DICKEN BA Überarbeitet

Advantages and Disadvantages of Osterwalder's Business Model Canvas
in today’s Innovation Process
Bachelor Thesis
Submitted by Christine Dicken

Matriculation No.: 01612706
Field of Specialisation: Cross-Functional Management
Supervisor: Dr. Brigitte Bojkowszky
Vienna, 19.09.2019
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Abstract
A good business model answers the key questions such as: Who is the customer?
And what does the customer value? And more importantly, how do we deliver
the value proposition and make money with it? A review of the literature shows a
broad diversity of understandings and terminology when it comes to business
model theory. Osterwalder and Pigneur’s widely adopted Business Model Canvas
(BMC) offers a unique framework to visualise the key elements of a business
model in nine crucial building blocks. This paper aims to clarify the concept of
business models, its usages and its roles within a firm. It introduces
Osterwalder’s Business Model Canvas and its use for innovation. Furthermore,
the advantages and disadvantages of this tool are outlined. Finally, the BMC will
be applied using company examples such as Dell and Netflix.
2019 Christine Dicken 1

Table of contents
List of tables ........................................................................................... 4
List of figures .......................................................................................... 4
Introduction............................................................................................ 5
Research question................................................................................. 5
Methodology ........................................................................................ 5
Structure ............................................................................................. 6
Theoretical understanding of business models .............................................. 8
Definition ............................................................................................ 8
Origin ............................................................................................... 11
Roles & functions ................................................................................ 12
Business Model Canvas ........................................................................... 15
Building blocks ................................................................................... 15
Use for innovation ............................................................................... 19
Advantages .......................................................................................... 19
Easy to use ........................................................................................ 20
Increased collaboration ........................................................................ 20
Systematic overview ........................................................................... 20
Good basis for patenting & computer-assisted management tools ............... 21
Bridge between strategy and operation .................................................. 22
Enhances understanding ...................................................................... 22
Disadvantages ...................................................................................... 23
Restricted potential for creativity ........................................................... 23
Lack of display of relationships .............................................................. 24
Limited prediction power ...................................................................... 25
No identification of value drivers ........................................................... 25
Other flaws ........................................................................................ 26
Company examples................................................................................ 26

Dell .................................................................................................. 26
Netflix ............................................................................................... 28
Analysis ............................................................................................ 30
Conclusion............................................................................................ 31
Future research ..................................................................................... 32
Bibliography ......................................................................................... 34

List of tables
Table 1: Selected Definitions of a business model. Adapted from Brettel et al.
(2012, 87) and Vukanović (2016,8) ............................................................ 9
List of figures
Figure 1: Business Model Canvas (Source: Osterwalder & Pigneur 2010,18) .... 16
Figure 2: Channels (Source: Osterwalder & Pigneur 2010,27) ....................... 17
Figure 3: business model of an average PC manufacturer. Adapted from
Strategyzer (accessed 15/09/2019) .......................................................... 27
Figure 4: Dell's business model (Source: Stragyzer) .................................... 27
Figure 5: Netflix original business model. Adapted from Strategyzer (accessed
15/09/2019) ......................................................................................... 28
Figure 6: Netflix business model after innovating its business model in 2007.
Adapted from Adapted from Strategyzer (accessed 15/09/2019) ................... 29

Introduction
In today’s fast-paced world business model innovation is becoming increasingly

important. Big established companies may reinvent themselves by taking
advantage of technical developments (Chesbrough & Rosenbloom, 2002) and
restructure processes (Amit & Zott, 2012). Business model innovation poses an
opportunity to improve a company’s position in a cost and time efficient way
(Amit & Zott, 2012). However, not all companies seem to be capable of
innovating their business model successfully since it is a very challenging task
(Mezger, 2014).
At the beginning of idea generation, it needs a facilitator to transform the idea

into a feasible business model. Osterwalder’s Business Model Canvas includes a
matrix of the nine key building blocks: customer segments, value proposition,
distribution channel, customer relationship, key resources, key activities
partnership network, revenue streams and cost structure (Osterwalder, 2004;
Osterwalder & Pigneur, 2010). The Business Model Canvas constitutes a
framework that facilitates developing and visualising the fundamental
construction of a business. It helps to identify potential flaws and visually display
the idea. This paper will focus on the Business Model Canvas in an innovation
context.
Research question
The goal of this literature review is to elaborate on Osterwalder’s Business Model

Canvas within the academic research field of business model theory and identify
advantages and disadvantages.
Therefore, the research question is formulated:

What are the advantages and disadvantages of Osterwalder’s Business Model
Canvas in today’s Innovation Process?
Methodology
The underlying bachelor thesis is based on an extensive in-depth literature

review. Literature reviews are essential for any discipline since they give insight
on existing findings and help to create new research questions by finding gaps of
present knowledge (Frank & Hatak, 2014).

The first phase was to conduct a literature research to map existing knowledge
and gain insight of qualitative information. Databases such as EBSCO Business
Source Premier and Google Scholar were searched for academic articles
containing the term “business model” or “business model canvas”. The works of
Alexander Osterwalder and his fellow colleagues Lausanne University were taken
as a basis. Papers were selected by criteria of relevance to the research
question. This search strategy led to numerous sources supplemented with
academic work found within previous search results and previously published
literature reviews on business models (Morris et al., 2005). A subsequent review
of the selected publications in terms of their conceptual, theoretical, and
empirical development and contributions was undertaken and the papers were
coded according to the chapters of this thesis using the software NVivo 12 Pro.
By structuring and putting the gathered information in order the gained insights
were critically aligned and contrasted.
Structure
Chapter 1 will elaborate on the definition, the origin of the business model
concept in general and the roles and functions a business model takes on within
a firm. It will give an overview of research done in this field.
Chapter 2 will introduce Osterwalder’s Business Model Canvas in this context and
explain the layout, how it may be applied for innovation purposes and why it
should be used.
Chapter 3 presents the major advantages of using the Osterwalder’s Business
Model Canvas.
Chapter 4 takes a more critical view and summarises flaws of the model and
sheds light on the arguments why this may not be the ideal approach in the
innovation process.
Chapter 5 introduces examples of companies that have undergone a business
model innovation. The Business Model Canvas will be applied to show if the
innovation is fully depicted by the framework. The outcome will be analysed
referring to the aforementioned advantages and disadvantages of the method.
Chapter 6 summarises the above and presents the key findings on answering the
research question. Moreover, it concludes if there is an ideal use for the Business
Model Canvas.

