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Management2.

0:
Competitive Advantage through
Business Model Design & Innovation
Guadalajara, June 2007
Alexander Osterwalder,
PhD
alex@arvetica.com

change is the process by


which the future invades
our lives
-> Alvin Toffler

first of all: what


are YOUR
concerns?
(buzz groups)

what are YOUR biggest issues and


fears you face in strategic
management today?

where do YOU see the largest


opportunities to improve strategic
management today?

your expectations for


today?

what is
innovation?

tell me about the most


important innovations in
your company

types of
innovation?

technology
innovation

process
innovation

product &
service
innovation

business model
innovation

four rings of
innovation

businessmodelinnovation
product&serviceinnovation
processinnovation
technologyinnovation

whichoneofyour
examplesqualifyas
businessmodel
innovation?

Businessmodelinnovationmattersanditis
atoppriorityofCEOs

Operating Margin Growth in Excess of


Competitive Peers
compound annual growth rate over five
years

[Source: IBM, CEOs are expanding the innovation horizon: important implications for CIOs]

Benefits Cited by Business Model


Innovators
percent of respondents

[Source: IBM, Global CEO Study 2006]

someexamples

NetJets: Fractional
Ownership

Zopa.com: Peer-to-Peer
lending

Bellum Concepts

why talk about


business
models?

how do you describe


a business model?

without a common
language

how do you
communicate a
business model?

1%
Strategy

18%

300%

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diam. Vivamus sem arcu, imperdiet nec, congue ac, scelerisque vel, nulla. Donec et mauris. Integer a nulla vulputate pede consequat euismod.
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Text

Text

Text

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condimentum orci. Fusce velit turpis, malesuada quis, scelerisque ut, eleifend vitae, ipsum. Vestibulum eu erat. Vestibulum justo nisl, tincidunt
et, semper vel, tristique quis, eros. Vestibulum tempus, massa vel consectetuer congue, erat magna consequat purus, a facilisis orci nibh vitae
purus. Nam tincidunt venenatis ligula. Nunc orci nulla, ornare quis, lobortis viverra, dapibus at, turpis. Suspendisse sit amet nisl at enim tincidunt
blandit. Curabitur augue est, suscipit sed, egestas sit amet, vehicula vitae, tellus. Maecenas nec metus vel nisi interdum pellentesque.

Development plan

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mollis leo, vitae porttitor mi orci sit amet neque. Donec at enim. In facilisis tellus gravida ligula. Phasellus ut lorem. Pellentesque ac tortor
eget augue suscipit ullamcorper. Aenean eleifend porta orci.

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metus semper fringilla. Donec ornare arcu. Maecenas faucibus ligula convallis nibh. Mauris dui quam, congue eu, commodo nec, tristique
in, enim. Nulla auctor semper urna. Quisque a elit eu purus iaculis vestibulum. Aliquam dictum risus at odio. Fusce at lorem et elit faucibus
placerat. Aenean velit. Proin elit odio, blandit et, scelerisque quis, pulvinar a, dui. Nunc magna dolor, bibendum ut, accumsan congue,
tincidunt sit amet, neque. Proin consequat tincidunt lacus. In urna dui, congue nec, tincidunt sit amet, facilisis imperdiet, lorem.

12%

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vitae arcu consequat fringilla. Cras magna risus, placerat eget, egestas consectetuer, ornare vel, felis. Nam ornare justo id orci mattis
ultricies. Morbi luctus. Ut pretium odio ac libero. Nunc sollicitudin pharetra lorem. Aenean scelerisque, lacus eget ullamcorper scelerisque,
ipsum urna viverra mi, eget viverra quam eros eget velit. Ut lacinia feugiat purus. Cum sociis natoque penatibus et magnis dis parturient
montes, nascetur ridiculus mus. Etiam nunc nisl, aliquam blandit, luctus id, commodo laoreet, sem. Phasellus sit amet orci ut sapien
vulputate pellentesque. Pellentesque dapibus purus et quam. Nam sit amet magna in neque dignissim sodales. Aenean non justo nec
magna lobortis volutpat.

