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Key Activities – Value Chain Building Block in Business Model Canvas

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Introduction to Key Activities “Value Chain” in the Business Model Canvas

It can sometimes be challenging to discuss important business concepts, even when you’re an expert like the folks we have at Digital Leadership. A lot of terms are thrown around without a lot of definition or description.

In “How to Create Innovation,” we discuss how the business model canvas can help you best understand your business model and the typical key activities that your business needs to perfect in order to succeed. Your key activities are the integral pieces of your business’s value chain and value propositions. They form a building block within several pieces of your Business Model Canvas, in particular your Operating Model Canvas.

Key Activities in Business Model Canvas
Key Activities “Value Chain” in the Business Model Canvas

Key Activities is a term that’s often used interchangeably with core activities, and these ties directly into your business’s value chain and value propositions: in other words, how you bring value to your customers, address their Jobs to be Done and solve customer problems uniquely.

In this article, we discuss how key activities define your business model, how they assist in value creation, and how to separate key activities from non-core activities that may be distracting you from success.

As always, we have more information available on the Digital Leadership website and in our book, How to Create Innovation.

Key Activities Building Block of the Business Model Canvas

The original concept of core activities, supporting activities and Value Chain came from Michael E. Porter. In his groundbreaking book Competitive Advantage, Porter explores the underpinnings of competitive advantage in the individual firm. Competitive Advantage introduces a whole new way of understanding what a firm does. Porter’s concept of the Value Chain disaggregates a company into “activities,” or the discrete functions or processes that represent the elemental building blocks of competitive advantage.

eXtended Business Model Canvas
The UNITE eXtended Business Model Canvas
Designed by: Digital Leadership AG – Building on the work of Alexander Osterwalder, the Lean Canvas and the thinking of Patrick Stahler

The concept of Value Chains as decision support tools was added to the competitive strategies paradigm developed by Porter as early as 1979. In Porter’s Value Chains, Inbound Logistics, Operations, Outbound Logistics, Marketing and Sales, and Service are categorized as primary activities. Secondary activities include Procurement, Human Resource Management, Technological Development, and Infrastructure.

Business models take core and key activities into account and use them to support their revenue streams.

What are Key Activities & Why are They Important?

Most of your organization is made up of non-core activities: entire areas such as accounting, forecasting, marketing, and HR, are not even sector-specific and so generally do not add to the differentiation of your organization. In these areas, you can increase efficiency or decrease costs, but further investment in these areas is unlikely to add to your competitive advantage.

Your key activities are industry-specific and are areas where you possess relative strength. However, here you are competing head-to-head with other firms and are not superior to them.

When we are looking for strengths that support innovation, we need to be looking for assets and capabilities that are core or, ideally, differentiating, since these will support your competitive advantage. Key activities are your business’s reason to be, and differentiating how you do them will make you stand out in the crowd of competitors.

The distinction between core and non-core is critical, and yet most firms do not bother to make it. But it is precisely that distinction that allows you to understand where to cut cost and where to invest, where to focus on differentiation, and where to standardize, a key resource from something far less important.

Which Key Activities are Critical to your Value Proposition?

There are a few different ways to identify and assess your strengths and the key activities necessary to your value proposition; here are three that have worked for us.

Value Proposition Canvas
The UNITE Value Proposition Canvas
Designed by: Digital Leadership AG – Based on the work of Peter Thomson which is based on the work of Steve Blank, Clayton Christensen, Seith Godin, Yves Pigneur, and Alex Osterwalder, and the original Value Proposition Canvas

Brainstorm and interview

The simplest way is to brainstorm and build on the ideas you generate through a series of interviews with the senior business executives in your core organization. This approach will uncover some of your greatest strengths quickly. However, based on our experience, it will often not go far enough, since many firms are simply not used to reflecting on their assets and capabilities, and so asking people what they think their differentiating strengths are may not yield a full and accurate picture.

Additionally, market research will help you understand the needs of your various customer segments. You’ll better understand how your value propositions are helping customers complete their Jobs-to-be-Done.

Incidentally, Jobs to be Done is an important concept you’ll find discussed more completely in “How to Create Innovation”. Along with a full description of the business model canvas, you’ll see how you can beat potential competitors by focusing on your key activities to differentiate your value proposition from theirs.

Work with a Capability Map

If you want to take a more systematic approach, our best advice is to work with a Capability Map.

Business Capability Map
The UNITE Business Capability Map
Designed by: Digital Leadership AG – Building on the Work of Bain & Company

Capabilities are the processes, systems of knowledge, and specific skills that a firm possesses based on which it operates, earns revenue, and competes with other firms. Capability Maps summarize the capabilities of a firm visually. They can exist at different levels of an organization – from an abstract list of capabilities at the enterprise level, or a much more detailed visualization when focusing on the particular capabilities of organizational units or even something like the IT system.

Work with an Operating Model

Operating Model Canvas
The UNITE Operating Model Canvas
Designed by: Digital Leadership AG – Building on the Work of Andrew Campbell at al

A third alternative is to mine your Operating Model for strengths that distinguish you from your competitors. The concept of an Operating Model Canvas was originally developed by Andrew Campbell and his colleagues. We have developed an iteration of it that will consider additional aspects and that is more geared towards innovation.

One key ingredient we propose to overcome the Strategy-Execution challenge is to establish how you are going to execute using a well-defined and communicated Operating Model. The Operating Model Canvas expands upon the Value Chain, Key Resources, and Key Partners of your Business Model.

