Chapter 14: Business Model Canvas - Testing How the Organisation Creates, Delivers, and Captures Value

Video: Business Model Canvas & Lean Canvas: Visualise, Align, and Strengthen Your Case Solution

“A business model is not a collection of boxes. It is a system for creating, delivering, and capturing value.”

Learning Objectives

By the end of this chapter, you should be able to:

explain the purpose of the Business Model Canvas
identify the nine building blocks of a business model
understand how the components of a business model connect
distinguish between customer value and organisational value
identify weaknesses, gaps, and dependencies within a business model
use the Business Model Canvas to understand how an organisation makes money
identify opportunities to improve, redesign, or disrupt a business model
connect business model analysis to Value Chain, VRIO, SWOT, and financial analysis
use the Business Model Canvas to generate strategic alternatives
test whether a proposed strategy actually strengthens the organisation's business model

Why This Matters

A case can describe an organisation with strong products, loyal customers, talented employees, and attractive financial results. But that still leaves an important question: How does the organisation actually create, deliver, and capture value?

A company may create tremendous value for customers but capture very little of that value financially.
Another company may have an attractive product but an inefficient delivery model.
A third may have a profitable business today but a business model that is becoming obsolete.

Understanding the business model allows you to see the organisation as a system rather than a collection of individual activities. The Business Model Canvas provides a structured way to examine that system. The objective is not to fill in nine boxes. The objective is to understand the logic connecting the nine boxes.

Discover Your MAD Skills Principle

Don't just describe the business model. Test whether the pieces work together to create a sustainable advantage.

The Business Model Canvas becomes valuable when you move beyond description. Anyone can identify:

the customers
the products
the channels
the revenue streams
the costs

The stronger case solver asks:

Why do customers choose this organisation?
What does the organisation actually deliver?
Which activities make that possible?
Which resources are essential?
Where does the money come from?
What does it cost to deliver the value proposition?
Which parts of the model are difficult for competitors to replicate?
Where is the model vulnerable?
What happens if one component changes?

That is where the Business Model Canvas becomes a thinking tool rather than a template.

What Is the Business Model Canvas?

The Business Model Canvas, developed by Alexander Osterwalder and Yves Pigneur, provides a visual framework for describing how an organisation creates, delivers, and captures value. It consists of nine interconnected building blocks:

Building Block	Key Question
Customer Segments	Who are we creating value for?
Value Propositions	What value are we creating for them?
Channels	How do we reach and deliver value to customers?
Customer Relationships	How do we interact with and retain customers?
Revenue Streams	How do we capture economic value?
Key Resources	What assets and capabilities do we need?
Key Activities	What must we do particularly well?
Key Partners	Who helps us deliver the business model?
Cost Structure	What does it cost to operate the model?

The nine components can be grouped into three fundamental questions:

1. How do we create value?

Value Proposition + Key Resources + Key Activities + Key Partners,

2. How do we deliver value?

Customer Segments + Channels + Customer Relationships.

3. How do we capture value?

Revenue Streams + Cost Structure.

This creates the central business-model logic: Create → Deliver → Capture.

Deciphering Case Characteristics

Before building a Business Model Canvas, ask whether the case actually requires one. The framework is particularly useful when the case involves:

a new business
a new product or service
a business transformation
declining profitability
changing customer behaviour
digital disruption
platform businesses
subscription models
new distribution channels
partnerships or ecosystems
expansion into new markets
changing revenue models
questions about long-term sustainability

It is especially valuable when the case question sounds like: “How should this organisation change the way it does business?” Before completing the canvas, determine: What part of the business model is actually under pressure?

The Nine Building Blocks

1. Customer Segments

Start with the customer. Not everyone is necessarily the customer. Different customer groups may have different:

needs
willingness to pay
behaviours
purchasing criteria
service requirements
profitability

For example, a software company might serve:

individual consumers
small businesses
large enterprises
government organisations

Each segment may require a different value proposition, sales process, pricing model, and service model.

The MAD Skills Question

Who is the organisation really creating value for, and which customers matter most?

2. Value Propositions

The value proposition explains why customers choose the organisation. It may be based on:

price
convenience
quality
performance
speed
customization
design
reliability
accessibility
risk reduction
brand
experience

The important distinction is between features and value. A feature describes what the organisation provides. A value proposition explains why that feature matters to the customer.

Weak Analysis: “The company offers same-day delivery.”
Stronger Analysis: “Same-day delivery reduces the customer's waiting time and increases convenience, giving the company an advantage for time-sensitive purchases.”

The second statement explains the value created.

