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Business Model Benchmark

Business Model Generation
The benchmark report is a comparison of the performance of a company business model 1 based on the CANVAS from the Business Model Generation (sterwalder and Pigneur, 2010) 2. The CANVAS contains nine building blocks: 1. 2. 3. 4. 5. 6. 7. 8. 9. Value Proposition Customer Segments Customer Relationships Channels Key activities Key resources Partners Cost structure Revenue streams

The BMG Benchmark compares two evaluations of the business model from a company based on the SWOT analysis 3. To be able to understand and get full insight of this benchmark an explanation of the CANVAS and evaluation is necessary prior to look at the actual benchmark. With the support of the CANVAS an overview of the business model is obtained on one page. Each building block is described and together they form the logical structure of the business model and how the organisation is making money. This is a blueprint for the strategy of the company and with the canvas on a large paper it gives a common language (Soley 2010) 4 and understanding how the business model works.

Figure1Canvas

Within the canvas the structure for the revenues of the company are made clear.

Based on the value proposition the customer is willing to pay for the benefits they obtain

form the organisation. In the structure of the earnings it is also possible that organisations give something for free to the customers in order to receive revenues for other services or products. For example Google gives away many software tools for free and still have great earnings by advertisements, ad-words and so on. See Figure1Canvas.

Business Model Evaluation

Discussing the building blocks gives the employees of the company, management and subordinates, a common language to have a mutual understanding of the business model. Once the canvas is finished or there is an existing canvas the quality of the business model must be evaluated. Each year management and employees should take a look at their business model and evaluate to see if the rapidly changing circumstances on the market (van der Zee 2000) 5 and within the company dont lead to bottlenecks in the business model. A comprehensive set of questions is the base of the SWOT analysis
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that is used to analyse the strengths and weaknesses of a company and analyses the opportunities and threats from the market. For most businesspeople and researchers the SWOT is a familiar tool to work with and will lead to a full understanding of the evaluation. Although there is a kind of resistance 6 that the SWOT is a too open tool to analyse the different processes of an organisation. With the use of the canvas this cannot be an issue anymore because of the focus on the nine building blocks. Company Evaluation Based on the SWOT analysis the results are placed in a graphical overview and remember that one picture 7 says more than a thousand words. The bar graph of the evaluation is shown in Figure 2 Evaluation from the company. For each of the nine building blocks a bar is shown for strengths and weaknesses in blue or in red, a green bar is shown for the opportunities and a yellow bar is shown for the threats. The fourth bar in purple shows the average of the strengths, weaknesses, opportunities and threats.

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1,0 Strength or weakness 0,0 Partners -1,0 Activities Resources Value proposition Customer relationships Channels Customer segments Cost structure Revenu streams Opportunity Threat Average

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Figure 2 Evaluation from the company

The average will be used in the graph at the moment two evaluations are compared with

each other and is the results of the combination from strength or weakness with

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the opportunities and lowered with the result of the threats. The bars for opportunities and threats are all from zero till five. The higher the bar the better the strength or opportunity and the stronger the threat. The lower the bar how stronger the weakness and how lower the opportunity or threat. The bar for the average is purple when the score is above zero and also red if it is below zero. This evaluation concerns a company in the manufacture of machinery and equipment. This evaluation is based on the input of the managing director of this company. What can we see in this evaluation? First of all two weaknesses being key resources and channels. Furthermore there are many opportunities that can be helpful to improve the business model. Looking at value proposition and revenue streams it shows that for both
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When the company has a strength the bar is above zero and is blue. When the company has a weakness the bar is below zero and red. strength is low and that threats are imminent. The company can, based on this evaluation, improve on key resources and improve the cost structure. Making use of the opportunities at the customer segments will improve the strength of the revenue streams. Research Evaluation Till so far a common analysis of the evaluation by the company. The next step concerns the evaluation by the researchers. The same set of questions has been answered by the researchers based on the facts the found from the company itself and the market results. Looking at Figure 3 Evaluation by researchers it clearly shows a difference on the different building blocks with the evaluation of the company.

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1,0 Strength or weakness 0,0 Partners -1,0 Activities Resources Value proposition Customer relationships Channels Customer segments Cost structure Revenu streams Opportunity Threat Average

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Figure 3 Evaluation by researchers

We can now look at both evaluations and try to analyse the differences of the nine building blocks. This will take a lot of time and mistakes are easily made. Therefore the best solution is to make an new graph in which we can compare the two evaluations in one

picture. Therefore I have developed the Business Model Comparison.

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Business Model Comparison

To be able to get a clear overview of the differences of both evaluations the graphs are matched in a new overview that shows the results of both evaluations. With this his feeling 8 and knowledge of the company and the researchers based on the facts from the internal analysis of the company and external analysis of the market. This results in the graph of Figure 4 Comparison Company and Research where the results of the company
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comparison of the evaluations the graph clearly shows where the company and the researchers have a different opinion. The managing director of the company based on

are shown trough the dark purple bar, the results of the researchers are shown in light purple and the differences between the two are shown in the yellow bar.
The higher the differnce bar, the more there is a difference between Company and research. A difference higher than zero means that the Company is overestimating itself. A difference lower than zero means that the Company is underestimating itself.

