Business

New Generation Business Model – A Guide for Visionaries, Revolutionaries and Challengers

New Generation Business Model

One-sentence summary of “New Generation Business Model – A Guide for Visionaries, Revolutionaries, Challengers and Entrepreneurs“: Through many modern tools all organized around a matrix of nine units – called the business model canvas – this book gives client the method to invent, design and deploy new economic models or to challenge and change those that have become obsolete.

By Alexander Osterwalder & Yves Pigneur, 2011, 279 pages, Pearson Education France

Chronicle and summary of “New Generation Business Model“:

Form

New Generation Business Model” is a work in a format different from the books usually found on the subject. In paper format only, this book is qualitative. It is rather large, very visual and conceived with an original graphic design (many images, drawings, illustrations). A community of more than 470 professionals from 45 different countries participated in its creation.

Background

This book is presented as a guide for visionaries, revolutionaries and challengers who:

  • Have an entrepreneurial spirit;
  • Believe that yesterday’s practices and methods are outdated; and
  • Want to create value and develop new markets.

It includes theoretical concepts, exercises for the most part carried out in the form of workshops within their company; scenarios and real-world examples to illustrate the more theoretical aspects.

New Generation Business Model” addresses the logic and methods of intervention of economic models from the most traditional to the most revolutionary.

The objective of the book “New Generation Business Model

There have always been innovations. However, in recent years, the phenomenon is becoming increasingly important and disrupts the economic landscape.

The environment is becoming very competitive. The objective of “New Generation Business Model” is therefore to help us, in this context; to position our model or to consider its redesign.

Inventing business models means looking at new ways of creating value for companies, customers and society as a whole. Replace obsolete models.

To this end, “New Generation Business Model” answers how to:

  • Invent, design and deploy these new economic models;
  • Challenge and evolve those that have become obsolete; and
  • Transform visionary ideas into revolutionary economic models challenging traditional players or giving them a new lease on life.

Structure of the book

The work is split into five main sections:

  1. The economic model matrix: a tool for the description, analysis and design of economic models
  2. The typology of economic models: based on the concepts of the greatest entrepreneurs and thinkers of the entrepreneurial world.
  3. The design: techniques that help us design business models.
  4. The strategy: reinterpreted according to the economic model.
  5. A generic process: to help us design innovative business models, incorporating all the concepts, techniques and tools offered in “New Generation Business Model“.

The last two chapters are devoted to:

  • Perspectives; the authors propose five issues to explore for the future;
  • Behind-the-scenes of the creation of the book.

Chapter 1 – The Business Model Matrix

1.1 – Definition of an economic model or business model

An economic model (or business model) describes the principles according to which an organization creates; delivers and captures value.

The economic model proposed in “New Generation Business Model” consists of 9 units.

These 9 units:

  • Visually represent the economy of a company, that is, how it earns money.
  • Cover the 4 major dimensions of a company:
    • The clients,
    • The service,
    • The infrastructure,
    • The financial viability.

1.2 – The 9 basic units of the matrix of a business model

Unit 1: Client segments

Client segments define the different groups of individuals or organizations that a company targets.

The questions the company should ask when determining the client segments of a company are; For whom does the companycreate value? Who are its most important clients?

Examples of types of client segments described in “New Generation Business Model“: mass markets, niche markets, segmented markets, diversified markets, multilateral markets…

Unit 2: Value propositions

The value proposition provides a solution to a problem or satisfies a need. This decides the client to choose one company over another. Thus, the value proposition is a combination of products and / or services that meets the requirements of a given client segment. The value can be quantitative (price, speed of service…) or qualitative (design, client experience…).

The questions the company should ask are; What value do we provide to the client? Which problem do we help to solve? What needs do we meet? And what combinations of products and services do we offer to each client segment?

Examples of elements that can contribute to creating value for the client, described in “New Generation Business Model“; novelty, performance, personalization, accompaniment, design, brand / status, price, cost reduction, risk reduction, accessibility, convenience / ergonomics…

Unit 3: Channels

Products and / or services (value propositions) are provided to clients via communication; distribution and sales channels. The channels correspond to the different ways in which the company communicates and connects with its client segments.

The questions the company should ask are: What channels do our clients prefer? Which channels do we currently use and are they integrated? Which ones give the best results and are the most profitable? How do we integrate them into clients’ daily routines?

The channels are the following:

  • Direct (sales force, online sales) indirect channels (directly-operated stores, partner stores, wholesalers),
  • Internal (sales force, online sales, directly-operated stores) partner channels (partner stores and wholesalers).

The channels consist of five phases. Each channel can cover all or part of these phases. These 5 phases are:

  • Recognition: advertise the products and services;
  • Evaluation: have the products and services evaluated;
  • Purchase: allow clients to buy the products and services;
  • Service provided: provide a value proposition to the clients; and
  • After-sales: provide an after-sales service to clients.

