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Business model generation and Business model design tools and techniques

Business Model Generation and Business Model Design

The way Organizations create and capture value through their business models is undergoing a radical transformation. A business model describes the rationale of how an organization creates, delivers, and captures value.The starting point for any good discussion, meeting, or workshop on business model innovation should be a shared understanding of what a business model actually is. We need a concept that is easy to understand,that facilitates description and discussion. The challenge is that the concept must be simple, relevant, and intuitively understandable, while not oversimplifying the complexities of how enterprises function.The concept shall describe and analyse the business model of the organization, its competitors, or any other enterprise. This concept has been applied and tested and is already used in organizations such as IBM, Ericsson, Deloitte, the Public Works and Government Services of Canada, and many more.This concept can become a shared language that describes and manipulate business models to create new strategic alternatives. Without such a shared language, it is difficult to systematically challenge assumptions about the business model and innovate successfully. A business model can best be described through nine basic building blocks that show the business logic of how a company intends to make money. The nine blocks cover the four main areas of a business; they are customers, offer, infrastructure, and financial viability. The following are the nine building blocks in the business model.

• Customer Segments
• Value propositions
• channells
• customer relationships
• Revenue streams
• key activities
• key partnerships
• Cost structures

Business Model Generation and Design Techniques and Tools
Design Thinking includes a number of techniques and tools from the world of business innovation that can help design better and more innovative business models. It involves relentless inquiry into the best possible way to create the new, discover the unexplored, or achieve business outcomes. Business model generation integrates design thinking into management. A designer’s job is to extend the boundaries of thought, to generate new options, and, ultimately, to create value. This requires the ability to imagine, that which does not exist. As an approach, design thinking taps into capacities that are overlooked by more conventional problem solving practices.
Design thinking not only has its focus on creating human centered products and services but also the process itself is also deeply human. Design thinking relies on our ability to be intuitive, to recognize patterns, to construct ideas that have emotional meaning as well as being functional, and to express ourselves in media other than words or symbols. Business leaders do not want to manage an organization on feeling, intuition, and inspiration, but an over-reliance on the rational and the analytical can be just as risky. Design thinking, the integrated approach at the core of the design process, aids in the business model generation process. The design thinking process is best thought as a system of overlapping spaces rather than a sequence of orderly steps. There are three spaces to keep in mind, inspiration, ideation, and implementation.
Think of inspiration as the problem or opportunity that motivates the search for solutions; ideation as the process of generating, developing, and testing ideas; and implementation as the path that leads from the business model generation stage into people’s lives. The reason to call these spaces, rather than steps, is that they are not always undertaken sequentially. Business model generation may loop back through inspiration, ideation, and implementation more than once as the team refines its ideas and explores new directions. Not surprisingly, design thinking can feel chaotic initially.

The following paragraphs explore business model design techniques like Customer Insights, Ideation, Visual Thinking, Prototyping, Storytelling, and Scenarios.The Business Model Canvas is the core framework presented for describing and generating new business models. The business model canvas is used to systematically describe, challenge, design, and invent, business model.
Customer Insights
Customer Insights as a design tool for business model design enables to anticipate new trends and capitalize on opportunities. Conroy (2008) pointed out that an insight is a statement based on a deep understanding of target consumers’ attitudes and beliefs, which connect at an emotional level with consumer as a valid input to business model design. Insights can be based on:
1. Real or perceived issues to be exploited in competitive product performance or value
2. Attitudinal or perceived barrier in the minds of consumers,
3. Untapped or compelling belief or practice.Disruptive innovations in business model do not come from customers’ suggestions, but rather from detail customer research.

The desire to pursue growth opportunities is hindered by a lack of understanding of the potential new target customer or by an inability to capture potential new customer needs. The primary reason to adapt a business model may also come from the customer demand side. Changes in consumption patterns, social environmental changes are just some of the inputs to business model design. Designers use observation, conversation, listening and learning to identify points of view, stories, and experiences. Through co-creation, ethnographic fieldwork and other immersive methods, the designers decode behaviors and experiences to reveal consumer needs. Insights about the social environment and social moods can influence the business model design. The fundamental challenge in value identification is focusing on the insights from the target customers and opportunities. Designers discover consumer insights as input for design of the business model. Field observation and ethnographic methods surpass the limitations of traditional market research by tapping into what is meaningful to consumers and uncovering unmet and unarticulated needs. Designers begin innovation with research into unarticulated, unknown, and unmet human needs. Innovative ideas transform behaviors, cultures, and consumers. They use anthropology to identify true insights that inspire organizations. Sociology experts provide insider perspectives on the beliefs, behaviors, and attitudes that drive consumers and shape their communities. Analyze businesses that are thriving in the current economic environment and view new business models that other industries are adopting for new insights.