3. Channels

Channels describe how the organisation reaches its customers and delivers its value proposition. They may include:

physical stores
sales representatives
websites
mobile apps
distributors
marketplaces
social media
partners
direct delivery

Channels affect both customer experience and economics. For example, a company moving from physical retail to direct-to-consumer e-commerce may change:

distribution costs
customer data
pricing
inventory requirements
customer relationships
geographic reach

Therefore, a channel decision is rarely just a marketing decision. It can change the entire business model.

4. Customer Relationships

How does the organisation interact with customers? Relationships can range from:

personal service
dedicated account management
self-service
automated service
communities
subscriptions
loyalty programs
customer support

The appropriate relationship depends on the customer segment and value proposition.

A luxury service may depend on personal interaction.
A low-cost digital platform may depend on automation.

The key question is: What kind of relationship does the customer value, and what does that relationship cost the organisation to provide?

5. Revenue Streams

Revenue streams explain how the organisation captures value from its customers. Common models include:

one-time sales
subscriptions
licensing
usage fees
advertising
commissions
transaction fees
leasing
freemium models
memberships

Don't simply ask: “How does the company make money?” Ask: “Why is the customer willing to pay, how much will they pay, and how does that payment relate to the value being created?” This is where the Business Model Canvas connects directly to financial analysis.

6. Key Resources

What does the organisation need to operate the business model? Resources may include:

Physical

facilities
equipment
inventory
distribution infrastructure

Financial

capital
cash
access to financing

Intellectual

patents
trademarks
proprietary technology
data
intellectual property

Human

employees
expertise
leadership
specialised talent

But remember: Resources are not automatically capabilities. company may own sophisticated technology without having the capability to use it effectively. This is where the Business Model Canvas connects with VRIO. Ask: Which resources are simply necessary, and which provide a meaningful competitive advantage?

7. Key Activities

What must the organisation actually do to deliver its value proposition? Activities may include:

manufacturing
product development
marketing
sales
logistics
research
customer service
platform management
technology development
relationship management

The important question is not simply: “What does the company do?” Instead ask: “Which activities are critical to the business model working?” This connects directly to Value Chain Analysis.

8. Key Partners

Few organisations operate completely independently. Partners may include:

suppliers
distributors
technology providers
manufacturers
strategic alliances
franchisees
logistics providers
financial institutions
platform partners

Partnerships may allow the organisation to:

reduce costs
access expertise
increase scale
reduce risk
enter new markets
access technology
improve distribution

But partnerships can also create dependency.

Partnership Test

For every major partner, ask: What does the partner provide that we cannot easily or efficiently provide ourselves? Then ask: What happens if that partner changes its strategy, raises its price, or becomes unavailable?

9. Cost Structure

The final building block examines the economics required to operate the business model. Costs may include:

labour
materials
technology
facilities
marketing
distribution
customer service
administration
financing

Two broad business-model orientations are often useful:

Cost-driven

The business model is designed around:

efficiency
automation
scale
low overhead
standardization

Value-driven

The business model is designed around:

premium offerings
customization
service
experience
differentiation

Most businesses contain elements of both. The important question is: Does the cost structure support the value proposition and revenue model?

The Business Model Is a System

The biggest mistake with the Business Model Canvas is treating the nine boxes as independent. They are not. They form a system.

Consider a premium coffee company. Its Customer Segment → customers seeking quality and experience supports its Value Proposition → premium coffee and customer experience, which requires: Key Activities → sourcing, roasting, training, store operations, which require: Key Resources → skilled employees, brand, equipment, supply relationships, supported by: Key Partners → coffee suppliers and distribution partners, delivered through: Channels → stores and digital ordering, supported by: Customer Relationships → personal service and loyalty programs, which generates: Revenue → premium product prices while creating: Costs → higher-quality inputs, labour, locations, and service.

Change one component and other components may have to change. That is the power of the framework.

The Business Model Consistency Test

One of the most useful ways to use the Business Model Canvas is to test whether the pieces are internally consistent. Ask:

Customer → Value Proposition

Does the value proposition actually address an important customer need?

Value Proposition → Revenue

Are customers willing to pay for the value being created?

Revenue → Costs

Does the revenue model generate enough value to support the cost structure?

Resources → Activities

Do the organisation's resources allow it to perform the activities required?

Activities → Value Proposition

Do the key activities actually deliver the promised value?

Partners → Activities

Do partners provide capabilities the organisation needs?

Channels → Customers

Do the chosen channels effectively reach the target customer?

