2015 Agile Conference

A Lean Design Methodology for Business Models and Its Application to

IoT Business Model Development
MASAHIRO IDE YUKIO AMAGAI MIKIO AOYAMA, YASUHIRO KIKUSHIMA
Qunie COPRATION Nanzan University Qunie COPRATION Nanzan University
Tokyo, Japan Nagoya, Japan Tokyo, Japan Nagoya, Japan
idem@qunie.com amagaiy@qunie.com mikio.aoyama@nifty.com, y-kiku@ark.ocn.ne.jp

Abstract— We propose a lean design methodology for business III. RESEARCH QUESTIONS
models, which repeatedly design business-model hypotheses in We set the following two research questions in developing a
researching manner; moreover, with which corporate businesses
lean design methodology for business models.
can create new business value utilizing IT. Both analyzing business
value that IT creates, and designing business models which • A method converting IT into business value
repeatedly provide the business value will be possible. We applied • Lean design method for business models based on a value
the proposed method onto IoT utilizing sensing technology and converted from IT under the uncertainty.
GPS, and evaluated its effectiveness.
Keywords- Business Model Design; Business Modeling; Business IV. LEAN BUSINESS MODEL DESIGN METOHODOLOGY
Model Canvas; Lean Startup; IoT A. Framework of Lean Design Method for Business Models
The business model in this article aims to create a new value
I. I INTRODUCTION utilizing IT, and to achieve a business goal which a corporation
has set. Based on the principles of separating concerns, we
In today’s business environment of rapid change, it is difficult
classify the business model concerns into a business architecture
to design a business model in the waterfall development process.
and a system architecture, as illustrated in Fig. 1. This enables to
We believe business model design requires a new value-leading
grasp the requirements comprehensively.
approach, which is to specify a value-producible IT by
conducting continuous evaluation and learn in a short period, and B. XBMC and SMC
that business model to fit into the business environment and We proposed XBMC (eXtended BMC) and SMC, a set of
gradually get closer to the business goal. In this article, we visualization models for a business architecture and a system
propose a lean design method for business model as a new-value- architecture, respectively [2]. XBMC extends the BMC, and
creating business model design method, utilizing IT based on this specifies the business architecture concerns and relationship with
approach. We apply the proposed methodology to IoT (Internet the business goals (Fig. 2). The business goal can be resolved
of Things) [5] business model design, and evaluate its into the business value goal, profit goal, and cost goal [3]. And
effectiveness. each goal will be related with XBMC.
As a counterpart of XBMC, we proposed SMC (System
II. RELATED WORKS Model Canvas) which enable a relationship with the system goal
A. BMG (Business Model Generation) (Fig. 3). The system goal can be resolved into the entities of the
BMG is proposed as a business model development system-value goal, system-profit goal, system cost goal, and each
methodology [6,8]. As one of the BMG techniques, BMC goal will be related to the entities of SMC.
(Business Model Canvas) is used. BMC is composed of nine C. Lean Design Process for Business Models
blocks which covers four areas of customer, value proposal, To design a business model in the business environment of
infrastructure and funds. In BMC, however, it is difficult to rapidly changing, it is difficult to predict a business model and its
conduct visualization and analysis in a concrete way. prospective value due to a lot of uncertain factors. It is inevitable
B. Lean Startup to repeat trials and errors. As for business model design, we take
Lean Startup is a methodology to develop a business in an approach to extend the lean concept of repeating trials and
phases; it repeats a cycle of building and verification in a short Business Goal Graph Business Goal
Meet Meet
period [8]. It suggests to create an MVP (Minimum Viable Cost Objective
Meet
Business Value Revenue Objective
Product) in order to conduct verification through the feed- XBMC Business Business Activities Customer Relations Business
backing loop of BML (Building, Measurement, and Learning); Partner Business Customer
Business Resources Value Business Channel Segments
and repeats improvement. However, it does not provide a design Cost Structure Revenue Stream
method targeting a business model.
Fig. 2. XBMC
Business Goal (Soft Goal) System Goal (Soft Goal) System Goal Graph System Goal
Contribute Meet Meet Meet
Meet Meet
Business System System Cost Objective System Value System Revenue Objective
Business Value(Hard Goal) Require- System Value(Hard Goal)
Architecture ments Architecture
generate generate SMC
System System Development System System Utilization Scenario System
Business Scenario(Behavior) System Scenario(Behavior) Development
Enable System Resources Value System Channels Users
utilized utilized Partners
Business Model(Structure) System Model(Structure) System Cost Structure System Revenue