Ideation

The requirement is to define a creative process for generating ideas for new innovative business models and then isolate the best idea for new business model generation. Ideation helps to visualize a business opportunity by creatively identify market demands and analyze competitors. Ideas for a business model design can have various sources like an unsatisfied customer need. In fact, many successful start-up business models originated because of their own needs. Ideation is a part of design thinking process. After spending time in the field observing and doing design research, designers goes through a process of synthesis in which they distill what they saw and heard into insights that can lead to solutions or opportunities for change. This approach helps multiply options to create choices and different insights about human behavior. These might be alternative visions of new product offerings, or choices among various ways of creating interactive experiences. By testing competing ideas, the likelihood of the outcome will be bolder and more compelling increases. Designer’s extend the boundaries of thought, to generate new ideas, options, and, ultimately, to create value for users. This requires the ability to imagine that which does not exist.
It stretches all the way from the pre-idea to the development of a business idea through to the identification of customers, trends, target market, and competitors.
• Develop ideas
• Create a common understanding
• Makes the participants understand links and the broader picture
• Communicate the ideasA new product or service that the market has not seen yet, or that is offered with a different or better value proposition.

Designers should analyze areas, customers, key trends (e.g. technology), competitors, and the macro environment. Map out every new and innovative business model we come across. Understand, learn, and try to apply to the model.
Customers: Who could the customers for the business idea be? What jobs are they really trying to get done? Are there enough potential customers? Do they have buying power? Are they easy to reach?
Trends: Could some of the key trends render the business idea obsolete in the future (e.g. tech trends, legal trends, etc.)? Are key trends going to boost the business idea in the future (e.g. socio-economic trends, etc.)?
Competitors: Which other companies are already operating in this space? What are the substitute products and services? Which actors (competitors or partners) are key in this space?
Macro environment: Which macro-factors must be in place to make the idea reality (e.g. infrastructure, talented employees, etc.)?
Regarding customers’ area, a draft customer hypotheses, and problem hypotheses is prepared. Worksheets with questions can be used as template. Regarding competition area, market type hypothesis and competitor hypothesis are prepared. Stress testing the business idea is part desk-research. The goal of this phase is to analyze, whether the business idea can be used further for design of the business model for different business scenarios.
Visual Thinking
The way designers form images in their mind’s eye, manipulating and evaluating ideas before, during and after externalizing them, constitutes a cognitive system comparable with but different from, the verbal language system. Human beings have an innate capacity for cognitive modeling, and its expression through sketching, drawing, construction, that is fundamental to human thought.
Visual thinking is indispensable to working with business models. By visual thinking, it is the use of visual tools such as pictures, sketches, diagrams, post-it notes to construct and discuss meaning. Because business models are complex concepts composed of various building blocks and their interrelationships, it is difficult to understand a model without sketching it out.  Visual thinking uses visualization to solve business problems, discuss ideas, and communicate clearly. Visual thinking is used in the design of the business model to visualize the business model in illustrations on the business model canvas. The structured visual models are an important link in bridging strategy and execution.
Using Post-it notes is a quick and easy way to fix illustrations in business model canvas in an easy manner. Use a sticky note for each one of the building blocks of the business model. Ideas need to be concise and clear. Use words and images to describe the business model building blocks to enhance big picture understanding with respect to the scenarios. Increase the clarity of the business model by color-coding all elements related to a specific client segment.
Business models examples are visualized with set of building blocks in the business model canvas. To give more insight on how the business model works, brief overview of the different building blocks can be defined. We can use a common, visual language that enables to communicate business models to different stakeholders for different business scenarios. Visualization aids to learn from successful business models in other industries, and to generate new variations of business models for future business scenarios.

Prototyping
Entrepreneurs and intrapreneurs develop better business models by designing and exploring multiple alternatives, closely listening to customers and continuously adapting their early models until they find the right business model to scale. A start-up or new venture’s quest for the best-fit business model to different business scenarios should consist of following steps.
• Designing a prototype model
• Iteratively adapting prototype business model in response to feedback
• Scaling it when the prototype is validated.