Finding the right combination of channels to connect with clients; according to their preferences is essential to launching a value proposition in the marketplace.

Unit 4: Client Relations

The organization establishes and maintainsrelations with each client segment. These are therefore the types of relations that a company establishes with given client segments.

New Generation Business Model

The questions the business should ask are; What kind of relations does each of our client segments wish to maintain? What kind of relations have we established? And what is their cost?How do they fit with the other elements of our business model?

There are several types of client relations to establish based on strategic goals: acquiring new customers, retaining existing customers, or making additional sales.

Examples of categories of client relations described in; “New Generation Business Model“: personal assistance, dedicated personal assistance, self-service, automated services, communities, co-creation…

Unit 5: Revenue streams

When a value proposition is successful with its target, it generates revenue streams. This unit corresponds to the cash that the company generates from each client segment.

The questions the business should ask are: What are our clients willing to pay for? What are they currently paying for? How do they pay and would they rather pay? What is the contribution of each revenue stream to the overall revenue?

Examples of ways to generate revenue streams, described in “Business model – New Generation“: the sale of goods, the right of use, subscriptions, rental / lending, licensing, brokerage fees, advertising…

Each revenue stream has different price mechanisms. These revenues vary according to the type of mechanism chosen. There are two main types of price mechanisms:

  • Fixed prices: prices are predefined according to static variables (e.g., catalog price, price according to a product model, price according to client type, price according to quantity)
  • Dynamic prices: prices change according to the conditions (e.g., negotiated prices, yield management = price depending on the moment of purchase or stocks, market price in real time according to supply and demand, auctions).

Unit 6: Key Resources

The key resources account for the most important assets required for the business model of the organization (physical, intellectual, human, financial assets) to operate.

The questions the company should ask are: What key resources do our value propositions require? What about our distribution channels, our client relations, our revenue streams?

Key resources belong to the company. They are rented or obtained from partnerships. Four categories of key resources can be distinguished:

  • Intellectual resources: brand, patent, copyright, partnership…
  • Human resources
  • Physical assets: manufacturing sites, machines, computer system…
  • Financial resources and / or financial guarantees: cash, lines of credit, stock options…

Unit 7: Key Activities

Key activities are the most important actions a company must take to make its business model operate.

The questions the company should ask are: What key activities do our value propositions require? What about our distribution channels, our client relations, our revenue streams?

The Key activities of a company can be related to:

  • Production,
  • Problem solving,
  • The platform or the network.

Unit 8: Key Partners

Some activities are outsourced and some resources are acquired outside the company. This unit describes the network of suppliers and partners that makes the business model operate.

There are 4 main types of partnerships:

  • The strategic alliance between non-competing companies,
  • Coopetition: strategic partnerships between competitors,
  • Joint ventures to develop new activities,
  • The buyer-supplier model to ensure reliable services.

The questions the company should ask are: Who are our key partnerships and suppliers? What key resources do we obtain from these partners? What key activities do our partners lead?

Partnerships may have different objectives:

  • Optimize the allocation of resources / activities and reduce costs,
  • Minimize risk and uncertainty,
  • Acquire certain resources and activities.

Unit 9: cost structure

The elements of the economic model create the cost structure, that is, all of its inherent costs.

The questions the company should ask are: What are the most important costs related to our economic model? Which key resources / key activities are the most costly?

There are two main categories of cost structures. There are those based on a logic of:

  • Costs (cost-driven): An attempt to minimize costs wherever possible.
  • Value (value-driven): There is more concern with creating value than costs (premium service, personalization of the service).

Cost structures may have the following characteristics:

  • Fixed costs: The costs are the same regardless of the volume of goods or services produced;
  • Variable costs: Costs vary in proportion to the volume of goods or services produced;
  • Economies of scale: These are cost advantages that accrue to a company as its output increases;
  • Economies of scope: These are cost advantages to a company because of a more diversified activity.

1.3 – The matrix of the economic model, or business model

If only I had the matrix when I was working on a particularly complicated project […]! It would have been immensely helpful in showing all the members of the project a concise, visual representation of the issues, the (important) role of everyone in the system and the interdependencies. We would have spared ourselves hours of explanations, discussions and misunderstandings. 

The 9 units form the matrix of the economic model.

New Generation Business Model

The matrix template of the economic model is a concrete tool that:

  • Allows to build and depict any economic model;
  • Promotes understanding, discussion, creativity and analysis.
  • Clarifies the 9 units and splits it into two parts: the left matrix for efficiency and the right matrix for value (the authors make the comparison with our left brain guided by logic and our right brain guided by emotions).

