activities

Featured in:

business model canvas key activities

© Entrepreneurial Insights based on the concept of Alex Osterwalder

In this article, we will look at the “Key Activities” block in the Business Model Canvas . We will cover, 1) an introduction to key activities , 2) questions to consider , 3) typical activities , 4) categories for key activities , and 5) a case study on LinkedIn .

KEY ACTIVITIES

As the title suggests, these are the most important tasks a company must carry out in order to fulfill its business purpose. To be successful, a company must carry out key actions that are primarily dictated by its business model. As we studied with the key resources building block, key activities are similarly pivotal in an organization fulfilling its value proposition, reaching its customer segments, sustain its customer relationships and ultimately create long-term revenue streams. Key activities are different according to the business model of the organization carrying out the activity. Hence, an organization that relies heavily on its 3 rd party contracts will list channel management as a key activity. A product-driven business will lend more significance to activities such as continuous research to understand their users better as well as constant innovation in technology.

Hence, it is safe to assume that a key activity for software giant Microsoft is Software Development; similarly, for computer manufacturer Dell, supply chain management may be a key activity, and a consulting business like McKinsey probably lists solving client problems as its key activity.

QUESTIONS TO CONSIDER

When evaluating your business through the Key Activities building block it is essential that you take a holistic view of the business and evaluate related building blocks as well, to understand how they will contribute to your key activities.

  • Based on our value propositions , what kinds of activities are key to our business?
  • What kinds of activities are key to our distribution channels?
  • What kinds of activities are important if we want to maintain our customer relationships ?
  • What kinds of activities are fundamental to our revenue streams?

Our Value Propositions will obviously have the most profound impact on the kind of activities we carry out. However, as the business flourishes, we may begin to include unnecessary activities within this block as well. To prevent this, we use a method called the Minimum Viable Product or MVP , which is the most basic version of your product made through a single cycle of the build, measure and learn loop. Most entrepreneurs will resist the Minimum Viable Product because everyone believes that for a product to be a success, it must provide maximum value to its customers. This brings us back to the Customer Segment and Value Proposition building blocks where we learnt that we have to be selective about the customers we target and the kind of value we provide by relieving their pains and giving them gains. Creating a bloated product with tons of extra feature that are of no value to your customer but which add to his investment, is not the way to go. A product is a combination of its form and function, function being what it does and form detailing how it does it. This form is crucial to the customer experience and helps in determining the key activities. Similarly, the kind of customer relationship you want establish will also entail certain key activities to bring it about and so on.

TYPICAL ACTIVITIES

As mentioned earlier the Key activities building block creates a bridge between your value propositions and the customer segments’ needs. Some typical key activities that are commonly practiced by most organizations are listed below;

Research & Development

The research and development department is required to liaise with all other functions of the company whether it be production, marketing or sales. The typical functions of a research department are mentioned below;

  • New Product Research: Before a new product can be produced, it must first go through the research and development department which will explore what the design of the product should be, the expected production costs and how long it will take to produce sufficient amounts of the product. R&D also looks into how much customers want or need the product.
  • New Product Development : the research phase naturally leads to the product being developed due to the results achieved from the research phase.
  • Existing Product Updates: R&D must also look into existing products to see if they require an upgrade based on evolving consumer needs or new entrants into the product category in the market. These changes can additionally be attributed to product glitches that need resolving.
  • Quality Checks: Companies can ask their R&D departments to conduct quality checks or they may require the department to collaborate with the Quality Assurance team since they are well versed in the specifications of the product and are ideal for evaluating whether all products are up to the quality standards set by the company.
  • Innovation : The R&D team is also responsible for keeping an eye on innovations and new trends within the industry and ensuring that their product stays abreast of these trends.

Production management consists of a number of activities which are outlined below;

