Next, on our Business Model Canvas Explained series, we are looking at key activities. This element is the bread and butter of your business because it defines the actions you will take to achieve your value proposition.
Key activities are the most important tasks your business must carry out to fulfill your business’s value proposition.
Your business is unlikely to run correctly without an accurate definition of your key activities. The best way to identify your key activities is to look at your value proposition. This will help you identify what your business needs to be doing.
Why Is it Important to Define Your Key Activities?
Key activities are essential to the success of your business model. Not only do they fulfill your value proposition, but they are also pivotal in reaching your customer segments, sustaining your customer relationships, and ultimately creating long-term revenue streams.
Key activities will be different depending on the business model you are following. So, for example, if your business relies heavily on 3rd party contracts, channel management will be a key activity. A great example of this is IKEA which in its early years relied heavily on local furniture factories to produce the affordable furniture they sold.
On the other hand, a product-driven business model will lend more significance to activities such as research and development so that their product remains appealing to their customer base.
There are three categories of key activities, these are;
Refers to designing, manufacturing, and delivering a product to the customers. Typically companies will either produce high-quality products or produce significant quantities of the product.
Companies in the problem-solving category focus on finding new solutions to individual problems faced by customers. Two great examples are; when IKEA started opening new stores so they could reach more customers. This allowed them to make more money. Secondly, Airbnb launched a photography program to help improve the quality of the home listings on their site. This led to more customers using the site to book holiday homes and thus increased their revenue.
Companies under this category create and maintain platforms. For example, a key activity for Facebook is updating the platform regularly so that the user experience is maintained or improved. Or LinkedIn, which typically spends most of its budget and time ensuring that its platform remains profitable and usable as the consumer base snowballs.
Some Examples of Key Activities
Some typical key activities that most organizations practice include:
- Research & Development
The research and development department liaises with all other departments and teams, such as production, marketing, or sales in most companies. The typical functions of a research department include:
- New product research
- New product development
- Develop AI algorithms (Netflix for example spent a lot of time of their algorithm.)
- Existing product updates
- Quality checks
A great example of this is Netflix producing its own original programs.
Production management typically consists of several activities, including:
- Selection of product and design
- Selection of the production process
- Selecting the right production capacity
- Quality and cost control
- Inventory control
- Maintenance and replacement of machines
The marketing department is responsible for the company’s growth by advertising the products and services. The functions of the marketing department include:
- Market research
- Product development
- Sales support
- Organizing events
- Sales & Customer Services
This department plays a key role in customers’ purchase and post-purchase behavior and experience. The sales and customer services department is key to ensuring that your business retains repeat customers who will help your marketing department by referring your company to others.
The sales and customer services department handles the following responsibilities on behalf of your company:
- Handling customer complaints
- Assisting in sales
- Clerical or administrative tasks
To give you a few real-life examples, let’s take a look at Uber. We can break down their key activities as follows:
- Website and mobile app development
- Driver recruitment
- Customer service activities such as driver incidents
Nike’s key activities, on the other hand, will differ from those of Uber. Some of the things Nike needs to consider would be:
- Distribution channel including shipping, supply chain, and logistics
- Retail process (point of sale and 3rd party management)
Design is a key activity as Nike’s value proposition is to provide unique, high-quality sports shoes. Their shoe designs need to be constantly updated to follow the latest fashion trends at the time.
Nike also requires manufacturing capabilities in order to produce its shoes. Everything from pattern making, fabric selection, and shoe designing affects the outcome of the final product, which of course, they have to then go on and sell.
Lastly, Nike has to effectively manage its retail and distribution channels, including online, offline, shipping, and provider communication. One of their biggest key activity though is endorsements. Celebrity endorsements are the vehicle that led them to become one of the biggest retailers in the world. Big sport names like Michael Jordan and Tiger Woods helped to solidify and maintain Nike’s success.
Most businesses also focus their money and time on expanding the business. For instance, during the early years of Burger King and McDonald’s one of their major key activities was expanding through franchising.
How to Come Up with a Good Key Activities Segment
When analyzing your business through the key activities building blocks, it is crucial that you look at the big picture and evaluate related building blocks as well. This will help you understand how they will contribute to your key activities.
You’ll need to ask several questions to come up with a workable key activities segment for your business. The following are some questions you can think about.
- What key activities leverages your value proposition?
- What should you be doing to get more clients?
- What could you be doing to build key resources?
LinkedIn for example took a different approach to customer surveys. Instead of the normal online surveys that companies usually churn out, LinkedIn conducted personal one-on-one surveys during a lunch date with a selected number of users. This helped them to understand the market and showed the users that the company cared about their input.
- How much time are you investing in those activities?
- What expertise are you using?
- What actions does it take you and/or your staff to achieve value exchange?
- What is essential to the distribution of your product or service?
- Which activities can you engage in to maintain customer relationships?
- Which activities are essential to your revenue streams?
- Which activities do you engage in every day?
- What are the key activities you need to undertake to make your value proposition work?
- What key activities you must do in order to operate?
- What activities are not related to the core of your business, so that you could outsource them?
- Which activities are the most costly? Can you focus on doing 20% of them that gives 80% of the value from them?
Key activities are crucial to the development and maintenance of your business. This element also influences your competitive advantage in the market. Correctly identifying your key activities will help you create a profitable business model.