Alexander Osterwalder and Yves Pigneur advise working on this matrix using large sheets of paper (a format of this matrix can be downloaded from the Business Model Generation website).

As a concrete example, the book proposes the matrix of Apple.

Chapter 2 – The typology of the economic model, or business model

In this chapter, Alexander Osterwalder and Yves Pigneur want to share known concepts in a standard format – that of the matrix of the economic model – so that they are immediately usable when designing a business model. These five concepts, or motifs, are: unbundling, long tail, multifaceted platforms, no-cost services and open economic models. An economic model can include several motifs.

2.1 – Motif # 1: Unbundling

Examples of unbundled companies: the mobile telephony and private banking sectors.

There are 3 different types of unbundled organizations:

  • Companies based on product innovation
    • Role: develop new and attractive products and services.
    • Economy: high prices, acquisition of important market shares (due to recent entry into the market) and speed.
    • Culture: battle for HR, low barriers to entry, prosperity of many small players.
    • Competition: focused on employees.
  • Companies based on client relationship
    • Role: find and acquire clients, build relations with them.
    • Economy: economies of scope (because client acquisition cost is high).
    • Culture: battle for scope, dominance of a small number of big players.
    • Competition: service-oriented and “client first” mentality.
  • The “infrastructure” companies
    • Role: Build and manage platforms that handle large volumes of repetitive tasks.
    • Economy: high fixed costs (hence the quantity needed to have low unit costs), economies of scale.
    • Culture: battle for scale, dominance of a small number of big players.
    • Competition: cost-focused, emphasis on standardization, predictability and efficiency.

The book provides examples to show concretely where these 3 activities are found:

  • In a private bank: description of conflicts and undesirable arbitrations created by a “bundled” economic model).
  • With mobile telephone operators: description of how unbundling enables mobile operators to focus on new key activities.

2.2 – Motif # 2: Long Tail

Sell a wide variety of products in small quantities

The so-called “long tail” economic models aim to sell a small number of niche products (e.g., Netflix, eBay, YouTube, Lulu.com, LEGO, Facebook…).

This phenomenon has been described by Chris Anderson. It proves that a large number of back-of-the catalog products that are sold sporadically can eventuallyrepresent, in total, a significant share of turnover (an income equivalent or even greater than that resulting from the sales of the best-selling products).

New Generation Business Model

In fact, the configuration of the long tail, regarding sales, is as follows:

  • A “top 20%”, which represents a small number of products, each selling in large quantities;
  • The long tail (the remaining 80% of sales),  whichcorresponds to a large number of products, each sold in small quantities.

The long tail therefore goes against the 80/20 rule generally applied to products sold.

The factors of the long tail

According to Anderson, three factors contributed to the emergence of this phenomenon in the media sector:

  • The democratization of production products;
  • The democratization of distribution;
  • Lower research costs to bring supply and demand together.

The long tail economic model should be accompanied by:

  • Low storage costs;
  • Powerful distribution platforms allowing good visibility to niche content.

Examples of “long tail”

The authors explain two very telling examples about this concept:

The transformation of publishing (Lulu.com):

It is now possible to publish your book by yourself (Lulu.com). This new model has, in fact, reversed the traditional best-seller model by helping lesser-known and amateurauthors to put their books on the market and by removing traditional barriers to entry.

The LEGO company:

Users can now create their own models and order them online (LEGO Factory). They can also distribute and sell their kits online (LEGO users catalog). 

2.3 – Motif # 3: Multifaceted Platforms

Multifaceted platforms act as an intermediary between two (or more) distinct but interdependent client groups. They are only valuable to a client group if the other client groups are also present (e.g., Visa, Google, eBay, Microsoft Windows, Financial Times…).

In fact, the platform creates value by making the interactions between different groups possible. The more users there are, the more valuable the platform becomes (network effect).

In the book, three concrete examples are used:

  • Google
  • Nintendo Game Consoles (PSP / Xbox), Sony (Wii) and Microsoft
  • Apple (iPod, iTunes, iPhone): With the iPhone, the company has become the operator of a powerful multifaceted platform, the App Store.

2.4 – Motif # 4: No-cost Services

In this model, at least one large client segment can benefit from a free service on an ongoing basis. The segment that does not pay is subsidized by another component of the business model or by another segment of clients (e.g., Metro free newspaper, Flickr, Open Source, Red Hat, Gillette, Skype, Google, free mobile phones…).

In the book, three concrete examples are used:

  • The free service offered by multifaceted platforms and based on advertising;
  • Free basic services with optional premium services (the “freemium” model);
  • The so-called “bait and hook” model according to which a free or inexpensive initial service leads consumers to buy.

