Alexander Ato Frempong
BUSI 690 Exercise 2
Liberty University
Exercise 2
RQ1 What role should external factors of demand play in successful business models?
According to Osterwalder and Piqneur (2010), “developing a good understanding of your
organization’s environment helps you conceive stronger, more competitive business models” (p.
200). More specifically, four areas of the environment are worth looking at in greater detail.
These areas include key trends, market forces, macro-economic forces, and industry forces
(Osterwalder & Piqneur, 2010). All of these areas can be considered external factors, and
therefore, understanding each area will be essential to the success of firm’s business model.
The first area, key trends, can include technology trends which can help to further a firm,
or become a hindrance to its success. Additionally, regulatory trends, societal and cultural trends,
as well as socioeconomic trends and how they can influence a firm’s business model need to be
understood. The second area, market forces, looks more specifically at factors which influence a
firm’s specific market. Market forces includes market issues, market segments, needs and
demands, switching costs, and revenue attractiveness (Osterwalder & Piqneur, 2010).
The third area, macro-economic forces, includes global market conditions, capital
markets, commodities and other resources, and economic infrastructures (Osterwalder &
Piqneur, 2010). The fourth and final area, industry forces, takes into consideration competitors,
new entrants into the industry, substitute products and services, supplies and other value chain
actors, and stakeholders (Osterwalder & Piqneur, 2010).
Recognizing the importance of the influence of these external factors on an organization’s
environment, is the first step to acknowledging how these factors influence a firm’s ability to
function within their environment. In addition, this understanding allows management to
evaluate which factors can be manipulated to meet the needs of the company, and which factors
cannot be manipulated. As a result, management is able to make the necessary adjustments to the
company’s business model and internal structure to reach their overall goals (Root, 2015).
An example of a company which has been able to make changes necessary in response to
their changing environment can be seen by looking at Starbucks (Pangarkar, 2011). Another
example of a company responding to their changing environment is seen by the decision of the
Tupperware Company to make the decision to sell their products in Target stores (Day, 2001). As
a result, Tupperware, recognized the changing environment they found themselves in and sought
to offer goods in a different venue than had been offered previously. Therefore, it is safe to
assume the need to continually evaluate a company’s external factors needs to be part of a
successfully company’s business strategy.
RQ2 What is “Business Model Design and Innovation”?
Business model design and innovation goes beyond the development of a business model
based only on what good or services a company offers. Instead, it refers to when a firm is able to
look at their customer’s needs, what resources a company has available to it, and make the
necessary adjustments to a company’s business model to transform the company and creating
growth (Pangarkar, 2011). According to Osterwalder and Piqneur (2010), business model
innovation is a company’s response to meeting one of four objectives. These include 1) meeting
an unanswered market need, 2) bring a new product or service to the market, 3) to improve the
current market, or 4) to create an entirely new market (p. 244).
Osterwalder and Piqneur (2010) provide five phases of the business model design
process. These phases include mobilize, understand, design, implement, and manage (p. 249).
The first phase, mobilize, refers to the preparation a firm takes to embark on the development of
a successfully business model. The second phase, understand, refers to the actions a company
takes to research what is needed for the business plan to be successfully. This may include
conducting market research, speaking with industry experts, or identifying potential needs of
customers.
The third phase, design, refers to when a firm actually creates potential business models.
The company may create more than one potential business model, before making a final
selection based off of the model which allows the company to best meet the needs of the
customer and to obtain the company’s goals. The fourth phase, implement, refers to the
company’s actual implementation of the new business model. The final phase, manage, is when a
company evaluates the business model, and makes the necessary changes to the model to ensure
the company’s overall success.
RQ3 What are the challenges to “Business Model Design and Innovation?
According to Osterwalder and Piqneur (2010), the challenge of business model
innovation “is that business model innovation remains messy and unpredictable, despite attempts
to implement a process” (p. 246). As a result, a company’s management must be willing to invest
the time necessary to look at a number of potential business model options before making a
decision. This commitment to allowing the process to take the time needed, helps to ensure the
overall success of the business model selected, and will help to ensure growth.
Additionally, each of the phases of business model design can present its own challenges.
For instance, in the mobilize phase, there is a risk of participants being closed minded and not
open to exploring new ideas because they have already committed to previous ideas. As a result,
the company needs to try to involve a wide range of individuals in design process to help
overcome this obstacle. In the understanding phase, it is particularly important not to rush
through the process. Instead, the participants need to take the time necessary to research as much
information as possible to ensure the design phase is able to be entered into with all the
necessary information in place.
Similar to the mobilize phase, the design phase also can be subjected to participants
prematurely committing to a particular mindset and being closed minded to other ideas and
business models. As a result, there may be a temptation to adopt a business model without
actually testing it, or adopting a model before testing each of the potential business models. Once
a model is adopted, the implement phase, needs to be aware of potential “unknowns” in the
model and be prepared to address them quickly as they arise. Lastly, once a model is in place, the
manage phase, needs to continually evaluate the business model. The temptation in this phase is
to skip the need to evaluate the model and accept it as is. However, doing so does not take into
account the changing external factors which cause a firm’s environment to be in constant flux.
References
Day, S. (2001). Tupperware to sell products in Super Target stores. The New York Times.
Retrieved from http://www.nytimes.com/2001/07/18/business/tupperware-to-sell-
products-in-supertarget-stores.html
Osterwalder, A. & Pigneur, Y. (2010). Business model generation. Hoboken, NJ: John Wiley &
Sons.
Pangarkar, N. (2011). High performance companies: Successful strategies from the world’s top
achievers. Hoboken, NJ: John Wiley & Sons.
Root, G. N. (2015). Five components of an organization’s external environment. Houston
Chronicle. Retrieved from http://smallbusiness.chron.com/five-components-
organizations-external-environment-17634.html
