Business Models in Strategic Management

Business models in strategic management
B302_1
Business models in strategic

management
Page 2 of 197 19th August 2021
https://www.open.edu/openlearn/money-business/business-models-strategic-management/
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Contents
 Introduction
 Learning outcomes
 1 The emergence of the business model idea
 1.1 Business models as attributes of real firms
 1.2 Business models as cognitive/linguistic schema
 1.3 Business models as conceptual representations of
how an organisation functions
 1.4 Test your knowledge
 2 Types of business models
 2.1 The product business model
 2.2 The solution business model
 2.3 The matchmaking business model
 2.4 The multisided business model
 3 E-commerce business models
 3.1 E-tailer
 3.2 Community provider
 3.3 Content provider
 3.4 Portals
 3.5 Transaction broker
 3.6 Market creator
 3.7 Service provider
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 4 Designing business models
 4.1 Business model canvas
 4.2 Putting knowledge into practice
 5 Using business models in your life
 5.1 Business models for professional development
 5.2 Putting knowledge into practice
 Conclusion
 References
 Acknowledgements
 Solutions
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Introduction
Since the early 2000s, a new language has entered the realm of
strategic management. Whereas the field used to talk primarily in
terms of value propositions, generic strategies and competitive
advantage, more recently, these ideas have been displaced or
perhaps, absorbed, within a new language of business models.
Driven by forces such as the knowledge economy, the growth and

spread of the Internet, and the emergence of new and powerful
mobile technologies such as smartphones, organisations are
having to rethink the way they structure their organisations, attract
customers, and seek to achieve an advantage in the marketplace.
This is happening at a frantic pace as long-established and
previously dominant industry players are increasingly being
challenged, disrupted and in many cases, beaten by small start-
ups that seemingly appear out of nowhere.
In this free course, Business models in strategic management, you will

be introduced to the theory and practice of business models as
they have developed in strategy literature. In particular, you will
explore the emergence of the business model idea, types of
business models including those using the internet (e-business
models) and how business models can be designed.
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Inherent in this course is the idea that, despite being more

frequently used in business, business models are not limited to the
business context. Neither are they meant for strategic planning in
organisations only. Rather they may have wider applications in our
lives. For instance, you could apply them for building strategies of
your professional development and career growth.
This OpenLearn course is an adapted extract from the Open

University course B302 Strategic management.
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Learning outcomes
After studying this course, you should be able to:
 recognise how to distinguish among, and make use of,

different types of business models
 understand how to build a business model by using a
business model canvas tool
 develop a business model canvas for professional
development and career growth.
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1 The emergence of the business

model idea
In Video 1, Professor Baden-Fuller talks about the reason why
business model literature has become so popular, and not just
among academics. He also introduces you to the different possible
definitions of business models.
Video content is not available in this format.
Video 1 Definition of business models
View transcript - Video 1 Definition of business models
View description - Uncaptioned Figure
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The term ‘business model’ is equally applicable to private and

public limited companies, but it is possible to see how most of the
concepts associated with business models are applicable to
organisations in the public and third sectors, as will be seen in the
sections that follow.
Activity 1 Conceptualising business models

Allow about 5 minutes
Choose one statement from the below that best describes a

business model.
A business model shows how a company makes money.
A business model reflects how a company creates value for its

customers.
A business model shows how a company makes money AND a

business model reflects how a company creates value for its
customers.
View answer - Activity 1 Conceptualising business models
According to an extensive literature review of 216 academic

papers published between 1995 and 2016, three interpretations of
the meaning and function of ‘business models’ have emerged from
the management literature (Massa et al., 2017, p. 76):
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1. business models as attributes of real firms having a

direct real impact on business operations
2. business models as cognitive/linguistic schema
3. business models as conceptual
representations/descriptions of how an organisation
functions.
You will look at each of these in more detail in the following

sections.
1.1 Business models as attributes of

real firms
This first interpretation of the meaning of a business model is
focused on explaining how firms do business.
A short definition of a business model is:
how a company makes money
(Birkinshaw and Goddard, 2009, p. 81)
Two more structured definitions maintain that:
A business model [is a] set of activities, as well as the resources and

capabilities to perform them—either within the firm, or beyond it through
cooperation with partners, suppliers or customers.
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(Zott and Amit, 2010, p. 217)
[It depicts] the content, structure, and governance of transactions

designed so as to create value through the exploitation of business
opportunities.
(Zott and Amit, 2010, p. 219)
Example 1: Socremo
Socremo is a bank in Mozambique, in south-east Africa. Its
business model helps to extend banking services to the low-
income population by offering micro-credits. These are designated
for starting up micro businesses such as counters and kiosks for
sales of home-grown fruit and vegetables, and traditional art.
1.2 Business models as

cognitive/linguistic schema
Business models are made up of different cognitive schemata, or
interconnected concepts. These schemata are concepts that
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create a shared understanding of how a firm creates value thanks

to its activity and its network of partners.
Example 2: Deliveroo
The concept behind Deliveroo is that its app connects restaurants,
potential clients and riders working as intermediaries. In this
business model, value is created through the combined activities of
the restaurant and the rider who relate to the client by the app
platform. The clients benefit from the standardised interaction with
the restaurant and so does the restaurant, which receives an order
without having to deal with clients directly.
1.3 Business models as conceptual

representations of how an organisation
functions
This view considers business models as formal conceptual
representations. The word ‘formal’ differentiates this view from the
view of business models as cognitive/linguistic schema because
cognitive and linguistic schemas are not fully formalised. In
contrast, in the view of business models as conceptual
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representations, they can be represented in a formal way (written

and/or graphical).
A definition of business models in this view is:
A business model is a conceptual tool containing a set of objects,

concepts and their relationships with the objective to express the business
logic of a specific firm. Therefore we must consider which concepts and
relationships allow a simplified description and representation of what
value is provided to customers, how this is done and with which financial
consequences.
(Osterwalder et al., 2005, p. 10)
A similar definition puts forward the idea of business models made

of different components, or blocks:
the concept refers to the description of the articulation between different

[business model components] or ‘building blocks’ to produce a
proposition that can generate value for consumers and thus for the
organization.
(Demil and Lecocq, 2010, p. 227)
Business models’ literature is relatively young and there is no

agreement on how to formally represent a business model on
paper. In this course, however, you will learn about a popular way
of representing business models: a business model canvas.
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A business model canvas is a tool for visualisation of a business

model that helps to make sense of how an organisation creates
value. Designing a business model canvas is a creative process
that involves strategic decision makers at various levels of an
organisation. In this process, the work of strategic teams
resembles that of an artist aiming to express their thoughts and
ideas on canvas; hence the name business model canvas.
You will explore this tool and how you can apply it in greater detail
in Section 4 on designing business models.
1.4 Test your knowledge

Now you have considered the three different interpretations of the
meaning and function of ‘business models’, complete Activity 2 to
test your knowledge.
Activity 2 What are business models?

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Select from the options below the answer that most fully describes
what a business model is.
Business models may be viewed as attributes of real firms.
Business models may be represented as cognitive and linguistic

schemata.
A business model of an organisation may be viewed as

representations of how it functions.
All of the above.
View answer - Activity 2 What are business models?
Now you have developed an understanding of what a business

model is, you will next consider the different types of business
models.
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2 Types of business models

In order to understand how business models contribute to our
understanding of strategy, you will now look at the different types
of business models. Several classifications have been proposed.
This section looks at the typology of business models proposed by
Baden-Fuller et al. (2018).
This typology is based on the way value is created and captured.

The process of value creation and capture can involve two parties:
in this case the business model is called dyadic. If it involves three
parties, the business model is triadic.
The different types are outlined in Figure 1.
Figure 1 Dyadic and triadic business model types
View description - Figure 1 Dyadic and triadic business model types
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It is important to note that although the whole idea behind business

models comes from for-profit organisations, the same principles
are applicable in public and third sectors, since organisations are
required to be sustainable in the sense of balancing costs and
revenues.
2.1 The product business model

This is probably the most common form of business model: selling
products or services to clients, intended as final customers but also
other businesses.
The rationale behind this business model is that the producer, or

the seller, offers a product or service on the market. The value
chain requires just a limited interaction after the purchase. The
customer benefits of the value of the product are after its purchase:
for instance, a customer will use shampoo after they have
purchased it from the supermarket.
The following animation represents this model.
Interactive content is not available in this format.
Animation 1 Product business model
View description - Animation 1 Product business model
Business models of this type need to:
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 identify who customers are;

 understand how to create demand for their
products/services;
 decide how to capture value: this includes the
definition of the unit price and some discounts for
quantity.
It could also include the introduction of more articulated

mechanisms such as freemium. A combination of the words ‘free’
and ‘premium’, a freemium is defined as:
a type of business model that involves offering customers both

complementary and extra-cost services. A company provides simple and
basic services for free for the user to try; it also offers more advanced
services or additional features at a premium.
(Segal, 2019)
An example of freemium is Skype. The software can be

downloaded at no cost and its basic service is free to use. For
example, there is no charge for calling from a computer to another
computer. However, in addition to these basic services available
for free, Skype offers some premium services customers need to
pay for. These services include computer-to-computer calls
involving large numbers of users and computer-to-phone calls.
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2.2 The solution business model

This business model is focused on the creation of a tailored
solution for the customer. In comparison to the product business
model, the engagement with the customer is much greater. Simple
examples are haircutting or make-up services, which are focused
on clients’ unique needs. Other examples are custom-made and
designed furniture and kitchens. Similarly, in B2B (business-to-
business) markets, software customisers provide tailored solutions
to their clients. An example is WIPRO, a large Indian corporation
offering digital, technology and business solutions to other
businesses. For instance, it offers artificial intelligence (AI)
platforms for business clients, industry platforms for manufacturers
of consumer goods and transport platforms for cargo process
management of air cargos.
The animation below represents this model.
Animation 2 Solution business model
View description - Animation 2 Solution business model
The boundary line between product and solution business models

is not clear-cut: there are some cases where the customisation is
remarkable although the product is still not fully tailored to the
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needs of the customers. For instance, mass customisation

combines the benefits of the product model with the possibility of
offering large numbers of possible combinations. An example of
mass customisation is the possibility of buying a laptop of the
same brand and model with different Ram and hard drive sizes, or
a car with different options.
Business models of this type are required to:
 identify potential customers

 create a trust relationship with the customer in order to
understand customer needs
 tailor the product/service in order to satisfy the needs
of the customer
 control the relationship with the customer to enhance
its engagement, while other activities, component
products and services can be outsourced
 define a price based on the value perceived by the
customer. This may differ significantly from the cost,
as it happens for strategic consulting where client
companies pay quite high prices for a consultant’s day
in comparison with the relatively lower daily cost of the
person employed.
2.3 The matchmaking business model
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This is the business model of a firm which controls a platform

where sellers and buyers of products or services can meet and
trade. Typical examples of this business model are Deliveroo and
Just Eat, which control platforms where restaurants sell their food
to customers and both these parties (restaurants and customers)
pay a fee to the platform organiser. Platforms do not only exist
online, though: local markets are typically controlled by local
authorities which rent spaces to sellers for annual fees. The
difference is that buyers at the local market just pay the seller for
their purchase and do not directly pay the platform organiser. The
same applies with the online market place eBay, which does not
charge the buyer for purchasing items or using the platform.
Another interesting example of this type of business model is stock

markets: initially they were physical places where stocks were
traded in person, while now, almost all exchanges are digitised.
The following animation shows how the matchmaking business

model works.
Animation 3 Matchmaking business model
View description - Animation 3 Matchmaking business model
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Digital technologies have opened vast possibilities and allow more

sellers and buyers to access the market: think about how the
availability of smartphones and broadband mobile connection gave
rise to services like Uber and Lyft, which connect drivers and
passengers through online platforms, accessible from smartphone
apps.
Having success with this type of business model is difficult and

requires fulfilment of several elements:
 identifying what buyers and sellers will trade, such as

a service or goods
 facilitating buyers and sellers interacting on the
platform, in a way that the offer is available when
buyers look for it: for instance, having enough drivers
to satisfy transport demands without leaving many
buyers unsatisfied and in search of alternatives
 creating a good level of trust between the buyers and
sellers: buyers want to be sure that they will receive
what they were promised in terms of quality and
delivery time, sellers look for secure payments.
PayPal as a payment system is suggested by eBay,
its parent company, to assure buyers a quick solution
for problems around missed delivery or unsatisfactory
quality of purchased items. This is because it offers a
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series of protections for sellers and buyers such as

the possibility of getting refunded if the product does
not match the description on the website
 develop charging mechanisms to capture value from
transactions: these are typically based on a fee to be
paid when a transaction takes place
 directly control the development of the marketplace
and engagement of customers on both sides of the
marketplace, without outsourcing these two critical
activities to third parties.
2.4 The multisided business model

