Innovating business model by using business model canvas the case of phuc hung holdings

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ĐẠI HỌC QUỐC GIA HÀ NỘI
KHOA QUẢN TRỊ VÀ KINH DOANH
---------------------
NGÔ QUỐC ANH
INNOVATING BUSINESS MODEL
BY USING BUSINESS MODEL CANVAS:
THE CASE OF PHUC HUNG HOLDINGS J.S.C
ĐỔI MỚI MÔ HÌNH KINH DOANH BẰNG CÔNG CỤ
MÔ HÌNH KINH DOANH CANVAS:
TRƯỜNG HỢP CỦA PHỤC HƯNG HOLDINGS
LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH
Hà Nội - 2017
ĐẠI HỌC QUỐC GIA HÀ NỘI
KHOA QUẢN TRỊ VÀ KINH DOANH
---------------------
NGÔ QUỐC ANH
INNOVATING BUSINESS MODEL
BY USING BUSINESS MODEL CANVAS:
THE CASE OF PHUC HUNG HOLDINGS J.S.C
ĐỔI MỚI MÔ HÌNH KINH DOANH BẰNG CÔNG CỤ
MÔ HÌNH KINH DOANH CANVAS:
TRƯỜNG HỢP CỦA PHỤC HƯNG HOLDINGS
Chuyên ngành: Quản trị kinh doanh
Mã số: 60 34 01 02
LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH
NGƯỜI HƯỚNG DẪN KHOA HỌC: TS. NGÔ VI DŨNG
Hà Nội - 2017
DECLARATION
The author confirms that the research outcome in the thesis is the result of author’s
independent work during study and research period and it is not yet published in other’s
research and article.
The other’s research result and documentation (extraction, table, figure, formula,
and other document) used in the thesis are cited properly and the permission (if required) is
given.
The author is responsible in front of the Thesis Assessment Committee, Hanoi
School of Business and Management, and the laws for above-mentioned declaration.
Date: 30th September, 2017.
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ACKNOWLEDGEMENT
I would like to acknowledge my advisor PhD. Ngo Vi Dung for his wealthy
advices. He has guided and promptly given me a lot of instructions and comments in order
to help me moving forward with the right direction to the completion of my final research.
I would like to express my deeply thank to PhD. Ngo Vi Dung for his support since
the beginning of my research that was selecting the very interesting research topic, then
going through research outline, until the end of this research. From this research, I can
have a deep understanding of business administration in general and innovative business
model of a business firm in particular.
I would like to thank everyone who are Phuc Hung’s staffs and Phuc Hung’s
customers, who have assisted me to be fulfillment with this research’s aims and scopes.
They also have spent a lot of their time with my team for the interview that my team was
able to collect necessary answers serving for analyzing of current performance of Phuc
Hung, as well as external environment factors affecting Phuc Hung’s business model.
In addition, I would like to express my special thank to every member of the team
who took part in and supported me in every study activities during implementation of the
research. Without their support, I was not able to complete my assignment of the research
study.
Because limited time and ability so it cannot avoid some mistakes in my research. I
look forward to receiving comments from lecturers and colleagues in order have more
completed and better achieved of research result.
Date: 30th September, 2017.