  • Selection of product and design: the first step is to select the right product and the right design for the product . This is a crucial decision because the combination of the right product (Value Proposition) and the right design (Key Activities)will dictate the success or the failure of the company. Value engineering and value analysis are parts of this activity.
  • Selection of Production Process: this stage consists of deciding what production process the organization will be using including the right technology, machines, inventory management system, etc.
  • Selecting Right Production Capacity: The production management must have full knowledge of the expected demand for the product and set the production capacity accordingly, since either a dearth or a surplus of the product may lead to problems for the company. Break-even analysis is the most popular tool used by production managers to predict capacity.
  • Production Planning: The production manager must decide on the routing and scheduling of the product. Routing is aimed at creating a smooth flow of work by discovering the easiest and most economical flow of work. Scheduling, on the other hand, refers to the timing of activities by mentioning a start and end time for each.
  • Production Control: The production manager is also responsible for monitoring and controlling the production process. This is done by comparing planned production with actual production, exploring deviations if any and ultimately correcting these deviations to meet planned production.
  • Quality and Cost Control: In today’s economically driven world, consumers won’t the maximum quality for the cheapest price and access to the internet and a world of options make them more discerning and fickle. Hence, it falls on the production manager to not only ensure that he is continuously improving the quality of the product but also to reduce costs so their product can remain competitive in the market in terms of price.
  • Inventory Control: Inventory Control is fundamental to a production driven business because it prevents overstocking or understocking. Overstocking means the company will be spending more money on materials that will ultimately go to waste. Understocking will effect production and result in late deliveries.
  • Maintenance and Replacement of Machines: The production manager must be on top of the condition of the machines under his function by constantly monitoring them and scheduling regular maintenance like oiling, replacing worn parts, cleaning, etc. This function ensures that there are no unexpected breaks in production.

The Marketing department is responsible for the growth of the company by getting word of the company’s existence and the value it provides to its customers. The functions of the marketing department are explained below;

  • Strategy: The senior members of the marketing team are responsible for drafting and getting approval of a marketing strategy for the company, based on its overall goals and missions before cascading this strategy throughout the department and creating goals based on it.
  • Market Research : The Marketing department must have full knowledge of the market the company is operating in including the strengths and weaknesses of the product according to the customer, potential competitors in the market to whom the company may lose market share or weaker competitors from whom company can get market share.
  • Product Development: The marketing team works in conjunction with the product development team constantly. This is done by identifying possible gap areas in the market for which the company can develop a product to address an unmet need. They are the ones with their fingers on the customer pulse and are a source of insight into consumer needs and feelings. Once the product is developed, the marketing team is also involved in pricing the product.
  • Communications: The marketing team is responsible for all communication to go out in the market regarding the product. The nature of this communication varies from press releases to online product reviews, advertisements, e-mails, etc.
  • Sales Support: Marketing also works closely with the Sales team by providing them with customer leads, as well as promotional materials for potential customers.
  • Events: Marketing is also responsible for organizing and executing events such as seminars, product launches, exhibitions, etc. they will typically call key or prospective customers to such events as well.

Sales & Customer Services

Sales and customer service play a key role in the purchase and post purchase behavior and experience of your customer. This department is key to ensuring that you build a cadre of repeat customers who will become your advocates in the market and drive more business in through word of mouth. Conversely, these customers can also be extremely vocal if they have suffered a bad customer experience with you and can just as easily drive business away. Hence, one of the most crucial weapons in your arsenal is your sales and customer services team. They fulfill the following responsibilities on behalf of your company;

  • Handling Problems: Customer service representatives generally spring into action when customers call in with complaints. The breadth of their authority is dependant on company policy but their core task is to ensure that when an irate customer calls, they do everything, within the scope of their job description, to leave him happy or satisfied when he hangs up. Some customer representatives are empowered to solve the problem on the spot by providing a replacement or returning the money. Others may act as gatekeepers who take information and then route it to the relevant departments.
  • Assisting in Sales: Customer representatives are also depended upon to help increase the sales of the organization. They may do this by educating customers on the value propositions the product offers. Others may use upselling by telling customers who call in to upgrade their services for improved quality.
  • Clerical Tasks: some companies may include administrative and clerical tasks within the ambit of the role of the customer services representative. So representatives may be routing calls to relevant support departments, maintaining a record of customer accounts including new customers and recording any changes that may occur in these accounts.
  • Job Specific Responsibilities: though the general spirit of the role remains the same, the details may vary according to the organizational context and industrial realities facing the organization. Hence a customer services representative at an FMCG company may be responsible for a big account like Metro. A customer representative at a bank may also be doing some duties that a bank teller typically does such as counting money, etc.

CATEGORIES FOR KEY ACTIVITIES

These activities are generally a characteristic of manufacturing firms and entail the design, creation and delivery of significant quantities of the product.

For a company that manufactures and sells pantyhose, typical value propositions are listed below;

  • This pantyhose lasts longer and, therefore, saves consumers the money they would spend on frequent replacements.
  • It provides resistance, so feet don’t slip in heels.
  • The product is machine washable.
  • Easy to store packaging.

The Key activities would then be;

  • Control of production and manufacturing;
  • Manage website, online orders and the distribution of the product;
  • Create a branding strategy ;
  • Marketing and promotion of the product;
  • Product and packaging design.

