Seeing Business Differently

As a doctoral student in management information systems at the University of Lausanne in Switzerland, Alex Osterwalder didn’t plan to become a traditional academic—instead, he wanted to create real-world tools for practitioners. His 2006 dissertation on business model innovation led to the book Business Model Generation, which he co-authored with his doctoral supervisor Yves Pigneur. It also inspired the creation of the Business Model Canvas, a tool now taught at business schools worldwide. Unlike traditional business plans, the canvas depicts the business model as a single visual—a nine-block grid. Users fill each block with ideas related to one of nine areas: problem, solution, key activities, unique value proposition, competitive advantage, channels to customers, customer segments, cost structure, and revenue stream. The canvas allows users to view all the functions of a business as a whole.

Among Osterwalder’s latest projects is the website strategyzer.com, which helps users build and manage their canvases. In October, he released the book Value Proposition Design, which presents a tool similar to the Business Model Canvas that helps people lay out how they’re creating value for customers.

AACSB recently spoke to Osterwalder about his work, the pitfalls of publishing, the nature of innovation, and the impact he hopes to have on business practice.

How did you develop the Business Model Canvas concept?

Because we were in information systems, we wanted to create a computer- aided design tool to help business leaders prototype business models, just like architects prototype buildings.

Alex Osterwalder

In my dissertation, we use the nine building blocks, but we refer to them as the “business model ontology.” We use phrases like “core capabilities.” You can get away with terms like that in academia, but we wanted to attract businesspeople. We didn’t want to scare them away! So we dropped “ontology,” and we replaced “core competencies” with terms like “key resources.” We wanted this to be extremely practical, with as little jargon as possible. As soon as you have to explain something, you create a barrier to adoption.

Did you feel pressure to keep the jargon because you were in academia?

You bet. The incentive is to publish, not create tools that are relevant to practitioners. There’s a lot of cool stuff going on in management thinking at business schools, but little of it makes it into the toolbox of practitioners.

We faced another obstacle because what Yves and I were doing fell between two disciplines: information systems and management/entrepreneurship. As soon as you’re interdisciplinary, it becomes complicated to publish in the top journals.

The final obstacle was that, in academia, the more quantitative a study is, the easier it is to publish. Relevance is often the least important criteria to get published in a top journal. But Yves and I weren’t interested in doing something really quantitative, so we used an approach called “design science,” a third methodology that falls between qualitative and quantitative research. We knew our approach worked when I put the PhD online, and people started downloading it. Because of the dissertation, I started getting invitations to offer workshops in real companies. This was long before the book. It was a surprise.

How do you think the Business Model Canvas changes the way someone thinks about a business?

The business model canvas gives a holistic view of a company. It requires you to ask, “What are the questions I need to answer to create value for my customers and for my company?” The whole thing is grounded in Michael Porter’s value chain, which made sense in 1985, when most companies were in manufacturing. But the value chain isn’t as effective to describe a Facebook or an AT&T today. The business model canvas is in that same tradition, just updated for the 21st century.

It’s also very visual.

Yes, Yves and I underestimated the value of this. Traditionally, managers sit around a table and have long conversations about how they should innovate and create value. But visual tools change the way people interact. So Yves and I bring that into the classroom by having students put sticky notes up on the canvas. Students’ understanding of companies goes through the roof. Yves has used this method with 400 students at a time, and I’ve done it with 2,500.

What advice would you give professors?

When we work with students, we teach concepts, but we make them extremely practical. Students don’t just learn about methods, they apply methods. So I think business schools need to get students to apply these methods again and again and again. The dual approach of learning and then doing should be essential.

Business schools also teach in a very disconnected way, separating topics like accounting, marketing, and leadership. It’s no wonder that graduates don’t know what a company is. They can’t see it as a whole thing, where everything’s connected.

That’s why I think entrepreneurship is a better business school than business school will ever be. I think even somebody who becomes a manager or a CEO should at least have tried entrepreneurship. You will be a better CEO if you understand how all these pieces are connected.

What about capstone courses?

A capstone course gives a holistic view of the organization—but it’s at the very end of the program! It’s one little class to help you understand the most fundamental things about a company. It should be the first thing students see.

What impact do you most hope your work will have on business education?

We’re trying to create tools and languages for strategy and innovation, which are still young disciplines. That’s why we came up with our books, and I hope others will come up with new tools just as we did.