- Business Model Innovation
The St. Gallen Magic Triangle
The purpose of the St. Gallen Magic Triangle (Gassmann et. al, 2019) is to enable a better understanding of the key drivers behind successful business models, and moreover to encourage business model innovation through a structured approach.
The St. Gallen Magic Triangle (Gassmann et. al, 2019) is characterised by its simplicity and ease of use while simultaneously providing a clear picture of the business model architecture. Therefore, the St. Gallen Magic Triangle provides an outside-and-in perspective for companies to develop innovative business models.
“St. Gallen Magic Triangle” Gassmann et. al, 2019
Set aside 1-1.5 hour for analysis and description of the business model dimensions.
It will be a great advantage to involve different key employees in this process. Firstly, because different people bring different ideas and points into play; secondly, because employees in different jobs together will create a more detailed and complete analysis, and last, but not least, because the analysis process itself is an excellent way to create a common understanding of what changes the company must go through as well as why and how.
You will need a digital or printed version of the tool in large format, a lot of self-adhesive paper slips (post-its) and pens (one for each participant). In principle, the results of the analysis can be written directly into a blank document on a computer, but it is highly recommended to perform the analysis on paper, as it is much more flexible and makes it easier to stay focused.
1) The first dimension in the tool, the “Who”, refers to the customer. Being aware of who your target customers are is a key element in creating a successful business model. Here you shall decide which customer group this business model is designed to target.
The target customer segment can be both in the business-to-business segment and Business-to-consumer segment. Thereby the customers might be end users, but can just as well just be customers, with their own customers, further down the value chain.
You can find a helping hand when defining your target customer group in the module Customer Analysis. This module includes insights into using Personas, as well as defining current and new Customer segments.
2) The “What” describes what value that is being offered to the customer. Here you shall formulate the value proposition, which is the unique value that you want to offer to the customer segment chosen in “Who”. Here it is key to consider what the chosen target customer finds valuable. Hence, this underlies the importance of not falling into the trap of perceiving the value of your business model in terms of what your company finds valuable, but remember to use the Outside-in Principle presented in the Basic Principles module and take the viewpoint of your customers.
In the module Service Design, the Value design tool offers a way to formulate a unique value based on the needs of the chosen customer segment.
3) The “How” grasps all the activities and processes of the company as part of the effort to build and distribute the chosen value proposition to the target customer group.
Here you shall formulate all activities related to the company’s value chain and all resources needed to sustain these activities. This will include both physical assets such as buildings and technology, and human assets in terms of people with the general or unique skill-sets to build and deliver the value proposition. Equally, you must remember to include the suppliers and know-how that is needed within the supply chain.
4) The fourth dimension is “Why”, which refers to the profit mechanism of the business model, and the venue for securing the company a desirable value. Often, the company will make money through a revenue model that offers customers to purchase the offered value proposition through a product or service, either with a one-time payment, a monthly subscription or another payment agreement.
When choosing your business model’s revenue model, try to consider how to straighten your business model and eliminate risks through the chosen value capture mechanisms or revenue model: If the business model for example relies on a high initial investment, you should focus on a revenue model that secures the highest possible revenue as fast as possible. Or if it is more important for business to keep a close relationship to the customers, as part of a data-driven business model were critical mass is essential, then a monthly subscription with services that ties the customers to the company might be better.
Note that some companies have multiple business models with different revenue models with the aim to attract different kinds of value.
In today’s ever-changing markets, there are many different ways of designing a company’s business model, and optimising the four dimensions to jointly support the highest possible value for the company through the chosen revenue model. The St. Gallen Business Model Navigator describes these patterns in more detail.
Now you should have an overview of your company’s business model including both internal and external factors as customers, suppliers and partners.
In the video below researchers from St. Gallen University presents a general overview of business model innovation process according to their Business Model Navigator, in which the St. Gallen Magic Triangle is used as innovation tool.
“Innovating your business model in four steps” by Oliver Gassmann Professor at St Gallen University. From YouTube (Business Model Insights), 2022.
After describing the four dimensions of the St. Gallen Magic Triangle, a physical picture of the business model has been created.
This picture also highlights the complexity of designing and maintaining a business model, as there are so many interdependencies between the dimensions and beyond. Even small changes in the market or in the value chain might have a high impact on your designed business model.
So, now it would be a good idea to test your business model against any assumptions you might have included in the above process of defining your business model.