Problem-solving

Some consumers or customers have chronic problems. Organizations that list problem-solving as a main activity are usually aiming to find unique solutions to these individual problems. Consultancies, hospitals, and most service organizations typically are trying to solve customer problems uniquely. These organizations are characterized by lots of knowledge management and a focus on continuous learning.

Jiffy Lube is a chain of over 200 businesses in North America which offers oil change and other automotive services to its clientele. Hence, it is a service firm that aims to provide a solution to a recurring problem its target customers may have. Jiffy’s value propositions are:

  • Keep cars healthy;
  • Keep clothes clean and garages tidy;
  • Save customers’ time and help them avoid the hassle of their cars breaking down.

Based on these, the key activities performed at Jiffy can be as follows;

  • Change the oil of cars;
  • Perform other maintenance work;
  • Promote their services to customers through upselling and other marketing activities.

Such organizations will have detailed records on repair work done on the automobiles of their repeat customers and will be able to handle the car with full knowledge of its history, much like a doctor with a regular patient.

Platform/ network

A business model where the platform is a key resource usually has platform or network-related key activities. Networks, brands, and software can all be a part of a platform or network-related business.

Agile Enterprise Architecture or AEA offers its services to companies experiencing a surge of work or a cascade of models that need to be done within a limited amount of time. The company’s value propositions are as follows;

  • Low-cost architecture modeling;
  • Agile and available when needed by customers;
  • In the cloud ;
  • Its environmentally friendly especially if the client company is willing to forego travel;
  • Efficient and effective;
  • Involves minimal risk.

Based on these the key activities for this organization are;

  • Cloud-based architectural modeling as a service;
  • Cloud-based enterprise architecture software as a service ;
  • Frequent health checks for the architecture to make sure it remains robust with changing environment.

CASE STUDY – LINKEDIN

LinkedIn is one of the world’s premier business networking websites. The value propositions it provides to its customers are as follows;

  • Manage professional profile and build a robust professional network;
  • Target and reach the right talent;
  • Communicated with the right audience;
  • Access to LinkedIn database though API ’s and widgets.

As you can see LinkedIn is a platform/ network based company characterized by a high focus on providing sharing capabilities to its customers. The Key activities performed at LinkedIn would then be;

  • Platform Development

Hence, LinkedIn spends a majority of its budget and time in ensuring that its platform remains scalable and usable as the consumer base grows rapidly.

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Article • 11 min read

The Business Model Canvas

Understanding what makes your company successful.

By the Mind Tools Content Team

business model canvas key activities

Do you know what your company's business model is? How well do you understand it? And why does this matter?

A company's business model determines how it generates its revenue, operates successfully, and makes a profit. If your company's business model is out of date or wrong for its market, then it's likely to fail.

Understanding your company's business model is an important part of developing the "commercial awareness" you need to solve problems effectively, make good decisions, and become known as a trusted leader in your organization.

This article explores a useful model that you can use to think about your business model.

What Is the Business Canvas Model?

Alex Osterwald and Yves Pigneur developed their Business Model Canvas in 2010.

They collaborated with 470 members of the Business Model Innovation Hub – an online forum for business professionals and researchers – who contributed case studies, examples, and critical comments to their research. As such, the Business Model Canvas represents the collective experience of a community of business people.

It appears as a template of nine basic building blocks, as shown in figure 1, below. These form a blueprint, based on which business models can be systematically designed, explained and challenged.

Figure 1: The Business Model Canvas

business model canvas key activities

The Business Model Canvas is the property of BusinessModelGeneration.com / strategyzer.com , and it is distributed under a Creative Commons copyright license .

How to Use the Business Model Canvas

To use the Business Model Canvas, think about each building block using the questions below. You may want to download our worksheet to help with this.

CS: Customer Segments

Your customer segments are your target markets – the specific groups of people or organizations that your business serves.

Instead of trying to satisfy everyone, all of the time, group your customers according to common attributes like their location, needs, or behaviors, and decide which segments to focus on. This way, you can deliver a product or service that is closely tailored to the specific needs of particular groups.

See our article on market segmentation for more on this.

Record your results in the CS block of the canvas.

VP: Value Propositions

The value propositions block defines how you'll deliver value to your customers. You can create value in many ways, including offering a low price, a high standard of design, good accessibility, convenience, and high performance. Consider these questions:

  • How do you create value for your target market?
  • What problem or need does your product or service solve for the customer?
  • How does your product or service differ from your competitors' offerings?

