Business Model Design and Design Thinking: Use Business Model Canvas to Make Better Designs
Zerong Yang | MDes Seminar | Winter 2021
Design and business are intrinsically linked. Business model design and design thinking are two strategies that are widely used in their own field. There are many previous studies showing business model innovation through design thinking, but few of them indicated how design thinking could be improved with considerations of business model design. This article analyzes design thinking and business model design through the comparisons between the design thinking process and business model canvas. Revenue, company background, and cost are the three potential factors to improve design thinking for designers. A new design thinking process with an extra stage, “business validate,” was introduced. Designers may utilize the modified design thinking process to practice their business skillsets and make better designs.
Designers have become increasingly entrepreneurial, and more and more designers are now getting involved with business development and growth. “The power of design is amplified when it learns how to connect with the business side in a way that actually enables the design to be executed at the highest level.” (Muratovski 2015) There are lots of research about how to use design thinking to improve business model, but as a designer, I can see one thing is missing from all of these research articles. Considering the opposite way, I want to explore how designers could utilize business model design to make better designs and possibly modify the design thinking process.
Business model design sets out to define how an enterprise or organization creates, delivers, and captures value. It is part of the business development and business strategy process. Entrepreneurs need to develop and refine a business model to seek clarity about what they are doing, discuss with other stakeholders, and identify opportunities in their internal and external environment. The business model is like a blueprint for a strategy to be implemented through organizational structures, processes, and systems.(Osterwalder, Pigneur, and Clark 2010)
Design thinking uses extensive user research, feedback loops, and iteration cycles to help understand the user, challenge assumptions, redefine problems, and identify alternative strategies and potential solutions. (Mueller and Thoring 2012) Design thinking provides a solution-based approach to solving problems, and it is becoming more and more popular among business schools and other fields.(Osterwalder, Pigneur, and Clark 2010)
2. COMPARATIVE LITERATURE REVIEW
In order to compare these two strategies, I will introduce the nine building blocks of the business model and five stages of the design thinking process. Business model canvas is the most commonly used tool to map out and plan different components of the business model. The design thinking process has five stages that provide a solution-based approach to solving problems.
2.1. Business Model Canvas
Business model canvas is a tool used for prototyping a business model. It provides a visual representation to describe, design, and invent business models using an ontology developed by Alexander Osterwalder. A business model can best be described through nine building blocks that show the logic of how a company intends to make money: customer segments, value propositions, channels, customer relationships, revenue streams, key resources, key activities, key partnerships, and cost structure. (Osterwalder, Pigneur, and Clark 2010) The nine building blocks form the business model canvas. Figure 1 shows a business model canvas template, which allows people to collaborate and discuss each business model element. This tool fosters understanding, discussion, creativity, and analysis.
Customer segments define the different groups of people or organizations and enterprise aims to reach and serve. Businesses must identify and understand their customers and then group them into different segments with common needs, behaviors, and characteristics.
Value proposition describes the bundle of products and services that create value for a specific customer segment. They are the reasons why customers will pay for the product or service rather than choose others. It solves a customer problem or satisfies a particular customer need.
Channels describe how a company communicate with and reaches its customer segments to deliver a value proposition. It is how a company interfaces with customers through communication, distribution, and sales.
Customer relationships describe the types of relationships a company establishes with specific customer segments. In order to acquire and retain customers and boost sales, companies need to maintain relationships with their customers. There are many categories of customer relationships ranging from personal to automated.
Revenue streams represent the cash a company generates from each customer segment. There are two types of revenue streams: transaction revenues from one-time customers and recurring revenues from ongoing payments. To generate one or more revenue streams from each customer segment, companies should answer what value each customer segment is truly willing to pay.
Key resources describe the most important assets required to make a business model work. Key resources can be physical, financial, intellectual, or human. These resources ensure that value is created, delivered, and captured efficiently.
Key activities describe the most important things a company must do to make its business model work. Key activities differ depending on business model type: software development, supply chain management, production, and problem-solving.
Key partnerships describe the network of suppliers and partners that make the business model work. There are four different types of partnerships: strategic alliances between non-competitors, strategic alliances between competitors, joint ventures, and buyer-supplier relationships.
Cost structure describes all costs incurred to operate a business model. All businesses incur costs through fixed costs and variable costs. It is also important to consider whether the business model is cost-driven or value-driven. Cost-driven focus on minimizing costs wherever possible and value-driven focus on greater value creation.
2.2. Design Thinking Process
Figure 2 shows the five stages of the design thinking process: empathize, define, ideate, prototype, and test.
The first stage of the process is to empathically understand the problem from the perspective of the end-user. In this stage, immersion, observation, and interviews can help gather information and understand the user’s problem, need, and behavior.
The define stage will help designers to analyze the information gathered during the empathize stage and define the core problem as a problem statement in a user-centered manner.
During the ideate stage, designers start to generate ideas and look for alternative ways of viewing and solving the problem. There are many ideation tools to use, such as brainstorming, mind mapping, doodling, and other techniques. The objective is not to find the right answer but to generate as many ideas as possible.