Chapter 7 suggests future research and potential trends of business model
research.

Theoretical understanding of business models
The term “business model” is increasingly gaining importance in today’s
globalised world with different perceptions, models and ideas of the business
model concept. This chapter shall elaborate on the definition, the origin and the
roles of a business model.
Definition
Scholars face difficulties finding a universally accepted theoretical basis of

business models (BM) and numerous pieces of literature redefine the term. Every
definition seems to follow its own focus: transaction, value or relations. The
absence of a common definition may have added to the controversy among
academia (Morris et al., 2005). Management and strategic literature constitute
definitions of business models different to innovation literature. Morris et al.
(2005) summarise the lack of a common definition in the literature as follows:
‘Diversity in the available definitions poses substantive challenges for

delimiting the nature and components of a model and determining what
constitutes a good model. It also leads to confusion in terminology, as
business model, strategy, business concept, revenue model, and economic
model are often used interchangeably. Moreover, the business model has been
referred to as architecture, design, pattern, plan, method, assumption, and
statement`(p. 726).
Most definitions resemble with Teece’s (2010) definition of a BM as the ‘design or

architecture of the value creation, delivery, and capture mechanisms of a firm’
(p. 172). The use of ‘architecture’ implies that a business model is not just a
listing of a company’s components. It embodies the fundamental organisation of
a system embedded in the functional relations and the underlying activities of a
business (Maier, Emery, & Hilliard, 2001). Saebi, Lien, and Foss (2016) have
found, even though researching in a different field, that components constituting
a BM seem to overlap in literature – being, ‘the firm’s value proposition and
market segments, the structure of the value chain required for realizing the
value proposition, the mechanisms of value capture that the firm deploys, and
how these elements are linked together in an architecture’ (p.207).

Morris et al. (2005) who has published a literature review of over 30 business
model definitions concludes that a business model represents how decisions
concerning the variables of venture strategy, architecture and economics are
made in order to achieve a sustainable competitive advantage in certain
markets. Table 1 gives an overview of various definitions by different scholars.
Citation numbers are based on information from Google Scholar accessed 10
September 2019.
Table 1: Selected definitions of a business model. Adapted from Brettel et al (2012,87) and
Vukanović, (2016,8)
Author(s)/Year Business Model Definition Citation

Timmers (1998) The pillars of a business model contain an 3899
infrastructure for the products offered,
service, information flows, numerous
stakeholders with their functions and finally,
the revenue stream.
Amit and Zott ‘’A business model depicts the content, 6622
(2001); structure, and governance of transactions
designed so as to create value through the
exploitation of business opportunities’ (p. 511).
Chesbrough The business model structure includes the 19197
(2003) value proposed to the customer, the aimed
market segment, network for the value
offering, cost structure, the firm’s competitive
position and the strategy.
Teece (2010) ‘[. . .] a business model defines how the 6209
enterprise creates and delivers value
to customers, and then converts payments
received to profits’ (p. 173).
Osterwalder and ‘A business model is a series of 9665
Pigneur (2010) elements: the value proposition
(product/service offering, customer
segments, customer relationships),
activities, resources, partners, distribution

channels (i.e., value creation and delivery) and
cost structure, and revenue model’ (p.14).
Osterwalder himself has worked on definitions for business models in his past
publications. Ranging from the missing link between strategy and business
processes to the implementation of a business concept into its strategy as a
basis for its operational processes and IT network (Osterwalder, 2004;
Osterwalder & Pigneur, 2002).
Besides a lack of construct clarity scholars criticise the commingling of the

business model term with business strategy (Porter, 2001). Early literature on
business model theory often describes a close link between business models and
strategy or even uses the terms interchangeably (Magretta, 2002). Osterwalder
et al. (2005) distinguish business models from strategy as business models being
the building plan showing the composition of the different fragments, but they do
not take into account competition. Therefore, a strategy sets a plan on how to
succeed and outplay competition whereas a business model displays the system
of value creation and how the relevant activities and resources are aligned
(Osterwalder et al., 2005). Strategy focusses on competing firms and their
position within the same market, while a business model highlights the internal
‘core logic’ (Linder & Cantrell, 2000; Seddon et al., 2004). Casadesus-Masanell
and Ricart (2007) also argue that the business model describes a company’s
operations in a more precise way than the business strategy does. Furthermore,
business models are more concerned with developing additional value within the
existing business ecosystem, while strategists concentrate on taking control over
the existing business portfolio of corporations (Casadesus-Masanell & Ricart,
2007). Osterwalder (2004) argues that the business model and strategy relate to
similar matters although not exercised on the same business layer. The business
model is the conceptual execution of a business strategy regarding the source of
revenue, namely the translation of the strategy into the concrete building blocks
of value propositions, customer relations and value networks.
A tool enabling a business to conceptualise, analyse and compare its basic logic
of how a firm does business and performs, assesses, and manages
communication and innovation was Osterwalder’s new definition of a business

model. As one of the first he wanted to describe and show the value offered to
the customer, the network needed to achieve the value proposition and how the
financial aspects are connected to it all in an innovation context (Osterwalder et
al., 2005). The idea of a conceptual model containing a series of elements was
developed from his original ontology to what practitioners now call “Canvas”
containing nine elements. These building blocks are elaborated in more detail in
chapter 2.
Origin
The term "business model" is still rather in its infancy. The first appearance was
noted in an academic article in 1957 (Bellman & Clark, 1957) as well as in the
title and abstract of a paper in the Accounting Review in 1960 (Jones, 1960). It
only obtained a more prominent role in academia towards the end of the 1990s
often used in connection with the Internet and the creation of new ways of doing
business (Osterwalder et al., 2005).
With information technology being available to all at low cost, industry