If you are struggling to crystallize your value proposition, conduct a USP Analysis and Core Competency Analysis to assess how your product or service stands out from those of your competitors.

Write your value proposition in the VP block of the Business Model Canvas.

R$: Revenue Streams

In this block, you analyze how each customer segment pays for your product or service.

There are many different ways to pay for a product or service. For example, is the price fixed, or will you charge customers for each use, by subscription, or with ongoing payments? Will any negotiation or bargaining be involved? And who, ultimately, is the customer? (Your customer may be an advertiser, for example, rather than the user of the service.)

Consider these additional questions:

  • What do your customers currently pay for similar products or services?
  • How do they pay for this?
  • What do you charge for your product or service?
  • Do customers get any free services or perks that your competitors don't offer?

Record this in the R$ block of the Business Model Canvas.

CH: Channels

The word "channel" refers to the way you deliver your value proposition to each customer segment. Channels include a direct sales force, web sales, own brand stores, partner stores, and wholesalers. Consider these questions:

  • How do you make your customers aware of your products and services?
  • What channels do your customers prefer to use?
  • How will you help customers evaluate your value proposition?
  • How do customers want to buy your products and services?
  • How do you provide customer support?

Record your answers in the CH block of the Business Model Canvas.

CR: Customer Relationships

This block defines the type of relationship you want to foster with each of your customer segments. There are several categories to consider here.

  • Dedicated personal assistance – This is where the wants and needs of each customer are handled by a dedicated customer service representative. For example, many types of business dedicate an account manager to highly valued clients.
  • Personal assistance – Here, customers can communicate with a customer service professional during and after the sales process. This can happen in person at the point of sale, or through a call center, email, or IM.
  • Self-service – Customers can purchase products without assistance.
  • Automated Service – An automated service recognizes individual customers through a login or other identifier. This provides a customized service that "remembers" the customer's preferences and presents options accordingly.
  • Communities – Here, the organization builds communities using social networking and blogs to encourage customers to communicate with one another, share ideas, and solve problems.
  • Co-creation – In these relationships, organizations go beyond the traditional customer-vendor relationship by encouraging customers to take a more active role in shaping what the product or service might be. For example, some companies encourage their customers to review their products, or create content that can be shared with others.

To think about how your business develops relationships with customers, you can use the Buy-Sell Hierarchy , Focus Groups , and Customer Experience Mapping to understand what your customers want from their experience, and then use this information to build the customer relationships you need.

Record your findings in the CR block of the Business Model Canvas.

KR: Key Resources

Your key resources are the things you most need to make your business model work, and different types of business need different types of resource.

Key resources may be owned by your company, leased, or used through some other arrangement with key partners.

Consider these questions:

  • What human resources will you need?
  • What financial resources will you need?
  • What physical resources will you need?
  • What intellectual property resources will you need?

Conduct a VRIO analysis to explore how you can make best use of the resources you have available.

Make a record of these key resources in the KR block of the Business Model Canvas.

KA: Key Activities

Your key activities are the most important business processes that your organization must use to operate successfully. Examples of these include designing, manufacturing, and delivering a product; providing new solutions to customers; or providing a platform on which customers are able to complete transactions.

List your key activities in the KA block of the Business Model Canvas.

KP: Key Partnerships

This is the network of partners, stakeholders and suppliers that you rely upon to make your business model work. Consider these questions:

  • What strategic alliances do you have in place to bring your product or service to market?
  • What partnerships are needed to access key resources such as areas of expertise, raw materials, or access to customers?
  • What partnerships allow you to access economies of scale?
  • Who have you joined forces with to minimize risk and uncertainty?
  • Who are the key stakeholders for your product or service? How can you create strategic partnerships with these people?

Conduct a Stakeholder Analysis to identify who has the most power and influence. And, as you evaluate potential partners, use our 10 Cs of Supplier Evaluation checklist to evaluate them carefully.

Write your key partnerships – both potential and present – in the KP block of the Business Model Canvas.

C$: Cost Structure

The last block you need to analyze is your cost structure. This looks at all of the operating costs that your business incurs as part of its business model. These costs should be easy to identify, now that you've defined your key resources, activities, and partnerships.

Record your findings in the C$ block of the Business Model Canvas.

Applying What You Have Learned

By working through the Business Model Canvas for your own company, you'll get a good insight into the things that really matter for your business.

