What role should external factors of demand play in successful business models?

Running head: Business Model Generation Exercise two 1

Business Model Generation Exercise one 5

Business Model Generation Exercise Two

What role should external factors of demand play in successful business models? NOTE: First, fully define the role and then analyze or discuss.

A strong or successful business model understands market behaviors, patterns, and clearly knows their purpose within their competing market. Therefore, regardless of the impact or demand of an external factor, the driving force or influence in an organizational business model is the need or want of a service or product (demand). The role of external factor can be the shaping tool that drives raw resources, operational support structure, and pricing for products. According to Giensen, Berman, Bell, and Blitz (2007) a success business model design begins by “determine the areas in which your organization already excels as well as areas where you can focus your efforts to drive your future business model” (p.30).

For example, prices are a good example of how external factors play a role in establishing the successful business model. Depending on if the firm is in the manufacturing market or is customer oriented, prices have an influence on demand whether positive or negative. Pricing can affect demand because if prices are too high and quality is poor, than consumers can justify not the spending their money on an overpriced product, but if the quality is excellent and the price is low than consumers might want to spend money on an underpriced product. In this case, the price is playing a role as an external factor that is driving demand.

From an organizational perspective, it is important to understand price from a competitive viewpoint. If a company can keep the operational and production cost low, and the demand is high for their line of product, then pricing can be a driving factor for demand because consumers like excellent quality at a reasonable cost. According to Zott and Amit (2007), prices drive organizations because, “what prices can be charged and what margins earned, and, perhaps most importantly, which customers and competitors the new firm will deal with” (p.220).

The role of demand can expand across a multitude of external factors, such as market competition, prices, trends, and customer relationships, but the role it plays in a successful business model is important. Pricing is an example of an external factor, and depending on the effect is has on any given specific market will help inform the business model of the organization. For example, Walmart prides itself on its low and roll backed prices in the retail industry, and the advertisement of low prices has always been a part of their successful business model. Therefore, the external factors of demand play a huge role in informing the business model strategically.

What is “Business Model Design and Innovation”? Provide examples and discussion for each factor listed.

The uniqueness of an organization can be traced back to determining the business model design and innovation. First, what is business model design and innovation? According to Osterwalde and Pigneur (2010), business design and innovation are “about creating value, for companies, customers, and society” (p.5).

Therefore, understanding societal demands and consumers will help innovate the best business model design. The business model design and innovation will determine the organizational purpose both financially and structurally. It is the ideas that reshape the needs of a market and restructuring both resources and processes to create newer value propositions to consumers. Innovation for a business model design is done by promoting new ideas and re-thinking about what is desired and needed in the competitive market.

Therefore, what are opportunities for growth in the competitive market, which equates to what can be done differently based on the new opportunity that gives a best organizational competitive edge? Then, create a different face for promoting value, which is the means and medium for engaging customer. Finally, how will be the new metrics for evaluating performance? All of the factors are the driving for answering questions and determining the business model design for innovation.

What are the challenges to “Business Model Design and Innovation”?

There are always barriers or challenges when creating or doing something that is just different. Innovations in most cases are always invited with challenges before the “that was good idea statement.” The list below are a few challenges to business model design innovation.

One challenge of the innovating a new business model is dealing with uncertainty for success. By nature, people like to stick to a routine and when the routine is challenged uncertainty arises. Therefore, it is always good to have the reasoning for implementing change and getting the staff to buy into the idea of innovation. Also, taking the time to spend money on resources to help make the transition easier and determine if the business model will be effective.

Also, people like the security of knowing that a good investment is being made. Therefore, explaining how this innovative business model is different from previous, and how it will be much more successful because it will obtain organizational growth financially because a newer market it being reached. Business model innovation is not an easy task, but true success has to start somewhere.

References

Giesen, E., Berman, S. J., Bell, R., & Blitz, A. (2007). Three ways to successfully innovate your business model. Strategy & leadership, 35(6), 27-33.

Osterwalder, A., & Pigneur, Y. (2010). Business model generation: a handbook for visionaries, game changers, and challengers. John Wiley & Sons.\

Zott, C., & Amit, R. (2010). Business model design: an activity system perspective. Long range planning, 43(2), 216-226.

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