In this triadic business model, the firm is a platform organiser and
provides different products or services to different groups of
customers. The feature of this model is that a group of customers
get benefits from the use of the product or service by the other
group.
A first group of customers is called consumer beneficiary. They

receive a product or service at a price that is below the cost
because the difference is paid by a second group of customers,
named paying customers. This latter group gain benefit from
creating value for the consumption of the first group.
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Typical examples of this business model are free newspapers,

where the consumer beneficiary receives the newspaper for free,
paid by advertisers (paying customers). The two customer groups
create complementarities between each other. Facebook also
clearly embodies this business model, providing users with free
access to a social network and making revenues from advertisers
whose offers are targeted to specific groups of customers.
Another example is services provided to customers in exchange

for their data, which are of interest to a second group of customers,
who use the data to do marketing analyses and research. This is
the case for firms that collect credit data from their customers: that
data is then used by other paying customers to offer loan services
to clients.
The following animation exemplifies the functioning of the model.
Animation 4 Multisided business model
View description - Animation 4 Multisided business model
Managing this business model means controlling how the two

groups of customers receive benefit from the consumption of the
other. To be successful in this business model it is important to:
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 identify beneficiaries—the diverse groups of people or

organisations which in some way may be interested in
an offered product or service
 identify products and services beneficiaries may be
interested in
 determine how the consumption takes place
 produce a benefit for beneficiaries.
In Activity 3, you will be introduced to the business model of a non-

profit organisation, Shelter. This charity operates in the UK helping
homeless people to find support. In the following video, Shelter
CEO, Polly Neate, explains how Shelter works.
Activity 3 Beneficiaries of Shelter

Part 1
Watch the video and try to identify the different types of
beneficiaries interested in the activities of Shelter.
Video 2 Business model of Shelter
View transcript - Video 2 Business model of Shelter
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While watching the video, you may have noted that Shelter’s
business model involves diverse beneficiaries including homeless
people, public sector, local authorities and donors. Would you think
Shelter is a multisided business model? Why? Write down your
interpretation of Shelter’s business model in the box below.
Provide your answer...
Part 2
Now watch Video 3, in which Professor Baden-Fuller interprets the
business model of Shelter.
Video 3 Discussing Shelter’s business model
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View transcript - Video 3 Discussing Shelter’s business model
Does your interpretation agree with what Baden-Fuller has

argued? Note down your thoughts in the box below.

In Activity 4 you will learn how to identify different types of
business models, understand how they create value for customers
and how the firm can capture that value.
Activity 4 Identifying and reflecting on business

models
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Allow about 5 minutes.
Drag and drop the correct business model type to the correct firm.
Interactive 1 Business models
View description - Interactive 1 Business models
Now you have learnt about types of business models, this is the
time to consider business models used in e-commerce.
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3 E-commerce business models

Due to the power of the internet and the rise of the platform
economy – where people and organisations use platforms in their
economic activity – more and more business models are being
designed and developed specifically for the online marketplace.
In Activity 5 you will look at the impact of digital change on Netflix’s

business model design.
Activity 5 The impact of digital change on

business model design
In Video 4, Professor Baden-Fuller discusses how digital change

has influenced business model design, using the example of
Netflix. Watch the video and note down the impacts of digital
change on business model design.
Video 4 Digital change influencing business model design
View transcript - Video 4 Digital change influencing business model

design
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While watching the video, you may have noted that the flexibility of
choice for customers and strategic decision makers is critical to
business model design in the digital world. It allows for fast
adaptation to the unique preferences of customers. It also allows
designing business models that can be amended and easily
substituted when strategists need to change the way an
organisation generates value.
Activity 5 suggests that, in the digital era, business models of many

firms rely on e-commerce activities. Laudon and Traver (2014)
suggest that such activities involve being an e-tailer, a community
provider, a provider of content and portals, a transaction broker, a
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market creator, and/or a service provider. These activities define

seven major business models:
 e-tailer
 community provider
 content provider
 portals
 transaction broker
 market creator
 service provider.
You will look at each of these in turn next.
3.1 E-tailer
Online retail shops come in different sizes, from the giants Amazon
and Alibaba, to small and specialised online shops selling specific
products such as parts for furniture, rare music discs, or
handcrafted clothes.
The source of revenues is the sale of goods. Strong entry barriers

make success very difficult: establishing a successful e-tailer
requires building a strong brand and targeting a precise customer
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that may enable the e-tailer to target the offer to specific needs.
Other elements that need careful management are expenses and
inventory: they should be kept low to reduce the need for capital.
3.2 Community provider

Online platforms where individuals interact for different reasons are
not a new phenomenon, but they certainly became well-known with
the diffusion of Facebook. Numerous other platforms also exist,
including LinkedIn, Twitter and Instagram. Individuals interact
because they share interests or friendships, or want to buy and sell
goods or services.
The main source of revenue for the provider is advertising on its

online platform. In some cases, such as online dating, there may
be a subscription fee based on a freemium model where some
features are enabled by the payment of a monthly fee. In other
cases, such as comparison sites, there could be revenues
generated by referrals when a purchase is made upon the
suggestions of some advice from the community leading to the
affiliate website.
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As advertising is fundamental to generating revenues, it is

important to keep the interest in the community high. When the
community is thematic (e.g. medical advice, technology
assistance), community members require frequent guidance,
suggestions and recent news. Given these needs, the breadth and
depth of knowledge of the moderators, facilitators or experts of the
community enable the possibility of keeping the conversations
alive and offering support to members. Skilled personnel who run
the community and viral marketing techniques may enhance the
possibilities of success.
3.3 Content provider

Content providers are distributors of online content, such as news,
music, videos, games and artwork, and are important players in
the online scene. Digital media (video games, video-on-demand,
ePublishing and digital music) is a growing market worth $129
billion, with a growth projection to 156.8 billion US$ in 2023
(Statista, 2019). Europe is the third largest digital media market
following the US and China, but is the fastest growing. Video
games are by far the largest segment of the market.
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Not all content providers ask for subscription fees: some get
money from advertising or from partner promotions on websites
and apps.
Content is the critical asset required to have a competitive

advantage: publishers, movie studios and video game companies
control valuable assets that are difficult to imitate and very
expensive to recreate. For example, the control of Marvel by the
Walt Disney Company allows for the creation of movies and TV
series with heroes of the Marvel Cinematic Universe, such as
Captain America, Black Widow, Ironman, Thor and Scarlet Witch,
who all also appear in the Avengers movies.
3.4 Portals
Initially born as gateways to the Internet, portals like Yahoo and
MSN are collectors of different services and content, including
news, email, video streaming and calendars. They do not sell
directly to customers, but make revenue from advertising, steering
users to external websites and charging for some premium
services, such as professional email accounts or online storage.
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First mover advantage enables providers to build a large user base

and reduce competition.
3.5 Transaction broker

Transaction brokers offer services that customers used to handle
personally – going to physical shops, or making calls and sending
emails. Some examples are financial services, travel services and
job placement services. A typical example is the popular website
www.booking.com. These brokers charge transaction fees for their
services, such as the purchase of commodities or stocks or the
conversion between different currencies. By using these online
services, customers get the advantage of saving time and
accessing lower prices granted by the service provider, who is able
to aggregate a large demand without increasing its workforce. Job
placement websites such as www.monster.com attract jobseekers
and employers. Employers pay fees to put their job adverts on the
website and are charged a fee when the position is filled.
Attracting large number of users create the externality that makes

this type of business model successful.
3.6 Market creator

Market creators offer platforms for developing transactions and
exchanges, enabling buyers and sellers to meet in virtual places.
The diffusion of the internet has favoured the separation of
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markets from physical spaces. Typical examples are eBay and

Etsy.
Market creators make money by charging a fee for each

transaction on their platform, or asking merchants to pay a fee to
access the marketplace. Having the financial resources and the
marketing capabilities to create an extensive base of users grants
the success of this business model.
3.7 Service provider

While e-tailers trade goods, service providers offer services online.
A typical example is online document backup and sharing services
such as Dropbox, OneDrive or GoogleDocs, of which the latter
also integrates several editing features.
As they are web-based, service providers cannot offer certain

types of services, such as dentistry or car repairs, but they can
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offer comparisons and make arrangements. They can even

provide grocery services.
Success in this type of business model is based on the marketing

capability to build trust and communicate reliability to potential
customers.

Based on what you have learned in Section 3, complete Activity 6.
Activity 6 Ebay’s business model

Consider e-Bay, an American company that provides a virtual

space where buyers and sellers can meet. What is its business
model?
E-tailer
Market creator
Service provider
Portal
View answer - Activity 6 Ebay’s business model
View discussion - Activity 6 Ebay’s business model
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Now you have learnt about the different types of business models,
as well as business models which are used in e-commerce. Next
you’ll learn how to design business models.
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4 Designing business models

Now that you have developed an understanding of what a
business model is and can identify the main types, you will explore
how business models can be designed using a framework to
approach their development.
In the sections that follow you will look at how the nine building
blocks of the business model canvas are presented, starting with
the definition of customer needs and value proposition.
4.1 Business model canvas

‘How can we systematically invent, design, and implement these
powerful new business models? How can we question, challenge,
and transform old, outmoded ones?’
(Osterwalder et al., 2010, p. 5)
The author answers this question by offering a business model

canvas—a tool for visualising the design of business models. It
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helps to detect outmoded elements in business models and to

transform old models into new ones.
A business model canvas comprises nine building blocks that

cover four main areas of a firm: offer (value proposition),
customers, infrastructure, and financial viability (as shown in
Figure 2).
Figure 2 The nine building blocks and the four areas of a business model
canvas
View description - Figure 2 The nine building blocks and the four areas
of a business model canvas
4.1.1 Offer (value proposition) area

The offer, or value proposition, is embedded in the business model
canvas and explains how value is created for the customer. The
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value proposition is shown in the value propositions block of the

business model canvas. The value propositions block is also
known as the value map and shows how the business model
creates value for the customer. The components of the value map
(or value propositions) are:
 Products and services: these are what the organisation

offers. They help customers in completing their
customer jobs, satisfying their needs and creating
value for customers. Products and services can range
from physical assets, such as clothes, to online
services such as music streaming. The value
proposition typically combines more than one product
or service, such as the possibility of buying a fridge
online and the delivery and installation service.
 Pain relievers: these describe how products and

services reduce customers pains, or problems. It is
unlikely that all customers’ problems could be solved,
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but the most relevant could be addressed by the value

proposition. For instance, the possibility of having
medicines delivered at home may be a useful service
for people with mobility problems. During the
coronavirus pandemic in 2020, this service became
an important pain reliever for customers who, being at
a higher risk of fatal outcomes in case of contracting
the Covid-19 virus, were advised to shield (stay home)
and could not travel to pharmacies.
 Gain creators: these describe how the products and

services provided can create benefits for the
customers. Again, it is not possible to address all
customer gains with gain creators, but the value
proposition can tap into the most relevant gains. An
example of a gain creator is buying train tickets with a
possibility of having their e-versions sent to the
buyer’s email address and a possibility of
downloading them onto a smartphone. In this case, a
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customer gains by having easy access to a ticket via

email or on the phone in case its hard copy is lost. For
those travelling for business purposes, this service
has an additional benefit: a speedy recording of the
ticket purchase in the business’ accounting system.
These last two components of the value map are useful for
representing the value creation for the customer. Pain relievers
and gain creators can be designed in order to reduce customer
pains and provide customer gains, respectively. To evaluate the fit
of the value proposition with customer needs, two questions should
be asked:
1. Is the value proposition providing essential customer

gains?
2. Is the value proposition reducing extreme customer
pains?
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Activity 7 Identifying and reflecting on the value

proposition of Starling Bank
Watch Video 5 and make notes on the value proposition of Starling