2.5 – Motif # 5: open economic models

Open economic models are about creating and capturing value by collaborating with external partners (e.g., Procter & Gamble, GlaxoSmithKline, InnoCentive).

Two ways:

  • Innovation “outside-in”, from the exterior to the interior => exploitation of external ideas by the company

The company brings external ideas, technologies or intellectual property into its development and commercialization processes.

  • Innovation “inside-out”, from the interior to the exterior =>bringing unused ideas or assets to external partners

The company assigns license fees, patents, technologies, unused assets.

Chapter 3 – Design, according to “New Generation Business Model”

In this chapter of the “New Generation Business Model”, techniques and tools borrowed from the world of design are described. It’s about pushing the boundaries of thought, generating new options, and ultimately creating value for users.

This part describes six techniques for designing economic models: know-your-client information, idea generation, visual thinking, prototyping, storytelling, and scenarios.

Each technique is introduced by an example that illustrates its relevance in the creation of a business model. Throughout this section, Alexander Osterwalder and Yves Pigneur also suggest exercises, practical workshops and bibliographical references.

3.1 – Know-your-client Information

It is paramount to know your client in order to create economic models.

New Generation Business Model

Putting oneself in the client’s shoes is a principle that governs the whole process of designing the economic model. It must guide and motivate all our choices: value proposition, distribution channels, client relationship, revenue stream. […] There is no successful innovation without thorough knowledge of the consumer – environment, routines, concerns and aspirations.

We also need to know which consumers to listen to and which ones to ignore.

The design of a client-centric economic model:

According to Alexander Osterwalder and Yves Pigneur, it is necessary to move from an organization-centric economic model to a client-centric economic model. To do so, the questions of the company must change in the following way:

  • What can we sell to clients? => What does our client need and how can we help?
  • How to reach clients more effectively? => How do our clientswant us to communicate with them? How, as a company, do we fit into their routines?
  • What kind of relationship do we need to establish with clients? => What kind of relationship do our clients want us to establish with them?
  • How to earn money with our clients? => What are our clients really willing to pay for?

The empathy map

It is a “really simple client profiling ” tool, developed by the company XPLANE, specialist in visual thinking, which:

  • Allows to go beyond the demographic characteristics of clients;
  • Helps to understand their environment, their behavior, their concerns and their aspirations;
  • Establishes a client profile to lead us to better design choices (regarding value proposition, distribution and client relationship);
  • Leads to a better insight into what a client is willing to pay for.

The questions to ask in order to make an empathy map with one’s client are:

  • What are they seeing? => one wonders about their environment, their friends, what the market is offering.
  • What are they hearing? => one wonders what their friends are saying, what their boss is saying, what the people they care about are saying.
  • What do they really think and feel? What are they saying or what are they doing? => one wonders what is really important for them, their major concerns, their worries and their aspirations.
  • What do they fear? => one wonders about their suffering, their fears, their frustrations, the obstacles they encounter.
  • What do they hope for? => one wonders about their earnings, their desires / needs, their criteria for success, the obstacles they encounter.

3.2 – Generation of ideas, or ideation

Innovation to create value and generate income

To design an innovative economic model is to invent new mechanisms to create value and generate income. The idea is to create original models that respond to unmet, new or hidden needs of consumers.

For this to happen, Alexander Osterwalder and Yves Pigneur advise us to:

  • Challenge orthodoxies,
  • Ignore the status quo,
  • Forget the past,
  • Not focus on competitors.

The two major phases of idea generation

  • Production of ideas: in large quantities;
  • Synthesis: Ideas are debated, combined and reduced to a limited number of viable options.

An option does not necessarily refer to a disruptive economic model. These may be innovations that disrupt the boundaries of an existing model to improve competitiveness.

The different ways to undertake the idea generation process

  • The 4 epicenters of the matrix of the economic model
    • Resources: The innovations that emerge from this epicenter are rooted in the organization’s infrastructure or its partners in order to extend or transform the existing economic model.
    • Supply: This type of innovation creates new value propositions that impact other units of the economic model.
    • Clients / Consumers: These innovations are based on consumer needs, better accessibility or greater convenience. Like all innovations from a single epicenter, they influence the other units of the economic model.
    • Finances: These are innovations that rely on new revenue streams, new price mechanisms, or better-performing cost structures that affect other units of the economic model.

Change is also rooted in areas identified through SWOT analysis: an exploration of the strengths, weaknesses, opportunities and threats of a given economic model.

  • The “What if…” questions

These type of questions helps us to get rid of the constraints of the models in place. They must provoke us, challenge our way of thinking and disturb us.

  • The idea generation process 
    • Team composition:

To be effective, the team must include various profiles. A diverse team is a team whose members:

      • Belong to different business units;
      • Are of varying ages;
      • Have distinct areas of expertise;
      • Represent different hierarchical levels;
      • Have diverse working experience;
      • Come from different cultural backgrounds.