Ngo Quoc Anh
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CONTENT
CHAPTER 1. INTRODUCTION .......................................................................................... 1
1.1. Rationale ..................................................................................................................... 1
1.2. Literature review ......................................................................................................... 5
1.3. Aims of research ......................................................................................................... 6
1.4. Object of research ....................................................................................................... 6
1.5. Scope of research ........................................................................................................ 6
1.6. Thesis structure ........................................................................................................... 6
CHAPTER 2. THEORETICAL BACKGROUND ............................................................... 7
2.1. Definition of Business Model ..................................................................................... 7
2.2. Business Model Canvas and Value Proposition Design ............................................. 8
2.2.1. Business Model Canvas ....................................................................................... 8
2.2.2. Successful application of using Business Model Canvas................................... 10
2.2.3. Value Propositions Design ................................................................................. 11
2.2.4. Innovating Business Model ................................................................................ 13
2.2.5. Summary of research theoretical background .................................................... 14
CHAPTER 3. RESEARCH METHODS ............................................................................. 15
3.1. Research strategy ...................................................................................................... 15
3.2. Data collection methods............................................................................................ 15
3.2.1. Internal Interview Form ..................................................................................... 15
3.2.2. Customer Interview Form .................................................................................. 15
3.3. Research Process ....................................................................................................... 16
3.3.1. Assemble team ................................................................................................... 17
3.3.2. Preliminary ideas ................................................................................................ 17
3.3.3. Internal interview ............................................................................................... 18
3.3.4. Customer interview ............................................................................................ 18
3.3.5. Group discussion ................................................................................................ 19
3.3.6. Design Innovating Business Model ................................................................... 20
3.3.7. Prototype ............................................................................................................ 20
CHAPTER 4. RESEARCH RESULTS ............................................................................... 21
4.1. Overview of Vietnam’s Construction Industry ......................................................... 21
4.1.1. History ................................................................................................................ 21
4.1.2. Character ............................................................................................................ 21
4.1.3. Local Key Players .............................................................................................. 22
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4.2. Introduction of Phuc Hung ....................................................................................... 23
4.3. Key players’ current business models: Classification, Strength and Weakness ....... 25
4.3.1. Classification ...................................................................................................... 25
4.3.2. Current business models of key players ............................................................. 26
4.3.3. Strength .............................................................................................................. 27
4.3.4. Weakness ............................................................................................................ 28
4.4. Phuc Hung’s current business model: Characteristics and Performance .................. 28
4.4.1. Characteristics of Phuc Hung’s existing business model ................................... 28
4.4.2. Performance of Phuc Hung’s current business model ....................................... 30
4.4.3. Phuc Hung’s existing business model: Strength and weakness ......................... 31
4.5. Innovating Phuc Hung’s business model .................................................................. 32
4.5.1. Study external environment ............................................................................... 32
4.5.2. Collection of ideas and opinions ........................................................................ 39
4.5.3. Design Business Models .................................................................................... 40
4.5.4. Select the most satisfactory Business model ...................................................... 52
4.5.5. Innovating Business Model Discussion ............................................................. 55
4.5.6. Recommendation ................................................................................................ 56
CHAPTER 5. CONCLUSION, LIMITATION AND IMPLICATION .............................. 58
5.1. Conclusion ................................................................................................................ 58
5.2. Limitation.................................................................................................................. 59
5.3. Implication ................................................................................................................ 60
REFERENCES .................................................................................................................... 61
APPENDIX A: INTERNAL INTERVIEW FORM ............................................................ 63
APPENDIX B: CUSTOMER INTERVIEW FORM .......................................................... 68
APPENDIX C: INNOVATIVE BUSINESS MODEL CANVAS ...................................... 71
APPENDIX D: “FIT MAP” CALCULATION SHEET ..................................................... 74
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ABBREVIATION
GDP: Gross Domestic Product
WTO: World Trade Organization
TPP: Trans-Pacific Strategic Economic Partnership Agreement
FTA: Free Trade Agreement
PPP: Private Public Partners
FDI: Foreign Direct Investment
GSO: General Statistics Office of Vietnam
MOC: Ministry of Construction
HNX: Hanoi Exchange Market
CEO: Chief Executive Officer
VND: Vietnamese Dong
FPTS: FPT Security
ROE: Return On Equity
ROA: Return On Assets
DBB: Design – Bid – Build
DB: Design and Build
EPC: Engineering – Procurement – Construction
BIM: Building Information Modeling
ERP: Enterprise Resource Planning
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LIST OF FIGURES
Figure 2.1: A business model – a link between strategy and operations
Figure 2.2: Business Model Canvas
Figure 2.3: Value Proposition Canvas
Figure 3.1: Flowchart of the Research’s process
LIST OF TABLES
Table 4.1: Phuc Hung’s finance performance of 2013, 2014 and 2015
Table 4.2: Customer Profile ranking result
Table 4.3: Value Map ranking result of “Resource Driven” business model
Table 4.4: Value Map ranking result of “Offer Driven” business model
Table 4.5: Value Map ranking result of “Customer Driven” business model
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CHAPTER 1. INTRODUCTION
1.1. Rationale
Vietnam is one of the fastest growing countries in the last decade. As reported by
World Bank: “Vietnam is a development success story. Political and economic reforms
(Doi Moi) launched in 1986 have transformed the country from one of the poorest in the
world, with per capita income around $100, to lower middle income status within a
quarter of a century with per capita income of over $2,000 by the end of 2014. Vietnam’s
growth rate averaged 6.4% per year in the 2000s, but begun to slow in the wake of the
global financial and economic crisis. However, driven by strengthening domestic demand,
GDP has accelerated to 6.3% during the first half of 2015, the fastest first-half-of-the-year
growth rate in the past five years” (World Bank, 2015). “GDP at market prices (current
US$) of Vietnam 2014 is $186.2 billion” (World Bank, 2015).