Bank (value map) before comparing your answer to the response
given in the Discussion below. You should focus your response on
the following key elements of the value map of Starling Bank:
1. Products and services

2. Pain relievers
3. Gain creators.
Video 5 The value proposition of Starling Bank
View transcript - Video 5 The value proposition of Starling Bank
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View discussion - Part
It is impossible to think about a value proposition without

considering the customers it is designed for. Therefore, the next
section will focus on the customer.
4.1.2 Customers area

Customers are shown in the customer area of the business model
canvas. The customers area has three components: customer
segments, customer relationships and channels. It is located in the
right-hand corner of the business model canvas shown in Figure 3.
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Figure 3 The customers area of the Business Model Canvas
View description - Figure 3 The customers area of the Business Model

Canvas
Customer segments
A customer segment is a group of customers having common
characteristics (e.g. age, gender, location, lifestyle and interests).
For instance, an organisation may choose to serve millennials as
its customer segment.
A millennial is a person born between 1981 and 1996. Millennials

rely on digital technologies, prefer personalisation in customer
relationships, and expect to be attended via multiple customer
channels (Davies, 2016).
Customer relationships
Customer relationships portray the type of relationship established
with each customer segment. Osterwalder et al. (2010, p. 29)
distinguish six types of customer relationships:
 Personal assistance
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A representative is accessible to the customer in

person or through a media (e.g. by phone, online).
The representative supports the customer during the
process.
 Dedicated personal assistance
The customer has a dedicated assistant, which is the

typical situation of some wealth management services
which provide a key account manager for the
customer, or in some law firms where corporate
clients refer to a lawyer who represents the law firm
and is responsible for serving the client.
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 Self-service
There is no direct relationship between the company

and its customer, so customers help themselves in the
purchase. An example would be the use of vending
machines.
 Automated services
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This mode of service combines self-service with

customisation based on automatic profiling of the
customer, who will then receive personalised
information. In doing so, it tries to personalise the
relationship with the customer. An example is the
ordering process on Amazon, which profiles the
customer’s product preferences and uses this
information to propose complementary products.
Similarly, Netflix records the preference of customers
for particular genres (e.g. adventure, drama, sci-fi)
and automatically proposes new movies and series
that match with customer preferences.
 Communities
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Communities of customers can serve the purpose of

exchanging knowledge among other clients or
potential customers, answer questions and solve
problems. They are also important for collecting
valuable information on products and services. It is
the typical situation of software development, where
communities develop around a specific software.
 Co-creation
Some services are co-created by customers. This

means that customers participate in the design,
development and/or production of a product or a
service. This is what happens with YouTube, whose
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videos are uploaded by users of the popular platform.

Similarly, TripAdvisor’s reviews are created by users.
Activity 8 Customer relations quiz

Co-creation is:
when an organisation chooses to design, develop, and produce a

product or a service together with customers
when customers produce and sell a product independently
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when several companies produce a product or a service together
when an organisation chooses not to involve customers
View answer - Part
True or false. Communities of customers can serve the purpose of

exchanging knowledge among other clients or potential customers,
answer questions and solve problems.
True
False
View answer - Part
Channels
Channels are interfaces between the company and its customers.
A channel combines activities, people and organisations to deliver
a product or a service to customers.
This building block of the canvas tries to answer the question: How
do businesses reach customers? Osterwalder et al. (2010, p. 27)
defines five types of channels shown in Table 1. The channels may
be combined.
Table 1 The five types of channels
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Control of the Type of channel Channel Examples

channel
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Own Direct Sales force Some fashion

houses have a
factory outlet
near their
production
facilities or in
large
commercial
areas to sell
directly to
customers at
discounted
prices.
View
description -
Uncaptioned
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Figure
Web sales Direct Line
sells its
insurance
policies online
through its
website.
View
description -
Uncaptioned
Figure
Indirect Own stores H&M sells
clothes in its
shops,
providing
customers with
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a basic
assistance by
its sale force.
View
description -
Uncaptioned
Figure
Partner Partner stores In some Hilton
Hotels
customers can
find fast food
and other
partner stores.
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View
description -
Uncaptioned
Figure
The same
happens for
online, with the
partnership
between e-
tailers and
fashion
brands, such
as the
partnership
between
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Alibaba and
Valentino (see
this article for
more
information).
Wholesaler Car
manufacturers
sell cars to
dealers that
work as their
wholesalers.
View
description -
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Uncaptioned
Figure
(Adapted from Osterwalder et al., 2010, p. 27)
Activity 9 Channels quiz

True or false. An organisation must always opt for one channel.
True
False
View answer - Part
True or false. Sales force, web sales and own stores are examples
of partner channels.
True
False
View answer - Part
Now you have looked into customer area of the business model
canvas you will move onto the next area— the infrastructure area.
4.1.3 Infrastructure area

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The infrastructure area is shown in Figure 4.
Figure 4 The infrastructure area of the Business Model Canvas
View description - Figure 4 The infrastructure area of the Business Model

Canvas
The infrastructure area focuses on three elements needed to

deliver the value proposition: resources and capabilities, core
activities, and key partners.
 Resources and capabilities
The resources are assets an organisation can use in

its activities. These may include buildings, financial,
human resources, customer bases, and partner
networks. A capability is an organisation’s ability to
use resources. Examples include a capability to
develop and maintain partner networks, and a
capability of managing customers and their
experiences. For instance, the business model
infrastructure of a British Media and
Telecommunications Conglomerate, Sky Group
Limited, benefits from its customer management
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capability. Today the company has more than 24

million customers, which it manages by researching
their preferences, offering subscriptions and
developing new products such as Sky TV bundles
(e.g. Sky TV and Netflix, Big Screen at Home, Family
Fun and Film, and Build Your Own Bundle).
 Core activities
The core activities are key activities performed by the

organisation to make the business model work. They
depend strictly on the type of business model offered
by the organisation. If it is a product business model,
some production or operational activities would take
place in order to deliver a product or a service. In the
case of matchmaking or multi-sided business models,
activities are concentrated on running a platform,
promoting its diffusion and providing customer service
and support to clients. For instance, the core activity
in Airbnb, an internet based service offering short-
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term home rentals, is running a platform linking

lodgers and guests.
 Key partners
Key partners are fundamental for every business

model. Which activities are delivered by partners?
This is a fundamental question that this building block
tries to answer. For instance, partners can help in
reaching customers through particular indirect
channels: this is the case of wholesalers of kitchen
appliances who create promotional offers to local
customers according to their knowledge of the market.
Another question that this building block aims to

answer is: which resources are provided by our supply
partners? This means, for instance, understanding
what suppliers are able to mobilise: some retailers
work with logistics providers to deliver their products
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to customers. These providers may control a fleet of

vehicles and also warehouse facilities.
Finally, there is a question as to who delivers our

products and/or services to customers? For example,
retailers can select the logistics providers most
suitable for their purpose: for instance, they may
employ flight couriers for urgent deliveries. Also, they
may partner with a national courier service for national
deliveries. For instance, the infrastructure of the UK-
wide online sales of Waterstones, a British book sales
chain, relies on its partnership with Royal Mail, a
British postal service and courier company.
Activity 10 Infrastructure quiz

Select from the options below the answer that most accurately
completes the sentence: The infrastructure area of a business
model canvas includes:
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Resources and capabilities
Core activities
Key partners
All of the above
View answer - Part
Select from the options below the answer that most accurately
completes the sentence: Key partners may be:
Supply partners
Delivery partners
Design partners
All of the above
View answer - Part
Now you have learned about Area 3 of the business model canvas,
infrastructure, you will move on to look at the final area—the
financial viability.
4.1.4 Financial viability area
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The financial viability area is located in the lower part of the

business model canvas (see Figure 5). It focuses on the money a
value proposition costs versus what it generates as a revenue.
Therefore, the financial viability is composed of two elements:
revenue streams and cost structure.
Figure 5 The financial viability area of the Business Model Canvas
View description - Figure 5 The financial viability area of the Business

Model Canvas
 Revenue streams
The revenue streams are revenues that the business

model generates. The key question at issue here is:
‘What value are customers willing to pay for?’
(Osterwalder et al., 2010, p. 31). In the business
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models of fast couriers such as DHL, a German

multinational delivery service provider, and FedEx, an
American multinational delivery services company, the
revenue streams rely on the customers’ willingness to
pay more for speedy deliveries.
It is also important to clarify how revenues are

collected or, in other words, how customers pay. The
two possibilities are shown in Figure 6.
Figure 6 Pricing mechanisms
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View description - Figure 6 Pricing mechanisms
 Cost structure
Cost structure identifies the costs underlying the

business model. A business model involves using
resources. Each resource has its own cost. Therefore,
the key question to be considered here is: ‘What costs
are generated by the resources employed?’
Also, a business model involves a series of activities

an organisation needs to perform to generate value.
Therefore, an additional important question here is
‘What are the costs associated with the activities of
the business model?’ For instance, some customers
see value in greener solutions with carbon neutral
deliveries; yet, it is costly to develop such offers.
Usually more innovative, they require additional
investments of time, attention and money to develop.
Also, they do not always reflect the conventional
meaning of efficiency measured in financial terms.
This may be the case of green solutions. Yet, despite
their higher costs, green value propositions are at the
core of business models in many companies. For
example, DPD, the largest parcel delivery company in
Europe, offers carbon-free bicycle deliveries to
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customers interested in, and ready to wait and pay

more for, green solutions.
Now you have considered all the different areas of the business
model canvas, you will consider your own business model canvas.
4.2 Putting knowledge into practice

Now you have learnt about the key building blocks of a business
model canvas, this is the time to consider building your own
business model canvas by using an example of Starling Bank.
Activity 11 Building a business model canvas:

an example of Starling Bank
The business model canvas of Starling Bank is rather complex. In

representing it, the focus here is primarily on the business model
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for retail customers. The following video shows how to develop a

business model canvas.
Watch Video 6 and consider two possible ways of developing a

business model canvas. Write your ideas in the box below. Save
your notes and compare your ideas with those in the discussion
box.
Video 6 The business model canvas
View transcript - Video 6 The business model canvas
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View discussion - Activity 11 Building a business model canvas: an

example of Starling Bank
As you have noticed from the video and the discussion, it is

important to balance all the building blocks in the business model
canvas. Therefore, any information introduced in one block will
affect what happens in other blocks of the canvas.
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5 Using business models in your life

So far in this course, business models have been referred to in the
context of organisations where they are used more frequently.
However, business models can have a wider range of applications.
Therefore, you do not need to be a business owner or a strategic
manager in an organisation to start using business models.
Instead, business models may be useful for one’s strategic
planning not only in the context of organisations, but also in a
variety of other contexts. For instance, you can choose to apply a
business model concept to your personal development to consider
how your personal development activities add value to your life
and career growth. To this end, the business model
conceptualisation may be of interest to various users including
ballet dancers and composers considering a new repertoire
needed to take their performance to the next level, artists willing to
promote and sell their work, book writers willing to publish a new
book or book series, freelance journalists willing to tap a new area
and bloggers willing to expand the number of subscriptions on their
pages.
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Figure 7 Personal growth
View description - Figure 7 Personal growth
For this reason, this final section of the course will look at how you
could apply business models in your personal and professional
development.
5.1 Business models for professional

development
The idea of using business models for professional development
comes from Clark et al. (2012). The authors suggested that
business models may be used to re-invent careers and take them
to a new level. In this new application of business models, the
business model canvas remains a valuable way to visualise one’s
ideas. The new business model canvas is shown Figure 8.
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Figure 8 A business model canvas for professional development
View description - Figure 8 A business model canvas for professional

development
The business model canvas has the same nine building blocks
which are integrated into four areas: offer area, infrastructure area,
customer area and financial viability area. However, unlike the
business model canvas used for strategic planning in
organisations, the business model canvas for professional
development asks questions related to its designer’s career
strategy. You will now explore these questions in greater detail.
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5.1.1 How do you help? Value proposition