Fig. 1. Framework for IT-Driven Business Model Design Method Fig. 3. SMC

978-1-4673-7153-7/15 $31.00 © 2015 IEEE 107

DOI 10.1109/Agile.2015.8
errors in the short period, and design a business model hypothesis method for business models. The SN (Seeds-Needs) matrix is a
which gets closer to the business goals, and refines the business basis for the SN conversion method. Therefore, in lean business
model. model design, we call it IT value matrix. As illustrated in Fig. 6,
Based on this approach, we propose a lean design method for it presents a chain formed by IT, IT-
business models with the Lean Startup [7] as the basis. Fig. 4 providing function, system value 䃂
File Data Compression 䃂

Music listening 䃂 䃂
shows the process for the lean design method for business created by the function, and business Mobile Site Reading 䃂 䃂

models. It is composed of two-layer design processes; the initial value created by the system value. Data Communication 䃂 䃂 䃂

Technology
Compression
Mobile Phone
Mobile Network

Communication
Anyplace Data
of Selected Music File
Real Time Distribution
business model design elevating the business model hypothesis, IT value matrix can analyze Function

and a detailed business model design which refines the business functions from the extracted IT, IT, System
model hypothesis in phases for actual construction. These phases IT System Value
extract system value from the Business
are conducted by repeating business value extraction utilizing the Value
structural analysis of the functions,
targeted IT; hypothesis creation which creates the business value; Download and Enjoy Music
䃂 䃂 䃂 䃂

and evaluation. The design process reduces the design cost, and and business value from structural Anytime Anywhere

enables to design a business model with agility, which achieves analysis of the system value. Fig. 6. IT Value Matrix
the business goal. 2) Value Conversion Process from
IT
D. IT Value Conversion by Initial Value Analysis
Fig. 7 shows IT value conversion process using IT value
The initial value analysis of initial business model design is a matrix. It converts IT into value by repeating tasks shown in the
process which converts an IT into value (Fig. 5). It is conducted
figure. It repeatedly converts IT into value by extending IT value
by extracting a targeted IT in a business model, and by specifying
matrix. In order to terminate the conversion process, we
a system value and a business value for utilizing the IT. This
initial value analysis enables to analyze the IT which a business evaluate the contribution level of both system goals and business
model to be input for business model design, and the business goals.
value created by utilizing the IT. 3) Design of Business Model Hypothesis
1) Framework Converting Value from IT Design a business model hypothesis so that it can create and
As a converting method of a business model utilizing IT into provide system value and business value, extracted in IT value
business value, we extend the idea of SN matrix (Seeds Needs matrix during the IT value conversion process.
matrix which is a technique of the SN conversion method for a) Design of Business Model Hypothesis: Based on the system
drawing ideas in product development. The SN conversion value extracted in IT value matrix, it designs a system
method converts the seeds of the product engineering architecture using SMC.
characteristics into the merits and/or functions to make it value b) Design of Business Architecture: Based on the business
for customers, and extracts new needs of customers, in a value extracted in IT value matrix, it deigns a business
repeated way. As for the converting seeds to needs in the SN architecture using XBMC.
conversion method, we set IT as seeds and needs as a business
value. Thus, we applied the SN conversion method as a value V. APPLICATION TO IOT BUSINESS MODEL DESIGN
conversion method from IT to the value of the lean design A. Outline of Application
Detail Business Model Design Initial Business Model Design
•Business Sub Goal Business Model •Business Sub Goal
•System Sub Goal
We applied the proposed methodology to designing a
•System Sub Goal Hypothesis
•Business Architecture (XBMC)
•System Architecture (SMC)
•Utilized IT
•Business Value (Hypothesis)
business model using IoT [5] in a machinery manufacturer
Learn
•System Value (Hypothesis)
Design company in Japan. From this experience, we demonstrate the
Detailed
effectiveness of the proposed methodology.
Detailed Design
in Phase •Business Goal •Business Architecture First, we applied the initial business model design process to
Contribution Degree Search Type (XBMC)
Type
•System Goal
Contribution Degree
Repeating •System Architecture
(SMC)
the business models, and, designed a IoT business model
•Business Goal Graph
•Business Goal Graph
Evaluation
hypothesis for after-sales services of machines.
•Business Architecture (XBMC)
•System Architecture (SMC) The machinery manufacturer company is intended to create a
new business model utilizing IoT in after-sales services which
Fig. 4. Two Layered Lean Design Process of Business Models
Business Vision Business Goal Analysis System Goal Analysis (1) Extract and List IT IT
Initial
Goal Analysis Resolution into Business Sub Goal Resolution into System Sub Goal
(2)
ᯏ⢻䋲Get and List Idea for
(2) Get and List Idea for Realizable Realizable Function
Realizable Function Function
ႎᛛⴚ乏

