1. The Business Model Design and
Evaluation Framework (BMDEF)
A tool for founder, business developer, strategic manager, etc. to
create, explore and analyse real or fictious business concepts
Ralf Heim
Strategy and Technology Management Consultant
ralf.heim@heimr.de Published in June 2012

2. Introduction into the BMDEF
What the BMDEF is about
“Competition is no longer between products or services, it’s between
competing business concepts”1
Gary Hamel (2000): Leading the Revolution
 To understand competitive advantage in complex modern economics you need
more than just focusing on single products/services or resources
 A Business Model presents an integrated view on the strategically important
components of a business as well as their independencies
 The objective is to support management in understanding and communicating as
well as analysing and (re)designing business logic
 The understanding of the term model ranges from enumeration of components to
complex mathematical logics
 Still, there is no connection between the simple creative world of a business modeling
and the quantitative-financial world of controlling
 The BMDEF integrates simplicity of business modeling and the deepness and
detail-orientation of controlling in one instrument
For further information and link to the paper, follow instructions at
the end of the presentation
Business Model Development and Evaluation 2

3. Introduction into the BMDEF
Modern understanding of the components of a business model
Market Value Creation Finance Strategy
Publication Customer Offer & Compe Trans- Value Resour Cul- Part- Capi- Revenue Oppor-
Risks
needs Price -tition action Activities -ces ture ners tal / Profit tunities
Bieger/Reinhold (2011) 1 1 1 1 1 1
Bouwman et al. (2008a) 1 1 1 1 1 1 1 1
Gordijn (2004) 1 1 1 1 1 1 1 1
Johnson (2010) 1 1 1 1 1
Kett et al. (2009) 1 1 1 1 1 1
Lambert (2006) 1 1 1 1 1 1 1 1
Mieschke (2005) 1 1 1 1 1
Osterwalder/
Pigneur (2009) 1 1 1 1 1 1 1
Palo/Tähtinen (2011) 1 1 1 1 1 1
Sepännen et al (2007)
Stähler (2002) 1 1 1
Teece (2010) 1 1 1 1
Tikkanen (2005) 1 1 1 1 1 1 1 1
Umbeck (2009) 1 1 1 1 1 1 1 1 1 1 1
Voelpel et al. (2004) 1 1 1 1
Weill/Vitale (2001) 1 1 1 1 1 1
Wirtz (2011) 1 1 1 1 1 1 1 1 1 1 1 1
Mentioned in total 19 19 5 11 20 15 3 14 6 14 4 3
Business Model Development and Evaluation 3

4. Introduction into the BMDEF
Structural template and methodology
The Business Model Development and Evaluation Framework
(BMDEF)
Business Model Development and Evaluation 4

5. Market Logic: Business Specification
Specifying the business by classifcation
Role in Business Ecosystem Integrator Market Maker Specialist
Business Lifecycle Start Up Established Oldtimer
Service Category Product Service
Pricing Volume (Value) Low Middle High
Service Life Cycle Early Stage Growing Mature Shrinkage
Contract Category Buying Licence Service …
Customer Category B2C B2B B2PS
Customer Structure Few Middle Many Mass Market
Competitive Structure None Weak Strong
Business Model Development and Evaluation 5

6. Market Logic: Service Model
Matching Service features and customer needs
[9]
[3] [6]
Service features Resort to the Quality Function
Competing
Competing
Evaluation
Feature 1
Feature 2
Feature 3
Feature 4
Feature 5
Service 1
Service 2
Deployment (QFD) - a Method
Service
Customer Needs
used for ensuring Quality in
Product/Service Management
[1] [2]
Customer Need 1 Weight % [4] (see Akao (1966))
Category A
Customer Need 2 Weight %
Customer Need 3 Weight % [7]
Category
Customer Need 4 Weight %
B
Customer Need 5 Weight %
Weighted Importance [5] [8]
[1] Identify customer
 [4] Measure the contri-
 [7]
 Identify and evaluate
needs with regard to the bution of features to competing services
specified product/service satisfy customer needs analogue to [6]
as the „voice of customer“
[5] Sum the weighted
 [8]
 Sum the weighted
 Weight the importance
[2] importance of each degree of customer
of the need out of the feature satisfaction per service
customers perspective
[6] Evaluate how good
 [9] Measure interrelation-

[3] Identify product your service meet ships beetween product
features as the „voice of customer needs features
the engineer
6

7. Market Logic: Revenue Model
Illustrating transaction mechanisms
Price Comparison of price
- with competitors
+
- + - +
Revenue Degree of
Buying
# potential customers + Differentiation
Frequence -
+
+ Market Share
+ (in #)
Sales potential Comparison of
Sales services from the
+ service model
+
• Create a simple illustration explaining the main driving forces determin-
ing your business revenue. These illustrations are highly business specific
• Behind each arrow in this illustration, a mathematical relation need to
be defined by analyzing existing data or rough estimations
• Data like differentiation degree measures can be extracted from the
service model and used to measure the degree of differentiation between
the focused service and those of competitors
Business Model Development and Evaluation 7

