Utility of BMG, Compatibility with PTW, About the Entrepreneurs Book Guide

Continuing this week’s impromptu series on popular strategy frameworks, I delve into Business Model Generation & Playing to Win: Utility & Compatibility. Previously, I’ve explored Jobs to be Done & Playing to Win and Blue Ocean Strategy & Playing to Win. This marks the 26th installment in my Playing to Win Practitioner Insights (PTW/PI) series, adding to the previous 136 pieces available for reference.

Background Insights

The genesis of Business Model Generation (BMG) dates back to 2010, originating from the collaboration between Alex Osterwalder and Yves Pigneur. What I find particularly intriguing is the dynamic between a student, Osterwalder, and his professor, Pigneur. This mirrors my own experiences, having had the privilege of co-creating and co-authoring with my student, Jennifer Riel, who has since blossomed into a leading partner at IDEO and a formidable thinker and writer in her own right.

The noteworthy aspect of BMG is its departure from being solely branded as a strategy framework or book. While it delves into strategy around page 200, its primary focus is on business models. Despite its Swiss precision, BMG stands out as a more encompassing strategy framework compared to others. Concepts like Jobs to be Done, Disruptive Innovation, Three Horizons, Customer Loyalty, and Time-based Competition all contribute valuable insights to strategy formulation. However, they lack the comprehensive structure of BMG.

click here to check the-Business Model Generation

Upon revisiting BMG for this piece, I found its contemporary relevance remarkable. Despite being 13 years old, it remains pertinent. Its thorough examination of two-sided markets/platform business models particularly caught my attention. Notably, seminal works by Rochet & Tirole and Parker & Van Alstyne on this subject emerged in 2003 and 2005, respectively. Considering the rapid evolution of ideas, the gap between their publications and BMG’s writing, presumably between 2007 and 2009 for its 2010 release, is minuscule. While their analysis of platform businesses like Apple, Red Hat, Google, and Facebook may seem commonplace in 2023, it was pioneering in 2010, impressively ahead of the curve.

Furthermore, I must express my admiration for BMG’s visual presentation. It demonstrates that even a weighty tome can adopt a playful and approachable aesthetic. The departure from conventional publishing norms is commendable, and credit is due to designer Alan Smith for spearheading this innovation.

Utility of BMG

In my observation, there are only two widely utilized comprehensive models for crafting strategy in the business realm: PTW and BMG. While many enthusiasts may consider Blue Ocean Strategy (BOS) as the third, I perceive BOS to occupy a middle ground between a strategy concept and a comprehensive framework. As I highlighted in my previous discussion on BOS, I genuinely appreciate its ideas. However, I don’t view it as a holistic model for guiding a company from a state of strategic uncertainty to clarity. Instead, I see it as a framework for navigating specific strategic endeavors within certain contexts. Nonetheless, if others prefer to regard three comprehensive strategy frameworks, including BOS, I respect that viewpoint.

Moreover, I acknowledge that many other strategy enthusiasts may claim to have devised comprehensive strategy models, and undoubtedly, many have. However, I haven’t encountered any such model widely utilized, or even narrowly so, across the business landscape, reinforcing my perspective that only two models enjoy widespread adoption.

Certainly, numerous strategy scholars advocate for the Resource-Based View (RBV) of the firm as not only the most crucial strategy framework but also the sole correct one. I’ve articulated my stance on RBV previously in this series, sparing the repetition of arguments which can be found here and here. In essence, I find it of limited utility as a strategy framework, a sentiment shared by the business community. Despite 39 years passing since Birger Wernerfelt’s seminal article on RBV, and my advising firms on strategy throughout that time span, RBV’s presence remains negligible in practical business contexts. While it may be utilized by some practitioners unbeknownst to me, its prevalence is minimal, and for valid reasons. RBV appears tailored for academia, creating a closed loop that seldom extends into practical decision-making realms of the business world.

On the contrary, BMG enjoys extensive usage. It outlines the nine components of the Business Model Canvas and articulates a clear theory on their interconnectedness. Emphasizing the entirety over individual components, BMG supplements its concepts with numerous illustrative examples.

click here to check the-Business Model Generation

 

Compatibility with PTW

It suffices to say, there’s ample compatibility between the two frameworks. In fact, the extent of compatibility is such that during a discussion with Alex regarding potential collaborative model building—aimed at merging PTW and BMG—we encountered a roadblock. The similarities between the models were so pronounced that we struggled to discern significant synergies that would justify the endeavor.

