Lecture 24

Added: 2026-05-06

[00:00:01][music] [music] Welcome all of you in the last lecture of business model canvas. I Dr. Rahmed Musah Khan an assistant professor in the department of commerce a legal Muslim university and in this lecture we are going to discuss about key partners and cost structures.

[00:00:35]In our previous lectures we have discussed about the concept of business model cycle the concept of business model canvas its history and origination the importance and benefits of business model canvas.

[00:00:51]We have discussed about its right side and the middle side and uh we have also discussed about in the previous lecture we discussed about the concept of business model canvas its history and origination its importance and benefits and among all three sides we have discussed its middle size that is the value proposition its right side which includes customer segmentation customer relations distrib distribution channels and revenue streams.

[00:01:26]And in its left size we have and in the left side we have already discussed about the key resources and key activities.

[00:01:37]Now in this lecture we are going to discuss about the remaining two components of the left side of business model canvas that is the key partners and cost structure.

[00:01:48]that is the key partners and cost structures. It is quite visible from here that we already discussed about the key activities in the last lecture. We discussed about key resources in the last lecture. Now we are going to discuss about key partners and cost structure.

[00:02:07]In the m uh in the middle section we discussed about value proposition. In in the right section we have already discussed about customer relationships.

[00:02:17]We discussed about distribution channels. We discussed revenue streams and customer segments. So in the entire uh business model con business model canvas or we can say that among all the nine building blocks of business model canvas only two are left key partners and cost structure. And in today's lecture we are going to discuss with you the key partners and cost structures.

[00:02:43]Let's start with key partners.

[00:02:46]What are the key partners? So key partners are the essential relationships a company forms with other entities like with its suppliers, with the manufacturers or sometimes the advisor to ensure that the business model functions effectively to ensure the effective functioning of business model. In today's complex business environment, it is often insufficient or we may call it impractical for a company to handle every aspect of its operations internally. This is not possible.

[00:03:22]This is the reason of uh building strategical relationships between uh strategic relationships with various partners to provide vital support and enabling business so that they can focus their core so that they can focus on their core strength. They are of four types. Uh first is like u buyer supplier relationship. Second is like joint ventures. Third is like strategic alliance and fourth is like co-optition.

[00:03:53]Now let's discuss the importance and significance of key partners.

[00:03:58]First is shared resources and skills which means that uh these kind of partnerships enable businesses to accumulate their resources or we can call them the pull their resources and different expertise or whatever technology they have which can significantly enhances value creation for the entire customer base. By partnering with these organization, businesses can optimize their operations allowing them to focus on their core competencies while they can outsource non-core functions. The second importance is risk reduction.

[00:04:34]It is engaging with external partners to helps to mitigate risk and uncertaintities.

[00:04:40]For example, a manufacturing firm can rely on trusted supplier.

[00:04:46]A manufacturing firm can rely on trusted suppliers for raw materials.

[00:04:51]This may reduce the risk of supply chain disruptions.

[00:04:55]Cost efficiency.

[00:04:57]These partnerships lead to significant costsaving and operational efficiencies.

[00:05:03]Outsourcing specific activities like production, logistics or customer service which can often be more economical than managing them internally.

[00:05:15]optimization and economies of scale.

[00:05:17]This is a very important thing or we can call it the first kind of a relationship. It is also known as buyer supply relationship which is designed to optimize the allocation of resources and activities because resources are not in abundance and their optimum utilization is the responsibility of every organization. If there is a case of any wastage of resources, that business organization is not going to sustain in the market in the long run. We can say that it is totally illogical for a company to own all resources or perform every activity on its own. They need to be very much specific and keep doing what is their expertise. ever they don't have and on whatever they don't have expertise they should start outsourcing it. Optimization and economy of scale partnerships are typically formed to reduce the cost which often involving outsources outsourcing or sharing infrastructure.

[00:06:24]It is crucial for ensuring a stable supply of goods or services.

[00:06:29]Let's take the example of Toyota. Toyota established a long-term relationship with its suppliers. The only reason is they wanted to ensure a reliable supply of spare parts or uh main parts to build the cars.

[00:06:47]This strategic approach enables Toyota to maintain efficient production process while ensuring high standards of quality control because this was the expertise of Toyota and they kept focusing on the quality rest they out they started outsourcing because uh they made some relationships with their suppliers to ensure a proper supply that this is the Okay. And this is the way Toyota streamlined its supply chain and minimized disruptions because of a very strategic partnership with its suppliers.

[00:07:25]This collaboration has not only enhances the production efficiency but also allowed Toyota to respond swiftly to market demands because their total focus was on the development and production of cars.

[00:07:40]The second strategic relationship is like joint ventures. We may call it the reduction of risk and uncertaintities.

