Value proposition canvas

Revision as of 21:10, 26 February 2018

In order to provide customers with good service and valuable products, an organization should define their value propositions for their projects. In order to create successful projects a project manager must use his skills and knowledge to plan projects and create project plans to meet the project and product requirements by the customers ^[1]. The value propositions set by the organization for their specific products can guide the project managers to develop project plans that satisfy their customers and provide them with valuable products. The Value proposition canvas is a tool that can be used in order to solve the problems of specific customer segments and fulfill their needs by providing products and services that creates value for the customer. The value proposition should be designed with benefits in order to attract customers and make them choose one company rather than its competitors ^[2]. The project manager has to make sure that the value proposition and customer profile complement each other so that the customer segment is provided with the right products/service and that the customer’s pains are met with the right pain relievers ^[3].

This article will describe the value proposition canvas and the importance of choosing the right value proposition. The relation between project management and the canvas will be described along with how the canvas can be used to satisfy customers and stakeholders.

Description

^[4]The image illustrates the 9 building blocks of the Business Model Canvas. The Customer Segments and Value Propositions blocks are used in the Value Proposition Canvas. The image is from Value Proposition Design by Alexander Osterwalder et al.

^[5]The image illustrates the Value Proposition Canvas. The model is split into two parts: The value map (left) and the customer profile (right). The image is from strategyzer.com.

Project management is using tools, skills and knowledge in order to meet project requirements and can be done through project management processes ^[6]. In project management a project manager must use his skills and tools in order to meet project requirements as well as the wants of customers/stakeholders. Project management can be categorized into five process groups: Initiating, Planning, Executing, Controlling and Closing. In the initiating process group the scope of a project and stakeholders/customers are identified. The needs and expectations of the stakeholders are identified. A project manager must communicate with stakeholders in order to analyze their needs and concerns ^[1].. The project manager can use the Value Proposition Canvas as a tool to understand and analyze the stakeholders.

Identifying and choosing the value propositions are an important part of creating value for the customers and stakeholders. However, it is not enough to only design the value propositions, it is also important to integrate a business model in order to create value for the organization. The Business Model Canvas can be used for this purpose. ^[2].

Business Model Canvas

^[2]. A business model is game plan for implementing strategies through organizational processes and systems. The Business Model Canvas consists of 9 building blocks and can be used as a tool to describe how an organization creates and delivers value. To quickly sum up the Business Model Canvas:

• Customer Segments: Group or people that the organization wants to create value for with value propositions

• Value Propositions: Products or services that creates value for a particular customer segment

• Channels: How value propositions are delivered to a customer segment

• Customer Relationships: Establishment of relationship with particular customer segments

• Revenue Streams: Result from successfully delivered value propositions to customer segments

• Key Resources: Required assets to provide the elements described above.

• Key Activities: Important activities that the company must execute well.

• Key Partnerships: External suppliers and partners

• Cost Structure: Cost to meet a business model

The left side of the Business Model Canvas concerns the organization (internal), while the right side concerns the customers (external). Both the internal and external forces meet around the value propositions. In the Value Proposition Canvas the two blocks Customer Segments and Value Propositions are used to describe how the organization creates and exchanges value with the customers/stakeholders^[2].

Value Proposition Canvas

Alexander Osterwalder describes the Value Proposition Canvas as a 'Plug-in' to the Business Model Canvas allowing the project manager to zoom in on how to create value for the customers. ^[3]. The Value Proposition Canvas looks at two parts - the value proposition map and the customer segment map. The value map describes how the project manager intends to create value, while the project manager shows their understanding of their customers in the customer profile.

The value proposition can be split into: Products & Services, Gain Creators and Pain Relievers.

• Products & Services: The bundle of products and services that the value propositions are built on and that the organization offers their customers in order to satisfy their needs.
• Gain Creators: How the products or services benefits the customers. It describes how the project manager plans to create gains for the customer.
• Pain Relievers: How the products or services eliminate the potential pains or annoyances the customer might have. Details how the project manager will remove pains.

The customer map can be split into: Customer Jobs, Gains and Pains

• Customer jobs: Describes the tasks that the customers try to finish, problems they try to work out or needs to satisfy. The project manager has to use the customer's perspective when analyzing the jobs.
• Gains: The benefits the customers wishes to see.
• Pains: The challenges the customers face when getting a job done. The project manager must identify the pains and its severeness in order to produce pain relievers-

When the value proposition map and customer segment map meet each other, the project manager achieves a fit. The project manager achieves a fit when customers are satisfied with the value propositions, which focuses on important customer jobs, relieves extreme pains and creates fundamental gains^[4][3]

Application

After designing a value proposition that seems promising for the customer, the project manager must test it. It is important to test the value proposition in early stages in order to make adjustments and improve the value proposition. The project manager must decide whether the services or products that the customer wanted has been delivered and whether they've achieved their benefits and had their pains alleviated. The project manager must remember that the customers may have several pains and it is not possible to relieve them all - he must focus on the most severe ones. Similarly, the project manager may not be able to provide all of the services or products that the customer expect and must therefore focus on the most crucial gains for the customer ^[7]

