06 Key Resources Building Block in Business Model Canvas

06 Key Resources Building Block in Business Model Canvas

© Entrepreneurial Insights based on the concept of Alex Osterwalder

This post covers the next building block of the Business Model Canvas, which is Key Resources. In this post, we will look at 1) key resources, 2) types of key resources, 3) key resources and value propositions (section added), 4) key resources according to types of businesses, and 5)two case studies.

KEY RESOURCES

Key resources are the main inputs that your company uses to create its value proposition, service its customer segment and deliver the product to the customer. These are the most important things you need to have for your business model to work and business models are usually based on a number of tangible and intangible resources. These are the main assets that your company, in particular, requires to create the end product, and these are usually differentiated from the key resources being utilized by your competitors. Key resources deal with the operational end of the business spectrum and define what kind of materials you need, what kind of equipment is required and the types of people you need to employ. This aspect plays a direct role in bringing your value proposition to life for your chosen customer segment and defines the minimum you need to have to deliver to your customers.

The business model of an organization is a major indicator of the type of key resource being utilized by the company. Hence, there is a clear difference between the key resources employed by a microchip manufacturer and a microchip designer. The microchip designer will probably consider his human resources as the key resource, while the manufacturer will favor his production hardware as his key resource.

Key resources are directly relevant to the number and type of key activities your company engages in. Ultimately, the quality of your key resources will impact the sustainability and profitability of your company. For example, if your company doubled its sales in a year, and started growing beyond your expectations, you would only be able to handle such growth if you are fully cognizant of what your key resources are and what impact such increased demand would have on them. Hence, you need to be able to tell whether your physical resources would be able to provide for such demand or require additional investment. Similarly, will your current human resources suffice or will additional talent need to be recruited to meet business requirements and so on.

TYPES OF KEY RESOURCES

Key resources can be categorized into four broad types; physical, intellectual, human and financial. In addition, a company has the option of leasing its key resources or owning them as well as taking on key partners who would provide access to these resources.

1. Physical resources

Physical assets are tangible resources that a company uses to create its value proposition. These could include equipment, inventory, buildings, manufacturing plants and distribution networks that enable the business to function.

A microchip manufacturing company like Intel needs semi-conductor plants as a key resource and without adequate infrastructure available, the organization will fail to innovate and keep up with its business customer demands and needs.

2. Intellectual resources

These are non-physical, intangible resources like brand, patents, IP, copyrights, and even partnerships. Customer lists, customer knowledge, and even your own people, represent a form of intellectual resource. Intellectual resources take a great deal of time and expenditure to develop. But once developed, they can offer unique advantages to the company. Nike and Sony are heavily dependent on their brand to sell their products to a customer segment that is devoted to the brand. Similarly, Microsoft and Adobe rely on software that have been tweaked and perfected over years of trial and error. Some businesses have very strong intellectual resources. Google is currently buying a patent library from Nortel to boost up its intellectual resources.

From the years 2000 and 2012, companies have increasingly realized the significance of intellectual resources. This can be seen through the visible increase in patents being filed in the United States. The number of patents filed by Google between 2011 and 2012 grew by  170%. Apple’s patents grew by 68% in the same time period. Hence, companies have started to see patents as a major driver of their business and growth.

3. Human resources

Employees are often the most important and yet the most easily overlooked assets of an organization. Specifically for companies in the service industries or require a great deal of creativity and an extensive knowledge pool, human resources such as customer service representatives, software engineers or scientists are pivotal.

FedEx truck drivers are the human resources that combine with the physical resource, such as the trucks to create deliver the product to FedEx customers and create the signature FedEx experience. Novartis, the pharmaceutical giant, is highly dependent on its team of top scientists, as well as its highly qualified sales force to create and sell its medicines to doctors. Similarly, UBS Wealth Management is one of the premier banks in the world, but without its team of refined and knowledgeable bankers, UBS would fail to garner the same customer reviews and satisfaction as it does currently.

4. Financial resources

The financial resource includes cash, lines of credit and the ability to have stock option plans for employees. All businesses have key resources in finance, but some will have stronger financial resources than other, such as banks that are based entirely on the availability of this key resource. Similarly, China Life insurance sells insurance to its wide customer base. However, if China Life Insurance does not have sufficient capital to cover insurance claims, it will not be able to survive in the market.

For a car manufacturer, the physical resources are in the facilities such as assembly robots. Another key resource could be intellectual property such as patents and even customer intelligence. The latter would come in very handy specifically knowing their preferences when you want to offer repeat customers special discounts and deals. For car manufacturers, designers would be a key human resource. In terms of financial resources, a manufacturer will require capital to invest in infrastructure and inventory but can additionally also be used to provide customers with the option of buying cars on lease or taking out a loan on better terms than those provided by banks or other financial institutions.