boundaries started to fade and the focus of analysis shifted from the industry
itself to the underlying business models (Osterwalder et al., 2005). The rise of
the internet and e-commerce opened the doors for new business ideas and
overthrew traditional business models. This has unleashed an interest and broad
discussion in the field of business model research (Chesbrough & Rosenbloom,
2002). From that time on, the concept of business models has found great
resonance among scholars and business practitioners as can be evidenced by an
increasing number of publications on the topic, including articles, books and book
chapters in the business press and scientific journals of different management
research fields (Zott et al., 2011).
The term was springing up in academic work varying from “new business
models”, “ebusiness models” or “internet business models” and many more. It
can be noted that the expression was driven into a certain innovative field since
journalists, businesspeople and academics were using it in connection with
ecommerce, newly founded firms and high-tech companies. Presumably there
was no clear understanding what the term really meant (Osterwalder, 2004).

With the emergence of the internet and e-business, entrepreneurs needed to use
a diagrammatic or visual model to make their venture projects understandable.
Especially investors or banks needed to comprehend the aspects of a company’s
activities and were less tolerant of financial ambiguity concerning current and
future business investments due to the rapidly changing environment (Morris et
al, 2005).
One of the very first to establish an explicit definition and classification of a

business model was Paul Timmers, a former advisor of the European Commission
(Timmers, 1998). According to Timmers a business model is the architecture of a
business supporting the product, service and information flows, as well as a
depiction of the numerous stakeholders involved and their functions in the value
process, their potential benefits and how the company will profit financially. In
order that the realisation of a company’s mission can be fully comprehended he
recommends a marketing model combining the basic business model and the
marketing strategy of the concerned company (Osterwalder, 2004).
The business model literature is rooted in various well‐established research

branches comprising innovation and technology management, (Chesbrough,
2007) information systems (Gordijn & Akkermans, 2001) or strategic
management (Amit & Zott, 2001). Every academic research field seems to follow
its own focus on business model definitions. The importance of business model
research has been gathering momentum since then (Teece, 2010).
Roles & functions
The business model is said to have multiple roles ranging from informational,
analytical functions to communication purposes which are crucial for successful
business. It can be seen as a basis for communication referred to by all the
stakeholders that entrepreneurs engage with (Vukanović, 2016). Generally, a
model constitutes a simplified representation of reality aiming to enhance
understanding and describe or predict real world processes. Thus, when referring
to a business model the representative model should support understanding and
describe and predict "activity of buying and selling goods and services" and
"earning money" of a company (Chesbrough, 2007).

Business models may be used for different purposes: elaborating and classifying
businesses, accommodating aggregated entrepreneurial activity and embodying
corporate architecture (Dunford et al., 2010). The business model is of
tremendous importance to any company since it contributes to understanding,
analysis, communication and most importantly, to the management of business
and technology stakeholders’ strategic-oriented choices (Magretta ,2002;
Osterwalder et al., 2005; Gordijn & Akkermans, 2001).
In this context, business models can prove very helpful in finding partners and
investors that need to know all about the business concept regarding the value
creation, how the firm is planning on generating earnings and ensure the long-
term existence of the business (Doganova & Eyquem-Renault, 2009).
Furthermore, business models are opportunity facilitators for entrepreneurs.
They help to critically analyse the bridge between the idea and its execution (Fiet
& Patel, 2008).
Osterwalder himself lists 5 categories of functions a business model fulfils:

Understanding and sharing, analysing, managing, prospects, and patenting of
business models (Osterwalder et al., 2005).
In order to understand and share a business model’s logic it has to be captured,

visualised and communicated. Capturing a business model is not easy. Even
though many may understand a company’s general business concept it is seldom
depicted in a conceptual way. In many cases businesspeople are not able to
communicate their business model to others so they can comprehend it (Linder &
Cantrell, 2000). Also, different people would not automatically perceive the
description in the same way as they use different mental models. This fact
creates the need for a generic and shared concept for describing business
models. Such a framework ensures a common way to describe business models
in a way that everybody understands (Osterwalder et al., 2005). Theoretical and
empirical studies show that complex information can be processed more
successfully by using visual impulses. A conceptualisation can be turned into a
graphical depiction of a business model and increase understanding (Stähler,
2002). With the development of digital services business models become
increasingly complex. The links between elements of a business model and the
varying importance may not be easily recognisable. A visual representation

enhances understanding for all stakeholders. After capturing, visualising and
understanding the business logic of a company the next step is to communicate
and share it. Sharing is important for the dialogue among stakeholders with
different backgrounds, interests and status in the company (Osterwalder et al.,
2005).
With a common business model concept, the business logic of a company can be
analysed in terms of measuring, observing and comparing it to other business
models (Stähler, 2002). Constant internal and external pressures may change
the business model over time. A structured approach to business models makes
it easier to understand which elements or relationships between elements are
affected by the change. With company business models being organised in a
structured and visual concept comparisons with competitors can be made - not
only competitors in the same field of business but maybe companies in a
completely different industry. Analysing business models of different companies
may boast new insights and spark business model innovation.
The business model concept helps bringing the organisation, the supporting
technology and the strategy in line. It supports management with the design,
planning and implementation of the business model. Designing a business model
where all the elements are mutually reinforcing and coherent may pose its
challenges. Often minor elements play a big role in the big picture. A description
with essential building blocks and their relationships of a business models assists
in designing a business model (Osterwalder et al., 2005). Another purpose of the
business model concept is improved decision-making. By enhancing
understanding and communicating of the business model logic decision makers
can make more informed and better decisions. They understand the links
between the business model’s elements and how the decision affects other parts
(Hayes & Finnegan, 2005).
By establishing business model portfolios and simulation, the business model

concept can help foster innovation and adaption to future changes. A set of
business model elements as well as their relationships to one another can be
seen as a toolbox with which creative designer are able to experiment. Amit and
Zott (2001) highlight the business model as a source of innovation.