8. Value Creation Logic: Activity Model
Using a fitting template to describe business activities
Value Chain (see Porter (1985))
Management and Controlling
Value Shop
Seco
Human Resources
nda
IT & Infrastructure
ry
Procurement
Value Network
ary
Ingoing Customer
Marketing &
Prim
Logistic/ Production Distribution Services &
Sales
Dispostion After Sales
 The choice of the fitting value creation logic depends on the nature
of the business model and the characteristics of process flows
 The value creation logic is linking the resource amounts with the
planned revenue model
Business Model Development and Evaluation 8

9. Value Creation Logic: Resource Model
Quantification of resource input
 Estimating the amount of needed tangible and human resources
quantitatively by analyzing the revenue and the activity model
 Identify in Workshops which intangible resources (e.g. Know How)
are needed to enable activities and how valuable (v), rare (r),
imitatable (i) and integratable (o) they are. (see Barney (1991))
 The possibility to quantify strategic partnerships input depends on
nature of business and partnership. A VRIO-Evaluation follows.
Business Model Development and Evaluation 9

10. Evaluation Perspective: Business Value Driver Model
Building up the top layer
 Identifying the top Key Performance Indicator(s) matching the
business‘ objective(s)
 Build up a top level hierarchy or dynamic graph including the key
value drivers and their mathematical relation to the shareholder value
 Match the existing partial models of the BMDEF with the key value
drivers and estimate their influence on them*
*in this simple example left out: activity model and service model
Business Model Development and Evaluation 10

11. Evaluation Perspective: Business Value Driver Model
Disaggregation and Drill Down of Business Value Driver
<= Business specific Generic Value Driver Key Value Driver
driver
Sales Revenues Revenue growth
Cash Flow
Prices Cost of revenue EBITDA
Total Expenditures Net Cash Flow
Tax Shareholder
Value
Wertminderung/
Abschreibung Investments into
Total Investments
Assets
WACC Discount factor
Disaggregation
*only a very simple example
Business Model Development and Evaluation 11

12. Evaluation Perspective: Risk Model
Identifying potential risks
 Identify potential risks by looking at the business model and using
additional established screening-methods (e. g. PESTEL-Concept)
 Describe the risks with different probability distributions by
analyzing data, doing rough estimations in management workshops or
using fuzzy-logics in comparison with qualitative surveys
 The result is a risk inventory illustrating the identified risk
Business Model Development and Evaluation 12

13. Evaluation Perspective: Risk adjusted value driver model
Aggregation of single risks and business value drivers
 Collect single risks affecting
the designed business model
 Describe the risks using
probability distributions
by exploring data or doing
subjective estimations
Single Risk 1 Single Risk 2 Single Risk 3
 Match the risks with the
Single Risk % % % value drivers by identifying
€ € € which risks affects which
Aggregation Monte Carlo Simulation value driver
Value Driver  Aggregate single risks on
Value Driver %
value drivers using Monte-
Carlo-Simulation
€
 Aggregate the value
drivers within value logic
using the same approac
 Use the risk inventory as
a separate deliverable to
interpret the business
Business Model Development and Evaluation 13

14. Evaluation Perspective: Risk adjusted value driver model
Quantitative evaluation with static simulation techniques
 Implementation of a developed static value driver hierachy based on
MS-Excel™ and the Risk Management Software Add In @Risk®
 Next to the displayed result the software can support management with
sensitivity analysis and adding additional concepts (e. g. Value@Risk)
Business Model Development and Evaluation 14

15. Evaluation Perspective: Risk adjusted value driver model
Examplary Illustration of the technique
Business Model Development and Evaluation 15

16. Evaluation Perspective: Risk adjusted value driver model
Quantitative evaluation with dynamic simulation techniques
€ Free Cash Flow
Zeit
• Implementation of a developed dynamic value driver system based on
VenSim® and integrated Monte Carlo Simulation Add In
• Dynamic systems are integrating feedback loops and enable
management to describe business more realistically
• Additionally, dynamic system can be incorporated in established
business application like SAP SEM-BPS.
Business Model Development and Evaluation 16

17. Evaluation Perspective: Risk adjusted value driver model
Qualitative Evaluation by matching the BMDEF and the BM Canvas
Inspired by the Business Model Canvas of Osterwalder/Pigneur (2010): 44
Filter function criteria described in orange
Model and Data base for the filter function presented with the arrow
Business Model Development and Evaluation 17

18. Implementing and Applying the BMDEF
Multi-Layer-Architecture for BMDEF-Implementation
Layer Configuration Tools and Methods Analysis
Learning
Applying 5 Understanding | Analysis | Design
Objectives
Preparation
Analysis Learning
4
Defining
1 analytical scope
Business Understanding
Model Defining Mechanisms
Construction Information 3
Demands
Transformation
and Loading Structural Transformation Understanding
Data Base the context from
2 Data & Metadata
Data Gathering
Data Gathering
Business Model Development and Evaluation 18

19. Implementing and Applying the BMDEF
Potential beneficiaries of and use cases for the BMDEF
Business Model Development and Evaluation 19

20. Modeling tools are a cool thing – but can never replace
creativity and the strength of a human mind
For the manuscript/paper please contact
Ralf.Heim@heimr.de
For further Discussion on Business Models join
https://www.xing.com/net/pri5ec54ax/businessmodelde/
Ralf Heim
Strategy and Technology Management Consultant
ralf.heim@heimr.de 20