You can use this understanding to make informed decisions about business areas that you are responsible for by checking, in particular, that your decision won't undermine the wider business in any way. You can also quickly identify business areas that will be improved by your decision, and this will help you "sell" your recommendations.

It also gives you a head start when you're scanning the business news or industry press for changes that will positively or negatively affect your business. You'll know the core things that your business depends on, and you can watch out for changes that affect these.

Another advantage of the Business Model Canvas is that it clarifies how your own part of the company affects, and is affected by, other departments. This helps all parts of the business co-operate with one another more efficiently.

The Business Model Canvas was developed by Alex Osterwald and Yves Pigneur, in collaboration with a community of business professionals at the Business Model Innovation Hub. It is a useful tool for designing and analyzing business models in an objective, structured way.

The Business Model Canvas incorporates nine building blocks:

Block 1: Customer segments.

Block 2: Value propositions.

Block 3: Channels.

Block 4: Customer relationships.

Block 5: Revenue streams.

Block 6: Key resources.

Block 7: Key activities.

Block 8: Key partnerships.

Block 9: Cost structure.

You can use the Business Model Canvas to develop a new business model, or refresh an outdated one; analyze the viability of a new business idea; and even to analyze your competitors' business models to discover opportunities for making your own business stand out.

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Business Model Canvas (BMC)

Business Model Canvas

What is the Business Model Canvas

Business Model Canvas (BMC) is a framework that helps determine how a business creates, delivers, and captures values. It is a visual representation of the important aspects or parts to consider when designing a Business Model.

BMC aids in constructing a shared understanding of a business by condensing it into a simple, relevant, and intuitively understandable one-page visual while not oversimplifying the complexities of how enterprises function.

This concept has been applied and tested around the world and is used in organizations such as GE, P&G, Nestlé, IBM, Ericsson, and Deloitte, including Government Services of Canada and many more [1],[2] .

The Nine Building Blocks

BMC describes a business through nine basic building blocks that show the logic of how a business intends to make money. These nine blocks cover the four main areas of a business: Customers, Offer, Infrastructure, and Financial Viability.

BMC acts as a shared language for describing, visualizing, assessing, and changing business models. It is like a blueprint for a strategy to be implemented through organizational structures, processes, and systems.

Nine building blocks of a business

Each of these blocks is explained in more detail as follows:

1. Customer Segments (CS)

These are the groups of people or organizations that a business aims to reach and serve. Customers are the heart of a business model, and without (profitable) customers, a business cannot survive.

Customers are grouped into distinct segments with common needs, common behaviors, or other attributes. Customer groups represent separate segments if:

  • Their needs require and justify a distinct offer.
  • They are reached through different Distribution Channels.
  • They require different types of relationships.
  • They have substantially different profitability.
  • They are willing to pay for different aspects of the offer.

An organization must make a conscious decision about which segment(s) to serve and which segments to ignore. Once this decision is made, a business model can be carefully designed around a strong understanding of specific customer needs.

The following two questions, if answered with clarity, help a business identify its CS.

  • For whom are we creating value?
  • Who are our most important customers?
  • What are the customer archetypes?

Examples of some of the Customer Segments are shown in the figure:

Examples of Customer Segments

2. Value proposition (VP)

Value Proposition describes the bundle of products and services that create value for a specific Customer Segment chosen by a business.

A VP is the reason why customers turn to one company over another. VP must solve a customer’s problem or satisfy a need. A business can have more than one VP, but each must consist of a selected bundle of products and/or services that caters to the requirements of a specific Customer Segment.

While some VPs may be innovative and represent a new or disruptive offer, others may be similar to existing market offers but with added features and attributes.

An organization’s VP must answer the following questions with clarity:

  • What value do we deliver to the customer?
  • Which one of our customer’s problems are we helping to solve?
  • Which customer needs are we satisfying?
  • What bundles of products and services are we offering to each CS?

Elements from some of the following can contribute to customer value creation:

Examples of Customer Value Propositions.

3. Channels (CH)

Channels describe how a company communicates with and reaches its Customer Segments to deliver a Value Proposition.

Channels are customer touch points that play an important role in the customer experience and serve several functions, including:

  • Raising awareness about a company’s products and services
  • Helping customers evaluate a company’s Value Proposition
  • Allowing customers to purchase specific products and services
  • Delivering a Value Proposition to customers
  • Providing post-purchase customer support

To establish an effective channel, a company must first answer the following:

  • Through which Channels do our Customer Segments want to be reached?
  • How are we reaching them now?
  • How are our Channels integrated?
  • Which ones work best?
  • Which ones are most cost-efficient?
  • How are we integrating them with customer routines?