Allen’s (2001) law of excess of diversity in evolutionary theory argues that a
company can highly benefit of maintaining a portfolio of business models in order
to be able to adapt to future changes in a rapid fashion. He suggests that a stock
of potential strategies in order to be set off in the face of unpredictability in
environmental change should be held. This is a way of performing low-risk
experiments without putting the organisation in danger (Sterman, 2000).
The fifth purpose Osterwalder et al. (2005) names is patenting. Business

modelling may play an important role when it comes to the legal domain of
patenting e-business processes or even entire elements of a company’s business
model.
Business Model Canvas

The so-called Business Model Canvas (BMC) was based on Osterwalder’s THE
BUSINESS MODEL ONTOLOGY (2004) and further developed in Osterwalder’s and
Pigneur’s BUSINESS MODEL GENERATION (2010) into a hands-on tool to defy
outmoded business models and design tomorrow’s enterprises. The BMC has
been co-created with a crowd of 470 practitioners from 45 countries
(Osterwalder & Pigneur, 2010). It has been widely adopted by practitioners who
value its clear and concise presentation of a shared language for describing,
visualising, assessing and changing business models (Rayna & Striukova, 2016).
Building blocks
The BMC consists of nine building blocks as depicted in figure 1: (1) the
customer segments that are targeted by the value proposition; (2) the value
proposition of what is offered; (3) the communication and distribution channels;
(4) the customer relationships; (5) the revenue streams generated by the
business model; (6) the key resources necessary to conduct business; (7) the
key activities in order to enable the value offering; (8) the key partnerships; and
(9) the cost structure resulting from the business model. These building blocks
can be summarised in four main areas: product, customer, infrastructure and
finance (Osterwalder & Pigneur, 2010).

Figure 1: Business Model Canvas (Source: Osterwalder & Pigneur 2010,18)
The value proposition (block 2) is meant to show the value created by the
company for a specific customer segment including the products and services or
concept of the offering– the main purpose of a business model lies in the heart of
the canvas (Andreini & Bettinelli, 2017). It describes a problem solved for
customers (“an important job done”) or satisfies a particular need (Johnson et
al., 2008). The value proposition is a bundle of benefits offered to a certain
customer segment (Osterwalder and Pigneur, 2010). It is created by the
composition of the core competencies, complementary assets, disposable key
resources, complementing value networks and governance. Value is created by
the combination of what a company can do best (core competencies) and its key
resources (Zott & Amit 2002; Chesbrough 2007).
Blocks 1 (customer segments), 3 (channels) and 4 (customer relationships) refer

to customer engagement. They display the target group, their needs, how these
needs relate to the value proposition and how the relationship between the firm
and the different customer segments are maintained. A firms’ customer
segments are different groups of people or organisations a company would like
to cater to. Customer segments are segregated based on criteria such as
common needs, behaviours or similar traits. A strong understanding of the
customer segments is crucial to success and the value proposition is tailored to

the specific customer needs. There are many different types of customer
segments. Business models may focus on marketing to mass markets and or one
homogenous group with similar qualities. Targeting niche markets requires
specific, specialised customer segments. Segments could be strongly separated
based on a diversified business model addressing completely unrelated customer
segments or alternatively, market segments with slightly different needs and
problems. The Channels Building Block refers to a company’s interface with
customers. Channels can be segmented into 5 phases as depicted by Figure 2.
Every channel could cover all phases or only some of them. A company is to
decide if these steps should be fulfilled through its own channels, partner
channels or a mix of the two. There are direct own channels, such as an in-house
sales force or a website or they can be indirect, such as retail stores owned or
operated by the organization.
Figure 2: Channels (Source: Osterwalder & Pigneur 2010,27)
The Customer Relationships Block shows the type of relationship between

company and a specific customer segment. Motivators for customer relationships
could be customer acquisition or customer retention. Relationships can range
from personal to automated (Osterwalder & Pigneur, 2010).
The infrastructure blocks (key resources, activities and partners) point out the
logistic network and the relationship with the necessary partners. The Key
Resources Building Block represent a business model’s essential assets in order
to create the value proposition, market it and generate revenues. Key resources
depend on the type of business model but may be categorised into physical,
intellectual, human and financial assets. The Key Activities Building Block
describes what a company does and is the connection between all other elements
of a business model. Key Activities could be production, problem solving or
platform or network related key activities.

The Key Partnerships Building Blocks summarises the alliance with partners and
suppliers which constitutes the cornerstone of a successful business model
(Osterwalder & Pigneur, 2010).
According to Osterwalder (2010) key partnerships can be differentiated as
follows:
• Strategic alliances between non-competitors
• Coopetition: strategic partnerships between competitors
• Joint ventures to develop new businesses
• Buyer-supplier relationships to assure reliable supplies
Lastly, the financial area (blocks 5 and 9) represents information on how the
company is going to financially guarantee its survival including the cost structure
and the revenue stream. The Revenue Stream Block represents the cash earned
from each customer segment. Ideally each customer segments generates one or
more revenue streams.
A business model can involve two different types of Revenue Streams:
• Transaction revenues resulting from one-time customer payments (asset sale,
usage fees, brokerage fees)
• Recurring revenues resulting from ongoing payments to either
deliver a Value Proposition to customers or provide post-purchase
customer support (subscription fees, lending/renting/leasing, licensing,
advertising)
(Osterwalder & Pigneur, 2010)
The revenue generated by each revenue stream greatly depends on the imposed
pricing mechanism. One can distinguish between fixed (predefined prices are
based on static variables) and dynamic pricing (prices change based on market
conditions). The Cost Structure Building block describes all incurring costs. In a
broad context business models can be classified into cost-driven and value-
driven ones. The goal of cost-driven business models is to minimise costs
whereas value-driven business models focus on value creation. Cost structures
may have characteristics such as fixed costs, variable costs, economies of scale
and economies of scope (Osterwalder & Pigneur, 2010).

