I’ve come across references to a “new” strategic planning tool called the “business model canvas” in a few places recently. As with other “new” tools, it does offer a different way to structure how you think about your business. But how new is this tool, really?
The most common approach to the business model canvas is to segment your thinking about your business into a small number of topics – such as customer segmentation, channels, customer relationships, value proposition, key resources, key activities and key partnerships. In some ways, this appears to match up to Porter’s Five Forces model, though it can – and will, in practice – ignore key environmental forces. This limitation saves critical time in the process of assessing and communicating strategy, but may lead to critical errors in strategy formulation in industries where environmental forces are in tremendous flux, such as health care.
Customers vs. Channels
The basic business model canvas – correctly – places great emphasis on the flow of value to the customer. Interestingly, channels are treated entirely separately from customer segmentation, despite the fact that the value proposition may be more advantageous to channels (fitting into a retail channel’s distribution strategy, for example) or to customers (offering a superior product or service regardless of how well it works for any channel). Failure to assess these advantages holistically can be crippling. A product which flows smoothly through a specific channel may have very low appeal to customers, and risks rapid displacement if other channel concepts become widespread. Similarly, a product which has high customer appeal may still stagnate if the dominant channel architecture does not fit key attributes of the product. In many industries – manufacturing or service – it is the holistic compromise embodied in your value proposition which really determines your success or failure at any given time, and separate assessment may create a blind spot around this phenomenon.
Strategic Competency; the Importance of Differentiation
I find the canvas approach to assessing “key resources” and “key activities” to be interesting. In Strategic Planning, we began a practical application of Prahalad and Hamel’s concept of Strategic Competency, which has become a cornerstone of the most successful strategies of recent years. In practice, using the canvas categories, you would likely find your strategic competency somewhere in one of these two boxes – but, unfortunately, other strategic assets might be mixed in with competency in “key resources” and the core competency may or may not be recognized as the focus of the most important “key activities”. Still, many companies may find they can correctly identify strategic competency using this categorization, so it may be useful. Indeed, it may be a useful tool for identifying strategic competency in a more thorough strategic planning process. That being said, a thorough examination of strategic competency backed up by market data is a far better way to approach this critical part of the strategic planning process. Most importantly, I would contend that the fact that most people have approached strategic competency incorrectly, and failed to adequately use the tool to build clear differentiation is the main reason why people like to back up to a more simplistic approach such as “critical resources” and “critical activities”. There is no substitute for competency-based differentiation, and true differentiation of a focused competency is the single biggest factor in strategic success.