Words

through inappropriate
means

Ok

Here

Here

CEOs
10
Managers
60

Staff
360

how do you implement a business


model?

with outdated
methods

how do you measure the


success of a business
model?

we dont

how do you change a


business model and
innovate?

we re-invent the
wheel

what is a
business
model?

business model framework


INFRASTRUCTURE

CORE
CAPABILITIES

PARTNER
NETWORK
ACTIVITY
CONFIGURATION

COST
STRUCTURE

OFFER

VALUE
PROPOSITION

FINANCE

CUSTOMER
RELATIONSHIPS
DISTRIBUTION
CHANNELS

CUSTOMER

CUSTOMER
SEGMENTS

REVENUE
STREAMS

a business model describes the value an organization offers to


various customers and portrays the capabilities and partners
required for creating, marketing, and delivering this value and
relationship capital with the goal of generating profitable and
sustainable revenue streams

[Osterwalder (2004) The Business Model Ontology]

case study

you become the new owner of


a soccer club

describe YOUR
clubs business
model

what value proposition do you


offer, to which customer
segments?

describing how a wealth management bank acquires its clients

what value proposition do you


offer, to which customer
segments? (model)

OFFER

CUSTOMER

VALUE
PROPOSITION

CUSTOMER
SEGMENTS

value proposition 1
value proposition 2

target customer 1
target customer 2

what value proposition do you


offer, to which customer
segments? (example)
OFFER

CUSTOMER

spectacular
offensive football

fans

advertising space &


high visibility

advertisers

how do you reach your


customers?

how do you reach your customers?


(model)

OFFER

CUSTOMER

VALUE
PROPOSITION

COMMUNICATION
& DISTRIBUTION
CHANNELS

CUSTOMER
SEGMENTS

value proposition 1
value proposition 2

channel 1
channel 2

target customer 1
target customer 2

how do you reach your customers?


(example)
OFFER

CUSTOMER
stadium & box office

spectacular
offensive football

club owned TV
channel

fans

mobile phone TV
advertising space &
high visibility

sales force

advertisers

how do you build


relationships?

how do you build


relationships with your
customers? (model)

OFFER

CUSTOMER

VALUE
PROPOSITION

CUSTOMER
RELATIONSHIP

CUSTOMER
SEGMENTS

value proposition 1
value proposition 2

mechanism 1
mechanism 2

target customer 1
target customer 2

how do you build


relationships with your
customers? (example)
OFFER

CUSTOMER
personalized website
(ticketing)

spectacular
offensive football

team blog (RSS)

fans

how do you earn your money


with this business model?

how do you earn your money


with this business model?
(model)

OFFER

FINANCE

VALUE
PROPOSITION

REVENUE
STREAMS

CUSTOMER
SEGMENTS

value proposition 1
value proposition 2

revenue stream 1
revenue stream 2

target customer 1
target customer 2

how do you earn your money


with this business model?
(example)
OFFER

FINANCE
ticket sales

spectacular
offensive football

TV channel
subscriber fees

fans

mobile phone TV
subscriber fees
advertising space &
high visibility

advertising revenues

advertisers

the business
models place in
a company

STRATEGY

BUSINES
S MODEL
ORGANIZATION

TECHNOLOGY

the business models place in the


company

external
forces

5 forces
customer
needs

technologic
al change

BUSINES
S MODEL
legal
environme
nt

social
environmen
t

competitio
n

the big picture (business


model)

the big
picture
Partner Network

Core Capability
play attractive & win
games
brand management
video images
channel management

food & beverages


ticketing services
promoters
ad placement
telecom operator
TV operator

Activity Configuration

team management
event management
venue management
ticketing
VIP relationship
management
video crew

Cost Structure

Customer Relationship

team & maintenance


infrastructure management
marketing
video

Value Proposition
attractive soccer
360 event (match,
dining, shopping)
exclusive VIP lounges
merchandising
renting out stadium

personalized web profile


newsletter
team blog (RSS)
VIP events with team

Distribution Channel

stadium
POS networks
club website (+online TV)
club cable TV channel
mobile phone TV channel

