Casadesus-Masanell and Ricart 's Business Model Framework

Short description of framework: A framework illustrating how value is created and captured by an organization through the decisions made and the resulting consequences, illustrated in causal loops.

Main strengths: The framework captures what an organization is trying to do, key values the management wants to create, and the incentives for suppliers, partners, and customers. It also illustrates if management is stringent in its decisions and if different choices results in consequences that reinforce each other or not.

Background
Casadesus-Masanell and Ricart based their framework on the four major categories common to most business model definitions uncovered by Shafer, Smith and Linder in their article The Power of Business Models, from 2005.

Casadesus-Masanell and Ricart argue that “consistent with the intuitive view of the concept, a business model is defined by strategic choices, sometimes made by a network of organizations, that explain value creation and value capture by the focal organization” and conclude that one important component of business models are the concrete choices made by management. To connect the choices to value creation and value capture, Casadesus-Masanell and Ricard include consequences in their definition of a business model.

Framework details
Casadesus-Masanell and Ricart define the business model as (i) the set choices and (ii) the set of consequences derirved from those choices. They distinguish between three different types of choices: policies, assets, and governance. Consequences are classified into flexible and rigid.

• Policies (Choices) Choices regarding the courses of action adopted by the firm regarding all aspects of its operation
• Assets (Choices) Choices regarding tangible resources such as manufacturing facilities.
• Governance (Choices) Choices regarding the structure of contractual arrangements that confer decision rights regarding policies or assets.
• Flexible (Consequences) Consequences that are sensitive to the choices that generate it
• Rigid (Consequences) Consequences that does not change rapidly with the choices that generate it.

Example using the framework

Casadesus-Masanell and Ricart uses a causal loop diagram, linking choices and consequences by arrows, to represent a business model. As one could make the effort of listing every choice made by management and all consequences of those choices Casadesus-Masanell and Ricart realizes the impracticality and reduces their business model framework to represent (i) choices (generally a subset of all choices), (ii) consequences (generally a subset of all consequences), and (iii) theories. The third element are suppositions on how choices and consequences are related, not a part of the business model, but theories of causality that are believed to be true by the business model designer or analyst.

In the example below Casadesus-Masanell and Ricart illustrates the business model of Ryanair using bold and underlined to indicate choices, with rigid consequences in boxes, and flexible consequences in plain text.

Video illustrating the framework:

• N/A
  

Tools for using the framework:

• Gliffy and other diagram software
  

Related publications of interest:

• Linder, J., & Cantrell, S. (2000). Changing business models: Surveying the landscape. Accenture Institute for Strategic Change
  
• Casadesus-Masanell, R., & Ricart, J. E. (2007). Competing through Business Models. Working paper.
• Casadesus-Masanell, R., & Ricart, J. (2010). From Strategy to Business Models and onto Tactics. Long Range Planning .
• Seelos, C. (2010). Theorizing and Strategizing with Models: Generative Models of Business Models. Working paper . Barcelona, Spain.

De Mey and De Ridder's Business Model Framework

Short description of framework: A framework illustrating how value is created and captured in the interaction between organizations through relationships and transactions.

Main strengths: The framework captures relationships, monetary and non-monetary transactions between organizations, and provides a snapshot of the interactions and dependencies on certain external actors. Transactions between several organizations in multiple steps can be illustrated, enabling a good understanding for the different revenue streams.

Background
The framework was originally created by De Mey and De Ridder (www.boardofinnovation.com) in 2009 to create a common visual language and consisted of 10 framework elements initially focusing on the sales side of a business with the only actors being the company itself and its client. The remaining 8 framework elements was items that can be transferred between the company and its client; product, service, experience, reputation, exposure, attention, money and less money.

In 2010 the business model framework was revisited and updated to include 16 framework elements to capture more aspects of a business case. Still, De Mey and De Ridder argues that they prefer not to include what they call secondary stakeholders, showing the supplier side of a business case.

Framework details
The 2010 version contains 16 framework elements, divided into players and objects to exchange further described below. De Mey and De Ridder do not provide their own definitions of the framework elements, so the definitions below are of the general meaning of the terms, based on how the objects are used by De Mey and De Ridder.

My Company - The element represents the organization being described, often at the center of the illustration.

Company - The element represents an external for-profit organization, often the customer in a business-to-business business model.

Consumer - The element represents any individuals or households that use products and services.

Supplier - The element represents any product or service provider to the organization being described.

Non-profit - The element represents organizations such as charity organizations that have an impact on the business model being described.

Government - The element represents an organization or agency, through which a political unit exercises its authority, controls and administers public policy.

Product - The element represents any physical or digital thing produced by labor or effort.

Service - The element represents the act of providing utility without the transfer of ownership.

Experience - The element represents the event of undergoing an emotional feeling.

Exposure/Attention - The element represents the event of concentrating on some features of the environment.