This creates a powerful diagnostic chain: Customer Need → Value Proposition → Delivery Model → Revenue Model → Cost Structure. If the chain breaks, the business model has a problem.

The Business Model Stress Test

Once the current model is understood, deliberately challenge it. Ask:

What if customers change?

What if customer preferences shift?
What if willingness to pay declines?
What if a new customer segment emerges?

What if technology changes?

What becomes obsolete?
What becomes cheaper?
What new channels become possible?

What if competitors copy us?

Which elements are easy to imitate?
Which elements are difficult to replicate?

What if costs increase?

Which costs are most sensitive?
Can the business raise prices?
Can the organisation redesign the model?

What if a partner disappears?

Is there a substitute?
Can the organisation bring the activity in-house?

What if the revenue model changes?

Could the organisation move from transactions to subscriptions?
Could it introduce recurring revenue?
Could it monetise another part of the customer relationship?

This turns the canvas from a snapshot into a strategic stress test.

Finding Business Model Gaps

A strong case analysis looks for mismatches.

Gap 1: Customer Need vs. Value Proposition

Customers want something the organisation doesn't provide.

Gap 2: Value Proposition vs. Delivery

The organisation promises more than its operating model can deliver.

Gap 3: Value vs. Price

Customers don't perceive enough value to justify the price.

Gap 4: Revenue vs. Cost

The business generates revenue, but the economics are unattractive.

Gap 5: Resources vs. Capabilities

The organisation owns resources but lacks the capability to exploit them.

Gap 6: Capability vs. Customer Need

The organisation is excellent at something customers no longer value.

Gap 7: Partner Dependency

A critical part of the business model depends too heavily on another organisation.

These gaps can become the starting point for strategic alternatives.

Connecting the Business Model Canvas to Other Frameworks

The Business Model Canvas becomes much more powerful when combined with other tools.

Business Model Canvas + PESTLE

PESTLE identifies external forces that may disrupt the business model. For example:

Technology change → changes channels
Regulation → changes key activities or costs
Economic pressure → changes customer willingness to pay

Business Model Canvas + Five Forces

Five Forces identifies competitive pressure. The Business Model Canvas helps explain how the organisation responds to that pressure. For example: High buyer power → stronger value proposition → greater differentiation → alternative pricing model → stronger customer relationships.

Business Model Canvas + Value Chain

Value Chain asks: Where are activities creating or destroying value? Business Model Canvas asks: How do those activities fit into the broader business model? Together they connect operations to strategy.

Business Model Canvas + VRIO

VRIO asks: Which resources and capabilities can create defensible advantage? Business Model Canvas asks: Where do those capabilities fit into the business model? A powerful strategic question becomes: Can the organisation build a business model around capabilities competitors cannot easily replicate?

Business Model Canvas + Financial Analysis

The canvas should ultimately connect to numbers. Ask:

What drives revenue?
What drives cost?
What are the margins?
What is the customer acquisition cost?
What is the customer lifetime value?
What investment is required?
How quickly can the model scale?
What happens to profitability if assumptions change?

The Business Model Canvas describes the logic. Financial analysis tests the economics.

Worked Example: A Meal-Kit Business

Consider a meal-kit company that delivers pre-portioned ingredients and recipes directly to customers.

Customer Segments

busy professionals
families
customers seeking convenience

Value Proposition

convenient meal preparation
reduced planning time
pre-portioned ingredients
variety

Channels

website
mobile app
home delivery

Customer Relationships

subscription
personalized recommendations
digital support

Revenue Streams

weekly subscription
premium meal options
add-ons

Key Resources

brand
technology platform
customer data
supplier relationships
distribution network

Key Activities

Key Partners

food suppliers
logistics providers
technology providers

Cost Structure

ingredients
packaging
labour
logistics
marketing
technology

Now move beyond description.

What might the analysis reveal?

The value proposition depends heavily on convenience. But convenience may be undermined by:

delivery delays
poor ingredient quality
excessive packaging
high subscription prices

The company therefore cannot simply increase marketing. It may need to improve the underlying business model. Possible alternatives might include:

redesigning delivery routes
using local fulfilment centres
introducing flexible subscriptions
improving customer personalisation
reducing packaging costs
introducing premium and value tiers
developing complementary products

The canvas helps identify where the intervention should occur.

From Business Model Analysis to Strategic Alternatives

A Business Model Canvas should ultimately help you generate choices. Possible strategic moves include:

Strengthen

Improve an existing part of the business model.

Remove

Eliminate activities or costs that don't create sufficient value.

Redesign

Change how value is delivered.

Reposition

Target a different customer segment.