Since the reform launched, Vietnam has been joined with serials of economic
organizations in the World. Vietnam has joined WTO since 2006 and Vietnam’s economy
had stepped toward a deeper integration to global and regional market. The newest singed
trade agreement TPP will be a strong motivation and will be an opportunity for domestic
economic development in general and for construction industry in particular. Number of
FDI (Foreign Direct Investment) firms and investment capital has been increased rapidly in
recent years. In 2014, “total FDI capital was VND 265.407 billion, equal to 22% total
economic investment and increase 9.8% in comparison with 2013” (GSO, 2015). FDI
become important part of Vietnam’s economic and opportunities are increased from this
investment activity.
In the pathway of economic development, industrialization and modernization, the
construction industry has paid an important role in the aspect of economic contribution,
urban and rural development, and housing increase. “The production value of the
construction industry in 2014 at current prices is estimated at VND 201.203 billion and
contributed 5.11% of GDP” (GSO, 2015). The development of urban and rural areas in the
recent year is growing fast. At the end of 2014, “there are 774 urban (increase 4 urban in
comparison with 2013), in which 02 special urban, 15 urban Grade I, 21 urban Grade II,
42 urban Grade III, 67 urban Grade IV and 627 urban Grade V. Housing area for living
also increase at high rate recently. In 2014, there are 92 million sqm of housing increased,
average housing area per person nationwide is 20.6 sqm, increase 1 sqm per person in
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comparison with 2013” (Baoxaydung, 2015). These figures clearly show how the
importance of construction industry to Vietnam economic.
During the development of socio-economic, there are many opportunities created
for Vietnamese contractors. In parallel challenges for local contractors are also increased
from investors’ side and international contractors’ side. From investors’ side, requirements
of both local and international investors are higher and higher together with economic
development. This means that local contractors has to improve their capabilities in term of
corporate governance ability, technology-innovation capability, financial and accounting
status, management skill, branding development, human resources management, corporate
social responsibilities, environment protection, etc., to meet high requirements from
investors (FPTS Report, 2015). From international contractors’ side, which are origin from
America, Europe, Japan, Korea, China, etc., they have come into Vietnam market together
with several advantages of high construction technology, high management skills, good
finance ability, several years of experience, etc. These advantages of international
contractors create a big challenge for local contractors (FTPS Report, 2015).
In order to compete internally among local contractors and internationally with
foreign contractors, the urgent requirement for Vietnamese contractors is to find the way to
improve their capabilities, corporate strategy, as well as business model, etc., to enhance
competitive advantage to survive, and sustainable develop in long-term.
There are some successful contractors in re-structuring their company. When
finding the trend of development, Coteccon, Hoa Binh Construction, Cofico, Delta
Construction have had early privatization process from State – Owned enterprise. Most of
them today have a good position of branding, market share, and profit. Moreover, they also
are able to compete equally with international contractors in the civil projects of
construction industry. Within these contractors, innovating business model is an important
solution to enhance competitive advantage for them when they are facing high
requirements from market.
However, the above successful contractors are few in comparison with the scale of
Vietnam Construction Industry. There is still a big gap among local contractors with
international contractors, such as: Turner Construction from America; Vinci, Colas from
Europe; Shimizu, Sumitomo Mitsui, Obayashi, Taisei, from Japan; Posco, Hyundai,
Dealim, Keangnam from Korea in the field of infrastructure projects, industrial projects
and airport projects. Contractors of these construction fields are still very slowly in
changing their business models due to the embedment deeply with state-owned enterprise’s
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corporate governance model. Vinaconex, Hanoi Construction Corporation, Cienco,
Contrexim, among others, are examples. Indeed, they are newly privatized, but state is still
owned over 90% of total shares. They are getting several difficulties in innovating business
model, enhancing capabilities as well as competitive advantage to compete with local and
international competitors.