At the core of the business model generation is prototyping, turning ideas into business models that are then tested, iterated, and refined such that it fits into the various business scenarios. Through prototyping, the design process seeks to uncover unforeseen implementation challenges and unintended consequences in order to have long-term success. Prototyping is particularly important for new business models destined for the new emerging industry sectors for different scenarios. Sketch out alternative business models in different business scenarios for the same product, service, or technology and identify the right model. The business model prototypes at this stage may add value on predicting the business outcomes.
Storytelling
Stories about current and future business scenarios and the fit regarding the business model with business scenarios highlights the values to the stakeholders in the new innovative business model Generation.
There is a resurgence of interests among today’s business and organizational leaders in the ancient art of storytelling, at a time when electronic communications might seem to make it obsolete. Human beings have been communicating with each other through storytelling. In this current information era, the art of telling stories is the purposeful use of narrative to achieve a business outcome with an individual, a community, or an organization. World’s leading thinkers on knowledge management predict that storytelling will become the key ingredient to managing communications, education, training, and innovation in the 21st century.
For businesses, communicating by using fiction storytelling techniques can be a more compelling and effective route than using only facts. Leaders can use narratives to interpret the current and shape the future business scenarios with respect to the business model outcomes. A process of collective narration on the business model can help to influence stakeholders towards successful business model innovation.Springboard stories enable individuals to make a leap in understanding the business scenarios and impact due to business model innovation.
Business Scenarios
Scenario planning may involve aspects of Systems thinking, specifically the recognition that many factors may combine in complex ways to create sometime surprising futures (due to non-linear feedback loops). The method also allows the inclusion of factors that are difficult to formalize, such as novel insights about the future, deep shifts in values, unprecedented regulations, or inventions. Systems thinking used in conjunction with scenario planning lead to plausible scenario story lines because the causal relationship between factors can be demonstrated. In these cases when scenario planning is integrated with a systems thinking approach to business scenario development,
Business scenarios are often modeled in both “as-is” (existing business) and “to-be” (future business) forms, and it is especially important that business scenarios are well understood by Subject Matter Experts (SMEs) who understand what the business is about.
Strategies are increasingly being translated into business models. We design business models that match to different possible business current and future scenarios. There can be both the “immediate” and “future” business scenarios. Business scenarios serve as inputs to the business model prototyping and implementation.
Business Scenarios can best be used in situations where there is a high level of uncertainty and tumultuous business environment like financial services sector. Business Scenarios enhance their ability to anticipate future developments that may affect their business models.
A Business Scenario describes
• Environment, Trends, Customers and competition for various alternative scenarios
• The roles and responsibilities of stakeholders/actors who are the participants in the various business scenarios.
A business scenario bridges the gap between the business consumer’s view and the business model designers’ view for various environment conditions.  A business scenario is essentially a complete description of a business environment, in business terminology against multiple macro factors and assumptions. Multiple business scenarios are viewed in relation to each other in the overall context.  Checking for “fitness for purpose” of the business model against the business scenarios and refining only if necessary.
Futures research explores captures and describes possible alternative futures (Miles, Keenan & Kaivo-Oja, 2002). It has yielded various approaches to the investigation of future developments, examples of which are scenario analysis, back casting, road mapping, normative forecasting, and foresight.  Business Scenarios shall provide insights into the way the future may develop based on clearly defined assumptions concerning the relationship between relevant business environment factors and stakeholders.

Maxims for Design management

MAXIMS FOR DESIGN MANAGEMENT

• There needs to be an emotional component as well—a source of inspiration that motivates users has to be managed.
• Apply design is applicable in operational, management and strategic level.
• Inspiration lies in a sense of purpose driven from the top down.
• Encourage People centric workplaces, which is toward networks of value that weave through workspaces. Design flexible equitable, simple, equitable, and agile, ethical, and sustainable work experiences for their workers, regardless of their relationships to the organization, where they  live, or, what tools they choose to employ to accomplish and exceed their commitments.
• Organizations will rely primarily on three elements to shape experiences, technology, space, policy, and practice. How the elements are ptimized, and how they are used together, define how the work experience will be realized. Design should focus on degrees of freedom rather than constraints. Turn constraints into opportunities.
• Future is connected to World Wide Web and innovative work streams – Information specialists, web-user-experience specialists. Models for employee engagement and development will also change, as cross-functional and cross-organizational use of social media and enterprise
  collaboration requires individuals to  to hone new communication skills and adopt new, more collaborative models of work.
• Organizations are likely to shift the responsibility of leveraging technology from central IT organization to individual business units responsible for growth, innovation
• World’s top brands are  leaders of design  management
• Visual literacy is the term for the design skills and is essential for managers.
• Learning intensively about the needs for the BOP (bottom of the pyramid)
• In the rapidly changing digital world, the collective is the focus group.
• Design of social networks to create the new fabric of relationships that support the long-term goals of individuals
• Today’s workers come from four generations, but three are predominant, The Baby Boomers, Generation X, and the Millennial
• Missions, visions, and goals create context for design choices.
• Technology, space, and practice are the design elements that create transparency, support sustainability, encourage pluralism, and guide ethical behavior. They are also elements that can enable simplicity, equitability, and agility. Organizations should create experiences that recognize and take advantage of the synergies among these design elements in order to facilitate strong performance.