Running head: BUSINESS MODEL GENERATION EXERCISE 21
Business Model Generation Exercise 2
Horace K. Rollins
Liberty University
BUSINESS MODEL GENERATION EXERCISE 22
Business Model Generation Exercise 2
External factors in Successful Business Models
External forces in the business environment play a crucial role in designing and changing
the business models of companies in their efforts to be successful. External forces such as
political, social, and economic events shape a firm during its lifecycle. These external forces
affect the internal organization of a company as well as its overall strategy. There is not a single
business that operates as it were in a vacuum and it is imperative for executives to pay attention
to those factors that are beyond the control of the respective organization[Cas11]. The role of
external forces varies from firm to firm and it is essential for managers to understand and
respond to external events.
The role external factors play in the overall success is multi-fold. Analysis of external
forces such as market trends and other macroeconomic forces provide managers with the “design
space” to not only design but to adapt business model options in the present and the future
[Ost10]. Providing for future scenarios allows firms to choose the best option in response to
external events that undermine profitability and sustainability.
The primary factor that affects the business model of most companies is the degree of
competition that a company faces in providing goods and services to consumers. Competition
drives productivity and innovation. Companies in a competitive market position themselves
relative to their competition and work to strengthen brand recognition. By assuming this strategy,
the firm can adapt to changing market trends and differentiate themselves from their
competition[Cas11].
Other external forces that play a role in the success of a company’s business model are
the political and legal factors along with the social and technological factors. Changes in
BUSINESS MODEL GENERATION EXERCISE 23
regulation and policy can affect the success of a company’s business model through by removing
barriers to innovation or by placing barriers to entry to prevent increased competition.
Consumers help drive competition and change through the shifting of demands for goods and
services. External forces drive businesses to adapt and respond to demand, and as a result,
companies must be willing to adjust the business model to meet those demands.
“Business Model Design and Innovation”
“Business Model Design and Innovation” describes the process in which a business
initially constructs a business model and then continually adapts to meet both internal external
shifts that affect its competitive advantage [Ost10]. Businesses such as IBM initially started
doing business by focusing on a simple product such as mainframe and printer services but
shifted its business model to include cloud computing and artificial intelligence to regain
competitive advantage it had lost to competitors such as Oracle and IBM. By adapting their
business model, IBM was able to meet the demand of its customers who were searching for
opportunities in storing data without the need of a large mainframe server in order to cut costs.
Innovation occurs through companies that explore creative ways and products to attract
and retain new and current customers[Ost10]. Shifts in innovation and a company’s business
model are the result of a shift in customer demand and the process of meeting those needs.
Technology, for many firms, is utilized as the conduit in which to quickly address the needs of
the customer in a cost-effective and user-designed strategy. A company such as Sony Playstation
uses technology in the form of downloads to deliver new content for its customers to enhance
their experience.
Innovation and the business model involves the process of being complementary. In some
instances, companies adapt their business model in order to “reinvent” or “reintroduce” a product
BUSINESS MODEL GENERATION EXERCISE 24
or service in a market where it previously had competitive position. A prime example of such
reinvention is National Geographic, the once famous magazine that is transitioning its brand and
products into the digital age through movies, the Internet, and television.
Challenges to “Business Model Design and Innovation”
Meeting the challenges associated with the design and innovations of a business model
can be difficult for managers to address. Brainstorming is a great tool to seek ways in which to
meet the challenges that a company faces [Ost10]. After determining which ideas to map from
the brainstorming session, executives can implement a strategy on a trial basis. These ideas need
to be validated in trials that target certain customers prior to implementing those ideas on a wide-
spread basis.
After implementing ideas that have been successful during trials, the next logical step in
the process for managers and firms would be to anticipate emerging trends and create
innovations towards future needs[Ost10]. Businesses that fail to anticipate and foresee emerging
trends are often unable to remain profitable and sustain a competitive advantage. In order to be
relevant in their industry, organizations need a proactive approach to identify trends that can
affect the business and develop scenarios and create innovation based upon those trends that
were identified.
Through the creation of innovative responses and scenarios to developing trends,
companies are better to execute its business strategy and scale the organization to secure growth
[Ost10]. Every company has a strategy that needs to be achieved over a period of time and
successful innovation is the result of a sound strategy. Thanks to changes in the respective
landscape of the industry, companies are forced to either adapt their current business model or
develop a new one. This requires firms to reinvent a business model that is both sustainable and
BUSINESS MODEL GENERATION EXERCISE 25
effective. A successful business model is not only scalable for business growth but desirable to
the customers it has.
References
BUSINESS MODEL GENERATION EXERCISE 26
Casas, R., Kavaliauske, M., & Dambrauskaite, V. (2011). The impact of external business
environment factors to internationalization of "born global" companies by promoting
entrepreneurship. Transformations in Business and Economics, 10(2A), 389-400.
Retrieved from http://search.ebscohost.com.ezproxy.liberty.edu:2048/login.aspx?
direct=true&db=eoh&AN=1283823&site=ehost-live&scope=site
Osterwalder, A., & Pigneur, Y. (2010). Business Model Generation. Hoboken: New Jersey.