䷶䷸丅丟ଔ୯乏

Initial Value Analysis IT IT Value Conversion

(3) Get and List Idea for System System Value Function
Composition of XBMC Composition of SMC Value (1) (3) Get
Design Business Architecture System Architecture
Initial Business Extract and List
(4) Evaluation of System Value’s Reviewed IT, System Idea for
Model Design Evaluation Evaluation on XBMC Evaluation on SMC
and List
Contribution Degree to System Goal System Value IT System Value System
Review of Business Goal Review of System Goal IT Business Value
Learn (5) Get and List Idea for Business
Review of IT Value Conversion Business Value Value Value

Detail Expansion of Business Strategy Goal Graph Expansion of System Strategy Goal Graph (6) Evaluation of Business Reviewed (5) Get and List Idea
Value’s Contribution Degree to Business for Business Value
Business Expansion of Business Architecture Goal Graph Expansion of System Architecture Goal Graph
Model Business Goal Value
Design Composition of Business Architecture by XBMC Composition of System Architecture by SBMC
Fig. 7. IT Value Conversion Process
Fig. 5. Lean Design Process for Business Models

108
provides value for a customer using the machines. For staffs in
charge of the after-sales services, the new business model is
expected to utilize IT including GPS, sensing, mobile network,
and data analyzing technique. The after-sales services aim to
realize the business vision of the company; “total value chain
support for the customers who buy and use the machineries”.
The following five points highlight this case.
1) The refinement of business goal and system goal which the
business model must achieve out of the business vision
2) Extract IT candidates, and extract system value and
business value that can be created by the IT
3) Design a system architecture which can continuously create
and provide the extracted system value
4) Design a business architecture which can continuously
create and provide the extracted business value
5) Evaluate the business architecture and system architecture
on the designed business model hypothesis
B. Business Model Design
1) Business Model Design Method
As for IT utilized in business model design using the IT
value matrix, we applied a brainstorming technique at the
beginning. It was limited only for getting initial ideas. We
thought it would be important to provide a place for discussions
and collaboration among stakeholders in order to extend the idea,
and to produce innovative ideas. In this case, the business
design team consisted of five people, including one facilitator
and four stakeholders (Fig. 8).
2) Refinement of Business Goals and System Goals from the
Business Vision
To define a business goal, we resolve the business vision of a
machinery manufacturer company using goal analysis. First, we
set the machinery manufacturer’s business vision, “support
customers’ value chain in total,” as the top strategic business
goal (Fig. 9). Then, we defined the business goal, “extend the
service business sales value, and bring up service sales ratio”.
We further refined the
business goal into three sub-
goals:
a) Profit goal: “bring up
the service sales”,
b) Cost goal: “bring up the
service profit ratio”, and
c) Business value goal:
Next, in parallel with business goal refinement, we defined the
system goal “provide ecosystem for the service,” which
contributes to the business goal. We refined the system goal
into three sub-goals:
a) System profit goal: “bring up the system usage charge”,
b) System cost goal: “operate within the system usage charge”,
and
c) System value goal: “advance machinery data utilization”.
3) Analysis of System and Business Value utilizing IT
With IT value matrix, we analyzed the system value and
business value utilizing IT extracted on IoT business.
a) Listing and Extracting IT Utilized
We listed the prospective IT candidates on the IT value
matrix. As illustrated in Fig. 10, we extracted GPS, sensing,
mobile network, smart device, and cloud which could
contribute to “advance machinery data utilization”.
b) Analysis of IT Realization Function
Based on the extracted IT candidates, we elicited the
functions which each IT would realize, and list them on the IT
value matrix. As illustrated in Fig. 10, the functions include
that collecting the location data of the machine in a remote
place, and that collecting sensing data from IoT and mobile
network. We also elicited the data confirming function out of
office/home by smart device.
c) Analysis of System Value
We analyzed system value generated by the elicited
functions with respect to the system value goal. We listed the
system value on IT value matrix. As illustrated in Fig. 10, we
extracted two system values for achieving the system value
goal of “advance machinery data utilization”.
d) Analysis of Business Value
We analyzed the business value generated by the elicited
system value in order to achieve the business value goal; and
list the business value effect on IT value matrix. As illustrated
in Fig. 10, we elicited two business values which can be
generated by the system value, and contribute to achieving the
business value goal of “bring up the service quality for
customers”. By IT value conversion, we elicited business
value for “theft deterrence” including
i) “Visualization of remotely operated machinery’s location
and condition” on system value, and
ii) “Detecting and 䃂 Out of Office Data Indication 䃂