Another way to think about this question is by considering the
value you add. Perhaps, your value comes from the ability to solve
a problem for your employer or for customers you work with or plan
to target. Alternatively, you may be valuable because you help
your employer to achieve important goals, or you do something
that contributes to your society.
For example, while thinking of what her future baking enterprise,

Miss Macaroon, could offer in Birmingham (UK), Rosie Ginday MBE
dreamt of something more than baking and selling macaroons. Her
dream was to help young people gain skills needed to change their
lives.
Activity 12 Your value proposition

Think about your answer to the question ‘How do you help?’ and
make notes in the box below. Perhaps, your answer includes such
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phrases as ‘In each project of our team, I innovate by bringing in

new ideas that no one has suggested before and that have been
successfully implemented’, ‘I have a new book that will
demonstrate easy approaches to learning mathematics fast’ or ‘I
have a proposal how to serve customers faster without investing
into this change’.
5.1.2 What do you do? Core activities

The next question you need to ask yourself is ‘What do I do?’
While answering this question, you should think about activities
that determine your work. For instance, is your focus on teaching,
researching, designing, coaching, or managing? It is also possible
that you might be thinking of moving from one core activity to
another. For example, if you have been doing sports
professionally, then you might move on to a coaching career.
Activity 13 Your core activities

Allow around 15 minutes
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Think about your answer to the question ‘What do you do?’ and
make notes in the box below. It is possible that your answer will
include phrases such as ‘I teach’, ‘I consult’, and ‘I perform’.
5.1.3 Who are you and what do you have?

Resources
So far in this section you have defined how you add value and
what you do in your professional development business model.
This is now the time to consider your resources. What do you
have? For instance, what are your skills, capabilities, talents, and
knowledge that help you to perform your core activities and
achieve your goals?
In the post-pandemic era, a new normal has emerged where some

skills may become more important. Jones (2020) suggests that to
succeed professionally one will need to develop five essential
skills:
1. be able to adapt to the changing world

2. be creative by bringing in new ideas
3. be emotionally intelligent (ability to make sense of
emotions, feelings and thoughts of other people)
4. be technologically savvy to be able to use diverse
digital products, software and platforms
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5. be able to stand out in the digital space.
Activity 14 Your resources

Think about your answer to the question ‘What do you have?’ and
make notes in the box below. It is possible that your answer will
include phrases such as ‘I have superior quantitative skills’, ‘I am
good at networking’ and ‘I have a capability of multi-tasking’.
5.1.4 Who helps you? Partners

Your work affects your life and the people you live with and interact
with professionally. It is important to consider the role of these
people in your career and professional development. How can they
help you to implement what you have defined as an offer in your
answer to the ‘How do you help?’ question? For example, while
thinking about who helps you, you may consider members of your
family, your friends and acquaintances, and some of your
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colleagues. These may be your superiors or mentors who like your

approach and are willing to support you.
Activity 15 Your partners

Think about your answer to the question ‘Who helps you?’ and
make notes in the box below. You may include someone from your
family, a close friend, someone who is interested in mentoring you,
or it may be your colleague or co-author.
5.1.5 Who do you help? Customers

This question focuses on the individuals and organisations who
could benefit from your offer. For example, a blogger may think
about the audience their blogging activity may help. Likewise, a
freelance journalist may think about the magazines, media groups
and audiences their publication(s) contribute to, or a freelance tutor
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in mathematics may consider the different types of students – such

as beginners and advanced learners – who they can help.
Activity 16 Your customers

Think about your answer to the question ‘Who do you help?’ and
make notes in the box below. While answering this question, think
about it in relation to your answer to the first question ‘How do you
help?’ (Activity 12). In other words, who will benefit from your offer?
It is possible that your list includes various groups, organisations
and audiences who are most likely to benefit from your offer.
For instance, if you are a book author, you may want to consider
the specific type of reader who will benefit from your book. If your
offer is an academic book that makes an introduction to a
particular discipline, then your readers may be students studying
this discipline for the first time or teaching staff delivering lecturers
and tutorials in this discipline. However, if your offer is historical
fiction, then you may consider choosing your readers from a
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spectrum ranging from those prioritising an engaging plot to those

interested in a deep understanding of the historical context.
5.1.6 How do you interact? Customer

relations
This question refers to the relationships you have with those you
help and your answer will depend on your answer to the question
‘Who do you help?’.
Having answered the question ‘Who do you help?’, you have

identified your customers. Now is the time to think about how you
communicate with these people, groups and organisations. Such
communications may be online or in a face-to-face format. You
need to consider what type of communication works better with
those you help. Since the end of 2000s and especially in the post-
pandemic era, online communications have become even more
important. Nowadays, it is hard to imagine that some relations may
rely on face-to-face communications exclusively. Instead, the two
communications are often used in a complementary manner, with
one supporting the other. For example, a professional freelance
psychologist may run a blog on a range of themes around mental
wellness and personal development, with most communications,
such as videos for its audience, brief publications and one-to-one
sessions, being online. However, they may consider having some
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events in a face-to-face format. These may be events aiming to

promote their services in nearby areas and could be provided at no
cost to the audience.
Activity 17 Your customer relations

Think about your answer to the question ‘How do you interact?’

and make notes in the box below. While answering this question,
think about it in relation to your answer to the question ‘Who do you
help?’ (Activity 16). For example, you may want to communicate
with some of those you help online, or there may be those who
would prefer to interact with you in a face-to-face format.
The online versus face-to-face classification is simple and you may

move one step further in thinking about specific nuances of your
communications. For example, what type of online
communications do you use or intend to use? Will they be
synchronous – when communications occur in a real time regime –
suggesting the simultaneous engagement of the participants?
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Possible examples of synchronous communication include live

streaming, phone interviews, video conferencing, instant
messaging, and virtual 1-to-1 or group meetings. Or will they be
asynchronous, when those communicating do not interact
simultaneously? These may take the form of email
correspondence, SMS messaging, and pre-recorded videos and
audios.
5.1.7 What do they think of you? Channels

Now you have thought about who you help and how you interact
with them, it is the time to consider what your customers think of
you. In the light of your professional development, this question is
related to your professional reputation in the eyes of those you
help. For example, which professional membership organisations
or networks do you belong to? A writer of children’s books may
strengthen their profile by joining the Society of Children’s Book
Writers and Illustrators, an international non-profit organisation
whose mission is ‘to support the creation and availability of quality
children’s books in every region of the world’ (SBCWI, no date).
They may also develop a LinkedIn profile. Likewise, someone
aiming to advance their career in figure skating and take part in
national competitions in the UK will need to become a member at
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the British Ice Skating, the UK National Governing Body for the
sport of Ice Skating in all its forms.
Another aspect to consider with this question is your visibility. For

instance, where can your customers find you, see information
about your successes and plans, and get in touch with you? You
may have your own internet page or blog. You may rely on word-
of-mouth communications by interacting with those who can help
spread the word about the quality of work you do. In this case, your
existing customers may recommend you to someone or send a link
from your page to their networks on social media sites, such as
Facebook, Twitter and Instagram. Alternatively, you may post a
message about your product or service on a public notice board in
a membership organisation.
Activity 18 Your channels

Think about your answer to the question ‘What do they [your

customers] think of you?’ and make notes in the box below. While
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answering this question, think about it in relation to your answers

to the questions ‘Who do you help?’ and ‘How do you interact?’. As
there are multiple channels, such as internet pages, blogs, word-
of-mouth communications, networks, social media sites such as
Facebook, Twitter and Instagram, and public notice boards in
membership organisations, you should focus on those which you
think may be more important to your success and will attract the
customers you are interested in.
5.1.8 What do you have? Sources of income

The question ‘What do you have?’ is tagged to ‘Sources of income’
in the business model canvas. However, this does not mean that
answers relating to income are the only possible response to this
question. You may not necessary be interested in income only.
You may want to consider nonmonetary benefits too, such as
professional reputation and recognition. Also, you may not be able
to generate income at each stage of your professional
development straight away, but what you do now may enhance
your professional reputation and may help you to generate income
in the long term. In other words, some of your current activities
may not necessarily be a source of income at the moment, but
they may bring in some non-monetary benefits (e.g. recognition,
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fame, reputation, and influence) that could be sources of future

income.
For example, a graduate in charity management, social studies,

zoology or medicine may apply for a volunteering post at
www.adzuna.co.uk or www.freevolunteering.net to gain some initial
experience needed for a future paid job. In this case, the
volunteering job will not bring any income (although there is a
possibility that expenses directly incurred with the volunteering
activity will be reimbursed). In the short-term, this job may not be
considered as a source of income, however it may bring in some
valuable experience needed to get a future well-paid job where
such experience will be required. Likewise, to enhance their
reputation, a young developer may want to contribute as a
volunteer to an open source product such as www.ubuntu.com
available to users for free.
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Activity 19 Your sources of income

Think about your answer to the question ‘What do you have?’ and
make notes in the box below. While answering this question,
consider not only income but also nonmonetary benefits that will
generate income in the long run.
5.1.9 What do you give? Cost structure

This is the final building block and involves you thinking about all
the expenses related to your offer. Again, like in the question ‘What
do you have?’, the answer to the question ‘What do you give?’ may
be given in both monetary and nonmonetary terms. In other words,
your expenses may also be measured in terms of time, energy,
reputation damage in case of failure, risk to health and disrupted
work–life balance (e.g. lack of attention to your family, friends, and
hobbies).
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Activity 20 Your cost structure

Think about your answer to the question ‘What do you give?’ and
make notes in the box below. While answering this question, think
about your expenses in both monetary and nonmonetary terms.
This will reveal a better picture of what you give while producing
your offer. You may mention time, attention and stress, or you
could include some financial expenses that are not immediately
evident. For instance, your offer may require you to adopt a regime
which is more costly. Specifically, to pursue your dream in a large
city, you may have to get up and commute at earlier hours when
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public transport is not available and there is the need to use more
expensive private hire vehicles. This may involve eating out which
is also more expensive. Staying extra hours at work implies paying
extra sitter costs for those with parental and caring responsibilities.
5.2 Putting knowledge into practice

In the last nine activities (Activities 12 to 20), you focused on the
building blocks of your business model canvas and answered
questions that could help you to advance your professional
development and career growth. The next step is to consider
possible links between your answers to the different questions
posed to you on your career strategy.
Activity 21 Your business model canvas

Review your answers to Activities 12 to 20 and amend any that

you think need changing when considering the possible links
between them. You may add, remove, or change your answers in
your business model canvas. Then include your finalised answers
in the blank business model canvas in the link below.
Your value proposition

Not available in this format.
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Your core activities

Your resources
Your partners
Your customers
Your customer relations

Your channels
Your sources of income

Your cost structure

Blank business model canvas
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You can now use the completed business model canvas to

visualise your professional growth. Keep it at hand to plan steps
needed to achieve your professional goal and to monitor areas you
need to improve in. Perhaps, you need to strengthen your
relationships with partners to attain your professional objectives. It
is also possible that you will need to revise your channels to
become more visible to those you help.
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Conclusion
You have now reached the end of this course. The focus has been
on one of the key elements of strategy—business models. By this
time, you have learnt what business models are and how to
distinguish among their different types. You have also learnt how
to build a business model by using a business model canvas tool.
The key idea to take away from this course is that strategy is not
limited to the business context. Neither is it limited to only
organisations. Rather it may have wider applications in our lives,
and, for this reason, the course showed how to apply business
models beyond organisations, for example for strategic planning of
your professional development and career.
In the final part of this course, you developed your personal

business model canvas to advance your professional goal.
Congratulations on this achievement! We hope that you have
found this experience enjoyable and useful for what you do
professionally. You may wish to revisit this course at a later time to
re-engage with your favourite themes and experiment with building
business models for your new projects.
This OpenLearn course is an adapted extract from the Open