Immersion:

It can last several weeks or the duration of some workshops (research, studies of clients or prospects, evaluation of new technologies or existing models, empathy map).

Expansion:

The quantity of ideas (and not the quality) is what is sought. To maintain the creative momentum, maximize the number of ideas and prevent critics from intervening too early, it is essential to define brainstorming rules:

  • Do not spread yourself too thin,
  • Enforce the rules,
  • Think visually,
  • Get in the mood.

Selection Criteria:

At this stage of the process, it is a question of defining criteria to reduce one’s choice to a reasonable number of ideas according to the context, the time of deployment, the income potential, the possible pushback from clients and the impact on the competitive advantage.

Prototyping:

Once the selection criteria have been defined, we reduce the number of ideas to a list of three to five innovations. Then, we will use the matrix to see and evaluate each idea in the form of a prototype economic model.

3.3 – Visual thinking

Visual thinking is about using visual tools like pictures, drawings, graphics, post-it to give meaning and fuel the discussion. In fact, it is often used in reports, but it is interesting to employ it more in discussions.

  • Two visual thinking techniques
    • The use of Post-it:

Post-it is a container of ideas that can be added, removed, and moved from one part of the economic model to another. They are a catalyst for the strategy debate.

  • The use of drawings in conjunction with the matrix:

The human being is more receptive to images than words. The images or drawings deliver an instant message. They make it possible to show, explain and communicate one’s economic model via a simple representation.

  • Four processes made more efficient with visual thinking
    • Comprehension:

The matrix of the economic model is a conceptual map that functions as a visual language; it is an illustrated guide to all the information needed to shape an economic model.

It allows:

  • To represent and see, in a simplified way, the reality of a company, with its processes, structures and systems.
  • To become acquainted with the elements of an economic model and to understand the interdependence between the elements.

Conversation:

By visualizing the economic model, the image makes the business model tangible and sustainable. The latter becomes a point of reference to which participants can refer at any time. The image thus provides a common vocabulary that facilitates a collective understanding between participants: everyone speaks the same language and of the same thing.

Exploration of ideas:

Serving as starting point, the ideas positioned in the matrix will trigger new ones. The matrix then becomes a fun tool to explore a multitude of ideas.

Communication:

A compelling visual story that accompanies our discourse increases our chances of selling our ideas and projects (internally, to third parties, employees or potential investors). It is true that images, by their immediate impact, reinforce our argumentation and immediately communicate the status of our organization, what needs to be done, how and what it could look like in the future.

New Generation Business Model

To illustrate the ideas of the chapter, Alexander Osterwalder and Yves Pigneur develop, in pictures, the example of Skype. Then, they suggest a workshop: explaining an economic model by telling a visual story; image by image (with PowerPoint or, for more effects, with Post-it). This kind of presentation allows an audience to progressively assimilate information.

3.4 – Prototyping

Prototypes represent potential future economic models. Consequently, prototyping is a tool for reflection which:

  • Enables abstract concepts to become tangible;
  • Facilitates the reception and the exploration of new ideas;
  • Leads to probe different directions towards which to drive our business model.

Old way of thinking Vs New way of thinking

Alexander Osterwalder and Yves Pigneur invite us to forget the old way of thinking in favor of adopting a new way of thinking. In that respect, one must evolve as follows:

  • A limited number of economic models dominate a sector => There are several economic models by and between sectors.
  • The sector dictates business models (outside-in) =>Economic models transform sectors (inside-out).
  • Linear thinking => Opportunistic thinking.
  • Opting early on for an economic model => Exploratory research of an economic model.
  • Business modelfocused on implementation =>Business model  focused on design.
  • Business modelfocused on efficiency =>Business model focused on value and efficiency.

Design attitude

Adopting the design attitude is to think in depth about several types of economic models and then developing an argument in favor of a given model.

This would discover new and more efficient economic models by developing various strategic options via numerous prototypes. We then explore new ideas, even absurd or impracticable, by adding to and removing elements from each prototype.

According to the authors, this experiment can be conducted at different levels:

  • A drawing on a paper napkin: outline and highlight a rudimentary idea.
  • The elaborate matrix: explore what it would take for the idea to work.
  • The argument: examine the viability of the idea.
  • The field test: study client acceptance and feasibility.

To finish this part on prototyping:

  • A concrete example is developed: eight different ways to publish books (each prototype highlights different elements of its model).
  • An exercise is suggested: the search for a new economic model for a consulting activity.

3.5 -Storytelling

Storytelling, what for?

Introduce what is new:

A good story is a convincing way to outline an idea.