Use for innovation
Due to its simple use and ease of communication the BMC is being used by
practitioners more than any other tool according to Klang et al. (2014).
Business model innovation requires a clear basic understanding of the underlying
business model and is, therefore, in need of a visual concept (also referred to as
graphic organiser) such as the BMC (Foss & Saebi, 2016). Graphic organisers are
specifically supportive for structuring information and they can reduce complexity
in learning processes (Hyerle, 2009). Challenges to business model innovation
comprise the complexity that the innovators are faced with by trying to
comprehend how stakeholders and business units are affected and which
conflicts may arise. This complexity shall be organised and mastered (Eppler &
Hoffmann,2012).
The blocks of the BMC can be perceived as a toolbox with which creative
designers are able to experiment. Playing with the elements offers ample
opportunity for business model innovation. Gavrilova et al. (2014) recommend
the transformation of the BMC into a mind map as this may support cognitive
processes such as sharing, communication and manipulating existing knowledge
on the business model in the innovation process (Täuscher & Abdelkafi, 2017).
Visual tools are facilitators of knowledge creation and sharing because
visualisation stimulates apprehension (Tufte, 1990), triggers memory (Craig,
2000), accommodates shared thinking (Fiol & Huff, 1992) and provides
inspiration (Ewenstein & Whyte, 2007). The BMC highlights the most significant
elements of a business model while reducing its overall complexity. Visual tools,
however, need to be embedded in an organisational structure which supports
business model innovation in order to ensure a fruitful outcome (Eppler &
Hoffmann, 2012).
Advantages
The Business Model Canvas has both positive and negative implications for
innovation use. Both sides will be elaborated in this thesis starting with the
advantages.

Easy to use
The nine building blocks depicted in a single-page graphical map make it easy to
survey and practical to complete (Rayna and Striukova, 2016). This approach to
visualisation enables innovators to pro-actively experiment with alternative
business model constructions by simulating various possibilities before
committing to specific investments in the real world. It benefits of the virtue of
visualising the processes underlying a business model (Chesbrough, 2010).
No prior training regarding business model theory or collaboration techniques is

necessary in order to utilise the BMC efficiently (Simmert et al., 2018).
Managerial discourse demonstrates that many managers when referring to the
business model of the company they were working in have actually “never tried
to define the business model before” or “could not explain it clearly.” Working
with the BMC they could identify the key elements of the business model and
broaden their perspective beyond their own departments (George & Bock, 2011).
Increased collaboration
A study by Eppler and Hofmann (2012) shows that the BMC template enhances
collaboration and critical thinking. Groups using the visual template to moderate
their discussion are significantly less likely to support the adoption of the
business model they have proposed compared to groups in the control condition
and groups using objects to visualise ideas. This could be interpreted as that
groups that employ a template are more realistic and critical in evaluating their
own work. A more realistic attitude may prove helpful in the innovation process
considering that every generated idea will need significant rework after the initial
generation. Using the template for business model innovation improves
perceived collaboration quality and it also supports cautiousness regarding the
planned implementation of the generated business model idea (Eppler &
Hoffmann, 2012). Employing the BMC approach can be useful to improve the
group spirit among a team working on business model innovation (Osterwalder &
Pigneur, 2010).
Systematic overview
By absorbing complexity conceptual maps like the BMC may expose previously
hidden relationships between ideas. These relationships may reveal

inconsistencies in the current business model, thus, leading to an innovation
opportunity (Massa & Tucci, 2013).
The BMC is a systematic tool demonstrating the correlation of processes within a

firm and the key to a sustainable competitive advantage is the efficient
coordination of such. It implies that the development of one block always affects
the other components of a business model and these effects shall be considered
by management. The business model as a cognitive mechanism also has
implications for practice showing the link to human resource management and
the management of perceptions. Besides its abstract approach the business
model, in its core, considers logical “sense-making” matters. The BMC provides
practitioners with an alternative tool to conventional, prescriptive “organisational
design” thinking (Vukanović, 2016).
Good basis for patenting & computer-assisted management tools
The technology or the intellectual property of e-business processes or even

aspects of the whole business model can be protected (Beresford, 2001).
Therefore, a good visual model of the business concept may pose a crucial basis
in the legal domain of patenting. Especially digital innovations need legal
protection in order to sustain a competitive advantage (Osterwalder et al.,
2005).
A fundamental benefit of the BMC is the fact that it can be used as the basis for
the introduction of computer-assisted management tools. Even though there is
an extensive amount of publication on management and strategic literature, very
few of the developed concepts have been translated into software-based tools.
Workflow modelling and tools for business process modelling have been created,
however, a feasible tool for value creation and customer orientation is still
missing. The BMC can help to define objects, elements and relationships of the
business model concept as basis for respective software. With the assistance of
software-based tools visualising, comparing and designing business models is
possible in little time. More complex methods, such as simulation, are simply
impossible without the help of computers. Computer-assisted simulation based
on the BMC offers extensive opportunities to innovate and experiment. A
consultant questioned by Osterwalder (2004) describes the importance of seeing

the big picture and the links of the elements to each other:" If you can model
cost structure and profitability you have to integrate it with the how and who
[infrastructure and customer relationship]. I have to understand how factors
influence each other and then I will look at evolutions more closely with my
controllers" (Osterwalder, 2004).
Bridge between strategy and operation
The BMC enables the practitioners to monitor how their business model changes.
Despite being of visionary means, it also takes operational matters into account.
It displays the operational relationships between building blocks of a business
model and builds a bridge between strategic and operative management
(Vukanović, 2016). The BMC supports practitioners in following business model
development and making the right call at the right time. In today’s rapidly
changing world business model innovation sometimes becomes inevitable in
order to ensure firm survival (Trimi & Berbegal-Mirabent, 2012).
Enhances understanding
The BMC has demonstrated to be a useful instrument in business education and