There are five distinct phases (figure below) through which a channel passes, and it could cover more than one of these phases at a time.

Different phases of channels

Channels can be either direct, indirect or hybrid, as shown:

Different types of channels

Finding the right mix of Channels to satisfy how customers want to be reached is crucial in bringing a Value Proposition to market and can create a great customer experience.

4. Customer Relationships (CR)

Customer Relationships describe the types of relationships a company establishes with specific Customer Segments. Relationships can range from personal to automated. An organization’s CR strategy may be driven by one of the following motivators:

  • Customer acquisition
  • Customer retention
  • Boosting sales (upselling)

A business can arrive at the optimum CR by asking the following questions:

  • What type of relationship does each of our Customer Segments expect us to establish and maintain with them?
  • Which ones have we established?
  • How costly are they?
  • How are they integrated with the rest of our business model?

Several categories of Customer Relationships may co-exist in a company’s relationship with a particular Customer Segment. Some of which are:

Types of Customer Relationships

5. Revenue Streams (RS)

Revenue Streams represent the company’s cash (earnings) from each Customer Segment and are like the arteries of any business.

Revenue streams

There are two distinct categories of Revenue Streams:

  • Transaction Revenues which are one-time customer payments
  • Recurring Revenues that are ongoing payments to either deliver a Value Proposition to customers or provide post-purchase customer support

A business can arrive at its ideal revenue stream by asking the following questions:

  • For what value are our customers willing to pay?
  • For what do they currently pay?
  • How are they currently paying?
  • How would they prefer to pay?
  • How much does each Revenue Stream contribute to overall revenues?

There are several ways a business can generate revenue, such as:

Types of Revenue streams

A business may have one or more Revenue Streams, each with different pricing mechanisms. The choice of pricing mechanism greatly influences the revenues generated.

There are two main types of pricing mechanisms, Fixed and Dynamic, as follows:

Types of Pricing Mechanisms

6. Key Resources (KR)

The Key Resources describe the most important assets required to make a business model work.

These resources allow an enterprise to create and offer a Value Proposition, reach markets, maintain relationships with Customer Segments, and earn revenues. Different Key Resources are needed depending on the type of business model.

For example, a chip fabrication business like TSMC [9] requires capital-intensive facilities worth billions of dollars, while a chip designer like NVIDIA [10] would need skilled manpower as its Key Resource.

Key Resources can be owned or leased by a business or acquired from its key partners. They can be identified by answering the following questions:

  • What Key Resources do our Value Propositions require?
  • What resources are required to sustain our Distribution Channels, Customer Relationships and Revenue Streams?

Key Resources can be categorized as follows:

Key Resources

7. Key Activities (KA)

Key Activities describe the most important things a company must do to make its business model work. They are required to create and offer a Value Proposition, reach markets, maintain Customer Relationships, and earn revenues.

Key Activities differ depending on the business model type. For example, Microsoft’s Key Activity is software development, while for Dell, it is Supply Chain Management. For a consultancy firm like McKinsey, Key Activity is problem-solving.

A business can identify its Key Activities by answering the following questions:

  • What Key Activities do our Value Propositions require?
  • What activities directly contribute to maintaining our Distribution Channels, Customer Relationships and Revenue Streams?

Key Activities can be categorized as follows:

Key Activities

8. Key Partnerships (KP)

The Key Partnerships describe the network of suppliers and partners that make the business model. There are four types of partnerships:

Four types of partnerships

A business must ask the following questions before forming partnerships:

  • Who are our key partners?
  • Who are our key suppliers?
  • Which Key Resources are we acquiring from partners?
  • Which Key Activities do partners perform?

Primarily, there are three motivations for a business when creating partnerships, as shown:

Three motivators to creating partnerships

9. Cost Structure (CS)

Cost Structure describes all costs incurred to operate a business model. A business incurs costs in creating and delivering value, maintaining customer relationships, and generating revenue. Costs are business-specific, where some are more cost-driven than others.

A business must answer the following questions to arrive at an optimum cost structure:

  • What are the most important costs inherent in our business model?
  • Which Key Resources are most expensive?
  • Which Key Activities are most expensive?