Explaining a new economic model that has never been experienced is like describing a painting. But telling a story about how the model creates value is like applying colors to the canvas. It makes things tangible.

Defend your ideas with investors:

Telling a story that shows how our business model solves the problem of a client instantly conveys our idea to our listeners. It is clearer and this then allows us to explain our model in detail.

Gain the support of employees:

Capturing the attention and curiosity of those who listen to us paves the way for substantive discussions. The story is then the ideal tool to build support. The human being is, in fact, more responsive to stories than arguments.

Gently bring your listeners into the new or the unknown by constructing a story based on the logic of your economic model.

Bring the economic models to life:

We can easily give life to our new economic model by developing a story. Short stories that portray a single protagonist are preferable. Depending on the audience, it is possible to use different characters with different perspectives: a business perspective / collaborator or a client perspective.

Make the future concrete:

Stories are interesting tools for staging different visions of the future. This helps to:

  • Question the established order and generate ideas;
  • Justify the adoption of a new economic model.

Storytelling techniques

There are different ways to tell a story (lyrics + images, video clips, role play, text and image, comics…). Each technique has its pros and cons. We will therefore adapt our technique according to the audience and the context of our presentation.

3.6 – Scenarios

Scenarios contribute to the process of developing the economic model by giving “flesh to the context”.

In the book “New Generation Business Model”, two types of scenarios are presented:

  • A storyline that relies on client knowledge and takes place in various client-side settings.

The example of scenarios written by a mobile service operator is detailed (these services use GPS and seek to develop new innovative economic models).

  • A storyline that portrays future environments that could face an economic model.

In fact, the goal is to imagine, in detail, future possibilities. This exercise helps innovators to determine the most relevant business model for each environment because it:

  • Calls into question the possible developments of a model under certain conditions;
  • Allows to better understand the model and make any necessary adjustments to it.

In short, this type of scenario helps to look to the future. This is called “scenario planning”.

To conclude the chapter, Alexander Osterwalder and Yves Pigneur develop an example in the pharmaceutical industry and suggest a scenario exercise for the future.

Chapter 4 – Strategy, according to “New Generation Business Model”

4.1 – Environment

Acquiring a good knowledge of the environment of your company allows you to build stronger and more competitive economic models. Likewise, understanding current changes helps us better adapt our economic model to unstable external forces.

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In order to better understand the “design space” of its model, it is wise to map four major dimensions of its environment:

  • Market forces (market analysis)

    • Issues: identify the key issues that guide and transform our market.
    • Market segments: identify the main market segments, describe their appeal and determine new segments.
    • Needs and demands: determine the needs of the market and evaluate the responses to them.
    • Switching costs: document the factors concerning clients lost to competitors.
    • Lures of revenue stream: Identify the elements related to the lure of revenue stream and pricing power.
  • Strengths of the sector (competitive analysis)

    • Competitors (historical players): identify the established players and their assets.
    • New Entrants: Identify new players and determine if their economic model is different from yours.
    • Substitute products and services: expose the potential substitutes for our services (including those from other sectors and markets).
    • Suppliers and other players in the value chain: identifying the key players in the value chain in our sector and emerging ones.
    • Stakeholders: specify which actors can influence our organization and our economic model.
  • Key trends (prospective)

    • Technological: identify technological trends that could threaten our economic model, or, conversely, promote its evolution or improvement.
    • Regulatory: describe the regulations and regulatory trends that influence our economic model.
    • Cultural and societal: identify major societal trends that could impact our economic model.
    • Socio-economic: outline the socio-economic trends relevant to our economic model.
  • Macroeconomic forces (macroeconomics)

    • Economic situation: analyze the context from a macroeconomic aspect.
    • Financial markets: detail the current situation of financial markets for our capital needs.
    • Raw materials and other resources: research current prices and price trends for resources needed for our economic model.
    • Economic infrastructure: describe the economic infrastructure of the market in which our company operates.

To illustrate how studying the environment can be concretely carried out, the authors cite the example of the pharmaceutical industry.

4.2 – Evaluation of economic models

Regularly diagnosing the economic model is essential. This allows the company to evaluate its position in the market and to adapt either by making improvements or by innovating.

The book mentions two types of evaluation:

  • The example of Amazon: comprehensive assessment of the economic model of online sales.
  • The SWOT example whichanalyzes strengths, weaknesses, opportunities and threats.

The SWOT analysis raises 4 simple but essential questions:

  • The first two relate to the strengths and weaknesses of the company: these questions make it possible to evaluate the organization from within.
  • The following 2 relate to the opportunities and threats facing the company: these questions help to assess the organization’s position in its environment.

It is important to submit to these four questions:

  • The overall configuration of our economic model; and
  • The nine units of the business model matrix: the authors propose a checklist (lists of questions) to help think about each unit of their model.