“bring up the service quality notifying abnormality 䃂

Collection of Remote
䃂 Machine Location Data 䃂
and Sensor Data
for customers”. and the location of the
Cloud

Smart Device

Mobile Network

IoT(Sensing / GPS)

Location and Condition

Operated Machinery’s
Visualization of Remote
Operation
Data Confirmation and
Real Time Out of Office

Function
Fig. 8. Business Model Design Workshop machine, and prevent
Support Customer’s Value Chain in Total IT, System
Business Vision
Business Goal Graph Expand Service Business Sales Value,
theft”. IT System Value
and Bring Up Service Sales Raito
Cost Goal
Business Goal
Revenue Goal
e) Evaluation of Business
Value
Business Value Goal
Bring Up Service
Business Profit Ratio
Bring Up Service Quality
Provided for Customer
Bring Up Service
Business Sales
Contribution Degree to Theft Deterrence (Prevent
Theft by Detecting and

System Goal Graph Provide Service Ecosystem

Business Goal 䃂 䃂 Notifying Machinery’s
Abnormality and Location
䃂
System Goal and Notify them)
System Revenue Goal
System Cost Goal
Operate within
System Value Goal
Advance Machinery Data Raise System
Upon designing a business 䃂
Speeding Up Maintenance
(On the Spot Handling by 䃂
Checking Work Method)
System Usage Charge Utilization Usage Charge model hypothesis, we
Fig. 10. After-Sales Service IT Value Matrix
Fig. 9. Business Goal Graph and System Goal Graph

