To help people understand what strategy really means and how to generate it effectively, I have developed a framework called the Strategy Sketch
, containing the ten key ingredients of strategy. Over the past years, quite a few people have asked me what the differences are between the Strategy Sketch and the Business Model Canvas by Osterwalder and Pigneur.
Some have argued that the Strategy Sketch is just a rehash of the Business Model Canvas visualized a bit differently. Osterwalder even called it an 'oversized Swiss army knife' thereby arguing that it contains too much. And still others have called it too complex or too much an over-simplification.
Putting any judgments or competition between the two frameworks aside, I'd like to share why the Strategy Sketch contains the ten elements it contains and how it is similar to and different from the Business Model Canvas. The origin of the Strategy Sketch
The reason that I have developed the Strategy Sketch is that I experienced three issues while working with the Business Model Canvas until about ten years ago:
- When using the Business Model Canvas in my coaching and training with startups and mature firms, I experienced that some key elements seemed to be missing in the framework. Especially 'competition' was such element. Even though it is discussed at quite some length in Osterwalder & Pigneur's inspiring book, I observed that because this element was missing, it received less attention than it should have. This is quite common for all frameworks: anything that is missing runs the risk of escaping our attention. This made me think whether something should be added to the Business Model Canvas.
- I couldn't come to grips with the contents of the Business Model Canvas when I compared it to the contents of an average strategy textbook and to the strategy literature more broadly. Elements that were prominent in the strategy literature - such as values and goals - are missing in the Business Model Canvas as well as the Business Model Generation book in which it is introduced. Such missing elements made me think whether a separate framework needed to be developed for strategy next to the Business Model Canvas.
- While using the Business Model Canvas, it turned out that some elements were often left blank or only contained quite trivial or operational content. This applied mostly to the 'Customer relationships' and 'Channels' elements. Furthermore, when using the Business Model Canvas, the contents of the 'Key Activities' element seemed more related to how to execute or implement a business model rather than that it was part of the business model itself. Also this triggered me to try and develop an alternative framework.
Of course, these issues may partly be a result of my own limitations, biases, and possibly ineffective usage of the Business Model Canvas. I am trained in strategy and was looking for a framework that could be used to generate strategy, not a business model. While the two concepts are very closely related, one might argue that they are different and therefore that I have been looking for something for which the Business Model Canvas was never intended. Fair enough.
What I tried to do is develop a strategy framework that is as complete and simple as possible. My aim was to develop a framework that was significantly more complete than the Business Model Canvas in its coverage of strategy elements without making it more complex. At then end, and after about six versions, this resulted in the Strategy Sketch. With ten elements, it has just one element more than the Business Model Canvas. So in terms of simplicity the two are more or less equal in this respect. In terms of content and completeness, however, the two are quite different. To show how, l will discuss the main similarities, modifications, additions and deletions of elements.Similarities
Some of the elements in the Strategy Sketch are similar to elements of the Business Model Canvas. They carry the same or similar meaning and are included because they are both relevant to strategy as well as business models. These elements are easily recognizable since both frameworks use the same or comparable terms:
- Value Proposition: In both frameworks this is the central element. It represents the value an organization creates through its products and/or services. From the descriptions of what a value proposition is, I have omitted a reference to customer needs to indicate that what an organization offers (its value proposition) can be quite different from what its customers need. Besides this different nuance, the two elements are largely the same. As will appear in the 'Deletions' section below, though, the notion of a value proposition in the Strategy Sketch is more inclusive than in the Business Model Canvas.
- Customers & Needs (Customer Segments): Included in both frameworks and representing the customers and their needs. By using the word 'needs' instead of 'segments' I wanted to stress that it is particular the customer needs that are important. And by replacing the word 'segment' I wanted to reduce the connection that one might immediately make to the classical 'STP' marketing paradigm of segmenting-targeting-positioning. For the rest, though, these two elements mean mostly the same.
- Partners (Key Partners): In both frameworks, this element refers to the organizations and individuals an organization is working with. Besides the word 'key' there is no difference here. I don't use the word 'key' because it applies to all ten elements of the Strategy Sketch. Strategy is about focusing on those things that are most important. This means that it is also the key value propositions, key customer needs, key revenue model, etc. that one focuses on. Rather than using the word 'key' for just some elements, I omitted it altogether.
- Revenue Model (Revenue Streams): In both framework this refers basically to how money is made; to who is paying how, when and for what. Both frameworks are open to mention multiple revenue streams here, including non-financial ones such as paying with data. There are no important differences here between the two frameworks.
While the above four elements only contain minor tweaks of these four elements of the Business Model Canvas, two elements have been modified in a more substantial way:
- Resources & Competences (Key Resources and Key Activities): Here I have combined the two elements of the Business Model Canvas 'Key Resources' and 'Key Activities' into a single element that reflects an organization's means. The reason is that the two are hardly discernible, especially in the case of intangible resources. What one has (a resource) and what one can do (a competence) is closely related. I used the terms resources and competencies to stay close to the terminology used in the strategy literature. I might have used capabilities instead of competencies but by using the term competencies I wanted to pay tribute to the work on core competencies.
