Running Head: Exercise 1
Business Model Generation Exercise 1
Malcolm Evans
Liberty University
Summer 2016
What is a Business Model?
A business model, which can often be referred to as the businesses blueprint, or business
architecture, “describes the rationale of how an organization creates, delivers, and captures
value” (Osterwalder & Pigneur, 2010). These business models are very much needed for the
survival of a business. When designing, they should be designed as such so that they can evolve
quickly, as the environment changes rapidly with advancements in technology. Businesses
models may be different based on the aspects of a company, depending on how it makes,
distributes, prices, or charges for its products. Most business models will focus on value creation,
and discusses the core strategies of the company and how it will generate economic value or
revenue. The business model also proposes how the organizations will convert their inputs into
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outputs that will place them in a position to have returns that are greater than the opportunity cost
of the investment, and deliver a return to their stakeholders. This model is a key part of the
company’s strategy.
For example, Gillette uses the model of razors, and blades. The company has basic
product, the razor that they sell at a low cost to their customers. However they sell an essential
add-on, the blade, at a higher price once they have gotten the customer to purchase their razor.
For a while General Motors were using an unsustainable business model that did not match, or
exceed the cost of their capital. Their focus was on the financing of cars, such as loans, rather
than the actual design and manufacturing of cars, which is what they should have been focusing
on as cars are also cost competitive. It is very important for businesses to understand the needs of
their customers, and appropriately manage their capital to meet those needs, while also meeting
financial objectives. To help sustain a competitive advantage over their customers they should
ensure they are differentiating their business in a way to create value through innovations and
cost saving measures.
According to the Business Model Generation and/or Strategic Management Concepts and
Cases literature, what is a business model?
According to Rothaermel, a business model, “details the firm’s competitive tactics and
initiatives” (Rothaermel 2014). The business model is designed to explain how the firm is going
to earn money for the company, and their stakeholders. It places stipulations on how the firm will
conduct business with other businesses including buyers, suppliers, and partners. A key example
of a well-known and used business model process is the use of assembly lines in factories owned
by Henry Ford. Henry Ford’s objective was to build a motor car of good quality, at a low cost so
that all who wanted one would be able to afford it. However his first attempt at manufacturing
automobiles was unsuccessful as he was unable to keep up with the demand. Henry Ford was not
the founder of the first car, or the creator of the assembly line, however combing the two, he was
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able to go after a fairly new market in his industry and have great successes (McGrath & Clifton,
2016). Henry took advantage of previous technology, and used that to engineer a manufacturing
system that allowed for a continuous production line. Due to increase efficiency and a reduction
in the times needed to manufacture one automobile, he was able to cut hundreds of dollars off the
price of the cars being sold. Ford is known for having a product line that is respected by experts
in the industry, and is also seen as a step above many of their competitors, as well as their timely
acquisition of capital, makes them more financially sound than that of their competitors (Senna,
2013). Looking at Rothaermel’s definition again of a business model, Ford is continuing to do
business by providing a competitive product at a low cost to their customers.
What role do value propositions perform in successful business models?
Value proposition plays a very important role in successful business models. Value can be
done, by helping a customer get a job or task done. It is important to create a product or service
that will solve customer problems, as well as satisfy their needs. Businesses should aim to help
customers be more efficient in the things they are trying to do while at the same time, being
convenient, and affordable. Value can also be created through many facets, including design,
brand/status, price, cost reduction, risk reduction, accessibility, and convenience/usability. It is
important that organizations understand where they want to create value, as it may be hard to
incorporate them all into one. For example it may be hard for Rolex to combine brand/status,
with a price proposition because wearing a Rolex is seen as a status of wealth in society, and not
having a lower end watch that provides the same solution to the problem of telling time.
Having a strong value proposition is important to retaining your customer base. If people
are unsure as to why they should buy your product, they most likely will not purchase your
product or service, or tell anyone else about it and purchase something from a competitor. This
value proposition lets the customer know why they should pick one company’s product over
another’s. Many start-ups do not make it past year 1 because they fail to define what their value
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proposition is before launching their services or products. Mark Evans believes, “Developing
strong value propositions not only makes it easier to connect with target audiences but it
establishes a foundation upon which a company’s marketing and sales activities can be built
upon (Evans, 2013). This is also a means to empower the employees of the company to
understand their job and why it is important to the success of the business.
How does “Brainstorming New Business Models” by answering the “What If” questions
impact successful businesses?
Those “What If” questions can have a successful impact on businesses, as it places
managers in the position to determine risk, growth possibilities, and development ideas for their
business models. Innovation can contribute greatly to the success of the company. In order for
businesses to survive they have to understand the need to constantly evaluate and re-evaluate
their current business models to look for areas of growth and development. By doing this the
company is able continue to develop their goals and objectives and either gain a competitive
advantage or sustain their competitive advantage. These questions also challenge the senior level
managers to think outside of the box in ways to compete and provide different viewpoints and
options.
Brainstorming is important and should be used for the company’s advantage. Positivity is
definitely a key result of brain storming as it allows for fresh ideas to be presented. What if
planning also helps plan for various routes that can be taken to solve a problem. What if planning
can also be used to make decisions on what the company should do in the event of a problem that
arises, whether it is a new entrant in the market, or a company lowering their cost, or supplier
issues. Planning will place the company to have an options in the event their plan a doesn’t work
as intended.
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References:
Evans, M. (2013). Why value propositions are important (and how to create them). Forbes.
Retrieved from http://www.forbes.com/sites/markevans/2013/10/31/why-value-
propositions-are-important-and-how-to-create-them/#2b9d5e9a4b0d
McGrath, J., and Clifton, J. (2016). Top 10 influential business models. How Stuff Works.
Retrieved from http://money.howstuffworks.com/5-influential-business-models.htm
Osterwalder, A., & Pigneur, Y. (2010). Business model generation. Hoboken, NJ: John Wiley &
Sons. ISBN: 9780470876411.
Rothaermel, F. T. (2014). Strategic management concepts and cases (Custom 2nd ed.) New York,
NY: McGraw-Hill.
Senna, A. (2013). Competitive advantage Ford Motor Company. Retrieved from
https://wpsenna.wordpress.com/2013/06/04/competitive-advantage-ford-motor-company/
