The Business Model Canvas is a proven tool to map out digital transformation—and all you need is a single piece of A3 paper.
Digital transformation isn’t like flipping a switch. It’s a slow and often messy process, but for those that pull it off, it can make your business more efficient, more productive and more profitable.
I’m here to help. As the author and instructor of the Watspeed Digital Transformation Certificate Program at the University of Waterloo, I’ve studied organizations big and small to learn what makes for a successful transformation—and how to avoid problems that lead to a digital dead end.
Every month, I’ll share a new lesson on how to steer your organization through the rough waters of digital transformation. Yes, there will be homework. But if you pay attention and put in the effort, it won’t be long before you start seeing real results.
Digital transformation is different for every organization. It depends on a wide range of factors—some internal, like culture and existing technology, and some external, like competitor behavior and economic conditions. Digital transformation activities can be big or small, from establishing an entirely new business model to automating a single process.
Whatever the nature of your transformation, understanding its whole business impact should be incorporated in your plans. A change in one department may have implications elsewhere that you will need to consider. If you are planning a whole business change, understanding how everything fits together is critical.
This month’s lesson introduces a simple tool that enables you to take an integrated view of your digital transformation activity. It focuses on your business model—the main elements that enable your organization to function effectively—and makes them visible in a holistic, easy to understand way.
The problem with traditional business planning
Organization business planning has traditionally been a lengthy process. Long periods of consultation are followed by the creation of detailed, organization-wide business plans that are often articulated in verbose documents.
This long planning process restricts the pace of change and is inadequate in the age of digital transformation. It also makes modifying the strategy difficult. This process was designed for an era of slow change. Today it is obsolete.
The Business Model Canvas
Last month we learned about the Value Proposition Canvas, a tool that makes it easier to develop and validate ideas for new products and processes. Developed by Alex Osterwalder, this tool was designed for lean tech startups, and it’s part of a larger planning tool called the Business Model Canvas.
The Business Model Canvas integrates the main elements of an organization on a single A3 sheet of paper. The tool has been used with great success by tech startups to design their business models to create and deliver their technology products and services.
This tool can also be used to plan your digital transformation activity. By viewing all of the key business elements together, the Business Model Canvas makes it easier to understand the impact of technological changes and plan for them effectively. It is also much easier to make modifications as you see the actual impact of your implementation.
The Business Model Canvas considers both the internal and external aspects of your business, and is centered on your value proposition—the value that your business provides to customers. Once you have established your value proposition, you can complete the rest of the Business Model Canvas. It includes the following:
- Customer Segments: Who are your customers, and are they in different segments? Will your transformation activity change this?
- Customer Relationships: How do you routinely engage with your customers (email, phone, conferences, etc.)? Will your transformation activity change this?
- Channels: How do you contact your customers to make sales (email lists, social media, advertising, sales reps, etc.)?
- Key Activities: What are your main activities that create the value proposition? This may include your manufacturing, design, maintenance, etc. Does your new technology change this?
- Key Resources: The main practical resources you need to create your value. This may include physical equipment (machine tools, robots, etc.), floorspace, people, the internet, etc.
- Key Partners: The external organizations or people that you need to create value and complete key activities. This may include suppliers and services such as cloud providers. These may change as you digitally transform.
- Cost Structures: What are your main organization costs (human resources, energy, distribution, raw materials, etc.)?
- Revenue Streams: How does the value you create result in revenue for the organization (e.g. subscriptions, sale of products or services, etc.)? What does your transformation mean for your costs and revenues?
The Business Model Canvas can be organized as in the below template from Strategyzer.
The Business Model Canvas in action
The following example of the Business Model Canvas considers the introduction of technology in a whisky distillery. The current position of the business is represented in the Business Model Canvas below:
The distillery wants to move into more direct-to-customer distribution while expanding its product range to appeal to more people in a younger market. This will require automation in the production process to enable faster changes from one product type to another (for example, from Cask Strength whisky to Sherry Oak Finish).
A warehouse management system will be needed to handle the complexity in the new warehouse, which will include sensors to enable closer monitoring and control of warehouse conditions (an important element in whisky aging), and to support the substantial increase in direct shipping that is expected in the future.
A CRM system with data analytics capabilities will facilitate direct relationships with customers and support the direct sales activity, including the use of artificial intelligence to enable individualized customer communications. Given the distillery’s level of technical capability, cloud hosting will be used where possible.
The management team create a new version of their Business Model Canvas for the completed technology project (the changes are in italics):
Using the Business Model Canvas for Digital Transformation
The Business Model Canvas has been used by organizations globally to assist with their strategic change. You can modify the Business Model Canvas if you feel that there is another category needed. Remember, though, that the simplicity of the Business Model Canvas is its strength. It can be quickly understood and form the basis for a group discussion on changes being made.
Digital transformation requires engagement from everyone in the organization. Wide, patient consultation on changes is needed and should create support for the changes you are making. The Business Model Canvas allows that to happen.
Old business model planning models required extensive documentation and were hard to change. The Business Model Canvas can be created quickly and often, providing a historical record of your discussions and the changes made.
Your digital transformation homework
It won’t take you long to try out the Business Model Canvas. Try it and you’ll see how easy it is to use and gain confidence in arguing for its adoption in your organization.
First, create a Business Model Canvas for your organization today. Next, imagine a technology-based change that you think would be valuable, and create a Business Model Canvas based on that change. Finally, use your completed charts to demonstrate its value to others.
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Peter Carr is the author and instructor of the University of Waterloo Watspeed Digital Transformation Certificate Program, available globally online, and focused on overcoming the challenges of successful technological change. The program is jointly offered with the Ontario Society of Professional Engineers.