the initiation phase of an innovative idea. Its design covers the main aspects of
management and translates them into the domain of managerial action
(Tikkanen et al., 2005). According to Hulme (2011), the learning cycle of a newly
founded business can be tremendously enhanced using the BMC. By applying this
graphical tool in the process of business model development the relation among
elements becomes apparent, showing the cohesion of it all and makes the
entrepreneurs undergo constant reflection. Furthermore, it allows stakeholders
such as employees, executives or investors comprehend the constitution of the
business components. Especially on the venture capital side it is helpful to be
able to map a business model quickly and make the potential investors see how
the financial elements and the rest of the value proposition are connected
(Osterwalder, 2004). Therefore, the BMC accommodates information transfer
between the different stakeholders, unleashes a debate on business ventures,
helps set the processes in line with the vision and mission of the company and
facilitates the identification of risks and failures. Moreover, entrepreneurs are
encouraged to not only look at elements individually but at the big picture as
well.

This aspect is a great asset since innovators are inclined to focus only on certain
aspects of a business - such as the value proposition - ignoring or neglecting
other key components (Hulme, 2011). The Business Model Canvas creates a
common language and shared comprehension of a business model (Osterwalder
et al., 2005).
Visual thinking is of major importance when it comes to the confrontation with

business models (Osterwalder & Pigneur, 2010). There are numerous benefits to
a visual display of a business model. It enhances comprehension and knowledge
sharing about the existing business model, facilitates business model generation
and development and helps tackle organisational innovation barriers (Eppler &
Hoffmann, 2011). Visual business model representations not only boost simplicity
of a business model so that it can be communicated efficiently (Osterwalder,
2004) and related information transferred (Doganova & Eyquem‐Renault, 2009)
but also reveal concealed links within a model (Casadesus‐Masanell & Ricart,
2007), thus, sparking collaborative innovation (Eppler & Hoffmann, 2012).
Disadvantages
Even though Osterwalder’s Business Model Canvas boasts numerous advantages
there are also downsides to the concept.
Restricted potential for creativity
Using the BMC in form of a standardised representation in order to display the

components of a business model may help to compare and analyse research
findings and their transferability to practitioners, thus, increasing practical
business model innovation. Yet, even though a graphic organiser such as
Business Model Canvas may foster organised and integrated business model
design, it may not enhance the cognitive abilities needed for business model
ideation to their maximum (Amit & Zott, 2015).
Using a template such as the Business Model Canvas for innovating a business
model may harvest only mediocre success since it could constrain creativity.
Innovators are forced to think ‘within’ the given boundaries of the canvas and
their thoughts may feel restricted by the cognitive structure of the artefact
imposed.

However, formal constraints and guiding the collaborative process are useful in
improving the effectiveness of the process and fostering participation (Eppler &
Hoffmann, 2012). Established firms are more affected by restricted creativity and
hampered ideation potential than more entrepreneurial firms since they are
already constrained by path dependencies and inertia (Zott & Amit, 2007).
Chesbrough and Rosenbloom (2002) address the problem of the dominant logic
of the existing business model as it can hamper the creation of new business
model ideas. Previous business decisions may impact and even stifle further
choices, eliminating possible new paths despite other prospects may be logically
reinforced (Vukanović, 2016).
Mapping approaches may help to explain business models but are not sufficient
for accelerating experimentation and innovation (Chesbrough, 2010). The BMC
offers adequate representation of a potential business model , however, may not
be the best choice when it comes to innovating the existing business concept
(Rayna and Striukova, 2016). Eppler et al. (2011) in his studies finds that the
use of the BMC improves perceived collaboration but decreases perceived
creativity. They suggest working with this kind of graphic organiser at the
beginning of the ideation phase to gain a basic understanding of status quo,
however, not as an innovation tool.
Lack of display of relationships
Even though Osterwalder’s ontology (2004) includes an explanation on relations

among the elements and subordinated sub-elements. The Business Model Canvas
was developed as a slimmer, easy to understand version for practitioners where
some scholars feel the relationships between the elements are not adequately
elaborated. These relations are especially important for realisation of a business
model since clearly every little modification will affect other components of the
model. Employing a static perspective on business models which may prove
useful in representing a business model may not be enough in an innovation
context since an evolving adjustment and development is necessary to live up to
the changing business environment (Teece, 2010). The BMC seems to be lacking
coherence and representation of the interrelationships (Euchner and Ganguly,
2014). Business models cannot simply be defined as the set of elements - it
functions as a composition of every single element and the interaction is what

makes it work. The arrangement and combination of the building blocks and the
links in between them is decisive whether a firm may be successful or not
(Baden-Fuller & Morgan, 2010).
Limited prediction power
An innovated business model is fraught with unknowns and risks. Amit and Zott
(2001) argue that in innovation the importance of a business model is highly
dependent on its explicative and predictive power regarding the new value
creation, rather than its role to realistically depict how the firm functions. The
BMC offers limited prediction power as it does not take any kind of risk
estimation into account (Euchner & Ganguly, 2014). Identifying the three main
risks before a new venture is realised is key according to Adner (2006), these
include: business execution (initiative) risks, co-innovation (interdependence)
risks and adoption (integration) risks. Trying out an alternative business model in
a close to reality simulation would provide the highest fidelity (Euchner &
Ganguly, 2014). In order for a change in business models to succeed
organisational processes must also change which are not mapped by the BMC.
No identification of value drivers
Even though the Business Model Canvas is a great instrument for elaborating
business models it misses out on some key aspects of value creation, capture
and delivery concerning business model innovation. The BMC is structured
according to a stakeholder focus showing the different actions of the different
parties. This structure makes is possible to intuitively understand the required
actions for successful design and creation of a business model. Yet, the focus
does not lie on value principally resulting in the oversight of potential crucial
levers for business model innovation. The example of Starbucks shows that
changes in governance may pose a key driver for business model innovation, its
business model innovation contained treating employees not as labour force but
rather as partners in value creation. Moreover, digitisation often goes hand in
hand with reconfiguring the value chain which may require rethinking profit
allocation. The BMC does not disclose any of these components (Rayna &
Striukova, 2016).