Vinaconex 9 – a company of Vinaconex is an example. Although the company's
Board of Managers has made great efforts to improve the business situation, its production
and business results in 2015 was be less effective than in 2014.As reported by the Board of
Managers, the company's revenue in 2015 increased compared to 2014, but profit of the
company in 2015 reduced more than half compared to 2014; the profitability ratio of profit
after tax / net sales also decreased.The company’s Board of Directors assessed the business
performance reduced its effectiveness due to several reasons that the main reason leading
to this difficulty is due to the overall difficulty of the socio-economic situation. Another
reason come from the high competition of domestic and international
competitors.Regarding the level of construction, the company has not had a bigchange in
construction technique and technology compared with other contractors; in construction
management, the company also has no advantage management model compared to foreign
contractors.Although the Board of Directors has strategic direction, however, the Board of
Managers has not had a strong restructuring solution to innovate the business model, to
meet the economic fluctuations as well as challenges from both local and international
competitors. (Vinaconex Report, 2015).
ICON4 – a company of Hanoi Construction Corporation is another example.Recent
years have been seen as a step backward of ICON4 in the company's boom over the past
decade. In 2015, the company's revenue and profit is both decreased at the same time in
compared to 2014. The profitability ratios of its business activities are lower than the
industry average.Facing with the difficulties in business in recent years, the Board of
Directors has strongly directed the Board of Directors to propose solutions to improve the
situation of business development, as well as its business model to develop the company.
However, the medium and long-term solutions of the Board of Managers is still focused on
the construction - the traditional business of the company. As a result, the company
focuses all resources internal and external of the company to find jobs, improve the quality
of bidding; healthy financial situation, increased debt recovery; improve the organizational
model and its the quality of management…. (ICON4 Report, 2015). Thus, despite facing
many difficulties and challenges both from macro economic, as well as from internal of the
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company, ICON4 has not had a breakthrough solution to innovate the business model to
meet requirements of the Board of Directors, overcome the difficult period, thus creating a
basis to increase company’s competitiveness and sustainable development.
Phuc Hung Holdings JSC – a previous Contrexim’s member company of Ministry
of Construction (MOC), has established in 2001 under the originated name: Phuc Hung –
Constrexim Construction Investment and Export-Import Co. Ltd. In 2002, Phuc Hung Co.
Ltd was reformed to Joint Stock Company and by 2009; Phuc Hung JSC was successfully
listed in Hanoi Exchange Market – HNX with stock code PHC. Similar to most of other
local contractors, Phuc Hung Holdings has been being got difficulties in innovating
business model when facing with high demand of market, as well as high competition from
both international and local contractors.
Phuc Hung is also in the same difficult situation of their business as Vinaconex 9
and ICON4. In 2014, Phuc Hung’s business revenue and profitability ratios are decreased
compared with 2013. In 2015, although the situation has been improved in which revenue
is increased almost double compared to 2014, but the revenue mostly came from the
construction of the project The Light Complex which is invested by the company in
associated with Viettel Real Estate Company. The competition with industry players in
2015, Phuc Hung still faced with many difficulties as they still focused on maintaining
their activities in construction projects based on traditional “Design - Bid –Build”bidding
process.Despite the entire staff’s effort, the company often fails to compete with major
local and foreign competitors in large scale projects; in small and medium scale projects,
Phuc Hung has difficulty in competing with other small and medium sized competitors
who are dynamic and compact in their management model.The Board of Directors of Phuc
Hung assessed the business situation that despite its improvement in 2015, but generally
not meet the expectations and not in compliance with the long-term growing strategy of the
Company (Phuc Hung Report, 2015). Thus, the Board of Managers has to find out
solutions to innovate the business model and create competitive advantage to develop its
business sustainably.
The current research will come up with the following questions:
- What is current business model of Phuc Hung Holdings?
- Does Phuc Hung Holdings need to change its current business model?
- If yes, how Phuc Hung Holdings to innovate business model?
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1.2. Literature review
Assessing the current researches on business model innovation in Vietnam shows
that there are numbers of different tools for studying the business model of a business, thus
findingpotential solutions/ways for innovating a business model.