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0,0 Partners -1,0 Activities Resources Value proposition Customer relationships Channels Customer segments Cost structure Revenu streams Average Company Average Research Difference

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Figure 4 Comparison Company and Research

When both purple bars are close together there is almost no difference between the opinion of the company and that of the researchers. However we still have to take into account that a high score is good and a low score is bad. If the score of the company is lower than the score of the researchers the company underestimates the quality of that building block. If the score of the company is higher than that of the researchers the company overestimates itself. The longer the length of the yellow bar the greater the difference between the view of the company and that of the researchers. In the above example of the company in the manufacturing of machinery and equipment I will discuss the

nine building blocks separately and after that an overall conclusion. 1. Partners. Both evaluations are close together so there is a mutual understanding concerning the quality of the relationship with the partners. The score is just over three and that means an above average score which is good. However this does not mean that nothing has to be done. There is always a possibility to improve. It only shows that the priority is not at this building block. 2. Key activities. Although the score of both evaluations are almost the same it

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clearly shows a far less score than the partners. Fortunately the score is still above zero but not as good as it should be. This building block has a higher priority than the Partners building block. Key resources. The company scored the recourses still as a strength but a very low one. From the research point of view the strength is much higher resulting in a difference according to the yellow bar. The score on the difference is below zero which means that the company underestimates the quality of the resources. This building block therefore has a low priority. Value proposition. This building block shows almost the same score on the difference however the scores of the company and the researchers are higher than with the key resources. As the value proposition building block is one of the most important building blocks this score should be a signal for the company to have a better understanding of its value proposition towards its customers. Customer relationships. With the customer relationship building block the company is overestimating itself to a large extend. Based on the results from the research it shows a weakness where the company thinks it is doing a good job and sees this as a strength. This building block has the highest score on the difference and that means that this building block must have the highest priority. Channels. The large difference in the score between the company and the researchers in this building block

means that the company has no good idea how customers are reached and products are delivered. The risk with this score is that management focuses on improving channels, spent a lot of time, money and resources and only will improve a little bit. 7. Customer segments. Although researchers see it is no weakness but still a strength the company thinks the segmentation is good. The risk here is that the company positions itself not quite right towards the segments in the target group and therefore can lose revenues. This building block has the second highest priority. 8. Cost structure. The cost structure appears to be in better shape than the company thinks. Starting cost saving programs will not have the expected results and can end in demotivated employees. 9. Revenue streams. The company also thinks that revenue streams are a weakness and therefore will focus to find more revenue streams or even increase prices. According to the research this is not really necessary because the revenue streams are still a strength. Conclusion of the comparison. Based on the feeling of the company management will focus on improvements on channels, cost structure and revenue streams. This will result in cost saving programs; increase of prices and improvement of channels which is in contrast with the cost savings programs. This is a wrong strategy for the company to follow. The best strategy for this company is, looking at the situation based on the evaluation of the researchers, focussing on customer relationships 9 and customer segments 10.

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Improving the way the company cares about the relations with is customers will make sure that revenues are more sustainable and predictable. A better focus on segmentation will position the company on a more focussed way at the target groups 11 so that the customers better understand the value proposition and therefore earlier will buy form the company. Another advantage is the positioning of the company towards its competitors. Customers can see more clearly the added value of the company compared with that of the competitors. In this way the overall integrity of the business model will be improved, management is focussing on the real subjects that are important in the decision making 12 process and employees are not demotivated because of cost savings. This all will result in a strong and healthy company with a solid customer base.

company and on the market. This gives valuable information to improve the current business model. Another way of looking at the business model is benchmarking, Lankfoord (2001) 13. A benchmark is reference to the quality of performance of another company based on the same set of criteria. In this case the evaluation of a company can be benchmarked against a database that includes many evaluations. The company can see in this way how the performance is of the company compared to the companies in the benchmark. Selections can be made to compare with all the companies in the benchmark, or only the companies from the same industry, or the companies from the same country or the evaluations from the companies alone or from the researchers alone, or a combination from the earlier mentioned possibilities. It is even possible to have an incompany benchmark where the evaluations of employees are benchmarked against each other. In Figure 5 Benchmark the same company is compared with all the companies in the benchmark.
The higher the differnce bar, the more there is a difference between Company and research. A difference higher than zero means that the Company is overestimating itself. A difference lower than zero means that the Company is underestimating itself.