The steps for creating value propositions that create value for the customers:

• Outlining value propostion: The project manager must fill out the canvas. The products or services that the organization will provide to their customers must be clarified and the project manager must illustrate how he will create gains and alleviate the pains of the customer.
• Testing customer assumptions: The project manager must communicate with the customers in order to verify whether the Customer Jobs described in the Value Proposition Canvas actually are important for the customers. He must determine whether the customer desire the Gains the project manager has described and whether the customer actually faces Pains that are detailed in the canvas. The project manager can check his customer assumptions by eg. interviewing customers.
• Adjustment of value proposition canvas: Once the project manager has gained insight on his customers and has verified whether his assumptions are correct, he must re-visit the canvas. The project manager has to clarify the pains and gains to focus on and adjust the value proposition to match this.
• Testing the value proposition: The project manager must test the value proposition together with the customer step-by-step in order to achieve a fit between the value proposition and the needs of the customer. It is up to the customer to decide whether the value proposition creates value for his business and fulfills their needs. ^[8][4][9]

Example: Tesla

Tesla produces electric cars. When Tesla set their value proposition for producing their electric cars, the jobs that had customers wanted was comfortable travel as well as portraying success and uniqueness. Some of the pains that customers had with electric cars was weak batteries and lack of charging stations for their cars and having to charge their cars often. The gains that the customers expected to see was high-tech, well-designed cars with strong batteries. Tesla managed to create a fit between their customer segment and their value proposition. By providing beautiful and high-performing cars with well-functioning battery technology, they managed to satisfy their customer's needs. Adding an 8 year-old battery warranty also created a pain reliever next to producing the cars. ^[7]

Common Mistakes

There are several common mistakes that the project manager has to avoid when designing the value proposition. Some of the most common mistakes that can occur:

• Looking at Value Proposition as one building block: It is important that the project manager sees the Value Proposition Canvas as two separate blocks - the Value Map and the Customer Profile. The Customer Profile is what the project manager uses for assesing the customer segment while the Value Map is what the project manager will design for the customer segment.
• Mixing customer segments into one canvas: Mixing all customer segments in one canvas should be avoided. Instead the project manager should create a value proposition canvas for each specific customer segment.
• Creating the Customer Profile while having the value proposition in mind: The project manager should look from the customer's point-of-view. Rather than presenting products/services that they see value in themselves, they should address what the customer wants.
• Solely focusing on functional jobs: The project manager should not only focus on functional jobs but also remember social or emotional jobs. For an example wanting to gain status or impress others.
• Trying to undertake all of the customer's pains and gains: It is unrealistic to undertake every possible pain or gain that the customer may have. The project manager must choose which pains and gains to focus on and pass up.

Avoiding these common mistakes will help the project manager creating value propositions that the customers will appreciate ^[10]

Further Reading

Alexander Osterwalder & Yves Pigneur: Business Model Generation, 2010

• Learn about the Business Model Canvas to learn about creating value and improving organizations. The book describes how to use business model in order to position an organization in a competitive advantage and re-designing an organization's business models.

Alexander Osterwalder et al.: Value Proposition Design, 2013

• Learn about creating desirable products for customers and the processes and tools in order to create and sell the products.

Office Of Government Commerce: A Guide to the Project Management Body of Knowledge (PMBOK® Guide), 2013

• Learn about fundamental practices that drives businesses and that reflects the current industry knowledge and practises.

References

1. ↑ ^{1.0 1.1} Office Of Government Commerce, A Guide to the Project Management Body of Knowledge (PMBOK® Guide), 5th Edition, 2013
2. ↑ ^{2.0 2.1 2.2 2.3} Osterwalder, Alexander and Pigneur, Yves, Business Model Generation, 2010.
3. ↑ ^{3.0 3.1 3.2} https://lederindsigt.dk/vaerktoejer-skabeloner/strategi-og-forretningsudvikling/value-proposition-canvas/
4. ↑ ^{4.0 4.1 4.2} Alexander Osterwalder et al., Value Proposition Design, 2013.
5. ↑ https://strategyzer.com/canvas/value-proposition-canvas/
6. ↑ https://sd-ds-dk.proxy.findit.dtu.dk/Viewer/Standard?ProjectNr=M268368&Status=90.20&VariantID=46&Page=0
7. ↑ ^{7.0 7.1} http://designabetterbusiness.com/2017/10/12/how-to-really-understand-your-customer-with-the-value-proposition-canvas/.
8. ↑ https://www.toolshero.com/marketing/value-proposition-canvas/
9. ↑ http://businessmodelalchemist.com/blog/2012/09/test-your-value-proposition-supercharge-lean-startup-and-custdev-principles.html
10. ↑ http://blog.strategyzer.com/posts/2015/2/19/5-common-mistakes-to-avoid-when-using-the-value-proposition-canvas