PTW and BMG both emphasize the necessity of making strategic choices across various categories. While BMG delineates nine such categories and PTW outlines five, aligning them isn’t particularly arduous. For instance, BMG’s Customer Segments, Channels, and part of Customer Relationships pertain to considerations of Where to Play. The remainder of Customer Relationships, along with Value Propositions, Cost Structure, and arguably Revenue Streams, contribute to considerations of How to Win. Key Activities, Key Resources, and arguably Key Partners form part of the considerations regarding Must-Have Capabilities.

PTW may offer deeper insights into Winning Aspiration and Enabling Management Systems compared to BMG, although this assertion is debatable. Overall, there exists genuine compatibility between PTW and BMG concerning the components and integrations essential for crafting a successful strategy. Personally, I find Revenue Streams and Key Partners from BMG to be valuable prompts for contemplation during PTW exercises.

Direction of Development

Much of my work in methodology development over the past decade has centered on the managerial process of crafting a strategy that truly embodies the principles of PTW. It can be frustrating when individuals simply apply their existing practices to the structure of PTW or BMG frameworks and claim to have implemented a genuine strategy.

The crucial aspect, as always, lies in moving beyond mere adherence to the framework’s structure (filling in the boxes) to grasping its essence (developing a coherent set of choices that complement each other). The pivotal question revolves around whether users of strategy frameworks, whether PTW or BMG, possess the capability to execute the framework’s required activities. I am reminded of the wise words of my late mentor, Chris Argyris: knowledge that cannot be translated into action holds little value. Thus, it remains ingrained in my thinking that the ability of students or clients to effectively implement PTW determines its true worth.

click here to check the-Business Model Generation

 

Regarding this aspect, the primary challenge encountered by students and clients arises during the third stage of the Strategic Choice Structuring (SCS) process: generating innovative possibilities.

While I haven’t directly consulted Alex & Yves, it’s plausible that for BMG, the third stage of their five-step process—Mobilize, Understand, Design, Implement, and Manage—poses similar challenges.

In alignment with the principle instilled by my mentor, I’ve devoted substantial effort to refining this crucial step to enhance its feasibility for students and clients. Similar to Alex & Yves, who emphasized the significance of design in BMG, I’ve integrated design principles into the SCS process since my collaboration at P&G with Claudia Kotchka, David Kelley, and Patrick Whitney between 2005–2007. Additionally, I’ve imbued this stage with Integrative Thinking as a means to generate novel alternatives to conventional possibilities. This approach juxtaposes opposing possibilities and employs Integrative Thinking techniques to produce creative solutions that transcend apparent trade-offs. While I haven’t recently engaged with Alex & Yves on this matter, I’m confident they are continuously refining their Design step with improved tools.

Practitioner Insights

Reflecting on BMG and PTW often brings back memories of my tenure at Monitor Company during the 1980s and 1990s. It’s no surprise that Monitor was my preferred strategy consulting firm—I wouldn’t have spent so many years there otherwise. Boston Consulting Group (BCG) held the second spot in my rankings. I deeply admired BCG’s contributions to the industry’s intellectual property. Bruce Henderson, BCG’s esteemed founder, was, in my view, the only strategist on par with our remarkable co-founder, Mike Porter. BCG’s team members were consistently sharp and intellectually inquisitive. If my colleagues and I hadn’t felt compelled to establish a new strategy consulting firm, Monitor, I would have aspired to work at BCG.

Likewise, when considering comprehensive strategy frameworks designed to guide a company from dissatisfaction with its current strategy to one that satisfies, my preference naturally leans towards my own creation, PTW. This preference is almost self-evident—if it weren’t, I would have transitioned to another framework long ago!