University course B302 Strategic management.
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References
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(2018) ‘Customer engagement mechanisms: strategies for value
creation and value capture’, Academy of Management Proceedings,
2018(1), p. 13226. doi: 10.5465/AMBPP.2018.13226abstract
(Accessed: 4 June 2019).
Birkinshaw, J. and Goddard, J. (2009) ‘This could be the second

most important question you ever ask about your business. Here’s
how to answer it’, MIT Sloan Management Review, 50, pp. 81–90.
Clark, T., Osterwalder, A., & Pigneur, Y. (2012). Business model

you: A one-page method for reinventing your career. John Wiley &
Sons.
Davies, Jonathan (2016) ‘Gen Y Me: Why it Pays to Personalise

for Millennials’, Digital Marketing Magazine, 6th October. Available
at:
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y-me-why-it-pays-to-personalise-for-millennials/3671 (Accessed:
25 June 2020).
Demil, B. and Lecocq, X. (2010) ‘Business model evolution: in

search of dynamic consistency’, Long Range Planning, 43(2–3), pp.
227–46. doi: 10.1016/j.lrp.2010.02.004 (Accessed: 4 June 2019).
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Jones, L. (2020) ‘Work in the 2020s: 5 essential skills to succeed’,

Financial Times, 6 January. Available at: https://www-ft-
com.libezproxy.open.ac.uk/content/74d3c16a-1f35-11ea-92da-
f0c92e957a96 (Accessed: 11 May 2021).
Laudon, K. C. and Traver, C. G. (2014) E-commerce 2014: business,

technology, society, 10th edn, Upper Saddle River, New Jersey:
Pearson.
Massa, L., Tucci, C. L. and Afuah, A. (2017) ‘A critical assessment

of business model research’, Academy of Management Annals, 11(1),
pp. 73–104. doi: 10.5465/annals.2014.0072 (Accessed: 11
September 2019).
Osterwalder, A., Pigneur, Y. and Clark, T. (2010) Business Model

Generation: A Handbook for Visionaries, Game Changers, and
Challengers, Hoboken: Wiley.
Segal, T. (2019) ‘Freemium’, Investopedia. Available at:

https://www.investopedia.com/terms/f/freemium.asp (Accessed: 10
September 2020).
Statista (2019) Digital Media Report. Available at: https://www-

statista-com.libezproxy.open.ac.uk/outlook/200/100/digital-media/
worldwide (Accessed :11 September 2019).
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SBCWI (no date) Our Mission. Available at:

https://www.scbwi.org/our-mission-new/ (Accessed: 31 March 2021).
Zott, C. and Amit, R. (2010) ‘Business model design: an activity

system perspective’, Long Range Planning, 43(2–3), pp. 216–26.
doi: 10.1016/j.lrp.2009.07.004 (Accessed: 4 June 2019).
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Acknowledgements
This free course was written by Anna John. It was first published in
August 2021.
Except for third party materials and otherwise stated (see terms and
conditions), this content is made available under a Creative
Commons Attribution-NonCommercial-ShareAlike 4.0 Licence.
The material acknowledged below and within the course is

Proprietary and used under licence (not subject to Creative
Commons Licence). Grateful acknowledgement is made to the
following sources for permission to reproduce material in this free
course:
Images/Tables
*** Logos copyright of respective owners
Course image: pikepicture / shutterstock
Section 1.1: Maputo, Mozambique: Fedor Selivanov / 123rf.com
Section 1.2: Deliveroo: alenakr / 123rf.com
Section 1.3: Boardroom meeting: Aleksandr Davydov / 123rf.com
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Section 3.3: Netflix: (c) Danimasetoma /

https://commons.wikimedia.org/wiki/File:Logo_Netflix.png This file
is licensed under the Creative Commons Attribution-
Noncommercial-ShareAlike Licence
http://creativecommons.org/licenses/by-sa/4.0/
Section 3.3: Marvel: Anton_Ivanov / www.shutterstock.com
Section 4: Concept business model: Peshkova /

www.shutterstock.com
Section 4.1.1: Products and services: Olga Yastremska /

123rf.com
Section 4.1.1: Pain relievers: ijeab / iStock / Getty Images Plus
Section 4.1.1: Gain creators: prykhodov / 123rf.com
Section 4.1.2: Personal assistance: © Gajus/123rf.com
Section 4.1.2: Dedicated personal assistance: Rawpixel.com /

shutterstock
Section 4.1.2: Self service: Sorbis / shutterstock2
Section 4.1.2: Automated services: photobyphotoboy /

Shutterstock
Section 4.1.2: Communities: Rawpixel.com / shutterstock
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Section 4.1.2: Co-creation: Katarzyna Bialasiewicz / 123rf.com
Section 4.1.2, Table 1: Factory outlet: (c) Graham Hogg /

https://www.geograph.org.uk/photo/5007824 This file is licensed
under the Creative Commons Attribution-Noncommercial-
ShareAlike Licence http://creativecommons.org/licenses/by-sa/3.0/
Section 4.1.2, Table 1: Keyboard cart: leolintang / iStock/ Getty

Images Plu
Section 4.1.2, Table 1: H&M: Nissy-KITAQ /

https://commons.wikimedia.org/wiki/File:H
%26M_Canal_City_Hakata_shop.JPG This file is licensed under
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Licence http://creativecommons.org/licenses/by-sa/3.0/
Section 4.1.2, Table 1: Lake Buena Vista Hotel: Carlo Pelagalli /

https://commons.wikimedia.org/wiki/File:Lake_Buena_Vista,_Hilton
_Walt_Disney_World_Resort_-_panoramio.jpg This file is licensed
under the Creative Commons Attribution-Noncommercial-
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Section 4.1.2, Table 1: Kia motors : Cockram Kia /

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licensed under the Creative Commons Attribution Licence
http://creativecommons.org/licenses/by/2.0/
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Section 4.1.3: Resources anda capabilities: chrisdorney /

shutterstock
Section 4.1.3: Core activities: Worawee Meepian / 123rf.com
Section 4.1.3: Key partners: Willy Barton / shutterstock
Section 4.1.4: Revenue streams: Gordon Zammi / 123rf.com
Section 4.1.4: Cost structure: Firn / Shutterstock
Section 5: Personal growth: tumsasedgars / 123rf.com
Section 5.1.1: Macarons: Sergey Gerashchenko / 123rf.com
Section 5.1.2: Athlete - sprint start: vadymvdrobot / 123rf.com
Section 5.1.3: New normal: thitarees / 123rf.com
Section 5.1.4: Stacking hands: andreypopov / 123rf.com
Section 5.1.5: E-learning: Prasit Rodphan / 123rf.com
Section 5.1.6: Webcam view: fizkes / shutterstock
Section 5.1.7: Ice skating: Michele Morrone / 123rf.com
Section 5.1.8: Zoology student - giraffe: frantic00/Shutterstock
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Section 5.1.9: Home expenses list: Minerva Studio / iStock / Getty

Images Plus
Figures 2, 3, 4, 5, 7: Adapted from: Osterwalder, A., Pigneur, Y.

and Clark, T. (2010) Business model generation: a handbook for
visionaries, game changers, and challengers, Hoboken, NJ, Wiley.
Every effort has been made to contact copyright owners. If any

have been inadvertently overlooked, the publishers will be pleased
to make the necessary arrangements at the first opportunity.
Don't miss out
If reading this text has inspired you to learn more, you may be
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Solutions
Activity 1 Conceptualising business
models
Answer
Right:
A business model shows how a company makes money AND a

business model reflects how a company creates value for its
customers.
Feedback
Business models reflect how a company generates revenues.

They also indicate how the company creates value for its
customers.
Wrong:
A business model shows how a company makes money.
Feedback
This is partially correct. Business models show how a company

generates revenues by creating value for customers.
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A business model reflects how a company creates value for its

customers.
Feedback
This is partially correct. Business models show how a company

generates revenues by creating value for customers.
Back to - Activity 1 Conceptualising business models
Activity 2 What are business models?

Answer
Right:
All of the above.
Feedback
This is correct. Business models may be interpreted in different

ways. All the three statements are possible interpretations of what
a business model may be. Business models may be viewed as
attributes of real firms. They may also be represented as cognitive
and linguistic schemata. Finally, they may be viewed as
representations of how an organisation functions.
Wrong:
Business models may be viewed as attributes of real firms.
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Feedback
This is partially correct.
Business models may be represented as cognitive and linguistic

schemata.
Feedback
A business model of an organisation may be viewed as

representations of how it functions.
Feedback
Back to - Activity 2 What are business models?
Activity 6 Ebay’s business model

Answer
Right:
Market creator
Wrong:
E-tailer
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Service provider
Portal
Back to - Activity 6 Ebay’s business model
Discussion
The correct answer is: market creator.
Market creators offer platforms for developing transactions and

exchanges, enabling buyers and sellers to meet in virtual places.
E-Bay is the company that offers a virtual space (virtual market)
where buyers and sellers can meet and develop their transactions
and exchanges.
If you answered incorrectly revise the section on e-commerce

business models.
Back to - Activity 6 Ebay’s business model
Activity 7 Identifying and reflecting on

the value proposition of Starling Bank
Part
Discussion
1. Products and services
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Starling bank offers its customers a bank app and a

possibility for performing all their transactions online.
This application is both a pain reliever and a gain
creator of the bank’s business model.
2. Pain reliever
The bank’s customers are typically not sure how much

money they have in their current account. Therefore,
in the design of its value proposition, Starling Bank
has offered a solution to this problem by making it
possible for the customers to use the app for full
control of, and direct access to, their account. The app
allows seeing the immediate balance change after
each transaction; hence the availability of the
information on how much money has been spent and
remains in the current account. The customers can
also receive notifications about their expenses
immediately.
3. Gain creator
Customers want to save time by accessing their bank

accounts from mobile devices. Starling Bank has
created a simple bank account accessible from a
smartphone application. The banking app proposed
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by Starling is designed to be accessible for all people.