Monetize

Find new ways to capture value.

Partner

Use external capabilities to strengthen the model.

Integrate

Bring a critical activity inside the organisation.

Disrupt

Redesign the business model rather than simply improving the existing one.

The objective is not to produce the largest number of alternatives. It is to identify the few changes capable of materially improving the business model.

The Business Model Innovation Test

When considering a new business model, ask five questions:

Customer: Who will benefit?
Value: What problem are we solving?
Delivery: How will we deliver the solution?
Economics: How will we make money?
Advantage: Why will competitors struggle to replicate it?

If you cannot answer all five, the idea probably needs more work.

Winning the Room

Don't present a Business Model Canvas by walking judges through nine boxes. That is analysis without insight. Instead, identify the business-model story. For example: “The company has a strong value proposition for time-sensitive customers, but its delivery model is too expensive to support the current pricing structure. We recommend redesigning the distribution model to reduce cost per order while protecting the convenience that customers value most.” That is much more powerful than: “Here is our Business Model Canvas.” The framework should support the argument. It should not become the argument.

Coach's Lens

“Don't tell me what the business model is. Tell me where it works, where it breaks, and what you would change.” When presenting business-model analysis, look for: Customer Need → Value Proposition → Delivery → Economics → Advantage. If you can explain that chain clearly, you are demonstrating strategic thinking rather than simply completing a framework.

Common Mistakes

Filling in the boxes without finding an insight: A completed canvas is not analysis.
Treating all nine blocks as equally important: Some components will be strategically critical. Others may simply support the model.
Confusing features with value: A product feature is not automatically a customer benefit.
Ignoring economics
A business model must eventually make economic sense: Treating the current model as fixed
The canvas is a starting point for asking what could change.: Ignoring dependencies
A business model may look strong until one critical supplier, technology platform, or distribution channel changes.
Forgetting competitive advantage: A profitable model today is not necessarily a defensible model tomorrow.
Using the canvas without evidence: Every important assumption should be supported by case evidence, calculations, or reasonable estimates.

MAD Skills Drill

Choose a company or case and complete the following exercise.

Step 1: Map

Complete the nine Business Model Canvas components.

Step 2: Identify the Critical Link

Which connection between two components is most important to the business model? For example: Value Proposition → Revenue

Step 3: Find the Weak Link

Which component creates the greatest vulnerability?

Step 4: Find the Leverage Point

Which single change could create the greatest improvement?

Step 5: Test the Economics

What happens to revenue, costs, margins, or investment requirements if your proposed change occurs?

Step 6: Test the Competition

Could competitors easily copy the change?

Step 7: Build the Strategic Choice

Complete this sentence: “We recommend changing ______ because ______. This will allow the organisation to ______ while improving ______.”

Step 8: Deliver It

Present your analysis in 90 seconds.

No framework tour.
No reading the boxes.

Tell the judges the business-model story.

Chapter Summary

The Business Model Canvas provides a structured way to understand how an organisation: Creates Value → Delivers Value → Captures Value. The nine building blocks provide a useful map, but the real analytical value comes from understanding the connections between them. A strong case solver uses the canvas to identify:

customer needs
value propositions
critical activities
essential resources
partner dependencies
revenue drivers
cost drivers
business-model weaknesses
opportunities for innovation

The canvas becomes even more powerful when connected to PESTLE, Five Forces, Value Chain, VRIO, and financial analysis.

Key Takeaways

✓ The Business Model Canvas is a thinking tool, not a template to complete.

✓ The nine building blocks are interconnected.

✓ Start with the customer and the value proposition.

✓ Test whether the organisation can actually deliver the promised value.

✓Connect the revenue model to the cost structure.

✓ Identify the weak links and critical dependencies.

✓ Use the canvas to generate strategic alternatives.

✓ Test new business models against customers, economics, delivery, and competitive advantage.

✓ Connect business-model analysis to financial analysis.

✓ Present the insight, not the framework.

Bottom Line

A strong business model aligns customer value, operational capability, and economic value capture. The best case analysis doesn't simply describe how the organisation operates today. It asks: What needs to change for the organisation to create more value, deliver it more effectively, and capture more of the value it creates? That is where the Business Model Canvas moves from a nine-box framework to a strategic decision-making tool.

Looking Ahead

Understanding the business model tells us how the organisation creates, delivers, and captures value. But there is another important question: How is the organisation actually structured to make all of this happen? The next chapter introduces McKinsey 7S and examines the alignment between strategy, structure, systems, skills, staff, style, and shared values. A good strategy can fail when the organisation is not aligned to execute it.