During the fourth stage of the design thinking process, designers pick several ideas and build simple prototypes. The objective at this stage is to quickly and cheaply produce some prototypes to test in real-world and possibly identify the best solution.
At the last stage, designers test the complete product from the prototype stage. The goal is to get feedback from failures, make adjustments, and improve the prototype. Iteration is a fundamental part of design thinking. The process of ideate, prototype, and test is repeated until the prototype meets the needs of the end user.
After introducing the nine building blocks of business model canvas and five stages of design thinking, I want to make a comparison between the design thinking process and the business model canvas. Table 1 shows how the nine building blocks could fit into the five stages.
User-centered: Both design thinking and business model design are user-centered. Design thinking takes the perspective of the users and focus on empathizing user’s need and problem. Business model canvas has customer segments to indicate all the customers, channels to interact with customers, and customer relationships to improve customer experience.
Problem-solving: Both strategies try to identify the problem statement and solve the problem using a product or service. Design thinking defines the problem from the feedback gathered in the previous stage. The business model canvas shows a value proposition that solves a customer problem or satisfies a particular customer need.
An iterative process to generate solutions: Design thinking is an iterative process to solve problems, and business model canvas is a tool to help create a business model. There is no iterative process when creating a business model canvas, because there is already a product when people try to fill the business model canvas.
Revenue: The Design thinking process aims to solve the problem, and it barely focuses on how to make revenue. Business model canvas lists the revenue streams from each of the customer segments and separates them into transaction revenues and recurring revenues.
Company background: Key resources, activities, and partnerships are the keys for a company to form, grow, and develop. Key resources enable the company to provide its products or services to its customers. Key activities are the most important actions a company must take to operate successfully. Companies build key partnerships to optimize their business models, reduce risk, or gain resources.
Cost: The design thinking process explores the emerging and existing technology in order to make better design solutions. Designers focus more on the concept rather than the cost. However, cost structure plays a very important role in business model design. It is important to define the major fixed costs and variable costs and consider whether the business model is cost-driven or value-driven.
The current design thinking process is inclusive enough and has been using in many other fields, but as designers, can we modify the process in order to have a sense of business? “Designers with the most success in our industry are business-aware.”(Rumsey n.d.) Can we improve design thinking to make better designs? From Table 1 of the comparison, there is a potential to improve design thinking by taking revenue, company background, and cost into consideration. A new stage shown in Figure 3 called “business validate” may be added after the ideate stage and be included in the iterative process. Before prototype, designers will have a chance to validate the idea through the lens of a business person.
For revenue, designers could start identifying transaction revenues from one-time customers and recurring revenues from ongoing payments. Based on the type of revenue, designers could estimate the value of the product the user is willing to pay. Then, designers will have a limit or budget in their minds when they design. For designers who work for companies, Understanding the company background is also important. Familiarizing key resources, activities, and partnerships of the company can help designers understand its culture and core value. Proper alignment between design and company culture can be inspiring and motivating. Cost is another necessary factor to be considered. Design decisions have a large impact on the cost of the product. A small difference in design may end up a huge cost difference due to manufacturing. Designers should first identify whether the business model is cost-driven or value-driven and then evaluate if the design minimizes cost for the cost-driven business model or create greater value for the value-driven business model.
Large businesses have started placing more emphasis on the importance of design by introducing designers to executive roles (e.g., Apple, Nike, Coca-Cola, IBM). These designers have been promoted to executive roles not only because they are designers, but because of their ability to align design with business interests and communicate how design can add value in business terms. (Muratovski 2015) By using the modified six stage design thinking process, designers may have a chance to start practicing their design skills from a perspective of a business person. There will be more opportunities for designers who operate on the intersection of design and business.
More and more designers are now getting involved with business development and growth. To help designers learn more from the business world, I mentioned the business model design with design thinking. In order to have a deeper understanding of these two methods, the nine building blocks of the business model and five stages of the design thinking process were compared. Revenue, company background, and cost are the potential factors to improve design thinking for designers. A new design thinking process with an extra stage, “business validate,” was created for designers to consider the importance of design decisions in business. Designers could utilize the new design thinking process to practice their business skillsets and make better designs.
Marelisa. 2017. “How to Apply Design Thinking to Your Life.” January 18, 2017. https://daringtolivefully.com/design-thinking.
Mueller, Roland M, and Katja Thoring. 2012. “DESIGN THINKING VS. LEAN STARTUP: A COMPARISON OF TWO USER- DRIVEN INNOVATION STRATEGIES,” 12.
Muratovski, Gjoko. 2015. “Paradigm Shift: Report on the New Role of Design in Business and Society” 1 (2): 22.
Osterwalder, Alexander, Yves Pigneur, and Tim Clark. 2010. Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers : A Handbook for Visionaries, Game Changers, and Challengers. Chichester, UNITED STATES: John Wiley & Sons, Incorporated. http://ebookcentral.proquest.com/lib/washington/detail.action?docID=581476.
Rumsey, Ryan. n.d. “Business Thinking for Designers — DesignBetter.” Accessed March 16, 2021. https://www.designbetter.co/business-thinking-for-designers/need-know-business.