In one of my early blog posts in February 2009, I explained what I called the Value Proposition Explorer. The basic idea was to provide a concept to see value propositions on different hierarchical levels.
To give an example, say that you have developed software that can efficiently manage energy in electrical vehicles. Should you then try to sell the software? Combine it with hardware to provide energy management solutions? Or provide components of the software, such as the core algorithms for energy management, in a more narrow value proposition?
Applying the same concept broader
To choose which hierarchical level to position your value propositions is of course a function of many variables, in the end where you can create and capture the most value, and maintain a competitive advantage for the future. This is not just a question of value propositions, but a question involving all components of the business model.
There are many business model frameworks, with Alex Osterwalder’s Business Model Canvas being the most popular one. We can ask ourselves questions in relation to each of his business model framework elements and each hierarchical level.
Customer Segments –Who are our different potential customers in different levels? How will they use what we provide? What are their different hierarchical levels and on what level can we provide value for them? Where do they have their own resources and capabilities? What are their plans for the future, if they are moving up in hierarchy where are they going?
Would someone be interested in the algorithms alone? Are the companies providing energy management solutions developing their own software? What companies could be interested in a larger energy management solution? What if we combined our energy management solution with an energy storage solution – what customer segments could we then target?
Value Propositions – What should we provide based on what we have? Based on what we can get access to? Based on what we can provide together with partners? Should we have value propositions on more than one level, providing products, components, technologies, and intellectual property? How should we package our value propositions to hinder non-intended use of our technology?
Should we provide energy management solutions, software or algorithms? Can we combine our energy management solution with energy storage solutions? Should we provide exclusivity on some levels to one customer/partner? Should we include rights for the customer to further develop our technology within certain levels?
Channels – What will be the objects for transactions and delivery? What channels could we use depending on customer segment and value proposition? What channels exists for each level and what channels could be created?
What would be the objects for transactions the software code? Physical components? Integrated energy management systems? Energy management solutions would have physical components, software and algorithms could be delivered in physical or digital format.
Customer Relationships – What different customer relationships are possible given the customer segment and channel? What different customer relationships should we have in relation to the different value propositions we provide?
Should we keep close collaborations with customers on some levels such as optimizing some sub parts of the core algorithms? Other components in our software? Should we provide some software components online for customer download? Do we need to establish trust through personal relationships to enable access to the customer’s system to optimize the energy storage algorithms?
Revenue Streams – Can we generate revenues from more than one level? Can we provide components or generate license revenues from others including competitors? Can we generate indirect revenues through partnerships on some levels?
What revenue models are possible for algorithms? Software? Energy management solutions? What kind of revenue streams would it generate? Would it be one-time transactions of code or recurring revenues resulting from continuous improvements and support? How much more can we charge for a license where the customer gets the rights to do further development of the code? Should we provide something for free on some levels to build the markets on higher levels?
Key Resources –In what levels will it be an advantage to have internal resources? Where do we have our current assets and capabilities? Where do we need to have internal resources? Where do we have intellectual property rights?
How will the area of energy management solutions for electrical vehicles develop? What resources do we have to keep up with the big players? Should we acquire or create a joint-venture with a hardware company to get access to complementary resources? Where should we develop brand assets? Should we brand the algorithms? Technology? Software? On what level should we develop intellectual property rights? For the system? Software? Specific algorithm?
Key Activities – In what levels should we have strong positions? What activities should we have within the different levels? Where should we have product development? Where should we conduct more basic research? In-licensing? Out-licensing? Collaborations? What activities are needed?
Should we continue to develop the core algorithms, a larger software or an energy management solution including hardware? Should we create specifications for hardware manufacturers to further improve energy management? Or should we start to develop hardware? Should we try to gather data from the use of the energy management solution? From our software? Should we provide training for customers that wants closer collaboration and further develop our algorithms, software or management solution?
Key Partnerships – On which levels should we have collaborations and partnerships? Where do we need to strengthen our positions and where do we need to combine our assets and capabilities with the ones of a partner to provide something on a higher level?
On what levels should we use external organizations to provide assets and capabilities? What levels in their hierarchy are we strengthening? What assets and capabilities should we provide collaboration partners with and at what level? On what level should we share development plans? Technical details? Specifications? Should partnerships be exclusive in some levels but not in others?
Cost Structure – Which levels are more expensive to have in-house? What are the cost structure for the resources and activities needed? What will be needed in terms of investments to keep up with competition in each level? Can we share any of the costs with a supplier, partner or customer?
Is it possible to become a player also in hardware providing full energy management solutions in-house? Will we be able to fund software scale-up to meet the requirements of being a software provider? What will be the costs of closer collaborations on an algorithm level?
To be continued...
The Value Proposition Explorer is a great tool in developing value propositions on different hierarchical levels. The main idea with this post was to illustrate how the concept of hierarchical levels can be used for all parts of a business model. I plan to explore this further in posts to come.