As it appeared in the Daily Nation on August 14th 2018
When I went through an MBA program 16 years ago, there were no lessons on business models. The closest we got to learning about business models was in relation to the then upcoming e-businesses. However, business models whether defined or not have been in existence for as many decades as businesses. I believe that even when Ford motor company started, it had a business model in mind. Today, almost every business school is teaching the concept of business models. I believe that business leaders and entrepreneurs as well should be keen to learn more about the transforming nature of having a clearly defined business model.
Simply stated, a business model is a blueprint for the successful running of a business. Such a model is seen to encompass the target customers, how customer value is created and delivered, resources required, sources of revenues and the cost structure. According to Dr. Joseph Ngugi an Associate Professor of Entrepreneurship and Business Model Innovation at USIU–Africa a Business Model is the lens that helps entrepreneurs and business leaders visualize the whole business as a system.
Outlining a business model is at the core of business success today. The work of Alexander Osterwalder a Swiss business theorist and Yves Pigneur of the University of Lausanne Switzerland has expanded this field of study. Their book, Business Model Generation remains a great guide for those wanting to develop business models. The two published the most popular model for describing business: the Business Model Canvas. The Business Model Canvas has gained considerable inroads in the world of business strategy. The nine building blocks in the canvas allow business leaders to define their business model. These blocks are Customer Segments; Value Proposition; Channels; Customer Relationships; Revenue Streams; Key Resources; Key Activities; Key Partners and Cost Structure. The canvas can be used by start-ups to fully develop their ideas as well as existing businesses to describe their current of desired business model.
Dr. Ngugi who has extensively used the Business Model Canvas in supporting businesses states that the canvas demonstrates how every component of a business connects and reinforces the other. He further describes the canvas as the best visual analytical tool to help businesses visualize the whole organization in a snapshot. Having used the Business Model Canvas as well, I can attest to its ease of use in looking at the business as a whole as well its ability to help organizations rethink their strategic direction. Is your business clear about its business model? Have you used the Business Model Canvas to visualize your business?
To survive in a highly competitive market place, every business must intentionally identify its business model. By identifying a model, businesses are better placed to create and deliver value to their customers as well as have clarity in collecting revenues and managing costs. Dr. Ngugi adds that by having clarity, businesses are able to drive innovation and achieve sustainable competitive advantage. If your business is smart enough, it needs to have a clear business model!
Lucy Kiruthu is a Management Consultant and Trainer connect via twitter @KiruthuLucy