Running head: BUSINESS MODEL GENERATION 2
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Business Model Generation 2
BUSI 690
BUSINESS MODEL GENERATION2
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Business Model Generation 2
RQ1
Successful business model development is dependent on external factors of demand.
Osterwalder and Pigneur (2010) explain, “Market forces, industry forces, key trends, and
macroeconomic forces” are the key external influences affecting business models (p. 200).
These four main areas are discussed by Rothaermel (2017) in regards to “A firm’s external
environment consists of all the factors that can affect its potential to gain and sustain a
competitive advantage” (p. 66). By carefully evaluating these factors, management can alleviate
or eliminate threats and exercise influence future opportunities.
Market forces are explained by Osterwalder and Pigneur (2010) as, “market issues,
market segments, needs and demands, switching costs, and revenue attractiveness” (p. 202).
These various aspects of market forces deal with customer desires, areas of growth, meeting
unmet customer needs, customer loyalty, and pricing factors. The process of determining current
market issues, segments, and customer needs will give firms a more thorough understanding of
the current market potential. This can assist the company in dispatching the proper resources in
order to meet this potential. The consumer market is rapidly changing and an astute manager
must be able to meet the changing needs of the customer. For example, there are 179
combinations of Oreo cookies flavors and packaging options (Oreos, 2018). Did customers ask
for all these iterations? Probably not, but the firm has goals to grow the business using their
strategies to “Focus passionately on consumers and customers”, and “to innovate boldly with
speed and excellence” (Mondelez, 2018). The consequence of this dedication to originate new
options or modify existing products should create customer value and loyalty.
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Industry forces are influences that deal with “incumbent competitors, new entrants,
substitute products/services, supplier/value chain actors, and stakeholders” (Osterwalder &
Pigneur, 2010, p. 204). The use of market force analysis will demonstrate not only the
competition, but also their market advantages disadvantages. A related method was discussed by
Rothaermel called Porter’s five forces; Porter (1979) explains, “New entrants to an industry
bring new capacity and a desire to gain market share that puts pressure on prices, costs, and the
rate of investment necessary to compete” (p. 80). In addition, industry forces analysis can
increase a firm’s awareness of comparable products/services. Key players in the value chain
such as suppliers, inbound/outbound logistics providers will be assessed and evaluated along
with a through investigation regarding the state of a firm’s workers, shareholders, and possible
governmental issues.
Key trends are categorized by Osterwalder and Pigneur (2010) as “technology, regulatory,
societal and cultural, and socioeconomic” (p. 206). The dynamic state of technology is
sometimes considered a moving target. Gorevaya and Khayrullina (2015) explain, “The current
situation has formed technological trends, mainly in IT that will have a major impact on changes
in the business models of the company in the short and medium term” (p. 249). Regulatory
trends such as tax laws and global directives may have a huge impact on a firm’s strategy.
Society-driven values will also influence a company’s method of doing business along with
shifts in demographic developments. A firm’s ability to identify these trends will enable the firm
to craft their model corresponding to the key trends of a particular market.
The last set of external forces are macroeconomic forces and are describes as “global
market conditions, capital markets, commodities and other resources, and economic
infrastructure” (Osterwalder & Pigneur, 2010, p. 208). By definition, these forces are at an
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inclusive level of analysis. This investigation asks questions such as the condition of the
economy, the status of capital funding, commodity positions and the overall economic condition
of the firm’s market(s).
The market is a dynamic and vibrant environment. Wang and Kimble (2016) explain, “It
is important to look at how external factors influence business model innovation, for such a focus
will help simplify the task of understanding the drivers of business model innovation” (p. 61).
The use of through analysis associated with the external forces that guide market forces, industry
forces, key trends, and macroeconomic forces, a firm can make minor adjustments, or radical
changes to their business model using present market conditions.
RQ2
Business model design and innovation is explained by Osterwalder and Pigneur (2010) as
the procedure used to bring new services or products to the marketplace, fulfilling a currently
pending need, improve a current design, or initiate a totally new market. Five stages are used for
this technique: mobilization, comprehension, design, implementation, and management. These
processes are not necessarily a lockstep procedure. For instance management of the process will
be continuous, after implementation the team may determine the design needs to be modified,
and so on. Bandara, Gable, and Rosemann (2005) explain, “Modelling is an approach for
visually depicting how businesses conduct their operations: defining and depicting entities,
activities, enablers and the relationships between them” (p. 347). This method is used to
understanding and mindfulness of the business process and to facilitate change to create a
sustainable environment.
The first phase, mobilize, involves laying the groundwork for an effective design plan.
This would include the need for the change, the goals of the project, and instruction regarding the
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different types and uses of business models. The use of the Business Model Canvas as explained
by Osterwalder and Pigneur (2010) is a valuable visual tool to assist with understanding the
current design and developing new designs. An innovative example was offered by Osterwalder
and Pigneur (2010) called a kill/thrill session in which the team participants spend time killing
ideas, that is, discussing why they will not work, versus thrilling which entails brainstorming
reasons why the ideas will be successful. Understand is the second phase and includes
reviewing the current business environment, interpreting both current and future markets. An
important facet of this phase is a deep understanding of the customer base and many times
customer surveys are a useful example. Regarding customer research, Slater and Narver (1998)
explain “It may be attractive to some managers in dynamic environments because of the
uncertainty and risk associated with attempting to lead the customer” (p. 1005). The goal of the
understanding permits the firm to create a business model that meets the needs of the total
business effort. An example regarding understanding the business environment might include
the change in the current gas station/mini-mart model. With the upcoming transition to electric
vehicles these companies may eventually cease to exist. Mini-marts are able to charge a large
mark-up on the items they carry, and most of these items are impulse buys from gasoline
customers. How will these businesses continue to exist under an all-electric vehicle model?
