Challenge 3 The business model

Understanding your business model

Writers on organisations have variously described them as machines, as living organisms and social systems. All organisations that thrive do so because they add value to their users or customers. Value is an interesting concept that goes beyond purely financial value.

Added value is a common term used to describe the difference between the price paid and the actual cost of providing something. In total, how your organisation provides value to customers or users can be described as its value proposition.

In general terms, most organisational functions have a role in one or more of these three different aspects:

  1. Running the Business – performance of must do activities to run the business e.g. invoicing and payment, payroll, recruitment, IT systems, etc.

  2. Getting the business – finding, attracting and keeping customers and users.

  3. Delivering the business – producing the products and services that customers and users want.

Taken altogether these activities and functions deliver value as a whole and in each individual area it is also possible to deliver added value that could produce a competitive advantage.

In this challenge you will explore how organisations are structured to create value and add value through their business model.

For this we introduce you to the 9 Box Business Model Canvas depicted below.

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Figure 5 The 9 Box Business Model Canvas (Osterwalder and Pigneur, 2010)
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The diagram is divided into nine boxes. Key partners, key activities, value proposition, customer relationships, customer segments, key resources, channels, cost structure, and revenue streams.

Figure 5 The 9 Box Business Model Canvas (Osterwalder and Pigneur, 2010)

Now that you have understood how the business model works and what each element does, answer the following questions about your own organisation. Take a note of your answers. You might find it helpful to review an organisation chart if there is one.

  1. Do you consider yourself to be part of the organisation whose primary responsibility is to get the work or business, to run the business, or to create the products or services that the business sells?

  2. If you had to describe in a few words your organisation’s value proposition, what would you say?

  3. What is your role in delivering value to customers? For example, do you manage relationships with customers? Do you manage aspects of the supply chain? Are you involved in making or marketing a product? Do you prepare invoices and deal with payment terms?

  4. What other departments could you name and locate in the business model to show who does what in your organisation to deliver the value proposition?

  5. It is possible to add value in each part of an organisation – can you identify two or three sustainable ways that would add value for customers and provide a competitive advantage for the organisation without having a negative impact on it?

  6. Are there any areas of the organisation whose function you do not understand in relation to the business model? How could you find out more about that?

Having answered these questions, you may well have other questions of your own. Make a list of these and if you are curious, explore how you can find out more.

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One area of the model that requires more thought is your organisation’s customer or user base. That is the subject of the next challenge.

Now you can go to Challenge 4 Know your customer [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)] .