- Risks & Costs (Cost Structure): As the terminology immediately reveals, the main difference between these two elements is that the Risks & Costs element of the Strategy Sketch explicitly pays attention to risks next to costs. Risks and costs are both types of expenses. The difference is that the likelihood and magnitude of costs can usually be calculated, while those of of risks are less predictable. By paying explicit attention to risks, the Strategy Sketch goes beyond the Business Model Canvas's focus on just costs. Especially in strategy this is important.
The Strategy Sketch includes four elements that are not included in the Business Model Canvas. I already referred to most of them above when explaining what has triggered me to develop the Strategy Sketch:
- Competitors: The main reason for including this element is that any value an organization creates for its customers is always relative to the available alternatives. Customers will always compare an offering to some alternative. So, as part of a strategy, one needs to spell out these alternatives. It is quite popular today - e.g. in the business model literature and in 'Blue Ocean Strategy' - to suggest that competition could or even should be ignored. While it may have been overemphasized in traditional strategy, omitting it from a strategy framework is a serious loss. Any organization needs good competitors to create a market together and to position oneself against. Therefore, in combination with the fact that anything that is not in a framework easily escapes our attention, competition was added as element to the Strategy Sketch.
- Values & Goals: The implicit assumption of the business model canvas is that the key purpose is making money. Of course that may be important, but other values and goals play a crucial role as well in guiding an organization. Also this may have been overemphasized in traditional strategy approaches with the weight they put on mission and vision statements, key values, goal setting and objectives. But even if these are not always the universal starting point of a strategy, they have a profound influence on any choice that is made in the other elements of strategy. Therefore, a strategy framework is incomplete without an element representing an organization's values and goals.
- Organizational Climate: This element reflects the overall culture and structure of an organization. As such, it may look the least 'strategic' of all elements. Yet, also this element is essential when talking about strategy. Next to an organization's specific resources and competencies, organizational climate reflects more generally how an organization works and what is characteristic for it. This is important to take into account because it largely determines what an organization can achieve and what not. An organization that is, for example, growth-oriented, flexible and innovative will have a different approach to customers, partners, risks, etc. than an organization that is rigid and conservative.
- Trends & Uncertainties: This was the last element that was added to the Strategy Sketch and it reflects the external environment, or context in which an organization operates. Rather than the conventional 'opportunities' and 'threats' of the well-known SWOT framework, I chose trends and uncertainties. The main reason is that what is an opportunity and what is a threat is largely arbitrary, dependent on the competition, and on the kind of response that one can come up with. Used also in scenario-planning, the distinction between trends and uncertainties is more robust. Even though the Business Model Generation book includes external environment it in the process, making it part of the framework itself was important to have one single framework that makes sure we don't forget anything important when analysing, discussing, generating or managing strategy.
To make the Strategy Sketch not more complex than needed, I also looked whether elements of the Business Model Canvas could be deleted without losing much. It turned out that two, or actually three, elements could be dropped.
- Customer Relationships: Of course the kind of relationship one has with one's customers is important. It matters a great deal, for example whether they are just seen as transactional buyers, or whether a long-term co-creative relationship is developed with them. However, if this is an important way to distinguish an organization from its competitors, the customer relationship is actually part of the value proposition. So, in the Strategy Sketch, the value proposition is not just about the 'job to be done' and the 'pains' and 'gains' one offers, but also about the kind of relationship one establishes with the customer.
- Channels: Something similar applies to channels. They are important. However, they are either part of the value proposition (e.g. in the case of a webshop the channel is an integral part of the value proposition itself), or already covered in the 'Partners' element (e.g. in the case of selling through distributors, they are important partners), or they reflect an operational choice that follows later on in the process (e.g. in the case of deciding which social media channels to use to reach the customer). For these reasons, I found it not necessary to reserve a separate element for channels.
- Key Activities: I already referred to this element when discussing the Resources & Competences element of the Strategy Sketch. The reason for mentioning it here again is that I've always been a bit puzzled about this element of the Business Model Canvas. On the one hand it reflects the key competences of an organization. On the other hand, it also seems to reflect all activities that are needed to realize the business model. It is along the first interpretation that I merged them with resources into a single element. Along the second interpretation I deleted them, since such activities relate more to the execution or implementation of a strategy: making changes along any of the elements aks for certain activities to be performed.
I hope these explanations help understanding and appreciating the key differences between the Business Model Canvas and the Strategy Sketch. This is not a matter of one framework being better or worse than another framework. They are different, serve different purposes, and may appeal to different audiences. The Business Model Canvas serves designing a business model and may be preferred to think in some detail about what products and services one wants to offer and how to get them to the customer. The Strategy Sketch serves making strategy and may be preferred when setting a new direction for an organization, developing new business, or modifying an existing line of business.