Revenue Model

Ticket fees & season tickets


online TV subscription revenues
revenue sharing cable & mobile phone TV
renting out stadium for events
advertising revenues
merchandising revenues

Target Customer

fans (families, etc.)


fan groups
companies
event/concert organizers
advertisers

value creates
revenues
Partner Network

Core Capability
play attractive & win
games
brand management
video images
channel management

food & beverages


ticketing services
promoters
ad placement
telecom operator
TV operator

Activity Configuration

team management
event management
venue management
ticketing
VIP relationship
management
video crew

Cost Structure

Customer Relationship

team & maintenance


infrastructure management
marketing
video

Value Proposition
attractive soccer
360 event (match,
dining, shopping)
exclusive VIP lounges
merchandising
renting out stadium

personalized web profile


newsletter
team blog (RSS)
VIP events with team

Distribution Channel

stadium
POS networks
club website (+online TV)
club cable TV channel
mobile phone TV channel

Revenue Model

Ticket fees & season tickets


online TV subscription revenues
revenue sharing cable & mobile phone TV
renting out stadium for events
advertising revenues
merchandising revenues

Target Customer

fans (families, etc.)


fan groups
companies
event/concert organizers
advertisers

creating value requires


infrastructure
Partner Network

Core Capability
play attractive & win
games
brand management
video images
channel management

food & beverages


ticketing services
promoters
ad placement
telecom operator
TV operator

Activity Configuration

team management
event management
venue management
ticketing
VIP relationship
management
video crew

Cost Structure

Customer Relationship

team & maintenance


infrastructure management
marketing
video

Value Proposition
attractive soccer
360 event (match,
dining, shopping)
exclusive VIP lounges
merchandising
renting out stadium

personalized web profile


newsletter
team blog (RSS)
VIP events with team

Distribution Channel

stadium
POS networks
club website (+online TV)
club cable TV channel
mobile phone TV channel

Revenue Model

Ticket fees & season tickets


online TV subscription revenues
revenue sharing cable & mobile phone TV
renting out stadium for events
advertising revenues
merchandising revenues

Target Customer

fans (families, etc.)


fan groups
companies
event/concert organizers
advertisers

infrastructure generates
costs
Partner Network

Core Capability
play attractive & win
games
brand management
video images
channel management

food & beverages


ticketing services
promoters
ad placement
telecom operator
TV operator

Activity Configuration

team management
event management
venue management
ticketing
VIP relationship
management
video crew

Cost Structure

Customer Relationship

team & maintenance


infrastructure management
marketing
video

Value Proposition
attractive soccer
360 event (match,
dining, shopping)
exclusive VIP lounges
merchandising
renting out stadium

personalized web profile


newsletter
team blog (RSS)
VIP events with team

Distribution Channel

stadium
POS networks
club website (+online TV)
club cable TV channel
mobile phone TV channel

Revenue Model

Ticket fees & season tickets


online TV subscription revenues
revenue sharing cable & mobile phone TV
renting out stadium for events
advertising revenues
merchandising revenues

Target Customer

fans (families, etc.)


fan groups
companies
event/concert organizers
advertisers

the profit
zone
Partner Network

Core Capability
play attractive & win
games
brand management
video images
channel management

Customer Relationship

food & beverages


ticketing services
promoters
ad placement
telecom operator
TV operator

Activity Configuration

Value Proposition

attractive soccer
360 event (match,
dining, shopping)
exclusive VIP lounges
merchandising
renting out stadium

team management
event management
venue management
ticketing
VIP relationship
management
video crew

Cost Structure

team & maintenance


infrastructure management
marketing
video

personalized web profile


newsletter
team blog (RSS)
VIP events with team

Distribution Channel

stadium
POS networks
club website (+online TV)
club cable TV channel
mobile phone TV channel