[00:07:48]These partnerships can help to reduce risk and competitive empowerment.

[00:07:54]It is not unusual for competitors to form a strategic alliance in one area while continuing to compete in another areas. Blu-ray is a good example. It's an optical disc format jointly developed by a group of the world's leading consumer electronics.

[00:08:12]Let's take the example of Sony and Ericson. We all are aware with the uh cell phones of Sony Ericson. They were quite popular for the music and all and especially during especially among the youth of that era.

[00:08:30]Do you know that Sony and Ericson's were two different companies? In fact, Ericson was from Sweden and Sony was from Japan. They formed a joint venture called Sony Ericson to combine their strength in electronics and telecommunications. Electronics was the forte of Sony and telecommunication technology was the forte of Ericson.

[00:08:53]This collaboration actually enabled both companies to innovate and develop cuttingedge mobile phones that cater to the evolving needs of consumers. and they developed a very special kind of a phone that and they developed a very special kind of phone which had been replaced directly by the iPod. So because their phone their mobile phones was very much concerned and specified for the music lovers.

[00:09:26]We can say by pooling their resources and expertise, Sony Ericson was able to create a unique product and that was their smart uh their mobile phone with advanced technology and designing to attract the youth of the country and in fact to attract the youth of the entire world because the youth is very much interested and keen in the music. So this partnership not only enhanced innovation but also allowed both companies to share risk associated with the new product development because they were in the partnership and it was their collaborative responsibility to share and distribute the risk because they were also sharing the profits. [snorts] Now the next is strategic alliances. We also call them the acquisition of particular resource and activities.

[00:10:26]Few companies own all the resources and they are performing all the activities described by their business models.

[00:10:33]They extend their own capabilities by relying on other on other firms to furnish particular resources or perform certain activities.

[00:10:46]said such partnerships can be motivated by the need to acquire knowledge, licenses or access to customers.

[00:10:56]We can take the example of a mobile phone manufacturer which may have licensed an operating system for its henses rather than developing one inhouse.

[00:11:06]An insurer may choose to rely on independent brokers to sell its policies rather rather than develop its own sal force. It is not a big deal for the insurance companies but they don't want to put their energy. They don't want to put their money into developing a salesforce when they just can hire simply a few brokers in the market.

[00:11:35]In 1994, Starbucks and PepsiCo formed a strategic partnership to create readyto drink coffee beverages because Starbucks is popular for coffees and PepsiCo is popular for irritated waters which allows Starbucks to reach a wider audience because the reach of PepsiCo was very wide in 1994.

[00:11:58]We can say that in India hardly a few people knew about Starbucks. Who knew about Starbucks in India? 1994 even in many parts of the world but PepsiO was popular everywhere even in during the '90s the PepsiGo used to sponsor the cricket and all other sports.

[00:12:17]So we can say that uh by leveraging their extensive distribution networks whose Pepsi goes Starbucks successfully play Starbucks successfully placed its product that was a Frappuccino and other coffee drinks in grocery stores or we can or in the vending machines.

[00:12:40]This collaboration not only increased the sales of Starbucks but it also increased its visibility and along with that it helped Pepsi go to enhance its beverage portfolio.

[00:12:55]Pepsi also came in the category of uh provide. Pepsi also started providing through through this collaboration the Pepsi also started providing other drinks except the irritated waters.

[00:13:15]Coopition it's a quite sounds similar to competition but [clears throat] but it's coopition is a strategy where companies that are usually competitors work together for mutual benefits. They decide to form a kind of agreement between they they agree to form an agreement and decide not to compete with each other anymore.

[00:13:44]This approach actually enables firms to share resources, reduce cost and innovate more effectively while maintaining a competitive edge in the market. It can lead to new opportunities and increase market presence for both the parties. Let's take the example of Apple. Apple partnered with Foxcon. Fox one was a very prominent electronic manufacturer and Apple partnered them for the production of iPhones and other devices which were which are being produced by Apple. This collaboration followed Apple to focus on its core strength of designing innovative product because Apple's forte was to design the innovative products rather than to distribute them or to produce them. They were very much concerned about innovation rather than production and meanwhile Foxcon was totally known for its large scale production capacities. So that is the benefit of this collaboration for to both of them and uh by leveraging Foxon's expertise and manufacturing capabilities Apple ensured high quality output and efficiently met the significant global demands for its for its products.

[00:15:05]This uh partnership actually not only streamline Apple's operation but also reinforce it position in the competitive markets of electronics. Now the last building block of this business model canvas is cost structure. Let's begin to define the cost structure because all the cost and expenses that your company will incur while operating your business model. We can say that this is the final step in the process.

[00:15:37]We can say this is the final step of the entire process and it is very important and it is very important because it will help your team to decide whether to proceed or not.