It also enables people to get full control of how their
money is spent.
Back to - Part
Activity 8 Customer relations quiz

Part
Answer
Right:
when an organisation chooses to design, develop, and produce a

product or a service together with customers
Feedback
Congratulations. This is the correct answer. Co-creation is when

customers participate in the design, development and/or
production of a product or a service.
Wrong:
when customers produce and sell a product independently
Feedback
This is incorrect. Revise the section on customer relations.
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when several companies produce a product or a service together
Feedback
when an organisation chooses not to involve customers
Feedback
Back to - Part
Part
Answer
Right:
True
Feedback
Correct. Communities of customers can serve the purpose of

exchanging knowledge among other clients or potential customers,
answer questions and solve problems. They are also important for
collecting valuable information on products and services. It is the
typical situation of software development, where communities
develop around a specific software.
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Wrong:
False
Feedback
Back to - Part
Activity 9 Channels quiz

Part
Answer
Right:
False
Feedback
Congratulations. This is the correct answer. An organisation can

use different channels in combination.
Wrong:
True
Feedback
This is incorrect. Revise the material about channels.
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Back to - Part
Part
Answer
Right:
False
Feedback
Congratulations. This is the correct answer. Sales force, web sales

and own stores are examples of own channels.
Wrong:
True
Feedback
This is incorrect. Revise the material about channels.
Back to - Part
Activity 10 Infrastructure quiz

Part
Answer
Right:
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All of the above
Feedback
Congratulations. This is the correct answer. Indeed, resources and

capabilities, core activities and key partners are the three elements
in the infrastructure area.
Wrong:
Resources and capabilities
Feedback
This is partially correct, however, resources and capabilities are

not the only element in the infrastructure area.
Core activities
Feedback
This is partially correct, however, core activities are not the only
element in the infrastructure area.
Key partners
Feedback
This is partially correct, however, key partners are not the only
element in the infrastructure area.
Back to - Part
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Part
Answer
Right:
All of the above
Feedback
Congratulations.This is the correct answer. An organisation may

consider partners for supply, delivery and design of a product or a
service.
Wrong:
Supply partners
Feedback
This is partially correct, however, supply partners are not the only
type of partners an organisation may consider.
Delivery partners
Feedback
This is partially correct, however, delivery partners are not the only
Design partners
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Feedback
This is partially correct, however, design partners are not the only
Back to - Part
Activity 11 Building a business model

canvas: an example of Starling Bank
Discussion
It is possible to prepare a business model canvas in two ways. The
first is by filling a block at a time and moving to the next one. This
is how it is done during the first part of the video. The advantage of
this approach is that the different aspects of a block are considered
all together, avoiding inconsistencies among them. The second
way is by working on a single aspect across all the blocks. In this
way it is possible to check for consistency across the different
blocks.
Back to - Activity 11 Building a business model canvas: an example of

Starling Bank
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Figure 1 Dyadic and triadic

business model types
Description
At the top of Figure 1 there is a box labelled ‘Business models’.
There is a line running vertically and horizontally downwards from
this box into two lower boxes. The lower box on the left is labelled
‘Dyadic’ and the lower box on the right is labelled ‘Triadic’.
There is line running vertically downwards from the ‘Dyadic’ box

into two lower boxes positioned vertically on top of one another.
The upper box is labelled ‘1) Product business model’ and the
lower box is labelled ‘2) Solution business model’.
There is also line running vertically downwards from the ‘Triadic’

box into two lower boxes positioned vertically on top of one
another. The upper box is labelled ‘3) Matchmaking business
model’ and the lower box is labelled ‘4) Multisided business
model’.
Back to - Figure 1 Dyadic and triadic business model types
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Animation 1 Product business

model
Description
Animation 1 features a box on the left-hand side labelled ‘Firm’. There is also a box
on the right-hand side labelled ‘Customer’. There is a single headed arrow running
between the base of the box labelled ‘Firm’ (from left-to-right) and the box labelled
‘Customer’ – this arrow is labelled ‘Product or service’. There is also a single headed
arrow running between the top of the box labelled ‘Customer’ and the box labelled
‘Firm’ (from right-to-left) – this arrow is labelled ‘Payment’. There is also an icon
symbolising a cup of tea at the tip of the lower arrow where it interfaces with the
‘Customer’ box.
Back to - Animation 1 Product business model
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Animation 2 Solution business

model
Description
Animation 2 features a box on the left-hand side labelled ‘Firm –
Redesign solution’. There is also a box on the right-hand side
labelled ‘Customer – Customer’s need’. There is a single headed
arrow running between the base of the box labelled ‘Customer –
Customer’s need’ and the box labelled ‘Firm – Redesign solution ‘
(from right-to-left). The arrow is labelled ‘Customer’s need’.
There is also a single headed arrow running between the middle of

the box labelled ‘Firm – Redesign solution’ and ‘Customer –
Customer’s need’ (from left-to-right). The arrow is labelled
‘Integrated solution’ and there is an icon that symbolises a garment
positioned above the arrow at the tip where it interfaces with the
‘Customer – Customer’s need’ box.
There is also a single headed arrow running between the top of the
box labelled ‘Customer – Customer’s need’ and the box labelled
‘Firm – Redesign solution’ (from right-to-left). There is also an icon
symbolising three coins above the arrow which is labelled
‘Payment’.
Back to - Animation 2 Solution business model
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Animation 3 Matchmaking business

model
Description
Platform organiser’. There are also two boxes on the right-hand-
side (positioned vertically above one-another) labelled ‘Customer
A, Seller – Customer’s need’ and ‘Customer B, Buyer –
Customer’s need’.
There is a single headed arrow running horizontally from right to

left between the box labelled ‘Customer A, Seller – Customer’s
need’ and the box labelled ‘Firm – Platform organiser’. This arrow
is labelled ‘Fee for using platform’.
There is also a single headed arrow running horizontally from right

to left between the box labelled ‘Customer B, Buyer – Customer’s
is also labelled ‘Fee for using platform’.
There are two single-headed arrows running vertically between the

boxes labelled ‘Customer A, Seller – Customer’s need’ and
‘Customer B, Buyer – Customer’s need’. The arrow on the left is
pointing vertically downwards and the arrow on the right is pointing
vertically upwards. In between the two arrows there is an icon
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symbolising a shopping cart. The left arrow pointing vertically

downwards is labelled ‘Product/service’ and the right arrow
pointing vertically upwards is labelled ‘Payment’.
To the left of the two boxes there is a label which states: ‘Buyer
(Customer B) and Sellers (Customer A) are connected to the firm’s
digital or physical platform’.
Back to - Animation 3 Matchmaking business model
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Animation 4 Multisided business

model
Description
Platform organiser’. There are also two boxes on the right-hand
side (positioned vertically above one-another) labelled ‘Customer
A, Seller – Customer’s need’ and ‘Customer B, Buyer –
Customer’s need’.

left between the box labelled ‘Customer A, Seller – Customer’s
need’ and the box labelled ‘Firm – Platform organiser’. The arrow
is labelled ‘Payment’ and there are three icons symbolising three
coins above the arrow.
There is a second single headed arrow running horizontally from

left-to-right between the box labelled ‘Firm – Platform organiser’
and ‘Customer A, Seller – Customer’s need’. This arrow is labelled
‘Product X’. There is a third single-headed dotted arrow running
from left-to-right between the box labelled ‘Firm – Platform
organiser’ and the box labelled ‘Customer A, Seller – Customer’s
need’. This arrow is labelled ‘Additional benefit’.
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left between the box labelled ‘Customer B, Buyer – Customer’s
is also labelled ‘Payment’ and there are three icons symbolising
three coins above the arrow.
There is a second single headed arrow running horizontally from

left-to-right between the box labelled ‘Firm – Platform organiser’
and ‘Customer B, Seller – Customer’s need’. This arrow is labelled
‘Product Y’. There is a third single-headed dotted arrow running
from left-to-right between the box labelled ‘Firm – Platform
organiser’ and the box labelled ‘Customer B Buyer Customer’s
need’. This arrow is labelled ‘Additional benefit’.
In the middle of the two sets of arrows there is a label that says:
‘By using Product X, Customer A creates an additional benefit of
value to Customer B access through Product Y’. There is also an
icon symbolising three documents to the left of the label.
Back to - Animation 4 Multisided business model
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Interactive 1 Business models

Description
This interactive features four firms and four business model types.
It is a drag and drop exercise on matching firms with business
model types. The firms are listed in the left-hand column of the
table. The first firm is Pret a manger, which is described as ‘An
international fast-food company that focuses on supplying fresh
sandwiches and food prepared on the same day on site’. The
second firm is Google, which is described as follows: ‘Google is a
web search engine. It works by looking for text on web pages and
documents that are publicly accessible on online servers Weblink’.
The third firm is Airbnb. It is described as follows: ‘An internet-
based service offering home rental and lodging services to
customers’. The fourth firm is Arup: ‘Arup Group is a London-
based consulting company providing services for all aspects of the
built environment, including planning, engineering, design and
project management’.
The business model types are listed in the right-hand column of

the table. There are some hints for the correct answers. The first
hint is ‘think about what happens in a Pret a Manger shop – a
customer chooses the food they want and pays for it’. The second
hint is ‘Google makes money by marketing advertisement on its
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search result pages, while web users do not pay for its services’.
The third hint is ‘think about how Airbnb operates: it connects
lodgers and people looking for short-stay accommodations’. The
fourth hint is ‘think about the way Arup works: they design specific
engineering projects for each of their customers’.
The business model types are listed at the bottom of the table.
They are: solution business model; matchmaking business model;
multisided business model; product business model. The correct
answers are: Pret a manger: product business model. Google:
multi-sided business model. Airbnb: matchmaking business model.
Arup: solution business model.
Back to - Interactive 1 Business models
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Figure 2 The nine building blocks

and the four areas of a business
model canvas
Description
There is a heading in the top left-hand corner of the figure which
says: ‘The Business Model Canvas’. Figure 2 is divided up into
nine separate blocks. The two blocks at the base of the figure are
labelled ‘Cost structure’ (on the left-hand side) and ‘Revenue
streams (on the right-hand side). There is also a label in the centre
(straddling the two blocks) that says: ‘Financial viability’. There are
two icons, one symbolising a graph next to the ‘Cost structure’
label and a second icon symbolising a bag of money next to the
‘Revenue streams’ label.
Above the ‘Cost structure’ and ‘Revenue streams’ blocks, there are
seven more blocks. These are divided into three clusters and
labelled (from left-to-right) as: ‘Infrastructure’, ‘Offer’ and
‘Customers’. The infrastructure blocks are labelled as: ‘Key
partners’, ‘Key activities’ and ‘Key resources’. Each one is
symbolised by an icon such as a hand shake for ‘Key partners’, a
tick box for ‘Key activities’ and a factory for ‘Key resources’.
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The cluster labelled ‘Offer’ consists of only one block that is

labelled ‘Value proposition’ with a gift icon as its symbol. The
‘Customers’ cluster consists of three blocks labelled as: ‘Customer
relationships’, ‘Channels’ and ‘Customer segments’. These are
symbolised using a heart icon for ‘Customer relationships’, a lorry
icon for ‘Channels’ and a people icon for ‘Customer segments’.
Back to - Figure 2 The nine building blocks and the four areas of a
business model canvas
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Figure 3 The customers area of the

Business Model Canvas
Description
says: ‘The Business Model Canvas’. Figure 3 is divided up into
nine separate blocks. The two blocks at the base of the figure are
labelled ‘Cost structure’ (on the left-hand side) and ‘Revenue
streams (on the right-hand side). There are two icons, one
symbolising a graph next to the ‘Cost structure’ label and a second
icon symbolising a bag of money next to the ‘Revenue streams’
label.
seven more blocks. These are labelled (from left-to-right) as ‘Key
partners’, ‘Key activities and ‘Key resources’. Each one is
tick box for ‘Key activities’ and a factory for ‘Key resources’. There
is also the ‘Value proposition’ block with a gift icon as its symbol.
At the far top right of the Business Model Canvas there is a cluster
of three blocks labelled ‘Customers’. These include ‘Customer
relationships’, ‘Channels’ and ‘Customer segments’. These are
symbolised using a heart icon for ‘Customer relationships’, a lorry
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symbolising ‘Channels’ and a people icon symbolising customer

segments. These three blocks are all shaded in blue.
Back to - Figure 3 The customers area of the Business Model Canvas
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Figure 4 The infrastructure area of

the Business Model Canvas
Description
says: ‘The Business Model Canvas’. Figure 4 is also divided up
into nine separate blocks. The two blocks at the base of the figure
are labelled ‘Cost structure’ (on the left-hand side) and ‘Revenue
label.
Above the ‘Cost Structure’ and ‘Revenue Streams’ blocks, there

are seven more blocks. These are labelled (from left-to-right) as
‘Key partners’, ‘Key activities and ‘Key resources’. Each one is
tick box for ‘Key activities’ and a factory for ‘Key resources’. These
three blocks are labelled as ‘Infrastructure’ and shaded in orange.
There is also the ‘Value proposition’ block with a gift icon as its
symbol. At the far top right of the Business Model Canvas there is
a cluster of three blocks labelled ‘Customer relationships’,
‘Channels’ and ‘Customer segments’. These are symbolised using
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a heart icon for ‘Customer relationships’, a lorry symbolising