In research of“successful e-commerce business models in the world and lessons for
Vietnam”, author Nguyen Phuong Chi analyzes the successful business models of
Amazon, eBay, and Alibaba and then finds outlessons learned for e-commerce in Vietnam
(Nguyen Phuong Chi, 2010). The author uses B2B, B2C, C2C e-commerce business
models to analyze business models of Amazon, eBay or Alibaba.
Author Nguyen Dinh Van has conducted a study of “the franchise model of mineral
franchising in Ho Chi Minh City”, whereby the author relies on franchise business
concepts to analyze the franchise business model. The study is case study with the case of
Trung Nguyen Coffee and Pho 24, then design a suitable franchise business model for
mineral drinks in Ho Chi Minh City (Nguyen Dinh Van, 2007).
Recently, author The Cuong has posted in the Young Knowledge Newspaper on the
topic of “What is Business Model Canvas of Google, Facebook” (Trithuctre, 2015). The
author uses the business model canvas tool to analyze in detail every aspect of Google and
Facebook’s business model.
The aboveliterature review found that there are few researches regarding business
models. And literature review of current researches in Vietnam also found that Business
Model Canvas is a new research tool that has not yet been widely applied in Vietnam
despite the fact that the tool is now becoming popular all over the world. Especially in the
Vietnam construction industry, there is no research which has used the Business Model
Canvas tool to study and foundpotential solutions/ways to innovate the business model,
then creating competitive advantage as the basis for building businesses for sustainable
development. In the case of Phuc Hung Holdings, the company did not have any research
related to its business model analysis to find out how to innovate and restructure the
company.
Therefore,a research of using Business Model Canvas tool to study the business
model of Phuc Hung Holdings or of domestic construction contractors is necessary, then
find out potential solutions/ways to innovate its business model, and so that the research
questions can be solved.
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1.3. Aims of research
Aims of this research are to:
- Describing major type business models of local contractors in construction
industry of Vietnam and analyze the strength and weakness of those business
models.
- Identify the business model of Phuc Hung Company and evaluate its
performance.
- Applying the Business Model Canvas to identify potential ways/solutions for
innovating business model of Phuc Hung Company.
1.4. Object of research
The object of research is the business model of a typical contractor of Vietnamese
Construction Industry – Phuc Hung Holdings JSC.
1.5. Scope of research
Scope of this research is to analyze Phuc Hung capabilities based on its internal
data of fiscal year 2013, 2014 and 2015. Data and information will be collected and then
will be analyzed to find out current business model of Phuc Hung, why they should
innovating and how to innovate their business model.
1.6. Thesis structure
Thesis structure of this research includes 5chapters, and major content will be
described in 03 chapters from Chapter 2 to Chapter 4 as below:
Chapter 1: Introduction
Chapter 2: Theoretical background
Chapter 3: Research method
Chapter 4: Research result
Chapter 5: Conclusion, limitation, implication.
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CHAPTER 2. THEORETICAL BACKGROUND
2.1. Definition of Business Model
There are many ways to define what Business Model is. “In essence, a business
model is a conceptual, rather than financial, model of a business” (Teece, 2010). Pekuri
et al. summaries: “Business models are seen as an essential part of successful businesses
as they define the way companies create value for their customers and subsequently make
profit from their operations. A good business model has a potential to separate a company
from its competitors by creating a competitive advantage” (Pekuri et al., 2013).
“Business models are sometimes confused with strategy. However, literature
review found that business models provide a critical link between strategy and operation
by explaining how the activities of the firm work together to execute strategy” (Pekuri et
al., 2014). The link between strategy and operation by a business model is modeled as a 3
Level Pyramid: Bottom of the Pyramid is Operation Level, Middle of the Pyramid is
Business Model Level and Top of the Pyramid is Strategy Level. The Pyramid Model is
shown as Figure 1 below:
Strategy
Business Model
Operation
Figure 2.1: “A business model – a link between strategy and operations” (source:
Pekuri et al., 2014)
“Business model has the main functions that it is able to enable managers of an
organization to understand, study and develop the whole their businesses. Beside, business
model also relates to a subject of innovation as it is more important to success than
innovating of product or service” (Pekuri et al., 2014).