Other flaws
Criticism originally raised by strategy scholars such as Porter (2001) includes the
non-representation of the capital market and external forces (competition) in
Osterwalder’s Business Model Canvas (Doganova & Eyquem-Renault, 2009). It
does not display the competitive position and it does not quantify the economic
leverage points (Euchner & Ganguly, 2014). Furthermore, Hedman and Kalling
(2003) miss the description of longitudinal management processes.
Company examples
The following chapter introduces the company examples of Dell and Netflix which
have undergone a business model innovation. The Business Model Canvas will be
applied to show how the business model has changed either successfully or not.
Dell
Dell, formerly known as Dell Computer, has succeeded to position itself as a top
PC manufacturer due to its business model innovation of direct selling.
Its business is to sell computer solutions at low cost directly to the end consumer
without any intermediary. The firm has prospered in a fast-paced industry while
competitors were struggling to gain a foothold. By saving cost on distribution Dell
was able to focus on adding value to its activities and high margin market
segments. Its business model is designed around the elimination of
intermediaries, high quality and responsive customer relationships, built to order
solutions, rapid inventory turnover, moderate margins, speedy integration of new
technologies and a highly efficient procurement, manufacturing and distribution
process. Numerous competitors in the PC industry tried to copy Dell's business
model without success (Morris et al., 2005).

Figure 3 depicts what the BMC of a standard PC manufacturer looks like
compared to Figure 4 showing Dell’s business model.
Figure 3: business model of an average PC manufacturer. Adapted from Strategyzer

(accessed 15/09/2019)
Figure 4: Dell's business model (Source: Stragyzer)
Unlike competing PC manufacturers, Dell did not sell through resellers but
directly to the end consumer. As a result, Dell could not only save money along
the value chain but also gather information on its customers in order to organise
its inventory more efficiently than other players in the same market. It could
engage in a “built to order”-strategy. Dell’s business model worked similar to a

strategy: enabling it to gain a competitive advantage difficult to imitate. If Dell’s
rivals tried to sell direct, they would cannibalise their own distribution channels
and estrange their resellers who they were depending on (Magretta, 2002).
Netflix
Netflix is an American global provider of streaming films and television series

founded in 1997. At first Netflix offered DVD delivery by mail on a standard pay-
per-rental basis. Only in 2007 it changed to offering streaming services and truly
disrupted the traditional video rental industry. The online-movie-rental-giant
increasingly drove brick and mortar stores - the biggest being Blockbuster – with
its disruptive business model out of business. Netflix has used advanced
analytics modelling effectively to support pricing and purchasing decisions and
continues to deepen its gained benefits by optimising both its network and its
recommendation engine (Giesen et al., 2010). Figure 5 shows Netflix’s business
model before the streaming innovation whereas Figure 6 displays the business
model change using Osterwalder’s Canvas framework.
Figure 5: Netflix original business model. Adapted from Strategyzer (accessed

15/09/2019)

Figure 6: Netflix business model after innovating its business model in 2007. Adapted from
Adapted from Strategyzer (accessed 15/09/2019)
Netflix changed its business model tremendously – the value creation and
proposition were adapted along with aspects of value delivery (distribution
channels – online streaming) and value capture (the revenue model –
subscription basis). The video rental business has created a big advantage over
competitors by levering its insight on consumers by installing advanced analytics
into its business model (Giesen et al., 2010). Netflix was the first mover in the
streaming industry with a wide-reaching innovation including not only its value
offering but also revenue stream and distribution channel. The disruption even
goes beyond the adjustment of the building blocks of pricing and channels. A
crucial pillar of its success considers its very effective recommendation algorithm
creating a highly powerful data mining system. This new use of big data for video
recommendation resulted in an improvement of the value proposition (the
recommendation system is included in the Netflix subscription packages). Also,
the capacity to create value was upgraded by strengthening its core
competencies (the algorithm behind the recommendation system), key resources
(big data collected from customer clicks) and value networks (ratings supplied by
users) (Rayna & Striukova, 2016).

Analysis
Looking at Figure 2 and 3 one can state that Osterwalder’s Business Model
Canvas offers a systematic overview of the business models and helps to
understand the difference between Dell and a standard PC manufacturer. Such a
visual tool supports comparing competitor and understanding the background of
one’s competitive advantage. However, as indicated by the Chapter on
Disadvantages of the BMC Dell’s real value driver (direct-selling, customisation at
low cost etc) compared to competition cannot be easily identified. Furthermore,
information on the relationships between the elements and how the different
parts of the bigger picture interact with each other is not displayed. The
underlying strategy of Dell which has been crucial for the company’s superior
performance is not obviously realisable (Euchner & Ganguly, 2014).
The canvas of Netflix’s innovated business model shows how the change of one
building block – in this case the change of the value proposition to streaming
services - enables the change of other blocks and furthermore develops a whole
new business model. The starting point of innovation may be any of the nine
building blocks as seen with Dell that innovated the distribution channel and
consequently, saved cost in order to offer a cheaper value proposition and
establish direct relationships with the end customer.