These two types of evaluation (big picture and components) are indeed complementary.

Ultimately, the SWOT diagnosis provides:

  • An overview of the current position of one’s company (strengths and weaknesses); and
  • Trajectories for the future (opportunities and threats).

4.3 – The Blue Ocean Strategy and Business Model

What is the Blue Ocean strategy?

The basic idea of the Blue Ocean strategy is:

Instead of remaining in its traditional market and making incremental changes to its economic market; the company must seek to create an entirely new market space through fundamental differentiation. It is no longer a question of prevailing over the competition with the traditional weapons of the sector, but of creating new strategic spaces using, what the authors call, “value innovation”.

The objective is then to be able, at the same time:

  • To increase value for customers by creating new benefits and services; and
  • To reduce costs by eliminating features or services of lesser value.

The four actions framework

This approach is based on an analytical tool called the “four actions framework”, actions themselves based on four key questions:

  • Exclude: which factors, regarded for years by our sector as factors of competitiveness, is it possible to eliminate?
  • Strengthen: which factors should be strengthened?
  • Reduce: which factors should be reduced?
  • Create: Which elements, absent so far from the sector, should we create?

To illustrate what the Blue Ocean strategy is, Alexander Osterwalder and Yves Pigneur give two examples: Cirque du Soleil and Nintendo’s Wii.

4.4 – Management of several economic models

The challenge for companies is to deploy and manage new models all while maintaining existing ones.

To help us simultaneously manage our new business models and traditional business models; ConstantinosMarkides offers a two variable grid:

  • The first variable expresses the degree of conflict between models; and
  • The second variable expresses strategic similarity.

The book “New Generation Business Model” explains two ways to proceed: either by integration or by a gradual separation of economic models.

To fully understand, three examples are explored:

  • The Swiss watchmaker SMH: who chose the path of integration for his new Swatch economic model in the 80’s.
  • The Swiss food group Nestlé: who chose the path of separation to launch Nespresso.
  • The German car manufacturer Daimler who has not yet decided for their car2go car rental concept

Chapter 5 – The Process, according to “New Generation Business Model”

5.1 – The five phases of the design of a business model

The process described by the authors is a basis that they propose to customize according to its organization. Moreover, it should be noted that the progression between the different phases is not necessarily linear.

The process has five phases:

Phase # 1: Mobilize

This phase consists of setting up the necessary conditions for the success of the project. The focus is on the framework to create.

  • Activities:
    • Reconcile project objectives,
    • Test the preliminary ideas,
    • Plan, and
    • Gather a team.
  • Key factors for success: Bring together the right people, the right experiences and the right knowledge.
  • Threat: Overstating the value of initial ideas.

Phase # 2: Understand

This phase consists of collecting and analyzing the essential elements to initiate reflection. The focus is on immersion.

  • Activities:
    • Sound out the environment,
    • Study potential clients,
    • Hear from experts,
    • Look for what has already been tried (what has failed, and why?), and
    • Collect ideas and points of view.
  • Key factors for success:
    • In-depth knowledge and understanding of potential target markets,
    • Observe beyond the traditional boundaries that define the target markets.
  • Threats:
    • Too much research: risk losing sight of objectives,
    • Biased research because of early support of certain ideas.

Phase # 3: Design

This phase consists of creating and testing viable options, then choosing the best ones. The focus is on questioning.

  • Activities:
    • Brainstorming,
    • Prototyping,
    • Testing, and
    • Selection.
  • Key factors for success:
    • Co-creation with employees from all over the company,
    • Ability to look beyond the status quo.
  • Threats:
    • Reduce or eliminate bold ideas,
    • Falling too quickly in love with an idea, and
    • Exploration phase of various ideas of an economic model.

Phase # 4: Deploy

This phase consists of deploying the prototype of the model on the ground. The focus is on execution.

  • Activities:
    • Communicate and involve,
    • Execute.
  • Key factors for success:
    • Project management,
    • Ability and willingness to quickly adapt the model,
    • Align “old” and “new” models.
  • Threat: a weak or slow dynamic.

Phase # 5: Manage

This phase consists of adapting and modifying the model in response to market reactions. The focus is on development.

  • Activities:
    • Explore the environment,
    • Regularly evaluate its economic model,
    • Modernise or rethink its business model,
    • Align economic models within the organization, and
    • Manage synergies or conflicts between models.
  • Key factors for success:
    • Long-term perspective,
    • Proactivity,
    • Governance of economic models.
  • Threats: become a victim of your own success and not know how to evolve.

5.2 – The starting point of the innovation process

The creation of an economic model

When undertaking the creation of a new economic model, a company pursues one of the four following objectives:

  • Address existing unmet market needs;
  • Launch new products, services or technologies on the market;
  • Improve or modify an already existing market with a better economic model;
  • Create a new market.

