Running head: BUSINESS MODEL GENERATION 1
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Business Model Generation 1
BUSI 690
BUSINESS MODEL GENERATION 1
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Business Model Generation 1
RQ1
A business model is described by Rothaermel (2017) as “How the firm intends to make
money. The business model stipulates how the firm conducts its business with its buyers,
suppliers, and partners” (p. 160). The development of valuable and successful business model is
dependent on the company management’s ability to convert the strategic plan into an outline of
activities, ideas, and concepts that support and sustain company strategy. After the framework is
developed, the plan must be put into action via various activities, company infrastructure, values,
norms, culture, and procedures. Rothaermel (2017) explains, “A firm’s business model is critical
to achieving a competitive advantage. How a firm does business is as important as what it does”
(p. 165). The framework developed by upper management is designed to offer managers and the
workforce a set of standards, specific devices, and methods to successfully fulfill the strategy of
the company.
A firm’s business model must continually adjust to the forces of the market; without these
adjustments the dynamics of the business environment will render the current model useless.
Rothaermel (2017) considers numerous forms of accepted business models, “razor-razorblade,
subscription, pay as you go, freemium, wholesale, agency, and bundling” (p. 163). These are
standard models and have been modified to create the most advantageous version for the
company. An example of a combination model is offered by Rothaermel as AT&T when the firm
used a blend of the subscription and razor-razorblade models. The company gives away a phone
when you agree to a two-year service plan. In this case a free phone could cost up to $2,000 for
two years of wireless service. Currently, most of the major wireless providers have gone to a full
subscription model.
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In the past mobile phone providers used term contracts to lock customers into two year
commitments to retain them under the penalty of a large early-termination fee. Tesfom, Birch,
and Culver (2016) explain “The recent mobile phone service companies’ in the U.S. shift from
contract to no contract mobile phone service plans provides mobile phone service customers in
the U.S. with more flexibility than before” (p. 154). This is a good example of an industry that
shifted the model to fit consumer demands. Customers had gained knowledge and expertise from
such pay as you go services as Netflix and Hulu and had grown weary of being confined to
confusing two year commitments offered by most of the mobile communications providers.
RQ2
The business model is described by Osterwalder and Pigneur (2010) as “the rationale of
how an organization creates, delivers, and captures value” (p. 14). The writers refer to several diverse
foundational concepts that include key activities, resources, and partnerships, segmentation of the
consumer base, revenue and value analysis, channels, customer management, and proper cost
allocations. These nine concepts are used to encompass the four principal functions of business;
“customers, offer, infrastructure, and financial viability” (Osterwalder & Pigneur, 2010, p. 15).
The business model concept is fairly new, Zott, Amit, and Massa (2011) explain, “the business
model concept became prevalent with the advent of the Internet in the mid-1990s, and it has been
gathering momentum since then” (p. 1022). The impetus for interest in modern business models
seems to stem from the explosive growth of E-business, global strategic topics regarding
performance, competition, and creation of value in the international marketplace.
An interesting change in business model can be seen in Goodwill retail stores. In the past
these facilities were often located in somewhat seedy and what could be perceived intimidating
urban locations. The customers were seen as low-income, local residents that were simply
looking for inexpensive items with an occasional college student thrown in the mix. With the
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change of clothing trends and social responsibility, Goodwill management perceptively noticed a
shift in buyer tendencies and modified their business model to reflect this change. Steward
(2017) explains, “Some shoppers value the search for bargains and the economy of this market.
Others value the distance of the market from other retailers and see their consumption as an act
of creativity” (p. 2). This shift in consumer preferences reflects both the socially mindful
millennials searching for creative reuse of items while cost conscious new homeowners seek
classic or upcycled furnishings. Goodwill has also enhanced its e-presence via Facebook and
Twitter accounts. Goodwill has adopted a specialty shop genre and the transformation serves
two customer groups. Existing Goodwill shoppers are thrilled with the upscale feel, and the
more sophisticated buyers are attracted due to the boutique feel of the store (Soat, 2017).
This modification of Goodwill’s business model reflects the importance of business models and
heeding the voice of the customer.
RQ3
Value propositions accomplish several important roles regarding successful business
models. The value proposition “describes the bundle of products and services that create value
for a specific customer segment” (Osterwalder & Pigneur, 2010, p. 22). The use of value
propositions will facilitate answering several questions in regards to the customer. Deimler,
Lesser, Rhodes, and Sinha (2013) explain, “The value proposition answers the question: What
are we offering to whom?” (p. 292). The question should explore three aspects related to
customer target segments, the product/service offered that will create a high level of customer
satisfaction, and how will the firm be rewarded for the offering.