I believe that numerous strategy concepts such as the Experience Curve, Growth/Share Matrix, Five Forces, Generic Strategies, Jobs to be Done, Disruptive Innovation, Three Horizons, Customer Loyalty, Time-based Competition, Blue Ocean Strategy, 7 Powers, Balanced Scorecard, Profit from the Core, and others hold value (excluding RBV or SWOT) in strategy formulation. However, they do not constitute comprehensive frameworks for strategy development.

In this context, my second preferred framework is Alex and Yves’ Business Model Generation. I don’t intend any disrespect by this statement. Much like myself, I’m certain that it’s their favored approach. And that’s perfectly acceptable to me: if PTW isn’t your choice for crafting your next strategy, consider utilizing BMG instead.

Once again, I’ve been lagging in publishing reviews lately. There’s just been so much happening, including the development of my own book, which I’m really excited about!

In case you want to revisit, here’s the link to my last book review.

Fortunately, I’ve managed to carve out some time for myself this week, so I’m aiming to stockpile one or two reviews in addition to this one. But for now, I hope you find this review enjoyable.

Let’s dive right into the book—Business Model Generation by Alexander Osterwalder!

click here to check the-Business Model Generation

About the Book

Business Model Generation stands as Alexander Osterwalders’s top-selling work. It boasts a remarkable record, having surpassed one million copies sold to date and being translated into nearly 40 languages. USA Today has honored Business Model Generation by listing it among the 12 best business books of all time. Moreover, the German edition received accolades as the Management Book of the Year 2011, while Fast Company Magazine recognized it as one of the Best Books for Business Owners in 2010.

Undoubtedly, these achievements speak volumes about the book’s quality, don’t they?

However, attributing the book solely to Osterwalder might be somewhat misleading. In reality, he serves as the lead author of Business Model Generation, collaborating closely with his former PhD supervisor, Professor Yves Pigneur, and an impressive team of 470 contributors from 45 countries. Initially crowd-funded and self-published in 2009, the book gained traction before Wiley & Sons officially published it in 2010.

The book serves as a comprehensive guide to utilizing the Business Model Canvas, which acts as a visual depiction of a business model. As stated in the book:

“A business model delineates the logic behind how an organization generates, delivers, and captures value.”

Through the Business Model Canvas, one can systematically deconstruct, elucidate, and evaluate any business model by dissecting it into various building blocks. The book adeptly introduces this concept and proceeds to explore the nine essential building blocks of a business model. These building blocks encompass:

  1. Customer Segments: Organizations cater to one or several customer segments.
  2. Value Propositions: Their aim is to address customer problems and fulfill their needs with valuable propositions.
  3. Channels: Value propositions reach customers through communication, distribution, and sales channels.
  4. Customer Relationships: Organizations establish and nurture relationships with each customer segment.
  5. Revenue Streams: Successful delivery of value propositions leads to revenue streams.
  6. Key Resources: These encompass the assets necessary to offer and deliver the aforementioned elements.
  7. Key Activities: By performing a range of key activities.
  8. Key Partnerships: Some key activities are outsourced, and certain key resources are acquired externally.
  9. Cost Structure: The combination of all business model elements determines the cost structure.

So, there you have it: a beautiful, simple, and elegant framework—yet incredibly practical and useful!

The book proceeds to delve into the utilization of these building blocks, illustrating various configurations and emphasizing emerging patterns. It also guides us on how to design business models using the canvas.

  • What tools can we employ to gain insights and generate business models?
  • What questions must we address for each building block?
  • How do alterations in one element impact the others?

In summary, the book is rich with practical advice and actionable insights, offering a wealth of hands-on guidance.

click here to check the-Business Model Generation

 

What are my thoughts on the book?

Think of this book as akin to an intensive, immersive language course in a language you haven’t spoken since high school. Before the course, you could cobble together some basic phrases and grasp fragments of conversation. Yet, your ability to communicate remains severely limited. However, after four weeks of intensive training, you unlock a wealth of communicative potential.

That’s precisely what this book accomplished for me. While I was already acquainted with business models and adept at explaining concepts like value chains and customer segmentation, I lacked a cohesive framework to tie it all together and articulate the entire process in a simple and elegant manner. Now, thanks to this book, I have it.

Once you grasp the essence of the Business Model Canvas, you gain the ability to deconstruct and elucidate nearly every business model. You comprehend and can articulate the rationale behind why a company opts for X over Y.