While costs should be minimized in every business model, it is useful to distinguish between two broad classes of business model Cost Structures:

  • Cost Driven : This model focuses on minimizing costs wherever possible. This approach aims at creating and maintaining the leanest possible Cost Structure, using low-price Value Propositions, maximum automation, and extensive outsourcing. Examples: No frills airlines like Southwest & easyJet, Fast food joints such as McDonald’s & KFC.
  • Value Driven: Premium Value Propositions and a high degree of personalized service usually characterize value-driven business models. Examples: Luxury hotels, Expensive Cars like Rolls-Royce

Cost Structures can have the following characteristics:

characteristics of cost structures

Putting-it-all together

The nine business model Building Blocks form the basis for a handy tool, which is called the Business Model Canvas (figure below). This tool resembles a painter’s canvas preformatted with nine blocks that allow painting pictures of new or existing business models. It is a hands-on tool that fosters understanding, discussion, creativity, and analysis.

Template for The Business Model Canvas

BMC works best when printed out on a large surface such that groups of people can jointly note, sketch, and discuss business model elements.

Example of Business Model Canvas

Nespresso [17] , a fully owned daughter company of Nestlé, changed the dynamics of the coffee industry by turning a transactional business (selling coffee through retail) into one with recurring revenues (selling proprietary pods through direct channels).

The two-part strategy involved selling their patented coffee machine to retail customers first to lock them into the brand. This generated a recurring demand for coffee refills (pods) that led to constant revenues. These pods were sold directly through mail/website/own stores, thereby eliminating middlemen/dealers, which further increased profits [1] .

Nespresso’s strategy plotted on a Business Model Canvas looks as follows:

Example of business model canvas

Business Model Canvas helped Nespresso establish a solid and enduring foundation by engaging consumers directly and bringing a barista-like experience within the reach of a home or an office.

Advantages & Limitations

  • Encourages Collaboration – collaborative framework, which helps put different business stakeholders in sync. This improves the likelihood of generating new ideas and their quality.
  • Facilitates testing of ideas before launch – allows business owners, strategists, and managers to think through business ideas as well as test concepts that would otherwise get tested with potential customers where the stakes are higher.
  • Customer-centered approach – Key customer segments, relationships, activities, and value propositions are all elements that focus on creating, delivering, and capturing value for customers.
  • Clarity – Analyzing the business through the lens of nine blocks brings better clarity and structure to the business model.

Limitations

  • Lacks a section for defining the start-up’s mission statement, which is crucial to understanding the goals and objectives of any business.
  • Overlooks the importance of a profit mechanism beyond costs and revenues, including decisions on how to use potential profits.
  • The order of the canvas is not intuitive, making it difficult to read and understand the strategic decisions in a logical sequence.
  • Does not depict interconnections between different elements, which can have a significant impact on the overall business model.
  • Fails to acknowledge the company’s role within its ecosystem, including its impact on the environment and local communities.
  • External factors such as competition, history, and other industry-specific factors are absent from the canvas, which can greatly influence the success of a business model.

1. “A Better Way to Think About Your Business Model”. Harvard Business Review, https://hbr.org/2013/05/a-better-way-to-think-about-yo . Accessed 01 Aug 2023

2. “Business Model Generation”. Alexander Osterwalder, https://www.strategyzer.com/books/business-model-generation . Accessed 28 Jul 2023

3. “The Apple M1 is a revolution that is changing the computing world”. Citymagazine, https://citymagazine.si/en/apple-m1-is-a-revolution-that-changes-the-computer-world/ . Accessed 29 Jul 2023

4. “Mass Customization”. Corporate Finance Institute, https://corporatefinanceinstitute.com/resources/management/mass-customization/ . Accessed 29 Jul 2023

5. “Moka Pot”. Wikipedia, https://en.wikipedia.org/wiki/Moka_pot . Accessed 29 Jul 2023

6. “NetJets Homepage”. NetJets, https://www.netjets.com/en-us/ . Accessed 01 Aug 2023

7. “Distribution Channels – Definition, Types, & Functions”. Feedough, https://www.feedough.com/distribution-channels-definition-types-functions/ . Accessed 30 Jul 2023

8. “Lease from Hertz”. Hertz, https://www.hertz.com/rentacar/rental-car/car-lease . Accessed 30 Jul 2023

9. “TSMC”. Wikipedia, https://en.wikipedia.org/wiki/TSMC . Accessed 30 Jul 2023

10. “NVIDIA”. Wikipedia, https://en.wikipedia.org/wiki/Nvidia . Accessed 30 Jul 2023

11. “BMW, Daimler, Ford and Volkswagen team up on high-power charging network”. Techcrunch, https://techcrunch.com/2017/11/03/bmw-daimler-ford-and-volkswagen-team-up-on-high-power-charging-network/ . Accessed 31 Jul 2023