109
 evaluated the contribution degree of the extracted business of data communication environment which the partner provides
value of theft prevention and maintenance speeding up to the for data collection on machine’s location and condition. By
business goal. The contribution degree is the one contributes identifying these SMC components, we can design a system
to the business value goal, and is evaluated in three phases architecture for the theft-prevention business (Fig. 12).
shown by the formula below. 5) Business Architecture Design
Contribution degree ={+,++,+++} +(1)<++(2)<+++(3) Using XBMC, we designed a business architecture which
The contribution degree has three grades of: creates and provides the business value of “notify the machine’s
+ : poor, ++ : nominal/marginal, +++ : good abnormality and its location, and prevent theft” which is
As illustrated in Fig. 11, we designed a business model for necessary for theft-prevention business.
theft prevention, by selecting a business value of “theft First, we selected an individual and/or corporate user who
prevention”. concerned theft as a customer segment to whom the business
4) System Architecture Design value of theft prevention provided. To the customer segment,
Using SMC, we designed a system architecture which can we extracted an e-mail provider, Internet service provider, and a
create and provide a system value needed for theft prevention monitoring center as a business channel which will be necessary
business of i) “Visualization of remote operated machinery’s for business value provision. In order to make the business
location and condition”. customer segment to enjoy the business value, we elicited a
First, we selected a machinery user who is also a user of the monitoring service; and notification to the customer via the
system-value-providing system, as well as a staff from a business channel when an abnormal incident happens. As for the
machinery manufacturer. Then for the system user, we selected profit structure, we will collect the monitoring service charge
a cell phone and Internet provider as a system channel for from the business customer segment.
providing system value. Through the system channel, in order to Next, in order to provide a business value; we elicited business
provide the system value to the user, we selected a system activities including
utilizing scenario which the user can operate. As a system profit a) Monitoring on the machinery’s abnormalities, reporting to
structure which is the price for the system value, we can charge the user upon an abnormal occurrence on the machine,
system usage fee to the machinery user. b) Emergency visit to the spot the machine is located, and
Next, we decided to develop a machinery location-condition c) Follow up maintenance to the machine on the abnormalities.
indicating system consisting of the following sub-systems: As a business resource necessary for carrying out the business
a) A system indicating the machine’s location and condition, activity, we elicited a 24-hour monitoring center for possible
b) A system accumulating data of location and operation data abnormalities on the machinery, and staffs for the service center,
from the machines, and who would notify the customer on such incident and take
c) An indicating system. necessary actions. By identifying the XBMC components, we
As the system development partner, we selected a network crate the business architecture for theft prevention business as
provider who provides a data-communication environment in illustrated in Fig. 13.
order to collect machine’s location and condition data. As for 6) Evaluation of Business Model
the system cost structure, we extracted data for the development We evaluated the system architecture and business architecture
and operation cost of the information systems, as well as the cost with the value, feasibility, and sustainability, which will be used
in the business design, and utilized in the system-design process
Support Customer’s Value Chain in Total
Business Vision
Business Goal Graph Expand Service Business Sales Value,
[1]. We set the metrics for the each evaluation of the business
Business Goal and Bring Up Service Sales Raito
Revenue Goal
and system architecture. The value, feasibility, and sustainability
Cost Goal Business Value Goal
Bring Up Service
Business Profit Ratio
Bring Up Service Quality
Provided for Customer
Bring Up Service
Business Sales
are respectively measured by formulas (2), (3), and (4).
+
Business Theft Deterrence (Prevent Theft by
+ Value={+,++,+++} +(1)<++(2)<+++(3) (2)
Value Detecting and Notifying Machinery’s
Speeding Up Maintenance (On the Spot
Handling by Checking Work Method)
Feasibility={+,++,+++} +(1)<++(2)<+++(3) (3)
Abnormality and Location and Notify them)
Sustainability={+,++,+++} +(1)<++(2) <+++(3) (4)
Fig. 11. Evaluation of Business Value’s Contribution Degree to Business Goal The business value evaluation is based on the contribution
System System Development System Value System Utilization System
Development Generating
1. System Development and
Scenario Users degree to the business value goal, while the system value
1. Visualization 1. Upon occurrence of
Partners Operation for Threshold Value of Remote abnormality, notify the
Monitoring, Machinery’s abnormality’s location 1. Machine Business Business Activities Business Value Customer Relations Customer
1. Network Vendor Operated User
Location and Abnormality and condition Partners 1. Monitoring on Machine 1. Prevent Theft by 1. Conclude monitoring Segments
that Supports Notification and Indication Machinery’s (Individual,
Abnormality- Corporate) Abnormality Notifying service contract, and
Data Machinery’s upon occurrence of
System Resources occurred System Channels 2. Report Upon Abnormality
Communication Occurrence Abnormality and abnormality, the 1. Machinery
1. Information System which Location and User with
of Location and Monitors Threshold Value, and 2. Machine Location service center
Condition Abnormality 1. Mobile Phone 3. Prompt Site Visit and contacts the customer Theft
Indicates Machine’s Location User Trace Problem
and Abnormality Information Condition (Individual, Anxiety
䇼System Value䇽 (Individual,
2. Data on Machinery’s Location 2. Internet Corporate) Business Resources 1. Visualization of Business Channels
Corporate)
and Operation Information 1. Monitoring Center on Remote Operated 1. E-mail
Machinery Abnormality Machinery’s
3. Development/Operation Staff Location and 2. Service Center
2. Service Center Staff Condition 3. Monitoring Center
System Cost Structure System Revenue
1. System Development Cost Cost Structure Revenue Stream
1. System Usage Charge 1. Service Operation Cost 1. Monitoring Service Contract Fee
2. System Operation Cost (Communication Cost)

