Running head: BUSINESS MODEL GENERATION EXERCISE 2 1
Business Model Generation Exercise 2
Chamisi Pastor
Liberty University
BUSI690-D09
Dr. Michael Walker
December 1, 2017
BUSINESS MODEL GENERATION EXERCISE 2
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What role should external factors of demand play in successful business models?
External factors of demand play significant roles in the success of business models hence
they should be understood to come up with prospective models of business that are successful.
Understanding changes in external factors of demand are important for the sustainability and
flexibility of business models to change and adapt to external forces. Understanding external
demand does not stop creativity by business models but endorses the scheme of choices that
notify on the choices made. A few of the external factors that play a large role in successful
business model development are: identifying potential customers, identifying competitors, and
marketing.
Identifying potential customers is important as goods and services cannot exist in a
vacuum. The scope, size and their purchasing power inform the business of how it will operate.
Identifying competitors is also important especially if a different company sells and offers the
same goods and services as your company. In this case, its actions will affect your business
directly unless you differentiate your services to consumers.
Marketing costs are an outer factor that straightforwardly impacts the general plan of
action. Since marketing costs can change quickly, a business model should anticipate spending
the maximum amount of advertising over a multi-year time span. In any event, you are selling to
a global market; you should spend a lot on publicizing in the world. Unlike when you are
pitching to a local market you will focus your advertising spending plan in neighborhood media
and verbal.
Tupperware opened a new sales channel by selling through Target. While the Target
strategy was profitable for them, they admitted that selling through Target had undermined direct
BUSINESS MODEL GENERATION EXERCISE 2
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sales and subsequently abandoned the initiative (Pangarkar, 2015). This proves that company’s
need to frequently evaluate the external factors and improve their business strategy.
What is “Business Model Design and Innovation”?
According to Osterwalder and Piqneur (2010), business model design and innovation is
derived from one of four objectives: 1) to satisfy an existing but unanswered market need, 2) to
bring new products, technologies, or services to the market, 3) to improve, disrupt, or transform
the current market, or 4) to create an entirely new market (p. 244). Business model designs and
innovation represents an intentional and unique change of a firm’s business model in response to
apparent chance to make it more effective. When a business model design and innovation is
introduced to business, it ascertains its potential and other employees in the business learn about
it and respond to it by copying and imitating.
The business model design process has five phases: mobilize, understand, design,
implement, and manage (Osterwalder and Piqneur, 2010, p. 249). Mobilize is the first phase;
this stage is preparing the firm to develop a successful business model. Phase two, understand,
refers to the research and analyzation of elements to implement a successful business plan.
During this second phase, the firm identifies the expected needs of customers, market research
may be conducted, and seeking advice from industry experts.
Design is the third phase and refers to the creation and testing of potential business
models. Multiple potential business models may be created during this stage. Firms should try
out all possible models before making the final selection. The fourth phase is implement, which
is when the company implements its new business model. The fifth and final phase is manage.
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The manage stage is when a firm acclimates to and amends the business model, to guarantee the
company’s success.
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). One challenge is managing new business models while still
trying to keep and maintain the already existing one. Another challenge would be a financial part
of the business model design and innovation. In any business, there is something that is known as
a hurdle rate. A hurdle rate portrays the connection between a project's financial anticipation and
the minimum expected return (Koen, Bertels, & Elsum, 2011). Ventures that have low hurdle
rates can lead to the company’s failures.
The different phases of the business model design process can pose challenges, as well.
For example, during the mobilize stage, overestimating the value of the initial ideas can be
dangerous. The understanding phase can also be over-researched, creating a disconnect between
the research and the objectives. The research can also be biased due to the firm committing to
certain business ideas beforehand.
During the design phase, suppression of bold ideas and settling on or falling in love with
ideas too fast can be detrimental to the company. Another challenge incurred by the phases of
design is during the implementation phase. The excited and motivation for the new business
model design can wane and lose momentum during this time. The last phase, manage, has its
challenges because firm’s can see fast success from the implementation of a business model,
which can lead to becoming lax and failure to maintain the current model.
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References
Koen, P. A., Bertels, H. J., & Elsum, I. R. (2011). The three faces of business model innovation:
Challenges for established firms. Research-Technology Management, 54(3), 52-59.
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Osterwalder, A., & Pigneur, Y. (2013). Business model generation a handbook for visionaries,
game changers, and challengers. New York: Wiley & Sons.
Pangarkar, N. (2015). Performance implications of strategic changes: An integrative
framework. Business Horizons, 58(3), 295-304. doi:10.1016/j.bushor.2015.01.003.
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