‘Channels’ and a people icon symbolising ‘Customer segments’.
Back to - Figure 4 The infrastructure area of the Business Model Canvas
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Figure 5 The financial viability area

of the Business Model Canvas
Description
says: ‘The Business Model Canvas’. Figure 5 is also divided up
into nine separate blocks. The two blocks at the base of the figure
are labelled ‘Cost structure’ (on the left-hand side) and ‘Revenue
label. There is also a label in the centre (straddling the two blocks)
which says: ‘Financial viability’. The two blocks are also shaded
purple.
seven more blocks. These are labelled (from left-to-right) as ‘Key
partners’, ‘Key activities and ‘Key resources’. Each one is
tick box for ‘Key activities’ and a factory for ‘Key resources’.
There is also the ‘Value proposition’ block with a gift icon as its
symbol. At the far top right of the Business Model Canvas there is
a cluster of three blocks labelled ‘Customer relationships’,
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‘Channels’ and ‘Customer segments’. These are symbolised using

a heart icon for ‘Customer relationships’, a lorry symbolising
‘Channels’ and a people icon symbolising ‘Customer segments’.
Back to - Figure 5 The financial viability area of the Business Model

Canvas
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Figure 6 Pricing mechanisms

Description
Figure 6 consists of a large box titled: ‘Pricing mechanisms’. There
are two smaller boxes within the larger box. On the left there is a
box titled: ‘Fixed menu pricing’ with a subtitle underneath that
states: ‘Predefined prices are based on static variable’. The box
consists of two columns and four rows. Each column and row
contains text. This is listed as follows:
List price – Fixed prices for individual products, services or other

value propositions.
Product feature or dependent – Price depends on the number or

quality of value proposition features.
Customer segment dependent – Price depends on the type and

characteristic of a customer segment.
Volume dependent – Price as a function of the quantity purchased.
On the right there is a box titled: ‘Dynamic pricing’ with a subtitle

underneath that states: ‘Prices change based on market
conditions’. The box consists of two columns and four rows. Each
column and row contains text. This is listed as follows:
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Negotiation (bargaining) – Price negotiated between two or more

partners depending on negotiation power and/or negotiation skills.
Yield management – Price depends on inventory and time of

purchase (normally used for perishable resources such as hotel
rooms or airline seats).
Real-time-market – Price is established dynamically based on

supply and demand.
Auctions – Price determined by outcome of competitive bidding.
Back to - Figure 6 Pricing mechanisms
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Figure 7 Personal growth

Description
Mind map showing areas to help personal growth. They are: motivation, vision,
planning, learning, training, creativity, develop, goals.
Back to - Figure 7 Personal growth
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Figure 8 A business model canvas

for professional development
Description
Figure 8 is divided up into nine separate blocks. The two blocks at
the base of the figure are labelled ‘What you give: Cost structure’
(on the left-hand side) and ‘What you have: Source of income’ (on
the right-hand side). There is also a label in the centre (straddling
the two blocks) that says: ‘Financial viability area’.
Above the ‘What you give: Cost structure’ and ‘What you have:
Source of income’ blocks, there are seven more blocks. These are
divided into three clusters and labelled (from left-to-right) as:
‘Infrastructure area’, ‘Offer area’ and ‘Customer area’. The
infrastructure blocks are labelled as: ‘Who helps you: your
partners’, ‘What you do: your core activities’ and ‘Who you are and
what you have: resources’.
The cluster labelled ‘Offer area’ consists of only one block that is
labelled ‘How you help: Value proposition’. The ‘Customer area’
cluster consists of three blocks labelled as: ‘How you interact:
Customer relations’, ‘What they think of you: Channels’ and ‘Who
you help: Customer segments’.
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Back to - Figure 8 A business model canvas for professional development
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Video 1 Definition of business

models
Transcript
CHARLES BADEN-FULLER:
The word business model is commonly used by many
people in many situations. You hear it on television when
people ask would be entrepreneurs, what is your business
model? People talk about it about businesses. People even
talk it about life. So what is a business model?
A business model simply asks the question, how do you
create value and how do you capture that value? Let me
explain why we are asking that question of what it means.
Until quite recently, that is before the digital age, it was
clear that almost all firms had a very simple business
model called the product business model. Now, the
product business model is not about whether you sell
products, because it also includes services. It's about the
idea that you design something, you make it, or you
produce it. The customer comes and collects it or uses it.
And the customer pays for that product or service.
And typically, they take away the product or service and
use it themselves separately from the producer. So the
producer is really engaged in the production and delivery
of the product and service. And then collects the money.
In this simple thing, the customer pays for the product.
The digital age has changed this business model in the
sense that it's changed how we might charge and how we
might separate the charging and the production of goods.
Think about Wikipedia.
Everyone uses Wikipedia. It's an online encyclopaedia
that's free. Wikipedia competes with the Encyclopaedia
Britannica, which originally started life as a multi-volume
product which you bought a set of volumes and had the
information in it. Difference between the Encyclopaedia
Britannica and Wikipedia is Encyclopaedia Britannica, the
customer who uses the volumes paid for them. In
Wikipedia, you don't pay directly for Wikipedia services.
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You pay, perhaps, indirectly. Because Wikipedia as a

foundation asked for gifts. And various other actors give
Wikipedia money.
So you have here a very simple idea of the user, not
necessarily being the paying customer, and there being
another paying customer. Google is a very good example
of this. You go online to search for the hotel or the
restaurant. It's the restaurant or hotel who's paid for the
advertisement that's curated by Google that's shown to
you. You get to search for free. They pay on the hope that
you come and buy their services. This is an example of a
two-sided market.
So we see that with the digital world, the customer doesn't
always pay. There might be another second set of
customers who get other services who pay. We therefore
have the idea of two different kinds of business models.
One, where the customer is mainly paying for most if not
all the service. And the other one where someone else is
paying for some or all of the services.
A simple dichotomy between two kinds of business
models, but very fundamental to understanding business.
Let's go back to the term business model. It has two words
in it, business and model. Many people think that business
models are only about profit making businesses. But
actually, not for profit businesses are businesses.
The charity is a business in the sense that someone has to
pay for its operations. It has to earn revenues somewhere.
Otherwise, it won't survive. So the word business model
applies not just for profit making businesses, but also not
for profit making businesses. Because they need a way to
get revenues to pay for the services.
And this, of course, applies in the case of public authority
businesses, such as a running of services. Someone has to
pay for these services. It's often the taxpayer. So we need
to think about the business models for other firms which
are not necessarily privately owned. The same idea
applies- who's paying for the service?
In the case of charities, typically there's a group of donors
who's paying for the service for the needy. Therefore, it is
in a sense a two-sided business model. One group of
people who are getting benefits from the idea of
supporting another group who are getting the services for
free, or if not for free, at a very low cost. And in the case
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of an organisation like the NHS, the business model here

is really very simple.
The government is a surrogate consumer. The government
is paying the NHS for services that you get notionally for
free, but it's paid for by the taxpayer. By the way, doesn't
have a choice about whether they pay. So the government
is a sort of quasi customer. And in this case if the hospital
doesn't satisfy the customer, doesn't do what the
government wants it to do, it won't get paid. So the idea of
the business model applies just as much for not for profit
businesses, for government owned businesses, and for
charities.
Back to - Video 1 Definition of business models
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Video 2 Business model of Shelter

Transcript
POLLY NEATE:
I think the first thing that's really important to say about
charities in the UK is that the UK has become totally
dependent on charities to deliver public services. Without
understanding that, it's not possible to understand the
modern charity sector. So in the US, for example, a lot of
support for the public. I mean, the actual public sector is
tiny by comparison. And a lot of support for people is
funded through philanthropy.
In the UK, a lot of what we call public services are
provided by charities through contracts with the public
sector. And we at Shelter are an example of that. So we
have some funding, which is contracts with in our case,
local authorities. But central government, health bodies,
all kinds of public sector bodies fund charities to provides
support for people. So an example of that might be in
shelter, we might have a local contract to provide advice to
people who become homeless in that local authority, even
though what you have to do when you're homeless is
present to the local authority, and supposedly they will
help you.
What actually happens is their funding shelter to provide
that help to people who have been registered as homeless
within that local authority area. And that is very common
right across the sector. And there are some charities, quite
a large number of charities now in the UK, who are solely
dependent on that sort of funding. So what they do is they
provide public services under contract to the state.
At Shelter, we also very importantly fund raise among the
public. So that gives us independence. So if you're funded
by the state to do something, you can't use that money to
do other things. You can only use it to fulfil that contract.
At Shelter, we absolutely can't meet our purpose if that's
all we do. So we're totally dependent on fundraising in
order to undertake the vast majority of the work that we
do. Another important thing to understand about charities
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in the UK and Shelter in particular, is that the most

reliable form of voluntary income or fundraised income
donations that we have is multiple large hundreds of
thousands of donors who are all giving us small monthly
donations every month.
So the most important donor to Shelter is an individual
who gives us 3 pounds, five pounds, 10 pounds a month
on an ongoing rolling basis. And that gives us a
predictable source of independent income that we can use
to achieve our purpose that is not dependent on what the
state is wanting us to do. And it also gives us
independence that we can speak truth to power and say
what we like to and about the state, because we're not
solely dependent on the state for our funding.
So a typical person who donates, and these are our
absolute most important donors, are people who give us 5,
10 pounds a month regularly, are mainly, but not entirely,
people aged 50 plus who have the level of disposable
income to be able to give regularly to a charity out of their
income. So that is most of our regular givers. Another very
important source of income for us is legacies.
So the people who leave us legacies are mainly people
who were around at the founding of Shelter in 1966, for
whom they really remember the film Cathy Come Home
and all the publicity that followed that, and the founding of
Shelter. And they kind of realised that Shelter is still
around fighting the fight and want to leave us money in
their will. That's an incredibly important source of income
for Shelter.
Our typical corporate donor would be a company with a
real mission synergy with Shelter. So good example would
be B&Q. It's all about people being secure and happy in
their home. That's very much their brand, very much our
brand. So there's a real sort of synergy there.
So usually with corporates, there's some form of, kind of
brand synergy between them and the charity they support.
Our major donors tend to be people who've made a lot of
money and who want to give something back and realise
that not everyone is as fortunate as themselves, or have
come from origins where they were very much aware of
the issues that we deal with, but have now moved on in
life and made a lot of money and want to give something
back because of that.
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Back to - Video 2 Business model of Shelter
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Video 3 Discussing Shelter’s

business model
Transcript
PROFESSOR CHARLES BADEN-FULLER:
People become homeless for all sorts of reasons. The
people who are homeless have all sorts of different kinds
of needs. So Shelter is involved in legal work, involved in
advice, involved in consulting, involved in lobbying for
the government for better laws. This is a wide range of
services that Shelter is involved with.
And these different services are so broad and so extensive
that we need to source many different sources of money,
some from government, some from donations, some from
companies who are involved in similar kinds of activities.
So we have to draw together a lot of resources to deliver a
lot of services to achieve the result.
As a result, we have quite a large charity, turnover is 65
million, employing 1,500 people. Reaching six million
people through our website. Reaching hundreds of
thousands of people through help lines. Reaching
thousands of people through direct contact. It's a complex
organisation with a complex set of needs, our complex
sources of revenues, and a complex business to run.
The business model of Shelter is quite similar to the
business model of many UK charities. And UK charities
are really interesting because this is a country where two
things are happening. First of all, there is a very large
amount of the underbelly of society that is in need of
assistance. The government of Europe, and of UK
included, wants to give services to that community, but the
size of the government sector is being shrunk for political
and economic reasons. And so charities perform a very
key role in delivering government services to contracts.
So that's a very simple product star business model, a
customer the government is paying for the charity to
deliver services to a group of people who are getting it for
free. I suppose you could call it multi-sided, but it's a kind
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of product model. But charities in the UK also do a lot of