Benchmark
Thus far the evaluation of the business model was based on the feeling of the company and on facts that researchers found at the
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0,0 Partners -1,0 Key activities Key Resources Value Proposition Customer Relations Channels Customer segments Cost Revenu streams

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Figure 5 Benchmark

If the evaluations from both company and researchers are available it is best to take the

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evaluation of the researchers because this is based on facts and will therefore be closer to reality. 1. Partners. The score of the partners is almost the same. The company score a bit less than the total score. A little improvement is necessary. 2. Key activities. The company scores a bit higher than the total of the other companies. However the score is still not that high but it is not a high priority. 3. A pretty high score on key resources and also higher than the companies in the database. If time and resources are available improvement here can be done. Also not a high priority. 4. A very high score on value proposition. One of the most important building blocks with a high score and better than the rest of the benchmark. Pay attention to make sure that the score remains at this level. 5. The customer relation score is below zero so a weakness. A large difference with the benchmark and also a negative score as we see on the yellow bar. Improvement of the relationships with customers has the highest priority of all. 6. The score on channels is a little better than the benchmark. Though the score can be higher. 7. Together with customer relations the customer segments are the highest priority. When a company doesnt have a good segmentation the marketing effort the company invest in the segments are not really focussed and will not have the proper message to the customer who will not go for this company.

8. Costs are still better than the rest of the companies in the benchmark. However there is still improvement possible. 9. Although revenues are better than the benchmark this building block can even be better by improving customer relations and customer segments. Conclusion of the benchmark. Focus on the two most important building blocks being customer relations and customer segmentation and this company will even do better than it already does compared with the rest of the companies in the benchmark. After improving these two building blocks it is important for the company to remain there where they are and improve partners, channels and key activities in that order. Overall conclusion. Both the Business Model Comparison and the Business Model Benchmark show a strong focus on two building blocks Customer Segmentation and Customer Relationship. That means the first focus for improvement is first to start with segmentation and then decide how to maintain the relations with the customers in the different segments. To build a comprehensive strategy for these two building blocks we will have to look deeper at the evaluation of these building blocks.

Strategy
Segmentation 14 is a well known subject to divide customers with the same needs in one segment to be able to set up a proper marketing mix11 for each segment. But first we will have a closer look at the building block in more detail. The first one we look at is the customer segments building block. The graph shows clearly that acquisition of new customers is a weakness of the company that has to be strengthened because the

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opportunities show a possible growth in customers. The second building block we look at is the customer relation building block. The switching costs bar is zero so it is easy for customers to switch to another supplier. The second important issue is the strength of the brand. This is rather low and improvement

should take place. Furthermore there are three important opportunities that will lead to better customer relationships. By improving and tightening customer relationships and leave the unprofitable customers, a better customer relationship will be achieved.

So the final overall strategy consists of the following activities: 1. Focus on customer segments by: o Acquisition of new customers; o Use the opportunity of growth in customers. 2. Focus on customer relationships by: o Strengthen your brand; o Use the opportunities of tighten your relations with customers o Look for better way to higher switching cost

Final conclusion
Based on the evaluation with the Business Model Generation the strategy of the company is changed from a risky strategy of a cost saving program and increasing prices to a strategy of connecting more to customers and to raise the customer intimacy. As a result the risk of customers going to the competition is lower and better relationships will lead to a sustainable customer base.

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References
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Pateli, A. and G. Giaglis (2003). A Framework For Understanding and Analysing Business Models, Proceedings of the Bled Electronic Commerce Conference 2 A. Osterwalder, E.Pigneur(2010), Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers, John Wiley & Sons Inc. Hoboken New Jersey 3 M.Mulders(2010), 101 Management Models, Noordhoff Uitgeverijen. 4 R. Soley, ISO 20022, Newsletter, Summer 2010, Volume 3 Issue 1 5 Zee, H. van der (2000). Business transformation and IT: entanglement and disentanglement of companies and IT, Dutch University Press. 6 Eurostat (2001), Seminar on Strategic Planning and Programming of Statistical Activities, Use and Practice of SWOT Analysis 7 Journal of Information Sciences Volume 27 (2001), The use of graphs as decision aids in relation to information overload and managerial decision quality. 8 Zeelenberg, M., van Dijk, W. W., Manstead, A. S. R.,& van der Pligt, J. (2000). On bad decisions and disconfirmed expectancies: The psychology of regret and disappointment. Cognition & Emotion, 14, 521-541
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G.Johnson, K.Scholes, R.Whittington (2005), Exploring Corporate Strategy, Prentice Hall P. Kottler, G. Armstrong (2010), Principles of Marketing, Pearson Prentice Hall 12 J. Davis (2010).Decision Making and Problem Solving Strategies: Learn Key Problem Solving Strategies; Sharpen Your Creative Thinking Skills; Make Effective Decisions. Kogan Page Publishers 13 W. Lankford(2001), BENCHMARKING: UNDERSTANDING THE BASICS. The Coastal Business Journal Volume 1, Number 1 14 M. McDonald, I.Dunbar (2004), Market Segmentation: How to do it, how to profit from it, Elsevier Butterworth-Heinemann

P.M.Sias (2009), Organizing Relationships: Traditional and Emerging Perspectives on Workplace Relationships, Sage Publications, Inc.

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