[00:15:51]There are two main categories of cost structure valuedriven and cost driven.

[00:15:56]The cost may be either valuedriven or cost driven. Let's discuss what is valuedriven and what is cost driven.

[00:16:04]The focus of valuedriven cost structure is to create more value in the product itself.

[00:16:11]They are just trying to produce it in a better way just to make it more valuable for the customers and their product and their objectives is not to produce the product at the lowest possible cost because their customer is not cost conscious like uh we can take the examples of many luxury brands Rolex, Prada, Gucci, Mercedes, BM way. While on the other hand, costdriven structures focus on minimizing the cost of production.

[00:16:47]Perhaps their customer is um belongs to a perhaps their customer belongs to middle income group or lower income group like Walmart, the cheap airlines.

[00:17:02]Cost structure also refers to a set of various cost and bills that a company needs to pay in the course of its operations.

[00:17:10]This could be uh fixed cost, variable cost. Fixed cost is like which you have to pay every month. variable costes like which keeps varying and in addition the cost structure should provide ways to recover unexpected cost such as uh repairs and econ equip repairs and equipments breakdowns because you did not calculate this cost. This is a hidden cost. This is a something which is totally unexpected.

[00:17:40]When all these costs are documented, businesses can better prepare for challenges and adjust their spending in the most effective ways. Now we are going to understand the different types of cost structure that was fixed cost, variable cost and hybrid cost structure.

[00:18:00]Let's start with fixed cost.

[00:18:03]Fixed means something which is not movable and which doesn't keep changing.

[00:18:09]So fixed costs are the cost that stays the same no matter how many physical products or services the organization is producing or delivering.

[00:18:20]As these costs are constant, businesses can predict them easily. It allows them to make informed decisions about their pricing strategies, marketing and investment opportunities.

[00:18:34]Let's take the some examples of this fixed cost rent or lease payments. You have to pay a specific rent and at the end of every month salaries and other benefits. These are the regular salaries. The salaried person know that by the end of this month they will get the salary or the specific amount and in benefits it's like uh some kind of insurance or kind of retirement uh solutions.

[00:19:04]Insurance means business liability insurance or perhaps the property insurance in which also know the cost is fixed. The annual the monthly payment you are making is remains same. Depreciation means it's a fixed depreciation of 10 or 15 or 20% on all or all your assets on all the assets you own.

[00:19:30]Utilities means utilities means regular expenses for like um you need electricity, you need water, you need internet, you need other amenities. So this is a fixed cost which you have to pay in any case whether you are producing 1,000 units, you are producing 1 million units or even you are not producing anything.

[00:19:53]Another benefit that a fixed cost structure brings is economy of scale.

[00:19:58]economy brings is economies of a scale. It means that when you keep producing more and more units the fixed because the fixed because the fixed cost remains same it is going to reduce the overall cost of production per unit. We'll explain it after discussing the variable cost with you.

[00:20:20]Other than that, a fixed cost structure provides more control over expenses and can also be used to set prices as it gives you a clear idea of the constant spending during every period.

[00:20:35]But it also has some disadvantages or the cons. It is not easy to adjust to the changing markets.

[00:20:44]Uh fixed costs are quite hard to forecast in in fixed costs are quite hard to forecast in in initial days.

[00:20:54]But whether your business is thriving or experiencing a slowdown, these costs remain the same because as I already told you whether you are producing 10,000 units, you are producing 10 million units or only 10 units fixed cost will remain same.

[00:21:11]And sometimes a fixed cost eat up lots of business resources making it hard for them to grow.

[00:21:17]The second category of cost is variable cost.

[00:21:21]There's a variable cost that companies should factor when creating a cost model. These typically includes hourly wages, delivery fees, and cost for materials and equipments.

[00:21:35]Depending on the amount of products or services provided, they keep varying from one time to another time or they keep varying on the basis of quantity as well. Raw materials, manufacturing cost, how many units are you producing? That much raw material, you need that much manufacturing cost you are going to pay.

[00:21:55]Sales commission, it is also proportionate to your production. And if you're producing, if you have produced 10 units, that means you have to pay commission on 10 units only. Shipping and freight, the less you produce, the less you have to pay for shipping. For businesses, managing varying labor cost and hourly to salary calculator can be invaluable tool for accurately budgeting and forecasting expenses.

[00:22:22]But the main advantages of this cost structure is flexibility.

[00:22:27]organization can swiftly can swiftly adapt to the changing market demand and that I hope you remember that was the disadvantage for fixed cost.

[00:22:38]In addition, these cost are often related to a specific area or unit. With a proper planning or strategy, they are not too difficult to predict. On top of that, this fluctuation can serve as a useful indicator for organizations to identify products that have room for improvement.