things because they believe it's right to do it and society
needs it. And that involves political campaigning and
doing all sorts of work for the needy, which might not be
funded by the government.
And this is a more traditional view of charities around the
world. This two sets of things, lobbying and giving
services, which are needed by people, but are not going to
be funded by anyone else, is the classic part of charity.
This is two-sided in the sense that the donors who are
giving money to support the charity are allowing the
recipients of the charity to get the services for free. And
the donors are feeling a personal connection with the
people who are getting the benefits. And the people who
are getting the benefits want to give something back by
their behaviour to the donors.
And let me explain that in the context of Shelter. In the
context of Shelter, the donors are often people who are
giving relatively small sums of money, 10 pounds a
month, not that small, but the point is that doing it over a
long number of years. And they do it because they make
contact with homeless people in the streets. They meet
homeless people. They read about the homeless problem.
And so they feel a very strong connection of wanting to
help this group in society.
The recipients of the charity benefits, because these are
long-lived charities, often are being given a helping hand,
which is critical. A lot of these people have actually had
good times and fall on hard times for all sorts of
circumstances, maybe family breakup, maybe some
external event, which is unusual, made them homeless.
They often when they have received a benefit and got back
on their feet want to give back and they join the group of
donors in the future. So this is a truly connected to two-
sided business model which is going on.
Back to - Video 3 Discussing Shelter’s business model
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Video 4 Digital change influencing

business model design
Transcript
CHARLES BADEN-FULLER:
I've just explained how we have a competition between
solutions business models and product business models in
the physical world. I mentioned the example of food in
supermarkets and food in restaurants. I mentioned the
example of capital goods being rented on a performance
basis versus capital goods being sold as a capital good.
What about the digital world? In the digital world, we
actually have the possibility of quite extensive engagement
with customers. Think about Netflix. You watch movies
on Netflix. You pay a premium to watch movies, which
you could download for free. Why would you not
download a movie for free or nearly free rather than
paying a premium for Netflix?
Ask any young person. They will tell you. Netflix
provides a far superior experience. The experience is
because Netflix senses exactly what kind of device you're
using, the bandwidth that you've got, makes sure that the
movie appears beautifully on your screen. It remembers
how you watch and therefore it amplifies images in a way
that you appreciate.
When you stop watching for a moment, it remembers
where you turned it off and put it on again. Even if you go
away and do something else, it still remembers where you
turned it off. And it also provides a lot of other ancillary
services like suggesting to you what your friends might be
watching, curated collections of what you might watch.
These things customers really appreciate. This is a
solutions business model in the digital world.
So the digital world, we see solutions business models
competing with other kinds of business models. But we
also have, in the digital world, the possibility of flexibility.
In a purely digital world, you can both offer one kind of
business model and the other kind of business model. And
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the pure digital world is a world where flexibility is also

alongside fixed nature. So whilst it's not trivial for a digital
company to offer both kinds of business models, it is
possible that they can morph from one to the other as a
more tactical decision.
So when we think strategically in a digital world, we need
to not only design our business models, but remember that
other kinds of business models might be possible and
might be capable of being added on after the design
process rather than before. So there is a difference
between the digital world and the physical world in the
sense there's a flexibility of choice that you have.
Back to - Video 4 Digital change influencing business model design
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Video 5 The value proposition of

Starling Bank
Transcript
ALEXANDRA FREAN:
One of the ways in which Starling is trying to reflect the
way people live their lives and the social trends that we're
experiencing right now is through doing banking in real
time. With Facebook, with Twitter, with Instagram, with
social media, people expect everything instantly. We live
in a world of now. Everything now.
We are updating people's balances in real time. When you
spend money, when money goes in or out of your bank
account with Starling, you will get an instant alert into
your phone. If you're in a store you're paying for
something with your debit card, you'll get an alert even
before you've put it back in your wallet half the time.
It's very handy because it helps you track all your
spending. And that instant notification, there's a
gratification element in it. But it's actually much more
useful than that. We update your balance in real time so
the minute you spend money it's taken away from the
balance that you see on your screen. And that is trying to
help people manage their money better. But I think it is
also part of this zeitgeist of doing everything now.
Also it's mobile banking. People want to do everything on
their phones. They want to bank anywhere. And "Bank
Anywhere" is one of our slogans. You can do your
banking on the sofa, in the bath, on the bus. You can do it
anywhere. You can do it 24/7. We have a slogan, "if
you're awake, so are we." We have people answering the
phones day and night to serve customers because that is
how people live their lives nowadays.
JULIAN SAWYER:
If you look at Starling, we're fundamentally different than
most of the banks. So we don't have a branch network.
Our customers are people who live their life on a mobile
phone, who don't understand why you have to go to a
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browser or why you have to go into a branch to do certain

activities. So we've designed this as a bank only on a
mobile phone. And therefore, you can do absolutely
everything that you need on that device. So that's the first
thing. That's really, really important.
But behind the scenes we are exactly the same as any other
bank. So we have our risk, and we have our compliance
teams, and we have our finance and our technologies, et
cetera. And that, therefore, is really important that we have
all the main functions that a bank absolutely needs. But it's
the way that we execute, the way we think, the way we
hire, and the type of people that we have is different than
other banks.
So as an example, our product team doesn't have anybody
from the banking industry. Most of our software engineers
don't come from banking. They come from other
industries because we can teach them the banking piece.
We can't teach them how to code and how to develop
some great products.
I don't think customers would look down High Street and
go where is Starling Bank because we're talking to them.
We're engaging to them on the media that they like which
is the mobile phone. And that is the key part.
There are customers that do need a branch. There are
customers that need other products like a pension or a
mortgage, which is much more advice-based. But we don't
offer that. We just offer one product, which is the Current
Account, on one channel, which is the mobile phone.
And if you look at what that product is, the Current
Account we use many times a day and how many
hundreds of times a day do we actually use our mobile
phone. So we've got the right product and the right
channel. That's not to say that all financial services
products should be sitting on a mobile phone because I
don't think that is correct. But a Current Account should
absolutely be on a mobile phone.
I think if you look at a Current Account, there is no silver
bullet. There's no single answer. We haven't solved the
problem everybody for the last 100 years has tried to work
out what it is. What we have is a whole set of amazing
features. Some of which I use and love are the ones that
you love and you use.
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But what this is about is giving customers choices. It's

about giving them insight in how they spend their money.
It's about giving them instant note notifications of
payments. So my phone or my watch will buzz even
before the point of sale will tell me to remove my card. I
know you've taken the money. I know the retailers got my
money. That's great because I've made that purchase. But I
will tell you that.
Which also means that if my phone buzzes right now, I
know that someone is using my card fraudulently because
I know where it should be. So just giving people that
insight in where the money is- where they're spending
their money, they're spending insights, giving them goals,
round up, features, et cetera- is really, really important.
So for us, it's about having 101 fantastic features, getting
them out to customers, deploying them really quickly, and
then listening and learning what customers really like,
what they use, which features they want more of, and then
develop from there.
And it's really, really important in the technology business
to get your product out to market. And we've done lots of
early work when we said this is the type of customer we're
going to have, et cetera. And lots of things change. We
didn't go with the post office straight away because we
didn't think our customers would use cash.
Then we found they did. So we've gone and now given
11,000 outlets for our customers. Now that's about
listening to customers. We could have spent years and
years trying to derive a strategy for cash or cashless. And
we would never have got to that same point. So getting our
product out early is really critical. And listening to
customers is the most important thing.
Back to - Video 5 The value proposition of Starling Bank
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Video 6 The business model canvas

Transcript
INSTRUCTOR:
In this video, you're going to learn how to use the popular
tool called Business Model Canvas. This tool is made of
nine blocks, and it's useful to write on different coloured
virtual post-its like the ones that you can see here. Here,
the post-its connect themes across the blocks using the
same colour. To start working on this Business Model
Canvas, we refer to the example of Starling Bank and we
import elements that we have already analysed.
The value proposition and customer segments were the
two building blocks of the Value Proposition Canvas. We
import from the Value Proposition Canvas a selection of
elements. So if you look at the post-its in blue, they relate
to the design of the service, whereas the post-its in orange
refer to the way the bank relates with its customers, how
their questions and answers are managed.
Now, we start filling in block by block. We start on the
Customers area on the right, filling in the last two blocks,
Customer Relationships and Channels. If we look at the
Customer Relationships, we see that the app conveys most
of the services. So the relationship with customers is based
on an automated service, but it's also possible to have
online assistance. There's a direct channel which is
delivered through the website, the app, and through the
call centre. And again, you see we're using two different
colours to highlight these different themes.
Now, we move to the left side, focusing on the
Infrastructure area. There are three blocks here. The first
one is Key Activities. This block refers to what the bank
does to deliver its value proposition. For instance, it has to
guarantee 24-hour accessibility to its banking services, as
well as provide customer service online and on the phone.
How can the bank do that? Basically, it needs resources.
These resources are listed in the block called Key
Resources- so IT systems, HR, and also developers and
specialists in banking services. Finally, the bank has
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decided to partner with the other app developers to provide

additional services as listed in the block on Partnerships.
The Partners' apps are related to borrowing money,
savings, and insurance, and they complement styling
services. In Partners, you can also include key suppliers.
After we are finished with this area, we move to the
financial viability area, which is at the bottom of the
Business Model Canvas. The cost structure refers to the
infrastructure area and the revenue streams to the
customers area right above it.
We fill them in by analysing the costs of the resources the
bank is using and the partnerships it's established. And on
the other side, we analyse the revenue streams from
customers. So for instance, the bank will have a cost for
offering the customer service. Revenues come from the
overdraft fees and the debit card usage, but Starling gets
revenues from the partner apps when they are used by the
bank's clients.
As you can see, the colour used for the Partner Apps
matches the colour used in the Key Partners block. We
have been filling in block by block. But in reality, the
work on the Business Model Canvas is an iterative
process. For example, if we think about customers needing
to deposit cash in the bank, this service can be designed
block by block, as seen in the green post-its related to that
service.
So if you look at the Customer Segments block, you see
the customer needs to deposit cash. We also populate the
Value Proposition block, as this is done by a partnership
with the Post Office. And this then also appears in the Key
Partners block. So you can see how the Business Model
Canvas enables you to create and show relationships
across the different areas from customers to resources and
key partners, moving through to value proposition.
Back to - Video 6 The business model canvas
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Business Models in Strategic Management

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Business models in strategic management

Business models in strategic

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About this free course

This free course is an adapted extract from the Open University

This version of the content may include video, images and

You can experience this free course as it was originally designed

Business models in strategic management

Copyright © 2021 The Open University

Unless otherwise stated, this resource is released under the terms

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questions-on-openlearn. Copyright and rights falling outside the

We believe the primary barrier to accessing high-quality

This is because the learning experience will always be the same

When using the content you must attribute us (The Open

The Acknowledgements section is used to list, amongst other

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The Acknowledgements section is also used to bring to your

We have also identified as Proprietary other material included in

Unauthorised use of any of the content may constitute a breach of

We reserve the right to alter, amend or bring to an end any terms

Head of Intellectual Property, The Open University

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 3.8 Test your knowledge

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Driven by forces such as the knowledge economy, the growth and

In this free course, Business models in strategic management, you will

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Inherent in this course is the idea that, despite being more

This OpenLearn course is an adapted extract from the Open

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 recognise how to distinguish among, and make use of,

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1 The emergence of the business

Video content is not available in this format.

Video 1 Definition of business models

View transcript - Video 1 Definition of business models

View description - Uncaptioned Figure

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The term ‘business model’ is equally applicable to private and

Activity 1 Conceptualising business models

Choose one statement from the below that best describes a

A business model shows how a company makes money.

A business model reflects how a company creates value for its

A business model shows how a company makes money AND a

View answer - Activity 1 Conceptualising business models

According to an extensive literature review of 216 academic

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1. business models as attributes of real firms having a

You will look at each of these in more detail in the following

1.1 Business models as attributes of

A short definition of a business model is:

how a company makes money

(Birkinshaw and Goddard, 2009, p. 81)

Two more structured definitions maintain that:

A business model [is a] set of activities, as well as the resources and

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