The case of already established companies

In long-established companies, thinking about the design of a new economic model is usually undertaken for one of the following four reasons:

  • In response to a crisis of the existing model (it may even be that the company almost went out of business).
  • To adapt to the changing environment: it will then adjust, improve or protect the existing model.
  • In view of an expansion: in this case, it launches new products, services or technologies on the market.
  • To prepare for the future by exploring and testing completely new economic models that could replace existing models.

Chapter 6 – Outlook, according to “New Generation Business Model”

6.1 – The design of non-profit economic models

This is about the public sector and the voluntary sector. In these sectors, there are actually two types of economic models:

  • Those financed by external funds;
  • So-called “triple bottom line” models with a strong ecological and / or social mission.

According to Alexander Osterwalder and Yves Pigneur; solving the current big problems requires bold new economic models. Therefore, they explain how the business model matrix is used to drive innovative non-profit economic models.

Also, because of their distinct sources of revenue, these two models have very different configurations and constraints that are important to consider in the use of the matrix.

6.2 – The design of computer-assisted economic models

In order to invent innovative models, human creativity cannot be dispensed with, but computer-assisted systems can help us to apply more sophisticated and complex manipulations to models.

In this part, the authors of “New Generation Business Model” review the advantages of the design of economic models in “paper” version and “computer-assisted” version.

Some of the advantages of designing a computer-assisted business model include:

  • The ease of creation, storage, manipulation and monitoring of economic models;
  • The fact that it allows to collaborate remotely;
  • The possibility of fast and complete simulations (financial in particular);
  • A facilitated design: critical systems, databases of economic models, ideas of motifs, control mechanisms.

6.3 – Relationship between economic models and business plans

A business plan aims to describe a project and its implementation. It can also serve as a guide for deployment.

New Generation Business Model

The authors of “New Generation Business Model” suggest to develop its business plan in six major parts :

  1. The Team:
    • Profiles
    • Reasons of why we are a winning team
  2. The Economic Model:
    • Vision, mission and values of the organization
    • Operation of our economic model
    • Value proposition
    • Target markets
    • Marketing plan, and
    • Resources and key activities
  3. The Financial Analysis:
    • Profitability analysis
    • Scenarios and sales projections
    • Capital expenditure
    • Operating costs, and
    • Financing requirements
  4. The Environment:
    • Economic Context
    • Market analysis and key trends
    • Competitive analysis, and
    • Competitive advantages of our model
  5. The Implementation:
    • Projects
    • Milestones, and
    • Road map
  6. The Risk Analysis:
    • Limiting factors and obstacles
    • Key factors for success, and
    • Specific risks and countermeasures

6.4 – The difficulties in deploying economic models

There are five areas to be reconciled:

  1. The strategy: What are our strategic goals and how do they drive our business model?
  2. The structure: what kind of organizational structure does our economic model require?
  3. The process: What information streams, processes and workflows are required for our economic model?
  4. The rewards: What rewards system does our model require, and how to motivate our “troops”?
  5. The employees: what kind of people, with what skills, does our model require and what is the mindset that suits our model?

6.5 – The alignment of economic models and company information systems

It is fundamental that information systems are consistent with the objectives of the company. In this part, Alexander Osterwalder and Yves Pigneur explain how to associate the matrix with an approach called “urbanization of the information system”, through three perspectives: strategy, applications and technology.

Book critique of New Generation Business Model – A Guide for Visionaries, Revolutionaries and Challengers”

The first thing that struck me with this book is its artwork: very visual, very enjoyable and very aesthetic. In the same manner, paper and graphic design are equally of great quality.

In terms of the content, “New Generation Business Model” provides the language, the tools and the techniques necessary to any entrepreneur who wishes to design new innovative and competitive models.  Also, it does so in a concise and simplified way. The canvas of the matrix is an easy-to-use tool to support the idea of a new project. The exercises are well explained. The more theoretical content is illustrated with real examples and striking visuals.

For these reasons, “New Generation Business Model” is a very instructive book. By its appearance and its clear and visually pleasing content, this work truly stands out from other marketing books out there.

Strong points :

  • The attractive format of the book: its artwork and its carefully produced and enjoyable illustrations make it a very beautiful book, pleasant to read;
  • The right mix of theory and practice;
  • Well-explained exercises and illustrative examples; and
  • Rich content that is simultaneously concise, structured, schematic, and easy to understand.

Weak point :

  • The book is not available in electronic format (that being said, one can understand, given the strong focus on the aesthetics of the work).

My rating : client model economic client model economic client model economicclient model economicclient model economicclient model economicclient model economicclient model economicclient model economic

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