Revenue Model

<

Ticket fees & season tickets


online TV subscription revenues
revenue sharing cable & mobile phone TV
renting out stadium for events
advertising revenues
merchandising revenues

Target Customer

fans (families, etc.)


fan groups
companies
event/concert organizers
advertisers

the process of
designing
innovative
business models

the focus of the


business model
innovator &
designer

usercentered

CORE
CAPABILITIES

PARTNER
NETWORK
ACTIVITY
CONFIGURATION

COST
STRUCTURE

VALUE
PROPOSITION

CUSTOMER
RELATIONSHIPS
DISTRIBUTION
CHANNELS

REVENUE
STREAMS

CUSTOMER
SEGMENTS

Nokia: Jan
Chipchase

creativity &
exploration

Googlepl
ex

70:20:10

API

CORE
CAPABILITIES

PARTNER
NETWORK
ACTIVITY
CONFIGURATION

COST
STRUCTURE

VALUE
PROPOSITION

CUSTOMER
RELATIONSHIPS
DISTRIBUTION
CHANNELS

REVENUE
STREAMS

CUSTOMER
SEGMENTS

continuous
innovation

interdisciplinary
approach

Grameen Phone
Bangladesh

Grameen
Bank

customer
relationships

telecom
operators

micro-credit
mobile
telephony

activity
configuration

village
telephony

phone ladies

villager

source of
revenue

Grameen
Bank (billing)

phone ladies

billing

telecom
infrastructure

mobile phone
revenues

holistic
design

Apple iTunes &


iPod

content
producers
lifestyle brand
hardware
suppliers

hardware &
softw. dev.

prod. & softw.


design

e-commerce

brand
management

multimedia
rights mgmt
content

hardware
distribution

iPod

Apple stores

iBook

dealer
network

multimedia
downloads

iTunes

content
distribution

cost structure

hardware
revenues
multimedia
revenues

high-end
consumer

strategic
fit

the Amazon.com you


know

Amazon Simple Storage


Services (S3)

customer
relationships

partners

product
selection

content
management

selling stuff
on the Web

Amazon.com

mass
customer

warehousing
& distribution

Amazon S3

Internet API

Web2.0
companies

data services

A9 product
search

Internet

e-commerce
sites

distribution
product
search
Amazon.com
data grid

selling stuff
IT infra
data storage
fees
marketing
search engine
revenues

the business
modelers
toolbox

cocreation

ideatio
n

visualizati
on

prototyping

the design
process

1. identify interdisciplinary
stakeholders
-> set-up team

do you have to get the


IT team out of their
cubicles?

2. understand (business)
environment
> frame problem

various starting points / depending


on context

CORE
CAPABILITIES

PARTNER
NETWORK
ACTIVITY
CONFIGURATION

COST
STRUCTURE

VALUE
PROPOSITION

CUSTOMER
RELATIONSHIPS
DISTRIBUTION
CHANNELS

CUSTOMER
SEGMENTS

REVENUE
STREAMS

[Osterwalder (2004) The Business Model Ontology]

3. suspend
reality
-> ideate

4. bring back
reality ->
prototype

5. chose suitable
design
-> decide

6. sketch out projects &


workload
-> draw implementation
plan

Area

Value
Proposition

Project
name

Estimated
workload

Project V1

10
man/days

Project V2

120
man/days

Distribution
38
Project C1
Channels
man/days

7. outline key indicators to


follow
-> choose measures

Area

Value
Proposition

Project
name

Target
Estimated KPI
workload (measure) level

Project V1

10
man/days

Project V2

120
man/days

Distribution
38
Project C1
Channels
man/days

8. select the right teams and


people
-> make responsible

Area

Value
Proposition

Project
name

Target
Estimated KPI
workload (measure) level

leader

Project V1

10
man/days

Mr. Jan

Project V2

120
man/days

Ms. Tee

Distribution
38
Project C1
Channels
man/days

9. execute the plan


-> manage implementation &
change

10. evaluate, learn and


redesign
-> manage
improvement

designing blue
oceans

> market boundaries


are not given
> they are
reconstructed by the
actions & beliefs of
industry players

