Value Proposition Canvas

Latest revision as of 18:29, 16 November 2018

Developed by Walther Emil Eriksen

[edit] Abstract

An important aspect of project management is stakeholder management which contains many different tools and theories. An essential part of this management is the alignment of stakeholder expectations with project deliverables. The reason behind a project initiation is a business case. These business cases are based on needs from stakeholders such as customers/users. Users are the persons or organizations who will use the project's product, service, or result.^[1] To make sure the project is a success the needs of users must be thoroughly understood. As an example a consulting company can have the government as a client on a project, but the users of the project outcome are the citizens. No matter how succesful the government finds the project, it can all go to waste if the users are not satisfied. A tool for analysing these needs is the Value Proposition Canvas. The canvas assesses two different aspects:

1. The internal organizational side containing which products and services the organization will provide to the user.

2. The external user side which represents the user needs in form of pains of status quo and gains of project success.

The project manager can use the tool to analyse and connect these two aspects to make sure that all needs of users are satisfied as well as being differentiated by bringing gain creators to the users.

Table of content:

• Big idea & project management relation: The general idea behind the Value Proposition Canvas model is described in relation to the work of a project manager.
• Application: The theory behind the Value Proposition Canvas is outlined and how the method is used in practice according to the inventor of the canvas Alexander Osterwalder ^[2]. Relation to the Business Model Canvas is assessed.
• Limitations: Limitations and common missteps when conducting the Value Proposition Canvas can be found in this part.

[edit] Big idea & Project Management relation

The Value Proposition Canvas model is a great tool for the project manager in the initial phase of a project life cycle where the project's stakeholders are mapped. Since the expectations of stakeholder groups will differ, it is not unusual for conflict to exist regarding the importance or desirability of aspects of strategy. ^[3] An important step is therefore the identification of the relevant stakeholders and their expectations. Two main stakeholders are always the users of project outcomes and buyers/customers the project manager works with. It is important to distinguish between the two types of stakeholders, and even to differentiate within one type of stakeholder. If there are relevant differences between different user groups it is important to address them separately because they may have different needs, aspirations, abilities or expectations.^[4] The Value Proposition Canvas can help the project manager in understanding these different needs and expectations, and how the project can satisfy them. The canvas will help creating a strategic alignment of value between users and the project outcomes. The finalized value proposition can be used when conducting a business model for the whole project and can lay the groundwork for value creation.

To demonstrate the method used in a case study, this article will use an example from a consultancy firm called Niras conducting a project for the Government of South Sudan. The project has a large scope and spans over several years and is still ongoing ^[5]. The main goal is the improvement of water resource management and sanitation, to bring clean drinking water to the citizens of South Sudan. The company has helped over 135.000 citizens getting access to clean water. This is a result of great initial analysis of the situation, assessing all the relevant stakeholders and working with local security and institutions to realize value to the users. The project has run into several problems in regards to the turmoil in the country and problems with lack of infrastructure. However, the project manager has been succesful in creating great value for the citizens as well as training the Government officials to make a sustainable long term solution.

[edit] Application

[edit] Business model relation

As projects can be seen as temporary organizations, the project manager can use a tool for business creation; The Business Model Canvas. The business model describes how an organization creates, delivers and captures value. This relates to a project as the project manager has to make sure to deliver value to the customer while sticking to a budget. The business model canvas consists of two sides; The internal side and external side. ^[4]

Business Model Canvas, adopted from Business Model Generation.^[6]

Internal:

• Key Activities: Activities which are essential for customer satisfaction.
• Key Partners: Activities can be outsourced to or conducted in collaboration with partners who have the needed capabilities.
• Key Resources: Resources required to run channels and activities.
• Cost Structure: All previous elements result in costs for the organization.