KEY RESOURCES AND VALUE PROPOSITIONS

The quality and nature of an organization’s key resources command how well the same organization is able to fulfill its value proposition. For example in the case of a car manufacturer, if the value proposition is a long-lasting vehicle with sustainable quality, by providing a financing option, you can ensure that your customer segment who values a long-lasting vehicle but can’t afford it and must therefore go for a cheaper option, can still purchase your product. Similarly, the top designer in your company doesn’t just have functional value but also value in terms of how customers and competitors view you and your product. Hence, if Jonathan Ive leaves Apple, it would impact how consumers and competitors view the products of Apple. Nothing is a key resource in itself but is always serving a particular aspect of your total value proposition.

KEY RESOURCES ACCORDING TO TYPES OF BUSINESSES

The business model canvas stipulates that all businesses can be categorized into three types. All three of these categories contain businesses with similar key resource requirements. Thesethree categories are Product Driven Businesses, Scope driven Businesses and Infrastructure Driven Businesses.

Product Driven Businesses

These are companies that focus all their functions on the creation and sale of a product. This product has unique characteristics and a customer segment willing and eager to purchase it. Key resources for such businesses are intellectual and human; since typically these organizations have intellectual property and expertise in their particular industry and niche. Rovio is the creator of the famous mobile game called Angry Birds is one such example.

Scope Driven Businesses

These are dedicated to providing a value proposition to a particular customer segment. An organization aiming to specialize in being the IT provider to all Law firms within an area would fall under the banner of a Scope Driven Business. Such businesses have key resources in their well-developed intelligence about their target customer segment, an established set of processes and in some cases infrastructure such as specialized service centers.

Infrastructure Driven Businesses

These, as the name suggests, achieve profitability through leveraging their developed and implemented infrastructure. The telecommunications industry invests heavily in developing the telecommunications infrastructure in a country and then reaps the rewards for years with only minor investments to keep their systems updated. Retailers are also infrastructure driven businesses because they depend primarily on their established infrastructure to sustain their profitability in the long-term.

Common Mistakes

Many entrepreneurs when evaluating what the key resources should be for their business fail to think strategically. Instead, they come up with generic resources that would be common in any business in the industry they are operating in. It is imperative at this point to do an evaluation of each of the key resources listed on the canvas and check whether the resource mentioned is essential to the success of the business or not. For example, talented human resources are a necessity for most businesses but one needs to ponder on whether they form the very building block upon which the success or failure of the company depends on.

CASE STUDY

VISA cards

VISA is a technology company providing payment solutions to banks globally. VISA itself does not provide financial assistance or lines of credit to customers. Instead, it provides banks and other financial institutions with an “Open Loop Payments Network” that provides a medium of communication and sharing of information between different companies across industries.

VISA provides value to cardholders by giving them a safe, secure and convenient way to make transactions. Merchants are able to provide their customers with added convenience when they accept VISA cards and banks charge fees for the use of the card, as well as transaction fees and late payment fees. VISA does this through utilizing its key resources such as the global processing infrastructure that the company has built over many years. This infrastructure consists of geographically dispersed processing centers that are linked to each other and which are programmed to minimize redundancy. VISA operations focus heavily on managing and maintaining this infrastructure because it is key to providing VISA customers with security, convenience, speed, and efficiency.

Eco-tourism

Let us consider an entrepreneur who has inherited some wooded natural land. This land, however, was given to him under certain stipulations such as he cannot cut down the trees and use them for timber or make major changes to the landscape. However, the entrepreneur, after much consideration came up with an idea that could provide him with a viable business opportunity while respecting the stipulations the land came with. He decided he could use the land for team retreats and adventure courses, like the ones favored by middle managers of major corporations.

However, to attract this kind of a customer segment the entrepreneur will need to install cabins and create extensive adventure courses. These are all value propositions that are capital-intensive, and the entrepreneur doesn’t have the resources to build these amenities.

Considering how he could acquire these key resources and build the business he was dreaming of, the entrepreneur decided to target another customer segment. He began to market to eco-tourists who revel in natural, untainted land, a key resource he has in abundance. Eco-tourists do not have a lot of money but the entrepreneur can offer hands-on sustainable housing and organic farming opportunities, which the eco-tourists would be happy to provide free labor for since it would give them the chance to practice skills in an environment they would not normally have access to. In this way, they would output the very resources that would form the value proposition for the team-building activities of the entrepreneur’s main customer segment; the corporate middle manager. Hence, the entrepreneur can use key resources he currently has to service a secondary customer segment, which would then put him in the position to obtain resources that would attract his primary customer segment.