Conclusion
Business model innovation is crucial for existing firms. This is particularly true for
changing environments and markets, where the survival of a firm must adapt to
new situations in a flexible manner and innovate a company’s current business
model (Chesbrough, 2010). The Business Modell Canvas developed by
Osterwalder and Pigneur (2010) is said to be a hands-on tool that fosters
understanding, discussion, creativity and analysis.
Besides positive aspects such as the ease of use and increased collaboration
among teams when using the Business Model Canvas, it also boasts a systematic
overview of the key elements of a business model. This overview may prove to
be a good basis for patenting or computer-assisted management tools.
Furthermore, it provides a bridge between strategy and operational steps to be
taken. All in all, it offers a shared language among users and enhances
understanding of the business model in question.
However, the profound literature review underlying this bachelor thesis

concludes that practitioners should not overestimate the creative potential of
such a template. Mapping is helpful for explaining how a business model works
but insufficient for promoting experimentation and innovation by itself
(Chesbrough, 2010). Rather, the template might be better for analysing existing
business models than inventing radically new ones. Scholars also acknowledge
the importance of combining graphic organisers such as the BMC with
complementary tools (Täuscher & Abdelkafi, 2017).
Business model innovation poses a number of challenges. The barriers to a

successful change are not easily overcome. Tools such as maps are helpful but
not enough. However, there is still a lack of understanding of business model
innovation and its success factors. Available tools are not detailed enough and do
not provide systematic understanding in order to realise business model
innovation (Rayna & Striukova, 2016). Moreover, the assessment criteria for a
successful innovation tool are far from being defined. Regarding the identification
of relationships between elements of the BMC there seems to be a contradiction
among scholars since Massa and Tucci (2013) see it as helpful tool to reveal

(hidden) relationships whereas for Euchner and Ganguly (2014) it clearly lacks
coherence.
Visual tools are a good starting point for companies that are aware of the
importance of changing their organisations from within in order to accommodate
new business models - organisational processes must also change and these are
not visualised by those approaches. An effectual attitude towards business model
experimentation is a fundamental prerequisite. Brown (2008) highlights the
importance of incorporating design thinking into the innovation process. Design
thinking is the match of customer “jobs needed fixing” with the technological
capabilities of a company and its ability to convert a feasible strategy into
customer value and market opportunity (Brown, 2008). For a successful
application of the selected visual tools an alignment of these instruments and the
company’s existing cognitive challenges and current approach to innovation is
necessary (Täuscher & Abdelkafi, 2017). Finally, business model innovation itself
is no guarantee for success, it may still become obsolete as rivals implement
more successful disruptive business models.
Future research
The literature on business model and business model innovation is widely
divergent. The usefulness for empirical research and theory development is
questionable as the concept of business models continues to be an
underdeveloped domain. A lack of studies characterises the subject (Philipson,
2016). Future research on business models should aim to tackle these
limitations. Scholars shall focus on developing a pro-found basic theory and
elaborate on its conceptual distinction from other related concepts such as new
organisational forms, activity systems, business ecosystems and value chains.
Scholars should make clear which business model concept they refer to as basis
of their academic research. More theoretical accuracy on the components of a
business model, its decent and consequences as well as the enabling processes
are requested (Zott et al., 2011) so that future research is not hampered by
nonconvergent definitions (George and Bock, 2011).

This thesis focusses on the advantages and disadvantages of the BMC in general
and does not compare the canvas to alternative tools used for innovation. A
comparison study of different techniques may be a potential field for future
research. Osterwalder’s Business Model Canvas has not been systematically
analysed by scholars thus far. The ability of entrepreneurs and practitioners to
determine a model’s quality as well as organised methods for model viability
assessment are needed. Methods for appraising a model’s correspondence to
evolving environmental conditions and issues surrounding model implementation
are critical points requiring more extensive research (Morris et al., 2005). Also,
how to combine different approaches to find novel business model ideas remains
a challenging research question which will hopefully be addressed in the future.

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Advantages and Disadvantages of Osterwalder's Business Model Canvas

in today’s Innovation Process

Submitted by Christine Dicken

2019 Christine Dicken 1

List of figures .......................................................................................... 4

Theoretical understanding of business models .............................................. 8

Roles & functions ................................................................................ 12

Business Model Canvas ........................................................................... 15

Building blocks ................................................................................... 15

Use for innovation ............................................................................... 19

Easy to use ........................................................................................ 20

Increased collaboration ........................................................................ 20

Systematic overview ........................................................................... 20

Good basis for patenting & computer-assisted management tools ............... 21

Bridge between strategy and operation .................................................. 22

Enhances understanding ...................................................................... 22

Restricted potential for creativity ........................................................... 23

Lack of display of relationships .............................................................. 24

Limited prediction power ...................................................................... 25

No identification of value drivers ........................................................... 25

Other flaws ........................................................................................ 26

2019 Christine Dicken 2

Future research ..................................................................................... 32

2019 Christine Dicken 3

2019 Christine Dicken 4

In today’s fast-paced world business model innovation is becoming increasingly

At the beginning of idea generation, it needs a facilitator to transform the idea

The goal of this literature review is to elaborate on Osterwalder’s Business Model

Therefore, the research question is formulated:

The underlying bachelor thesis is based on an extensive in-depth literature

2019 Christine Dicken 5

2019 Christine Dicken 6

2019 Christine Dicken 7

Scholars face difficulties finding a universally accepted theoretical basis of

‘Diversity in the available deﬁnitions poses substantive challenges for

Most definitions resemble with Teece’s (2010) definition of a BM as the ‘design or

2019 Christine Dicken 8

Author(s)/Year Business Model Definition Citation

2019 Christine Dicken 9

Besides a lack of construct clarity scholars criticise the commingling of the

2019 Christine Dicken 10

With information technology being available to all at low cost, industry

2019 Christine Dicken 11

One of the very first to establish an explicit definition and classification of a

The business model literature is rooted in various well‐established research

Roles & functions

2019 Christine Dicken 12

Osterwalder himself lists 5 categories of functions a business model fulfils:

In order to understand and share a business model’s logic it has to be captured,

2019 Christine Dicken 13

By establishing business model portfolios and simulation, the business model

2019 Christine Dicken 14

The fifth purpose Osterwalder et al. (2005) names is patenting. Business

Business Model Canvas

2019 Christine Dicken 15

Blocks 1 (customer segments), 3 (channels) and 4 (customer relationships) refer

2019 Christine Dicken 16

Figure 2: Channels (Source: Osterwalder & Pigneur 2010,27)

The Customer Relationships Block shows the type of relationship between

2019 Christine Dicken 17

2019 Christine Dicken 18

2019 Christine Dicken 19

No prior training regarding business model theory or collaboration techniques is