[00:23:01]Of course, this structure of cost presents certain challenges as well. It is also not free from challenges. We can say they cannot be controlled. Totally.

[00:23:11]They definitely cannot be controlled.

[00:23:12]The volatility makes it hard for business to plan their budgets because the u variable cost keep changing. Price fluctuations expose companies that deal with large volume of physical products to greater financial instability.

[00:23:30]The third category of this cost structure is hybrid cost structure.

[00:23:35]Hybrid cost structure is basically a blend of fixed and variable cost structure.

[00:23:43]It has the characteristics of both the models.

[00:23:47]Many businesses use this type of cost be many businesses use this type of cost model because it allows for a greater level of stability while also allowing them to quickly embrace the change.

[00:24:03]What are its disadvantages?

[00:24:06]The complexity involved in understanding and managing expenses.

[00:24:13]Forecasting can be more challenging as businesses must factor in the challenges of both these structures.

[00:24:21]Due to the complexity involved, it may also be necessary to invest in additional tools such as cost estimating softwares or personal to effectively manage the cost and stay on top of expenses.

[00:24:38]This is the case study overview of Lego.

[00:24:42]Let's have a look at it. You can say that I have divided the various building blocks and this is the proper business model canvas of Lego. This is the proper business model.

[00:24:58]This is the proper business model canvas of Lego. You can see here the customer segments. Let's start with this right side. Thousands of customer design kits.

[00:25:10]Lego factory connects customer who create customized designs. This is a way they are dividing their customers channels like they have web channels, they have retain stores, they have user groups. We already discussed about uh maintaining during the we already discussed about this concept of user groups while discussing the channels and customer relationships. We gave the I gave the example of Lego.

[00:25:41]Customer relationship is like community of customers who are interested in niche contents.

[00:25:48]Revenue stream is small revenues from customers design kits. This is the kind of a value addition.

[00:25:57]What about its value position? What they are offering? Why the customers always prefer to choose Lego rather than to go to any of its we can say that uh competitor Lego factory expands scope of the offshelf kit by giving fan tools to build showcase and sell their own customer design kits. They actually create communities so that the customers can have interact with each other. Among their key activities, they provide and manage platforms and logistics for producing, packaging, delivering. The key resources they have the web presence, supply chains, user groups, agile manufacturer. Who are their key partners?

[00:26:46]They are key partners are those customers who can build and design something for them. New design and post them online.

[00:26:55]What is their cost structure? It's utilize production and logistics already in plain by traditional retail proc models.

[00:27:04]You can also uh discuss in the details.

[00:27:07]I have uh given the details of their key partners like customers, [snorts] logistics, technology, individuals who design and post their custom sets, partners who handle manufacturing and distributions, company that support web and app development in their key activities.

[00:27:25]They are web development, manufacturing and logistics, customer engagement that how you are going to engage your customers in their key resources. They are use they are using web platforms, design tools, user group. These are the communities where people can interact with each other.

[00:27:44]Value proposition is like customization enhance engagement. Customers are involved in designing and all that definitely they help in definitely it helps in making a strong relationship in the community. The relationship of their customers how they are maintaining it.

[00:28:02]The support they are getting the feedback they are getting from their customers. How they have segmented the customers. It's like those who are the individuals they are enthusiast the parents of their children the educators who are using Lego to as a teaching tool what are their channels retail stores social media online selling in their cost structure they have they are in uh they are making expenditure in the manufacturing the maintenance of their websites and apps different logistics from sending their products from one place to another.

[00:28:42]If you talk about their revenue stream, it is like sale of custom items, membership fees, they are getting money, merchandising, they are selling other products on the name of Lego and all. So this is a proper case study in of business model canvas and it is a BMC of Lego.

[00:29:02]I'm hoping that the concept of business model canvas is quite clear in your minds.

[00:29:08]And now we are going to and wind up. Now I am going to wind up this lecture. I think we should have a quick look at whatever we have discussed in this lecture. So basically we have let's have a quick look and whatever we have discussed in this lecture. So we have discussed about the key partners and cost structures. Our key partners are u buyer seller relationships, coopition, joint ventures, strategic partners or we can call them strategic alliances and in the fixed and in the cost structure we discussed about the fixed cost, we discussed about the variable cost and we discussed about the hybrid cost. Thank you for your engaged participation today. Now you have understood completely about the business model canvas. In all the five lectures we have discussed about the concept of business model canvas. Its how it had been originated why it is significant. It has three parts and nine building blocks. We have discussed its right side, its middle and its left side. So after this I am hoping that uh this concept of business model canvas is quite clear in your minds and you can understand just by looking at a paper the entire business model of a business organization.

[00:30:28]Thank you and I look forward to continuing this journey with you next time. Take good care of yourself. Thank you.

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