The Operating Model Canvas will help your team achieve alignment with your strategy and with each other, thus bringing together all the different functions of your business. An interesting exercise is to assess from a third-party perspective what you are offering and how you are creating value today. How is your organization operating and does that hold more radical potential? Can your Value Chain be entirely rethought and reconfigured? Can you disintermediate the Value Chain, cut out entire production processes, or develop a new Value Proposition if you leave out some steps?

This means undertaking a clear and objective analysis of the situation and thinking through the Value Proposition and Value Chain, and the disruption potential in each step.

Assessing your assets and capabilities is critical. These will provide the boundaries for any future innovation and transformation initiative. If you do not leverage your unique assets and capabilities, you are likely to end up in competition with quite literally everybody – a fight that is hard to win. By leveraging your strengths, you can outline a unique Search Field and Opportunity Space for your innovations.

Key Activities Categories

Your key activities must be robust and diverse enough to provide consistent revenue streams to move your value propositions forward. Your key resources are the materials and contacts you’ll need in order to successfully complete those key activities.

Your entire Value Chain and all of your supporting processes must be able to effectively support your key activities. The chain always breaks at its weakest link. Therefore, think hard about what you need to do to get ready to scale effectively and focus on the most important and most difficult areas first.

Production

The processes behind actually making your product.

Production processes are a critically important key activity, and you should have clear quality and cost control over them, particularly if you are a production-driven business. Inventory control is an important element of production, as well. Make sure you’ve empowered production managers to

Many of your key resources will be devoted to production because the production process is so materials-heavy, but don’t neglect the relationships that may be key resources, too,

Problem-solving

All businesses, no matter their business model, must approach problem-solving as a key activity.

Problem-solving pathways are established so decision-making is as streamlined as possible. Properly problem-solving is an important element of maintaining customer relationships. Entire business models are devoted to the customer relationship that grows as a result of completing the problems of a customer’s Jobs to be Done.

Platform/ Network

Modern companies must ensure that their digital footprint is robust and persistent, and if your business is the technology you’re using, then ensuring that it’s operating is clearly an important key activity.

Your platform management and network-related key activities are too important to ignore; make sure they receive the attention and investment they deserve. Knowledge management is likely extremely important for businesses that exist completely online.

Common Key Activities

It can be easier to understand the concept of key activities with some examples.

Obviously, your specific key activities will depend on your business and value proposition.

Research & Development

Your research and development department should be laser-focused on innovation. That can only happen when you’re not wasting resources on non-key activities. Those resources should be devoted to new customer segments and business development.

In addition to new products, resources should be devoted to developing new distribution channels.

Production

Production planning is an important key activity and an important site of cost and quality control. The right QC management results in continuous learning and improvement of the production process. The right inventory management system will make sure you can meet expected demand.

Marketing

The business model canvas includes room for marketing because seeking out new customers is a key activity within nearly every business model.

Sales, Customer Services, & Customer Relationships

Your sales support and sales team are important elements of your business model and should be treated as one of your key activities. The focus should always be on key or prospective customers, the so-called “hero” customers that can make or break your revenue streams.

Because it’s so important to maintain customer relationships and the customer experience, customer interactions appear as key activities in multiple areas of the business model canvas.

Key Activities: Questions for Reflection

As we wrap up this discussion of key activities, we’d like to suggest some questions for you and your team to consider. Not only will your answers reveal how successfully you’re following through on the key activities of your business model, but not having answers will tell you a lot, as well.

  • What are our values chains and key processes?
  • What are our key value-creating activities?
  • Do we have several key value chains?
  • What are our values chains and key processes?
  • What are our key value-creating activities?
  • Do we have several key value chains?

Connecting The Dots: The UNITE Business Model Framework

How to Create Innovation includes a number of canvases that focus on value creation and finding the right business model to meet your customer segment and customer needs. The framework is built to inspire drastic changes that help you find a competitive advantage. Our hope is that your company grows through business model innovation, and so we again encourage you to look deeper into our website and the book.

Here is a summary of the key ingredients of the framework:

The UNITE Business Model Framework
The UNITE Business Model Framework
Designed By: Digital Leadership AG

Business Models

The centerpiece is the Business Model Canvas, which covers the six main areas of a Business Model (the Operating, Value, Service, Experience, Cost, and Revenue Models).

The eXtended Business Model Canvas adds the immediate business context, including Business Drivers, customers, and the team, as well as the Unfair Advantage.

Detailed Models

A Business Model can be broken out into its numerous aspects. Depending on what challenges you face, you can zoom in on your area of interest using an appropriate tool or canvas:

  • Your Business Intention and objectives as well as your Massive Transformative Purpose summarize your drivers and give direction to what you do.
  • The Value Proposition Canvas details the central components of your offering (the product or service).
  • To dig into your Customer Segments, work with data-driven Personas.
  • The JTBD Customer Job Statement and Job Map frame the JTBD of your customers.
  • The Business Model Environment puts your Business Model in a market context composed of emerging trends and disruptive forces.
  • The Innovation Culture Canvas helps you understand and consciously shape a culture that supports innovation.
  • The Innovation team structure enables you to draft a team structure for your innovation initiative.
  • Using learning and growth metrics, you can measure progress at the initial stages of development. These metrics help you focus on what really matters instead of creating a detailed business plan that will not really help you. Later on, you can expand the financial aspect of the Revenue and Cost Models with a full business case.
  • The Operating Model Canvas helps you think through the Operating Model.

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