Rarely have I encountered a book as enlightening as this one. It has significantly enhanced my approach to understanding businesses and equipped me with a tool to convey intricate issues to diverse audiences.

I cannot emphasize enough how highly I recommend this book.

About the Entrepreneurs Book Guide

In the process of establishing my company, MinuteHero, I’m actively addressing my knowledge gaps by immersing myself in numerous books. Over time, I’ve shared and recommended many of these books with friends and business partners.

Gradually, people began seeking my advice on book selections. This inspired the creation of the Entrepreneur’s Book Guide. My aim is to provide book reviews tailored specifically for those embarking on their entrepreneurial journey or already navigating the challenges of running a startup. Through these reviews, I aim to delineate what I found commendable or lacking in each book, highlight actionable insights, and elucidate how each book contributed to my endeavors with MinuteHero.

Conclusion:

Conclusion:

“Business Model Generation” offers a comprehensive framework and practical insights for entrepreneurs and business leaders seeking to innovate and refine their business models. Through the Business Model Canvas and Value Proposition Canvas, the book provides a structured approach to understanding, designing, and communicating business models effectively.

By addressing common challenges such as lack of framework, ineffective communication, unclear value proposition, inefficient resource allocation, and scalability issues, “Business Model Generation” equips readers with the tools and strategies needed to overcome obstacles and build sustainable businesses.

Moreover, the book emphasizes the importance of creativity, experimentation, and continuous iteration in business model design. It encourages entrepreneurs to embrace ambiguity, challenge assumptions, and explore new opportunities to create value for customers and stakeholders.

In conclusion, “Business Model Generation” serves as a valuable resource for entrepreneurs, startups, and established businesses alike, empowering them to innovate, adapt, and thrive in an ever-evolving business landscape. With its practical approach and actionable insights, the book inspires readers to reimagine their business models and embark on the journey of entrepreneurial success.

Business Model Generation: Problems and Solutions

Problem 1: Lack of Framework

Problem: Many entrepreneurs struggle with a lack of framework when conceptualizing and structuring their business models.

Solution: “Business Model Generation” offers the Business Model Canvas, a structured framework that helps entrepreneurs dissect and comprehend various aspects of their business model, including customer segments, value propositions, channels, revenue streams, key resources, key activities, key partnerships, and cost structure. This canvas provides a comprehensive and visually intuitive tool for entrepreneurs to organize their thoughts and ideas.

Problem 2: Ineffective Communication

Problem: Entrepreneurs often find it challenging to effectively communicate their business model to stakeholders, investors, and team members.

Solution: The book emphasizes the importance of clear and concise communication. By utilizing the Business Model Canvas, entrepreneurs can articulate their business model in a visual and understandable format. This facilitates better communication and alignment among team members and stakeholders, leading to a shared understanding of the business model’s intricacies.

Problem 3: Unclear Value Proposition

Problem: Many startups struggle to define a clear and compelling value proposition that resonates with their target customers.

Solution: “Business Model Generation” guides entrepreneurs in identifying and refining their value proposition by emphasizing customer needs and pain points. Through the use of the Value Proposition Canvas, entrepreneurs can gain insights into customer preferences and craft value propositions that address specific customer challenges. This approach helps startups differentiate themselves in the market and attract target customers.

Problem 4: Inefficient Resource Allocation

Problem: Startups often face challenges in efficiently allocating resources to key activities and partnerships.

Solution: The book encourages entrepreneurs to assess their key resources and activities critically. By leveraging the Business Model Canvas, entrepreneurs can identify essential resources and activities required to deliver value to customers effectively. Moreover, the canvas facilitates the evaluation of potential partnerships and helps startups allocate resources strategically, optimizing operational efficiency and maximizing value creation.

Problem 5: Lack of Scalability

Problem: Many startups struggle to design business models that are scalable and adaptable to growth opportunities.

Solution: “Business Model Generation” emphasizes the importance of designing scalable business models from the outset. Through the exploration of various business model patterns and case studies, entrepreneurs can identify scalable strategies and design business models that can evolve with changing market dynamics. By integrating scalability considerations into their business model design, startups can position themselves for long-term growth and success.

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