Running head: BUSINESS MODEL GENERATION EXERCISE
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Business Model Generation Exercise 2
Thonya Lucas
Liberty University
October 1, 2016
BUSINESS MODEL GENERATION EXERCISE 2
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External Factors of Demand
Organizations are often faced with external factors that affect performance and are often
out of the organization’s control. “Developing a good understanding of your organization’s
environment helps you conceive stronger, more competitive business models” (Osterwalder &
Pigneur, 2010, p. 200) There are four key external factors of demand that play a role in
establishing successful business models.
Market forces are those external forces that deal mainly with customer needs and the
customer perspective, and deals with the areas of “market issues, market segments, needs and
demands, switching costs, and revenue attractiveness” (Osterwalder & Pigneur, 2010, p. 202).
The primary focus here is determining what external factors are influencing customer demand.
Industry forces are those external forces that relate to the entry of competitors, possible
substitutes, and key partners in your market (Osterwalder & Pigneur, 2010). Industry forces are
“valuable for business strategy formulation and implementation, therefore the business should
identify its position in the market area and fight against the competition that threatens its strategic
position before formulating strategies” (Tavitiyaman, Qu, & Zhang, 2011, p. 649).
Trends associated with technology, regulation, cultural behavior, and socioeconomic issues
could influence business models. Insight on the demographic population, cultural values, wealth
distribution, and any existing or upcoming regulatory requirements pertaining to the organization’s
product/service will help firms identify key activities and resources needed to be successful.
Macro-economic forces deals with the economic infrastructure of the market by observing
price trends and assessing capital needs and resources. These factors help organizations assess
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price trends, capital needs, and the economic infrastructure of their industry (Osterwalder &
Pigneur, 2010).
Business Model Design and Innovation
Business model innovation is often compared with a product or service innovation which
consists of application of a product or service that is a considerable improvement or is new to the
organization or to the world with respect to its characteristics or proposed uses (Bjorkdahl &
Holmen, 2013). Existing organizations should consider several factors in business model design
innovation.
Organizations may discover the need for innovation in their business model due to a
predicament with the existing model that requires a reaction (Osterwalder & Pigneur, 2010). For
instance, Harley Davidson had become accustomed to a loyal customer base, but found they
were struggling to entice new ones. Their response to this crisis was to create a group whose task
was finding ways of attracting new riders such as offering safety courses and rental programs
(Begiri, 2014).
Innovation may also require modifying or defending the existing model by being adaptive
(Osterwalder & Pigneur, 2010). Netflix is currently in this position. After eliminating
Blockbuster from the market with their innovative model of offering customers unlimited access
to movie rentals for a low monthly subscription, Netflix now has to defend their position from
other video streaming competitors who seek to steal their customers in the same fashion done to
Blockbuster (Noren, 2013).
Expanding the business model by introducing a new technology, product/service is
another means of organizations adding innovation. In 2006, HTC branched out into the
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smartphone industry after successfully manufacturing handsets for other mobile phone providers
(Amit & Zott, 2012).
Preparing for the future requires organizations be proactive in designing business models.
When the White House began to push for nutritious options for children, fast food chains
proactively made additions to their menus that included healthier food options such as salads,
fruit, and yogurt.
Challenges to Business Model Design and Innovation
The fast-changing competitive landscape of today’s business environment can challenge
organization’s decision to move on innovation. Overcoming this challenge requires “developing
an appetite for new models” (Osterwalder & Pigneur, 2010, p. 245). Firms must be willing to
incorporate emerging technologies, take risks, and free R&D departments to be radical in their
approach.
Innovation also has the challenge of aligning old and new models. Using the nine blocks
of the Business Model Canvas that covers “customers, offer, infrastructures, and financial
viability” can assist firms with determining what activities and resources from previous models
might line up with activities in the new model.
One additional challenge of business model innovation for new or established
organizations is managing uncertainty. “Business uncertainty is the sum of all the unknowns
surrounding a decision: unknowns about competitors, suppliers, and partners and their intentions;
about consumer trends and political and financial shifts; about coming technical changes”
(Spencer, 2014, p. 53). Overcoming this challenge requires foreseeing modes of failure and
putting plans in place to avoid, minimize, or recover from them.
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References
Amit, R., Zott, C. (2012). Creating value through business model innovation. MIT Sloan
Management Review, 53(3), 40-50.
Begiri, G. (2014). Innovative business models and crisis management. Procedia Economics and
Finance, 9(1), 361-368.
Bjorkdahl, J., Holmen, M. (2013) Business model innovation: the challenges ahead.
International Journal of Product Development, 18(3), 213-225.
Noren, E. (2013). Analysis of the netflix business model. Retrieved from
http://www.digitalbusinessmodelguru.com/2013/01/analysis-of-netflix-business-
model.html
Osterwalder, A., Pigneur, Y. (2010). Business model generation. Hoboken, NJ: John Wiley &
Sons. ISBN: 9780470876411.
Spencer, R. W. (2014). Managing under uncertainty. Research Technology Management, 57(5),
53-54. doi:10.5437/08956308X5705007.
Tavitiyaman, P., Qu, H., Zhang, H., Q. (2011). The impact of industry force factors on resource
competitive strategies and hotel performance. International Journal of
Hospitality Management, 30(3), 648-657. doi:10.1016/j.ijhm.2010.11.010