External:

• Customer Relationships: The organization will have different customer segments, and a different relationship with each of these. These relationships need to be established and maintained.
• Channels: To deliver value to the customers distribution, communication and sales channels need to be established.
• Revenue Streams: Relates to how the organization is going to earn revenue. The project manager needs to think about budget and cash flow throughout the project life cycle.
• Customer Segment: Before conducting the Value Proposition Canvas analysis, a decision has to be made on which customer segment to address. Customers/users can be part of a mass market, like in the South Sudan case where the users are all citizens in the country. They can also be part of a niche market where user needs and expectations can be very specific. Customer/user groups can consist of different segments, this is the case if:

1. ^[6]Their needs require and justify distinct offers

2. They are reached through different channels

3. They require different relationships

4. They are willing to pay for different aspects of the offer

• Value Proposition: The value proposition is the reason why companies are succesful and why customers turn to their products. When a customer segment is chosen, an in-depth analysis of connecting the segment to the value proposition can be done using the value proposition canvas.

The Value Proposition Canvas is a tool which is used when addressing the Value Proposition and the Customer Segment areas of the Business Model. These two areas are essential when conducting the rest of the business model as every other area of the organization will be working towards delivering value to a distinct customer segment and will be shaped accordingly.

[edit] Value Proposition Canvas

Value Proposition Canvas, adopted from Strategyzer.com ^[2]

Customer segment: The focus on the customer segment side is on why; why is there a need for a project initiation?

Customer job(s): The customer job(s) assess what the customer want to do, which actions or tasks does the customer or user want to perform. In the South Sudan case the users have a very basic customer job in the accessibility of clean drinking water.

Pains: The pains tell which negative effects the user is experiencing for status quo. This can be a result of competitors lacking the necessary capabilities to offer a proper product or service. It can also be a result of users not having access to any products or services to fulfil their customer job. The project manager must acknowledge these customer pains, in order to identify the benefits project outcomes need to incorporate. ^[4]

Gains: Unlike pains, gains are not factors which are clear for the user. These are factors that the user is not necessarily expecting of a product or service, but are extra benefits supplied. Gains are not essential for project success, but rather an area where project managers can differentiate their project outcomes. In the South Sudan case the gains delivered came in form of education in hygiene, local training of staff and clean toilet facilities. Instead of only providing clean drinking water, the consulting company provided extra features, which the company differentiate itself in the highly competitive market of consultancy.

Value proposition: From the customer segment side to the value proposition the focus changes from why to what and how; what will the project deliver and how will the project deliverables satisfy customer needs?

Products & services: Outlines the products and services the project outcome is built around.

Pain relievers: Pain relievers are ways of removing the customer/user’s pains. These deliverables are essential for user satisfaction. The pain relievers are not always in form of products and services, but can be features of these deliverables that solves customer/user pain of status quo. Niras conducted construction work to create improved water wells for local communities in need as well as using local companies for maintenance for a sustainable solution.

Gain Creators: The gain creators are deliverables creating the extra gains for the customer/user. In the South Sudan case this was enabled by creating education and training programs, spending extra resources to create the extra value for the users.

[edit] Value canvas in practice

According to Alexander Osterwalder, founder at Strategyzer.com and inventor of the Business Model Canvas and Value Proposition Canvas ^[2], these are the steps to create a meaningful Value Proposition Canvas in practice: ^[7]

Value Proposition in practice, adopted from Alexander Osterwalder.^[7]

Create Value Proposition Canvas: Starting the creation of a Value Proposition, the project manager can assemble the management team for a workshop. The team will brainstorm ideas and fill out the value canvas with the areas described, this will be based on initial market analysis and assumptions made by the project management team. This will be a subjective guess on who customers/users are and what they need. Several different Value Canvas can be conducted and further analysed.

Test your customer assumptions: To have a useful canvas a lot of customer/user input is needed. The initial assumptions need to be tested with the customers in order to determine which customer jobs are essential and to quantify which customer pains are most severe. This practice can be done using interviews and market surveys.

Adjust assumptions and redesign canvas: After customer/user testing has been conducted the assumptions can be adjusted and Value Proposition Canvas redesigned. According to Alexander Osterwalder it is important to be as focused as possible. It is not necessary to address all customer/user pains, but useful value proposition can address a few really well.