Osterwalder and Pigneur (2010) describe several different factors related to value
proposals. These factors involve accessibility, reduction of risk, performance attributes, custom
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features, ability to reduce cost, ease of use, unmet needs, product design, and product branding.
This well-defined synthesis of both qualitative and quantitative factors defines the scope of
research and analysis required for a comprehensive review of a value proposition. Lindic and
Marques (2011) explain that the consumer makes the choice regarding the consumption of
products that are offered, consequently, value is based on their opinion and needs. The goal is to
satisfy the customer. The factors discussed by Osterwalder and Pigneur (2010) are a valuable
tool in determining value proposition and while management are the definitive decision makers
the aforementioned factors propose a solid foundation on which to make decisions based on the
improvement or level of innovation available to the firm.
RQ4
The various What if? questions can have a tremendous bearing on a successful business
venture. Osterwalder and Pigneur (2010) describe the What if? question as a starting point that
can be utilized to assist in exposing an innovative business model for a company. The ideation
process facilitates the development of models or concepts that may eventually turn into a novel
strategy and can present itself in many configurations such as prototypes, selection of business
measures, development of potential explanations, and research team configuration. The What if?
statement is described by Sloane (2007) as “A possibility thinking technique that can be used for
problem analysis and exploration as well as idea creation. In the What if? exercise every
dimension of the question is tested, the more ridiculous and provocative the questions, the better”
(p. 86). The use of visual aids is a must when using the What if? process. Osterwalder and
Pigneur (2010) state, “Because business models are complex concepts composed of various
building blocks and their interrelationships, it is difficult to truly understand a model without
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sketching it out” (p. 148). Several techniques are available and the team or facilitator will want
to select the model that works best for the team.
The What if? questions can be captured and analyzed using several popular visual
methods. Brainstorming and the Business Model Canvas are two popular methods. The main
take-away is to understand the power of What if? analysis. The American Chemical Society
(ACS) provides an interesting use of What if? The ACS explains, “A What-if Analysis consists
of structured brainstorming to determine what can go wrong in a given scenario; then judge the
likelihood and consequences that things will go wrong” (para 2). In the case of the chemical
industry the interest lies in what could go wrong. In a business scenario the company needs to
ensure the questions are directed to facilitate the support of company strategy and goals.
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References
ACS (2018, April, 4). American Chemical Society. What-if-analysis. Retrieved from
https://www.acs.org/content/acs/en/about/governance/committees/chemicalsafety/hazard-
assessment/ways-to-conduct-hazard-assessment/what-if-analysis.html
Deimler, M. S., Lesser, R., Rhodes, D., & Sinha, J. (2013). Own the future: 50 ways to win. The
Boston consulting group. Hoboken, NJ: Wiley.
Lindic, J., & Marques, d. S. (2011). Value proposition as a catalyst for a customer focused
innovation. Management Decision, 49(10), 1694-1708. Retrieved from
http://ezproxy.liberty.edu/login?url=https://search-proquest-
com.ezproxy.liberty.edu/docview/912291367?accountid=12085
Osterwalder, A. & Pigneur, Y. (2010). Business model generation. Hoboken, NJ: John Wiley &
Sons.
Rothaermel, F. T. (2017). Strategic management concepts (3rd ed.). New York, NY: McGraw-
Hill.
Soat, M. (2017). Goodwill's thrifty retail strategy, American Marketing Association. Retrieved
from https://www.ama.org/publications/MarketingNews/Pages/goodwill-retail-thrifty-
business.aspx
Sloane, P. (2007). The innovative leader: How to inspire your team and drive creativity.
Philadelphia, PA: Kogan Page Limited.
Steward, S. (2017). What does that shirt mean to you? Thrift-store consumption as cultural
capital. Journal of Consumer Culture. doi: 10.1177/1469540517745707
Tesfom, G., Birch, N. J., & Culver, J. N. (2016). Switching behavior of U.S. mobile phone
service customers after providers shift from contract to no contract mobile phone service
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plans. Journal of Retailing and Consumer Services, 33, 154-163. doi:
10.1016/j.jretconser.2016.08.015
Zott, C., Amit, R., & Massa, L. (2011). The business model: Recent developments and future
research. Journal of Management, 37(4), 1019-1042. Retrieved from
https://doiorg.ezproxy.liberty.edu/10.1177/0149206311406265