REDOCEAN

BLUEOCEAN

competeinexistingmarkets

createuncontestedmarkets

beatthecompetition

makecompetitionirrelevant

exploreexistingdemand

create&capturenewdemand

makethevalue/costtradoff

breakvalue/costtradoff

alignwithdifferentiationOR
lowcost

alignwithdifferentiation
ANDlowcost

differentiate your value


proposition

working definition value


proposition

a customer value proposition gives an overall


view of a company's bundle of products,
services and client advice.
it is the sum of the total benefits a customer is
promised to receive in return for a payment (or
other value transfer)

group warmup
what are the 5
most important
competitive
attributes that
characterize a
game consoles
offer?
(e.g. price, performance,
design)

attribut
e2
e.g.
price

attribute 1
e.g.
performanc
e

5
attributes
1
2

1. most important attribu


2. second most important
3.
4.

3
4

1.
2.
3.
4.
5.

draw a value proposition

banks performance

5 - high

3 - medium

1 - low

2
3
1
4
5
e
e
e
e
e
t
t
t
t
t
u
u
u
u
u
b
b
b
b
b
i
i
i
i
i
r
r
t
t
tr
tr
tr
at
at
at
at
at

[Kim & Mauborgne (2002) Charting Your Company's Future]

live
Excel

eliminate

raise

reduce

create

strong & valuable approach, but


limited view

CORE
CAPABILITIES

PARTNER
NETWORK
ACTIVITY
CONFIGURATION

COST
STRUCTURE

VALUE
PROPOSITION

CUSTOMER
RELATIONSHIPS
DISTRIBUTION
CHANNELS

REVENUE
STREAMS

CUSTOMER
SEGMENTS

examples

Goldcorp

exploiting
mines

geology prize
500000 $US

CUSTOMER
RELATIONSHIPS
mining

research

DISTRIBUTION
CHANNELS

low costs through


open exploration

REVENUE
STREAMS

CUSTOMER
SEGMENTS

Goldcorppubliclysharedallofitsgeologicaldataand
offeredUS$500000inprizesfordeterminingwherethey
mightfindthenext6millionouncesofgold

from copyright to creative


commons

Skyp
e

eBay
deliver voice &
video quality

software
development

software
development

website
free VoIP & value
added services

global
(non segmented)
internet

large scale
low margin

freevoiceoverIPVoIPtelephony&
valueaddedservices

1291
Cityhomes

lowcosthotel/rentalinNewYorkCity

young
curious
Swiss

CUSTOMER
RELATIONSHIPS

apartment
owners

keep down
costs

renting out
rooms

low cost
accommodation
New York

DISTRIBUTION
CHANNELS

find demand

low cost

rents

the cost
sensible

Tecnovat
e
import young
curious
Europeans to
India to work

keep down
costs

ACTIVITY
CONFIGURATION

low cost

CUSTOMER
RELATIONSHIPS

low-cost multilingual call


center
outsourcing

DISTRIBUTION
CHANNELS

European
corporations

REVENUE
STREAMS

businessprocessoutsourcingupsidedowninIndia

Netflix

large movie
database

independent
films
ACTIVITY
CONFIGURATION

COST
STRUCTURE

(niche) movies
over the
Internet

profile
specialized
clientele
Web

REVENUE
STREAMS

onlinemovierental(withlargenichemoviedatabase)

from bloated head to the


long tail

Alexander Osterwalder, PhD


alex@arvetica.com
www.arvetica.com

all photos from Flickr


under a creative commons license
authors indicated in comment page
of ppt

we co-create

Nobody knows your business environment better than


yourself. We co-design your strategic vision by building
on your knowledge. Through group thinking we find the
right answers to the right questions together

we operationalize

Having a great vision is not sufficient - implementation


counts. We help you reconcile long term views with short
term actions. We make strategy everyone's job by
translating it into pragmatic and prioritized projects.