Test with customer: To finalize the value canvas testing with the customer/user is continued. This process can reoccur until the project manager has achieved a fit between the value proposition and customer/user expectations.

[edit] Limitations

The main limitation of the Value Proposition Canvas is managers interpretation of how to use the tool for their project or business. Listed below are some of the common mistakes and limitations related to the Value Canvas method according to Alexander Osterwalder.^[8]

1. Not looking at the Value Proposition Canvas as two separate building blocks: It is important for the project manager to distinguish between the two sides of the value canvas, which many people can struggle with.

2. Mixing several customer segments into one canvas: Mixing customer segments will create a chaotic analysis since they will have different customer jobs, pains and gains, hence the project manager will lose focus in terms of where to create value and to whom.

3. Creating your Customer Profile through the lens of your value proposition: The first step of creating the value proposition based on initial customer assumptions has a high level of bias. Project managers can create a perfect picture of the customer/user's needs that fits the project they want to deliver, but in reality the needs can be completely different, hence the canvas will need more adjustments and testing.

4. Only focusing on functional jobs: Functional jobs are the easiest to acknowledge, like people wanting to drink clean water, but there are often many more customer jobs. These can be social jobs such as being healthy and having high living standards.

5. Trying to address every customer pain and gain: If the project manager can't decide on a focus for the project deliverables, the quality of these can decline if the goal is to address every customer/user pains and gains.

6. Difficulty of data collection: The Value Proposition Canvas relies on customer insights. Collecting this data can be a difficult task. Interviews and surveys has to be done without forcing any bias on the customer, and can be very time consuming. Conducting customer surveys for a large segment is a very inflexible way to collecting data, and is not guaranteed to supply useful insights. ^[9]

[edit] Annotated bibliography

[1] A Guide to the Project Management Body of Knowledge The book is a standard on project management and covers all the major aspects within the area. A big part of the Value Proposition Canvas is understanding stakeholders and how to address them. The standard covers this area and is a great way to get research-based knowledge on the area of stakeholder management.

[2] Fundamentals of Strategy Strategy is crucial for any organization, and managers take big part in shaping, implementing and communicating strategies. The book provides in-depth concepts and tools for strategy creation. It also provides insight on how to understand markets and customer segments, in order to create a coherent strategy. The book can help a project manager understand the users and how to differentiate from competitors on the market.

[5] https://strategyzer.com To learn more about using the Value Proposition Canvas or the Business Model Canvas in practice, Strategyzer.com provides online courses and guidelines for the latter. The people behind Strategyzer are the inventors of the methods and have also authored the Business Model Generation book. The website provides free templates for the Value and Business Canvas.

[8] The Theory and Practice of Change Management Is a book providing guidelines on how to manage change within organizations. It provides tools for structuring of change, as well as guides on how to act as a project manager when addressing different stakeholders and when gathering information from these. The theories included are research-based and the book provides case studies to show how theories and models can be applied to real life challenges.

[edit] References

1. ↑ Project Management Institute, (2013) A Guide to the Project Management Body of Knowledge (PMBOK® Guide), Fifth Edition
2. ↑ ^{2.0 2.1 2.2} https://strategyzer.com/
3. ↑ Johnson, Gerry. (2015) Fundamentals of Strategy, Third Edition
4. ↑ ^{4.0 4.1 4.2} den Ouden, E. (2012) Innovation Design. Springer
5. ↑ https://www.niras.com/development-consulting/projects/water-for-eastern-equatoria-prowasssn-ees
6. ↑ ^{6.0 6.1} Osterwalder, Alexander and Pigneur, Yves, (2010) Business Model Generation.
7. ↑ ^{7.0 7.1} http://businessmodelalchemist.com/blog/2012/09/test-your-value-proposition-supercharge-lean-startup-and-custdev-principles.html [Accessed 02-17-2018]
8. ↑ http://blog.strategyzer.com/posts/2015/2/19/5-common-mistakes-to-avoid-when-using-the-value-proposition-canvas [Accessed 02-16-2018]
9. ↑ Hayes J. (2014) The Theory And Practice Of Change Management, Fourth Edition