Reputation -The element represents a social evaluation of a person or organization.

Money - The element represents anything that is generally accepted as payment for products and services.

Less Money -The element represents a lower amount of money than the main money object.

Credits - The element represents a fictional currency that can be used as payment for certain products and services.

Data - The element represents information such as content, data and knowledge.

Rights - The element represents a legal freedom to act or refrain from acting.

Example using the framework
In the illustration below De Mey and De Ridder illustrates the business model of Niiu, a German start-up providing customized physical newspapers. Niiu will provide personalized and customized newspapers based on content from a variety of different news companies enabling the consumer to combine different sections from different newspapers. By using print-on-demand technology Niiu will create a unique paper version and deliver to each subscriber. The reader will pay for the newspaper and be exposed to targeted advertising based on their content preferences.

Video illustrating the framework:


Tools for using the framework:

• Powerpoint template
• Slideshare
• Google Drawer
• Magnetic kits, vector based files, etc. sold at Board of Innovation webpage

Related publications of interest:

• Weill, P., & Vitale, M. (2001). Place to space: migrating to ebusiness models. Boston: Harvard Business Press.
• Gordijn, J., & Akkermans, H. (2001). Designing and Evaluating E-Business Models. Intelligent E-Business .
• Poel, M., Renda, A., & Ballon, P. (2007). Business model analysis as a new tool for policy evaluation: policies for digital platforms. Research Paper . Emerald Group Publishing Limited.

List of Key Terms

The term ‘business model’ has historically been defined differently by different academics and consultants, with no common consensus being established. It is not until the last few years that a common definition of what a ‘business model’ is has started to emerge, with an increasing number of authors emphasizing the concepts of value creation and value capture as central to the definition.

One challenge is that frameworks developed from the perspective of enabling business model innovation, are often equated with a definition of the concept of the business model itself. This creates considerable confusion in terms of the differences between the business model of a company, the business model concept as such, and ways of describing business models by adopting different perspectives and frameworks.

In order to provide posts that are easy to follow and to reduce the risk of misunderstandings and confusion, I use the definitions below:

• Business model – the way an organization creates and captures value
• Business model concept – the general idea of illustrating how value is created and captured
• Business model element – a component of how value is created and captured by an organization
• Business model framework – an abstraction to describe and represent different business models
• Business model framework element (or framework element) – a component of a business model framework
• Business model innovation – an innovative business model or the process of innovating a business model
• Business modeling – the process of testing and simulating different business models

Please consult the list above when confused about my use of any of the terms.

Evan Williams on the Business Model of Twitter

A very interesting conversation with Evan Williams, co-founder Twitter, on how they are trying different revenue models. “There’s a million ways to make money with Twitter... We’ll probably try a few more... We're surprised it's doing better than expected.”

Thoughts on New Business Models for News

Some interesting thoughts on the future of news at the ReThink News summit held in Newport, Rhode Island, a summit sponsored by The School of Journalism at Michigan State University.

TED founder Richard Saul Wurman


Jim Kennedy, director of strategic planning for the Associated Press


Visual communicator David Gray, founder of Xplane


New York Times Multimedia Editor Andrew Devigal


Chris Finlay of the Business Innovation Factory


Media entrepreneur Brooks Bell


Visual communicator and designer Nigel Holmes



Related videos:

• Eric Schmidt on news, newspapers and real time content
• Tim O'Reilly on Open Publishing
• Interview with Steve Rubel on business models for newspapers and online communities
• Jeff Jarvis on New Business Models for News
• Nick Bilton on new technology that will enable interesting business models for news

Mike Maples on pivoting business models

In this presentation Mike Maples, a business angel with previous investments in ngmoco, Chegg, Digg and Odeo/Twitter, talks about developing and pivoting business models, at a Founder Institute event. Mike shares his experiences and provides interesting examples on ngmoco's pricing pivot, Chegg's product pivot, Odeo's company pivot into Twitter.

Mike shares Steve Blanks and several others’ view that “A start-up exists to do one and only one thing and that is to find a business model”. “Once a start-up has achieved a scalable and profitable business model, they are ready to transition from being a start-up to a real company”. Mike represents the business model concept with the following illustration, I believe was developed by Steve Blank and Ann Miura-Ko:

The arrows represent monetary flows in and out from the company. The pivoting starts from formulating hypothesis for each flow, testing assumptions to validate and improve the business model. This approach is very similar to the one presented in Getting to Plan B by John Mullins and Randy Komisar.

Tom Hulme on How to Visualize your Business Model

Tom is a Design Director at IDEO in London, where he uses the innovation and design process to develop new business opportunities. In these videos he presents a way, very similar to The Business Model Canvas, on how to visualize a business model including the elements of growth- and competitive strategy.

Related posts:
Alexander Osterwalders on the Business Model Canvas
The Evolution of the Business Model Concept