we manage change

Change does not happen accidentally it has to be


managed. We help you align strategy, people and
processes with respect to your organizational culture and
values.

we build knowledge

When you stop learning, you stop competing. We scan the


knowledge universe for you, across disciplines and
industries. We transfer the best methods, tools and
theory in business to your organization.

we connect

Specific problems require specific skills that you do not


necessarily dispose of in-house. Through our
interdisciplinary network we connect you with leading
domain experts.

annexes

annex I
business model
template

INFRASTRUCTURE

PARTNER
NETWORK

CORE
CAPABILITIES

OFFER

CUSTOMER
RELATIONSHIP

VALUE
PROPOSITION
VALUE
CONFIGURATION

COST
STRUCTURE

TARGET
CUSTOMER
DISTRIBUTION
CHANNEL

FINANCE

CUSTOMER

REVENUE
STREAMS

a business model describes the value an organization offers to


various customers and portrays the capabilities and partners
required for creating, marketing, and delivering this value and
relationship capital with the goal of generating profitable and
sustainable revenue streams

describing a companys business model

INFRASTRUCTURE
CORE
CAPABILITIES
outlines the capabilities
required to run a
company's business
model

PARTNER
NETWORK

CUSTOMER
RELATIONSHIP
OFFER

portrays the network of


cooperative
agreements with other
companies

VALUE
CONFIGURATION

VALUE
PROPOSITION

gives an overall view of


a company's bundle of
products and services

COST
STRUCTURE

DISTRIBUTION
CHANNEL

TARGET
CUSTOMER
describes the
customers a company
wants to offer value to

describes the channels


to communicate and
get in touch with
customers

describes the
arrangement of
activities and resources

sums up the monetary


consequences to run a
business model

explains the
relationships a
company establishes
with its customers

CUSTOMER

FINANCE

REVENUE
STREAMS

describes the revenue


streams through which
money is earned

describing a companys offer


OFFER
VALUE
PROPOSITION

value proposition 1
value proposition 2

describing who a company offers value to


OFFER

CUSTOMER

VALUE
PROPOSITION

TARGET
CUSTOMER

value proposition 1
value proposition 2

target customer 1
target customer 2

describing how a company reaches its customers


OFFER

CUSTOMER

VALUE
PROPOSITION

DISTRIBUTION
CHANNEL

TARGET
CUSTOMER

value proposition 1
value proposition 2

distribution channel 1
distribution channel 2

target customer 1
target customer 2

describing the relationships a company builds


OFFER

CUSTOMER

VALUE
PROPOSITION

CUSTOMER
RELATIONSHIP

TARGET
CUSTOMER

value proposition 1
value proposition 2

relationship type 1
relationship type 2

target customer 1
target customer 2

describing how a company makes money


OFFER

FINANCE

CUSTOMER

VALUE
PROPOSITION

REVENUE
STREAM

TARGET
CUSTOMER

value proposition 1
value proposition 2

revenue stream 1
revenue stream 2

target customer 1
target customer 2

describing what capabilities are required


INFRASTRUCTURE

OFFER

CORE
CAPABILITIES

VALUE
PROPOSITION

core capability 1
core capability 2

value proposition 1
value proposition 2

describing what activities are required


INFRASTRUCTURE

OFFER

CORE
CAPABILITIES

VALUE
CONFIGURATION

VALUE
PROPOSITION

core capability 1
core capability 2

activity 1
activity 2

value proposition 1
value proposition 2

describing the partners that leverage the business model


INFRASTRUCTURE

OFFER

CORE
CAPABILITIES

PARTNER
NETWORK

VALUE
PROPOSITION

core capability 1
core capability 2

partner 1
partner 2

value proposition 1
value proposition 2

describing the costs of a business model


INFRASTRUCTURE

FINANCE

OFFER

CORE
CAPABILITIES

COST
STRUCTURE

VALUE
PROPOSITION

core capability 1
core capability 2

cost account 1
cost account 2

value proposition 1
value proposition 2

annex ii
other

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