The next phase, design, includes the use of brainstorming, developing sample models,
trial runs, and choosing a model. A challenging possibility during this phase is the aversion to
change and new concepts. Some team member may not want to implement any drastic changes,
or may choose the first model offered and not want to seek other options. Implement is the stage
that includes communication, engagement, and achievement of actually using the prototype
created during the design phase. This is a stimulating step of the process, the project has been
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defined, budgets have been developed, objectives have been set, and the hard work performed in
the other phases has all come together. The manage activities are defined as “continuously
assessing the mode and scanning the environment to understand how it might be affected”
(Osterwalder & Pigneur, 2010, p. 258). Management is the ongoing evaluation of the model to
validate the design and to act as a notification regarding modifications to safeguard the firm’s
long-term success.
RQ3
The design and improvement of business models includes various obstacles. A major
issue is a lack of general consensus regarding the business model development process. Spieth,
Schneckenberg and Ricart (2014) explain, “This fuzziness of the phenomenon is caused by
inconsistencies in the conceptual framework of business models itself, which resides somewhere
between economics and business strategy without possessing a solid theoretical anchoring in
either field” (p. 238). Osterwalder and Pigneur, 2010 discuss several of these obstacles and their
relationship to the previously discussed five phases of business model design.
Mobilization may lead to embellishment or aggrandizement of the original idea. Team
members may adopt tunnel vision towards the idea and not investigate any further concepts.
During the understanding phase the team may develop a partiality towards the selected method
and overlook or ignore downsides of the concept. The design stage could result in devotion in
the first ideas generated due to the familiarity and investment in the project or may have the
potential to stifle ground-breaking due to accepted business practices. After much hard work, the
implementation phase might realize an absence or shortage of energy and drive. An astute
manager will follow the advice of Larson and Gray (2016) and “Communicate a closure and
review plan and schedule early, this allows the project team to accept the psychological fact the
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project will end and prepare to move on” (p. 514). In addition, this phase, by definition, may
encounter a variety of prospective and yet undiscovered issues related to the new design. The
team should be ready to concentrate an agreeable solution in a timely manner.
The manage phase lends itself to a rather unique challenge of failing due to one’s success,
that is “Business leaders routinely exaggerate their personal abilities, particularly for ambiguous,
hard-to-measure traits like managerial skill. Their self-confidence can lead them to assume that
they'll be able to avoid or easily overcome potential problems in executing a project” (Lovallo &
Kahneman, 2003, p. 59). The continual drive to improve, research, and amend a firm’s business
design should never be taken for granted. The foreknowledge of these challenges can assist in
gaining a more comprehensive grasp of the potential pitfalls of business model design and
innovation.
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References
Bandara, W., Gable, G. G., & Rosemann, M. (2005). Factors and measures of business process
modeling: Model building through a multiple case study. European Journal of
Information Systems, 14(4), 347-360. Retrieved from
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Gorevaya, E., & Khayrullina, M. (2015). Evolution of Business Models: Past and Present Trends.
Procedia Economics and Finance, 27, 344-350. Doi: 10.1016/S2212-5671(15)01005-9
Larson, E. W. & Gray, C. F. (2016). Project management: The managerial process, (6th ed.).
New York, NY: McGraw-Hill Education.
Lovallo, D., & Kahneman, D. (2003). Delusions of Success. Harvard Business Review, 81(7),
56-6. Retrieved from http://ezproxy.liberty.edu/login?
url=http://search.ebscohost.com/login.aspx?
direct=true&db=bth&AN=10147066&site=ehost-live&scope=site
Mondelez. (2018). Our growth strategy. Retrieved from
https://www.mondelezinternational.com/about-us/our-growth-strategy
Osterwalder, A. & Pigneur, Y. (2010). Business model generation. Hoboken, NJ: John Wiley &
Sons.
Porter, M. E. (1979). How competitive forces shape strategy. Harvard Business Review, 57(2),
137-145. Retrieved from http://ezproxy.liberty.edu/login?
url=http://search.ebscohost.com/login.aspx?
direct=true&db=bth&AN=3867673&site=ehost-live&scope=site
Rothaermel, F. T. (2017). Strategic management concepts (3rd ed.). New York, NY: McGraw-
Hill.
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Slater, S. F. & Narver, J. C. (1998). Customer-led and market-oriented: Let's not confuse the two.
Strategic Management Journal, 19(10), 1001-1006. Retrieved from
http://www.jstor.org/stable/3094174
Spieth, P., Schneckenberg, D., & Ricart, J. E. (2014). Business model innovation – state of the art
and future challenges for the field. R&D Management, 44(3), 237-247.
Doi:10.1111/radm.12071
Oreos. (2018). Snackworks. Retrieved from http://www.snackworks.com/search/product-results?
searchText=Oreo&page=6&searchType=Product
Wang, H., & Kimble, C. (2016). How external factors influence business model innovation: A
study of the bosch group and the Chinese automotive aftermarket. Global Business and
Organizational Excellence, 35(6), 53-64. Doi:10.1002/joe.21712