Within this research, the definition of Business model is “A business model
describes the rationale of how an organization creates, delivers, and captures value”
(Osterwalder & Pigneur, 2010).
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2.2. Business Model Canvas and Value Proposition Design
2.2.1. Business Model Canvas
Osterwalder & Pigneur (2010) recently developed a tool for analyzing, developing,
improving and innovating business model that is called Business Model Canvas. This tool
is strongly visualized and can help us to better understand and communicate/share different
business logics for effective management and execute strategy.
“Business model canvas is a shared language for describing, visualizing,
assessing, and changing business models. Business model canvas – which consists of nine
basic building blocks that show the logic of how a company intends to make money – is the
best way to describe a business model. The nine blocks including: (1) Customer Segments
(CS), (2) Value Propositions (VP), (3) Channels (CH), (4) Customer Relationships (CR),
(5) Revenue Streams (RS), (6) Key Resources (KR), (7) Key Activities (KA), (8) Key
Partnerships (KP), (9) Cost Structure (CS); they cover the four major areas of a business:
customers, offer, infrastructure, and financial viability” (Osterwalder & Pigneur, 2010).
Business Model Canvas is modeled as Figure 2 as below:
Figure 2.2: “Business Model Canvas” (Source: Osterwalder& Pigneur, 2010)
2.2.1.1. Customer Segments (CS)
The Customer Segments is the first block to be studied of the business model
canvas. Itis different groups customers which a company aims to reach and that company
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has to find out for them (profitable) customers in order to survive in long-term. A company
can group their targeting customers into distinct segments with common needs, common
behaviors, or other attributes, so they will able to serve their customers better. There are
one or several large or small Customer Segments of a business model. However, a
companyshould make a right decision to select which segments to serve and which
segments to ignore. After making this decision, a business model can be carefully designed
around a strong understanding of specific customer needs. (Osterwalder& Pigneur, 2010)
2.2.1.2. Value Propositions (VP)
The second block of the business model canvas to be studied is Value Propositions
block.It is the bundle of products and services that create value for a specific Customer
Segment.The Value Proposition is the reason why customers select a company’s products
or services instead of another. It solves a customer problem or satisfies a customer need.
Each Value Proposition consists of a selected bundle of products and/or services that caters
to the requirements of a specific Customer Segment. There are some Value Propositions to
be innovative and represent a new or a disruptive offer, while others may be similar to
existing market offers, but with added features and attributes. (Osterwalder& Pigneur,
2010)
2.2.1.3. Channels (CH)
The Channels block describes how a company communicates with and reaches its
Customer Segments to deliver their Value Proposition.Channels are customer touch points
that play an important role in the customer experience. (Osterwalder& Pigneur, 2010)
2.2.1.4. Customer Relationships (CR)
The Customer Relationships block describes the types of relationships a company
establishes with specific Customer Segments.A company should establish with each
Customer Segment with an appropriatedtype of relationship which is personal or
automated relation. (Osterwalder& Pigneur, 2010)
2.2.1.5. Revenue Streams (RS)
The Revenue Streams block represents the cash a company generates from each
Customer Segment.A company must find out what value is each Customer Segment
willing to pay. A successful answerwill allow the firm to generate one or more Revenue
Streams from each Customer Segment. (Osterwalder& Pigneur, 2010)
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2.2.1.6. Key Resources (KR)
The Key Resources block describes the most important assets required to make a
business model work.It is required by every business model. Different type of business
model will need different Key Resources which can be physical, financial, intellectual, or
human. (Osterwalder& Pigneur, 2010)
2.2.1.7. Key Activities (KA)
Like Key Resources, every business model will have its Key Activities.The Key
Activities block describes the most important things a company must do to make its
business model work and there are the most important actions a company must take to
operate its business model successfully. (Osterwalder& Pigneur, 2010)
2.2.1.8. Key Partnerships (KP)
The Key Partnerships block describes the network of suppliers and partners that
make the business model work.Now a day, suppliers and partners provide a very important
input for a company, therefore partnerships are becoming a cornerstone of many business
models. Companies, whohave a strong partnership with their partners, will able to reduce
risk, or acquire resources. (Osterwalder& Pigneur, 2010)
2.2.1.9. Cost Structure (CS)
The Cost Structure block describes all costs incurred to operate a business
model.This building block describes the most important costs incurred while operating
under a particular business model. It can be calculated after defining the business model’s
Key Resources, Key Activities, and Key Partnerships. Some business models can base on
Low-Cost strategy to build up Value Proposition to offer their Customer Segments. In this
case, the business model is more cost-driven than others. (Osterwalder& Pigneur, 2010)
2.2.2. Successful application of using Business Model Canvas
There are several examples of successful cases by using Business Model Canvas as
an important tool to innovate their business model. These cases become patterns as
Osterwalder and Pigneur summarized in Business Model Generation.