12. “Honda And Sony Combine Talents To Build Electric Vehicles”. Forbes, https://www.forbes.com/sites/peterlyon/2022/06/26/honda-and-sony-announce-joint-venture-to-build-electric-vehicles/ . Accessed 31 Jul 2023

13. “Uber and Spotify launch car music playlist partnership”. BBC, https://www.bbc.com/news/technology-30080974 . Accessed 31 Jul 2023

14. “Walmart Has the Scale and Infrastructure to Generate Positive Gains”. Yahoo Finance, https://finance.yahoo.com/news/walmart-scale-infrastructure-generate-positive-201822628.html . Accessed 31 Jul 2023

15. “Demand-Side Economies of Scope in Big Tech Business Modelling and Strategy”. MDPI, https://www.mdpi.com/2079-8954/10/6/246 . Accessed 31 Jul 2023

16. “The Business Model Canvas”. Strategyzer, https://www.strategyzer.com/canvas/business-model-canvas . Accessed 31 Jul 2023

17. “HomePage”. Nespresso, https://www.nespresso.com/us/en/ . Accessed 01 Aug 2023

18. “Business Model Canvas of Nespresso”. Alex Osterwalder, https://www.youtube.com/watch?v=dhQh-tryXOg . Accessed 01 Aug 2023

19. “Nespresso Capsule”. Electromall, https://electromall.net/product/nespresso-capsule/ . Accessed 01 Aug 2023

20. “The Best Nespresso Machine (But It’s Not for Everyone)”. Newyork Times, https://www.nytimes.com/wirecutter/reviews/best-nespresso-machine/ . Accessed 01 Aug 2023

21. “Business Model Canvas”. Think Design, https://think.design/user-design-research/business-model-canvas/ . Accessed 01 Aug 2023

22. “6 Problems with the Business Model Canvas”. The Pourquoi Pas, https://www.thepourquoipas.com/post/problems-with-the-business-model-canvas . Accessed 01 Aug 2023

  • The Johari Window Model
  • McKinsey 7S Model
  • Elaboration Likelihood Model of Persuasion

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IMAGES

  1. The Business Model Canvas Explained: Key Activities

    business model canvas key activities

  2. Business Model Canvas: A 9-Step Guide to Analzye Any Business

    business model canvas key activities

  3. Business Model Canvas

    business model canvas key activities

  4. How To Use The Business Model Canvas

    business model canvas key activities

  5. Examples Of Key Activities In Business Model Canvas

    business model canvas key activities

  6. Create a Business Model Canvas

    business model canvas key activities

VIDEO

  1. Business Model Canvas ( Key Activities & Customer Segment ) By Group 2 from class DEP4A S2

  2. 08 Business Model Canvas Key Resources

  3. Writing a Business Plan (Lesson 10): Business Model Canvas Overview

  4. BMC Part 3

  5. BUSINESS MODEL CANVAS

  6. Mr. Pradeep. R

COMMENTS

  1. Key Activities in the Business Model Canvas

    Key activities are the key things that you need to do in order to deliver your value propositions to customers . In this lesson, we look at what key activities are within the context of the business model canvas and how to identify them and use them correctly.

  2. Key Activities Block in Business Model Canvas

    In this article, we will look at the “Key Activities” block in the Business Model Canvas. We will cover, 1) an introduction to key activities, 2) questions to consider, 3) typical activities, 4) categories for key activities, and 5) a case study on LinkedIn.

  3. The Business Model Canvas

    Make a record of these key resources in the KR block of the Business Model Canvas. KA: Key Activities. Your key activities are the most important business processes that your organization must use to operate successfully. Examples of these include designing, manufacturing, and delivering a product; providing new solutions to customers; or ...

  4. Business Model Canvas (BMC): The Ultimate Guide

    Key Activities differ depending on the business model type. For example, Microsoft’s Key Activity is software development, while for Dell, it is Supply Chain Management. For a consultancy firm like McKinsey, Key Activity is problem-solving.

  5. How To Use The Business Model Canvas

    1. Customers Segments 2. Segment Composition 3. Problems, Needs, Behaviours & Current Alternatives Outcome Step 2 (of 10): Value Propositions What is Value? Outcome Step 3 (of 10): Channels Step 4 (of 10): Customer Relationships Step 5 (of 10): Revenue Streams Step 6 (of 10): Key Activities Outcome Step 7 (of 10): Key Resources Outcome