Fig. 12. System Architecture for Theft Deterrence Business Fig. 13. Business Architecture for Theft Deterrence Business

110
evaluation is based on the system value goal. Each is evaluated B. Comparison with Related Works
by one (1) degree of “+” (Fig. 14). The feasibility and the Among the related works; BMC provides a business model
sustainability were evaluated by the designed XBMC and SMC. visualization method [5], and the Lean Startup provides a
The business activities designed by XBMC, i.e. an emergency business development method [7]. However, they do not provide
visit by the staffs to the site of an abnormal occurrence, and any business model design methodology which can create IT-
realization of follow up are evaluated difficult to implement on a utilized value. On the other hand, our proposed methodology
daily basis. Therefore, they are evaluated “+” as indicated in provides a method of continuously designing a business
“Before Learn” of the feasibility and sustainability. hypothesis in an incremental manner; with IT value matrix and
7) Learning and Improvement of Business Model IT value conversion process. The proposed methodology
Based on the evaluation of the business model, we analyzed contributes to the design techniques of business model in today’s
possible improvement in the business model to meet the rapidly changing environment.
business goal. Regarding to the emergency visit and following
up, which were evaluated difficult for both feasibility and VII. DISCUSSIONS
sustainability, we could improve it by a partnership with a We examined the proposed method from the views of business
security company with some extra cost. From this learning, as model designer and corporate management.
illustrated in Fig. 15, we re-designed the business architecture by A. Discussions from the View of Business Model Designer
reviewing the business partner in XBMC. There are few business model designers who have knowledge
of both business and IT. For this reason, especially in business
VI. EVALUATION
model design utilizing IT, they will end up doing trials and
A. Evaluation of the Proposed Methodology errors. However, the proposed methodology enables to create IT
From the application, we evaluated that the two learn subjects which can be utilized in a business model, and clearly and
in this article are resoluble. logically analyze and induce the business and system value.
1) Method of Converting IT into Value Moreover, it will be possible to design a business model which
By IT value matrix and IT value-converting process, we has higher feasibility based on the value.
extracted sensing, GPS, mobile networks, and data analysis as B. Discussions from the View of Corporate Manager
IT used in IoT business. By analyzing the functions of these The critical interest of a corporate management is how the
technologies, we specified the structure of the SMC and designed business model contributes to the business goal. The
extracted the system value and business value in order to prevent proposed methodology can evaluate the value with the goal
theft, in a systematic way. The proposed method can smoothly graph, which is the business goal’s contribution degree to the
convert IT into the system and business value. designed business model. This helps the corporate management
2) Business Model Design Method to make more accurate decisions than usual cases in the business
We can continuously improve the initial business model model implementation.
design with respect to the business and system value extracted in
the IT-value-converting process. We can also design each VIII. CONCLUSION
business model of theft prevention by the business architecture We proposed a lean design methodology for business models
and system architecture. Therefore, the proposed methodology is which creates a new value utilizing IT, which plays an important
feasible and useful when the initial design of the business model role in corporate management. The proposed design
cannot fully accommodate the diverse aspects of the business in methodology enables to design a business model by repeating a
a rapid change of business environment. value-leading design in searching manner, evaluation, learning,
and by evolving it in phases. We applied the proposed
Value Feasibility Sustainability
Business
Business System Business System Business System
methodology to the IoT business model design of a machinery
Theft Deterrence (Before Learn) + + + +++ + +++ after-sales services, and evaluated its effectiveness.
Theft Deterrence (After Learn) + + ++ +++ ++ +++
Fig. 14. Evaluation of Theft Deterrence Business Model REFERENCES
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