In the last 2 chapters of Business Model Generation by Alexander Osterwalder and

Question

In the last 2 chapters of Business Model Generation by Alexander Osterwalder and Yves Pigneur, the authors describe and analyze the strategy and process for developing successful business models. Thoroughly address the questions below. Be sure to be clear and concise and explain each.

RQ1 What role should external factors of demand play in successful business models? NOTE: First, fully define the role and then analyze and discuss each.

RQ2 What is “Business Model Design and Innovation”? Provide examples and discussion for each factor listed.

RQ3 What are the challenges to “Business Model Design and Innovation”?

Explanation / Answer

A business model describes the production process, services or goods produced by a company and the identified company goals. The main external factors affecting the business models include competitors, customers and the marketing approach. The role of customers is to determine the products and services produced by the company. A company designs products catering to its identified customer needs and preferences. Volkswagen manufactures cars targeting customers in various income groups and their preferences like the style, status, mileage and other attributes. The role of competitors is to determine the product price in the market. Business models of companies change according to the competition in the industry. If a competitor reduces the prices of the product then other companies in the market alter their business models to cut costs and reduce the product price to stay in the competition. Marketing costs directly impact the business model as marketing determines the level of competition and customer base of the company in the market. The main role of these three external factors includes the value creation for the company stakeholders, determining and providing resources, bargaining rights, continuous business model execution, execution control and target setting.
Business model and innovation is a process of economic value creation for the stakeholders of a company. The business model is characterized by three dimensions including the value dimension, transactive dimension and resources dimension. Innovations can be brought by the company in any of these three dimensions to achieve competitive advantage. The value dimension is concerned with creating value for the company stakeholders. In the U.S, Wal-Mart created value for its stakeholders through its strong value chain network. The transactive dimension is concerned with exchanges occurring within and outside the firm. In the U.S, Microsoft was able to sell X-Box games successfully by establishing an excellent network with the U.S. game providers through its operating system but the same X-Box was a failure in Japan as Microsoft was unable to build the same relationships with Japanese game providers. The resource dimension is concerned with the various resources to get a competitive advantage. Tesco, the leading UK based supermarket created competitive advantage in the UK through its unique set of product mix resource but it failed miserably in the U.S as it failed to alter its product mix according to the tastes and preferences of U.S customers.
Adaptability is one of the key challenges faced by the business model of MNC. The key challenges to the business model and innovation can be best understood from the above examples. Home country business models cannot be transferred to host nations without innovations and adaptations. Microsoft’s failure in Japan and Tesco’s failure in the U.S are good examples. Other challenges include managing culture, diversity, change, human resource, supply chain, partners and market entry barriers. Entrepreneurial orientation, resource recombination, market orientation and validating business models are effective solutions to overcome these business model and innovation challenges.

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