Bhati Airtel – an India’s leading telcos, is one of the first mobile telcos using
Business Model Canvas to be considered as a pattern of Unbundling Business Model.
After unbundling its infrastructure business which was outsourced network operation to
Ericsson and Nokia Siemen Networks and IT infrastructure to IBM, the company focuses
on its core competency: building Customer Relationships (Osterwalder & Pigneur, 2010).
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The other typical pattern of using canvas to innovate business model is The Long-
Tail Business Model which applying in the transformation of book publishing industry is
an example. The old book publishing model is built on a process of screening many
authors and manuscripts by publishers to find out potential ones which seem to archive
minimum sales targets. In the contrast, the new book publishing model of Lulu.com is
innovated by using model canvas which known as the pattern of The Long-Tail Business
Model. Lulu.com is a multi-sides platform in which authors and readers is connected with
a Long-Tail of user-generated niche contents. Authors by using Lulu.com self-service tools
are able to publish and sell their books to actual orders. (Osterwalder & Pigneur, 2010)
Multi-Sided Platforms Business Model is an innovating model that brings together
two or more distinct but interdependent groups of customers and iPhone & App Store is
known as the Evolution of a Platform Operator. App Store allows users to browse, buy and
download application directly from iTunes Store and install them on their iPhones.
Application developers must sales of all applications through App Store and Apple get
30% royalty on each application sold. (Osterwalder & Pigneur, 2010)
There are some other patterns of business model using the canvas as an innovating
tool such as Freemium or Open Business Models. Freemium model can be applied as
getting basic functions for free, but has to pay for advance functions; or customers are able
to use products for free, but their revenue from advertisements which combine together.
Open Business Models can be used by companies to create and capture value by
systematically collaborating with outsides partners. It can be “outside-in” by using external
ideas within the firms, or “inside-out” by providing external partners with ideas or assets
lying idle from the firm. (Osterwalder & Pigneur, 2010)
The above examples show that Business Model Canvas can be an important tool for
innovating a firm’s business model. In order to innovating a business model, the firm
should have a team who has business model design ability, strategic thinking and
understand how to process the model design with adapting the firm’s specific needs.
2.2.3. Value Propositions Design
Value Propositions is the center part of Business Model Canvas and it will be
linked to the most important part of the canvas which is Customer Segments. To ensure the
innovating business model is workable, we have to use the Value Proposition Canvas as a
design tool. Osterwalder & Pigneur (2014) proposed Value Proposition Canvas which will
help the firm create value for customers.
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The Value Proposition canvas has two sides, Customer Profile and Value Map.
With the Customer Profile, you will clarify your customer understanding. With the Value
Map, you will describe how you intend to create value for your customer. And you will
archive Fit between Customer Profile and Value Map when one meets the other. Value
(Propositions) Map breaks down value proposition detailed into Products/Services, Pain
Relievers and Gain Creators. And Customer (Segments) Profile breaks down customer
detailed into its Jobs, Paints, and Gains. (Osterwalder & Pigneur, 2010)
Figure 2.3: “The Value Proposition Canvas”
(Source: Osterwalder& Pigneur, 2014)
Value (Propositions) Map describes the features of a specific value proposition in
business model in a more structured and detailed way. It breaks down value proposition
into products/services, pain relievers and gain creators. Customer (Segments) Profile
describes a specific customer in business model in a more structured and detailed way. It
breaks down customer into its jobs, paints, and gains.
According to author Osterwalder, Value Proposition Canvas is a tool for
objectively assessing as well as monitoring needs of the selected customer segments, and
analyzing in detail the company's designedvalue that is able to create to meet the needs of
the segments. In this research, Value Proposition Canvas is used as the basis for designing
customer interview questions to find out what their specific needs are.
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