Running head: BUSINESS MODEL GENERATION 2
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Business Model Generation 2
BUSI 690 Policy and Strategy in Global Competition
Nguyet Nguyen
Liberty University
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BUSINESS MODEL GENERATION 2
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RQ1
According to Rothaermel (2014), external factors includes PESTEL forces (political,
economic, sociocultural, technological, ecological and legal factors), industry and strategic
group. Although they cannot be controlled by the firms, they play an important role in achieving
a successful business model. By affecting demand of customers, it requires firms to change their
business model for adaptation on changes.
Firstly, external factors may define value proposition of a firm. Value proposition is the
key part in any business model. Changes in value proposition may lead to redesigning business
model. External factors, especially technology, can shift value proposition of a firm to a new one.
One of significant examples is in camera industry. Before technology in digital camera was
invented, Kodak is one of the most famous company to provide film camera. However,
appearance of new technology, digital camera, shifts customers’ demand. It forced Kodak to
redefine its value proposition in order to adapt new trend. However, Kodak failed remodeling its
business model and filed a bankruptcy in 2012.
Secondly, external factors also impact customer segments and other parts relating to it
such as channel and customer relationship. This idea can be illustrated by example of Nissan. In
the trend of “green” car, Nissan targeted on new customer segment in which people concern
environment to introduce Nissan Leaf in 2010. This addition in business model brings more
reputation and profit to Nissan.
Finally, upstream parts in a business model such as key activities, resources and partners
can be affected by external factors. Policies and regulations from government play a critical role
in building a business model. Foreign companies in beverage industry such as Pepsi and Coca
Cola have to find a local partner in China when they enter into this market. This partnership adds
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more valuable key resources from its partners and makes their business model in China different
from in other countries. It helps these firms gain profits in China.
RQ2
According to Zott and Amit (2010), business model design is process to build
connections between interdependence activities in order to improve its performance and expand
its boundaries. There are six techniques for designing a business model: customer insights,
ideation, visual thinking, prototyping, storytelling and scenarios (Osterwalder and Pigneur,
2010). Designing a business model is an important decision for any business firms because a
good business model will adapt to the future market conditions well and bring profit to the firms.
Chesbrough (2010) defines business model innovation as a way the firm uses to create
more values in order to gain competitive advantages. Innovation in business model becomes
popular in recent years. According to a study (Zott and Amit, 2012), 54 percent of 4,000
managers prefer to consider new business models as a competitive advantage. There are some
reasons for managers’ favor of business model innovation. Firstly, an innovative business model
can help the firm in creating product or service innovation. Moreover, compared with product
innovation, it is more difficult for competitors to copy a business model and apply it to other
rivals’ conditions.
Apple IPod is a great example for business model innovation. This product along with
iTunes software which enable users to manage music transferring from IPod to computer and
vice versa. It is a disruptive innovation at that time. In the business model, its value proposition
is to help users enjoy digital music easily and in an inexpensive way. In addition, Apple also
makes negotiation and alliances with major music record companies so that price of songs can be
reduced. It was a creative way at that time when other mp3 players did not have a stock of online
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songs like IPod. Business model innovation of Apple provides the firm with competitive
advantages for a couple years later.
RQ3
Despite important role of business model design and innovation in the firm’s
development, it exposes some challenges to carrying out. According to Chesbrough (2010), these
challenges includes uncertainties in the market, limit in budget and cohesive teamwork.
Firstly, unpredictable threats is one of challenges to business model innovation. Any
changes in external factors may impact on business model innovation. For example, in economic
downturn, many firms face with financial problems. In order to save costs, they reduce budget
for business model innovation. Managers need to plan to avoid or limit uncertainties in business
so that it will not affect severely business model innovation
Secondly, low budget for changes in business model may prevent firms from innovating
the new one. This challenge seems to grow up in small businesses where the managers pay more
attention to short-term solutions for daily problems rather than design a new business model for a
long-term goal. In addition, business model innovation requires advances in technology, which
causes difficulties for the small firms because they cannot afford to adapt new technology.
Finally, poor cooperation between members in work team decrease ability to innovate a
new business model. Innovation cannot be made by individual. It is an achievement by a work
group. Because of diversity of members’ backgrounds and insights, poor connection between
them may prevent the firm to have business model innovation. Communication and a good
leader can help work team overcome conflicts in designing and innovating a new business
model.
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Reference
Chesbrough, H. (2010). Business Model Innovation: Opportunities and Batteries. Long Range
Planning, 43(2-3), 354-363. doi:10.1016/j.lrp.2009.07.010
Osterwalder, A. and Pigneur, Y. (2010). Business Model Generation. Hoboken, NJ: John Wiley &
Sons.
Rothaermel, F. T. (2014). Strategic management concepts and cases (Custom 2nd ed.) New York,
NY: McGraw-Hill
Zott, C. and Amit, R. (2010). Business Model Design: An Activity System Perspective. Long
Range Planning, 43(2-3), 216-226. doi:10.1016/j.lrp.2009.07.004
Zott, C. and Amit, R. (2012). Creating Value through Business Model Innovation. MIT Sloan
Management Review, 53(3), 41-49. Retrieved from:
http://search.proquest.com.ezproxy.liberty.edu:2048/docview/963962187?pq-
origsite=summon
