BMG Benchmark

8/3/2019 BMG Benchmark

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White Paper


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Business Model Benchmark

Business Model GenerationThe benchmark report is a comparison of the

performance of a company business model1

based on the CANVAS from the Business

Model Generation (sterwalder and Pigneur,

2010)2

1. Value Proposition

. The CANVAS contains nine building

blocks:

2. Customer Segments3. Customer Relationships4. Channels5. Key activities6. Key resources7. Partners8. Cost structure9. Revenue streams

The BMG Benchmark compares two

evaluations of the business model from acompany based on the SWOT analysis3. 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 theorganisation 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 therevenues of the company are made clear.

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


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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 EvaluationDiscussing 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

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 resistance6

Company Evaluation

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.

Based on the SWOT analysis the results are

placed in a graphical overview and remember

that one picture7

Figure 2 Evaluation from the

company

says more than a thousand

words. The bar graph of the evaluation is

shown in

. 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.

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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Partners Activit ies Resources Value proposition Customer

relationships

Ch an ne ls Cu st om er

segments

Cost structure Revenu streams

Strength or weakness

Opportunity

Threat

Average


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the opportunities and lowered with the result

of the threats.

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.

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

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.

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 wecan compare the two evaluations in one

picture. Therefore I have developed the

Business Model Comparison.

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Partners Activit ies Resources Value proposition Customer

relationships

Ch an nel s Cu st om er

segments

Cost structure Revenu streams

Strength or weakness

Opportunity

Threat

Average


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Business Model ComparisonTo 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

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

his feeling8

researchers based on the facts from the

internal analysis of the company and external

analysis of the market. This results in the

graph of

and knowledge of the company

and the

Figure 4 Comparison Company and

Research where the results of the company

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.

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 therelationship 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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Part ner s Activitie s Re sour ce s Value proposition Custom er

relationships

Channels Customer segments Cost structure Revenu streams Average Company

Average Research

Difference

The higher the differnce

bar, the more there is a

difference between

Company and research.

A difference higher thanzero means that the

Company is

overestimatingitself.

A difference lower than

zero means that the

Company is

underestimatingitself.


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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.

3. 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 theresources. This building block

therefore has a low priority.

4. 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 blocksthis score should be a signal for the

company to have a better

understanding of its value proposition

towards its customers.

5. 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.

6. Channels.The large difference in the score

between the company and theresearchers 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 loserevenues. 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 revenuestreams 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 onchannels, 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 strategyfor

the company to follow.

The best strategyfor this company is, looking

at the situation based on the evaluation of the

researchers, focussing on customerrelationships9 and customer segments10.


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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 groups11 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 making12

Benchmark

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.

Thus far the evaluation of the business model

was based on the feeling of the company and

on facts that researchers found at the

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

In

. 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 thesame 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.

Figure 5 Benchmark the same company iscompared with all the companies in the

benchmark.

Figure 5 Benchmark

If the evaluations from both company and

researchers are available it is best to take the

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Partners Key activities Key Resources Value Proposition Customer Relations Channels Customer

segments

Cost Revenu str eams

Company

Total

Difference

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 isunderestimatingitself.


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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 thesame. 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 resourcesand 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 valueproposition. 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 thislevel.

5. The customer relation score is belowzero 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 betterthan the benchmark. Though thescore can be higher.

7. Together with customer relations thecustomer 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 ofthe companies in the benchmark.

However there is still improvement

possible.

9. Although revenues are better than thebenchmark 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. Afterimproving 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 CustomerSegmentation 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.

StrategySegmentation14 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 higherswitching cost

Final conclusionBased on the evaluation with the Business

Model Generation the strategy of thecompany 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

1

Pateli, A. and G. Giaglis (2003). A Framework For Understanding and Analysing Business Models, Proceedingsof the Bled Electronic Commerce Conference2A. Osterwalder, E.Pigneur(2010), Business Model Generation: A Handbook for Visionaries, Game Changers,

and Challengers, John Wiley & Sons Inc. Hoboken New Jersey3

M.Mulders(2010), 101 Management Models, Noordhoff Uitgeverijen.4

R. Soley, ISO 20022, Newsletter, Summer 2010, Volume 3 Issue 15Zee, H. van der (2000). Business transformation and IT: entanglement and disentanglement of companies and

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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 anddisconfirmed expectancies: The psychology of regret and disappointment. Cognition & Emotion, 14, 521-5419 P.M.Sias (2009), Organizing Relationships: Traditional and Emerging Perspectives on WorkplaceRelationships, Sage Publications, Inc.10

G.Johnson, K.Scholes, R.Whittington (2005), Exploring Corporate Strategy, Prentice Hall11

P. Kottler, G. Armstrong (2010), Principles of Marketing, Pearson Prentice Hall12J. Davis (2010).Decision Making and Problem Solving Strategies: Learn Key Problem Solving Strategies;

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W. Lankford(2001), BENCHMARKING: UNDERSTANDING THE BASICS. The Coastal Business Journal Volume 1,

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M. McDonald, I.Dunbar (2004), Market Segmentation: How to do it, how to profit from it, ElsevierButterworth-Heinemann

Documents

BMG Benchmark