BUSI 690-D06: Business Model Generation Exercise 1
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Business Model Generation Exercise 1
Malik Arnold
Liberty University, Professor Gerald
BUSI 690 - D06
04/11/2015
BUSI 690-D06: Business Model Generation Exercise 1
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What Is A Business Model?
According to Osterwalder & Pigneur, a business model describes the rationale of
how an organization creates, delivers, and captures value (pg. 4, 2013). It is the basis for
explaining how a business or organization is functioning within their operating system,
articulating the logic and providing data and evidence to the researcher. A business
model outlines the architectural texture of revenues, costs and profits associated with the
design and structure of the organization (Osterwalder & Pigneur, 2010). For example,
IBM implemented an electronic customer support strategy that was first originated in
1980. This strategy connected all of IBM’s customers to the company’s Internet network
system, thus increasing the communication capabilities amongst IBM and the consumer.
Business models also describe the way in which companies make money and do business
with the consumer. To profit from innovation, business pioneers need to excel not only at
product innovation but also at business model design, understanding business design
choices as well as customer needs and technological trajectories (Cavalcante, 2011). This
is essential in developing a successful business model as competition is always evolving
their products and services to be better than the leading brand. If the model is sufficiently
differentiated in its innovation and impact on the organization, the competitive advantage
is strengthened over companies that pose a threat to sale profit and revenue.
What Role Do Value Propositions Perform in Successful Business Models?
Value propositions describe the fundamental attraction that brings the consumer
closer to the product or service being offered by that business. These propositions
represent the specific offers and features of the product by providing a deeper sense to the
value that product offers to the consumer. In developing a robust value proposition, many
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factors such as price, placement, distribution, size of market and market share articulate
the company’s value and motive within the industry (Payne, 2014). The maturity of the
market also plays a huge role into developing these factors; whereas markets that are their
formative stages of production and development. Markets in these stages present
opportunities for value propositions to strengthen the market they exist in, thus, aiding in
the organizations rise in profit.
Value propositions exist as the underlying factors consumers base a product or
service’s value and worth upon, ultimately, determining where the customers choose to
spend their money. This model’s building block summarizes the products and services
into categories that represent their value in the organization’s infrastructure. Each value
proposition consists of a selected bundle of products that caters to the requirements of a
specific customer segment (Osterwalder & Pigneur, 2010). On the flip side, the customer
benefits from the exclusive deals and offers that constitute the product in hopes of its
success in the marketplace at its time of release. Some value propositions may be
innovative and represent a new or disruptive offer, while others may be similar to existing
marketplace offers, substituted with bonus features or incentives (Osterwalder & Pigneur,
2010). Companies benefit from this model’s implementation due to its focus on the
customer’s ultimate needs, satisfying an entirely new set of needs the consumer may not
have considered before being introduced to the product.
Brainstorming Business Models
Brainstorming the “What if” questions gives researchers the proper tools to
develop a plan to prevent the company from missing windows of opportunities in the
marketplace. Scalability describes how easy it is to expand a business model without
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increasing its cost base (Liu, 2006). In terms of the business model, a company may take
the time to implement a plan that affectively assesses the extent of scalability the current
model has, and the impact it is making in the market during its time of operation. One
example of this is the Internet social media site, Facebook, which has risen as the leader
in social media with a limited amount of engineers in its beginning stages of
development. Although the platform only possesses a few thousand engineers, it has
created enough value to reach millions of users and subscribers across the world today.
Quickly adapting to the newly established business model efficient places a company in a
position to be more scalable in an ever so changing market environment.
The question, “What if our market changes?” suggests to the company that at
some point in the life cycle, the market is subject to change and a new transition in
product and services may occur. Preparing the company for these changes increases the
likeliness of a product surviving the transition and coming out strong with numbers in
sales and revenue streams. Switching costs is a direct result of market change due to the
time, money and effort the consumer spends to switch from one preferred service to the
next. The higher the switching costs, the likelier a customer is to stick to one provider
rather than to leave for the products or services of a competitor (Liu, 2006). One example
switching costs was Apples introduction of the iPod products into the marketplace in the
start of 20th century. This was an ironic strategy implemented form a business model
Steve Jobs and the rest of his team at Microsoft created to get customers to copy all of
their music files into a computer-based software program, making it solely compatible
with the iPod product. This proved to be an effective tactic in luring customers to
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purchasing the iPod products because of the user-friendly services the ITunes software
provided for music lovers and listeners.
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References
Cavalcante, S., Kesting, P., & Ulhøi, J. (2011). Business model dynamics and innovation:
(re)establishing the missing linkages. Management Decision, 49(8), 1327-1342.
doi:http://dx.doi.org/10.1108/00251741111163142
Liu, A. H. (2006). Customer value and switching costs in business services: Developing
exit barriers through strategic value management. The Journal of Business & Industrial
Marketing, 21(1), 30-37. Retrieved from http://search.proquest.com/docview/222026660?
accountid=12085
Osterwalder, A. & Pigneur, Y. (2010). Business model generation. Hoboken, NJ: John
Wiley & Sons. ISBN: 9780470876411.
Payne, A., & Frow, P. (2014). Deconstructing the value proposition of an innovation
exemplar. European Journal of Marketing,48(1), 237-270.
doi:http://dx.doi.org/10.1108/EJM-09-2011-0504
