Role of External Factors in Successful Business Models
Businesses are established to achieve specific goals. As the business grows, it must develop models that must be followed to sustain success. Developing an understanding of the external business environment is critical in conceiving better business models. The external business environment is made up of four factors which the business must explore to be able to come up with competitive models. The market trends, market forces, industry, and macro-economic forces are the key external factors that determine the success of a business model.
The existing marketing trends define key issues that directly affect the success of a firm. Factors such as changes in technology can either act as a hindrance or success of the business. The other trends that the business must observe are social, cultural, regulatory and socio-economic trends (Rothaermel, 2017). These trends keep changing, and the business should be up to date on these trends to be able to sustain competition in the market. The approach of business towards these trends can either spur success or lead to total failure in the market. The market forces are the other external factor that directly affects the development of successful business models. The changes in the costs of switching markets, segments in the market and how attractive a market is in terms of revenue affect the business decision towards a particular market. Market forces keep changing, and a business should be better placed to understand how these forces change and how they affect the business.
The macro-economic forces refer to the issue in the market that directly affect business operations. These factors could include changes in capital markets, international market conditions, and existing infrastructure that supports business activities. The macro-economic factors have a direct impact on production and the strategies that a business formulate to achieve success in the market (Root, 2015). Greater consideration of this factor is required to ensure that successful models are developed. The forces in the industry are the other critical factor that determines the firm's position in the market. Industrial factors include things such as competitors, availability of substitutes, potential entrants into the market and other stakeholders in the value chain of the business (Rothaermel, 2017). These factors influence business decisions and the business must either conduct a strategic analysis to be able to determine the appropriateness of entering into a given market. The industrial forces are a critical requirement in the development of business models, and the business should analyze these factors extensively to boost the success of new models.
The ability of business owners to recognize how these eternal factors influence the success of business shows their intention of achieving success with business operations. The recognition and understanding of these factors will allow the management to identify critical factors that must be addressed and those that can be changed to suit the needs of the business (Root, 2015). The move will see the management ranking these factors based on necessity and making the required adjustment to match business goals. Starbucks is a model company that has readjustment and implemented changes to match the ever-changing environmental factors. The company has now become more concerned with the influence of external factors and has put in measures that help to address changes in the external business market. It is important for businesses to continually evaluate external factors that affect their success and put in measures to address these changes.
Business Model Design and Innovation
Business model design and innovation refer to the development of new concepts that matches organizations abilities and desires to meet customer expectations. Businesses must continually innovate and come up with new ideas, and this is what is all about. The idea goes beyond conceiving models that help the company come up with products that satisfy the needs of the consumers. The process is holistic as it combines customers' needs and business abilities to come up with a model that satisfies these two interests (Veit et al., 2014). The idea determines the business resource allocation and the required changes on products and makes appropriate adjustments to develop a model that ensures that the business achieves growth potential. The innovation business model is necessitated by the need to fill existing gaps in the market, launch new products to the market, improve the existing market or even develop a new market.
The business model design and innovation process comprise of five phases. The initial phase is to mobilize which deals with adequate preparation for creating a business model. In the mobilize phase, the business must have a case for developing a model which should be supported by evidence from either failure or changes in the market. The next phase is to understand which involves having adequate information that persuades the business to develop a new plan (Afuah, 2014). It involves conducting adequate research whose findings can be used to make the necessary adjustments. The research could include activities such as conducting marketing research, seeking the advice of experts or consultants and in other case observing market trends.
The design is the third phase which reflects on the real action of developing a model. The design stage allows the management to develop numerous designs of how a model will look like (Osterwalder & Pigneur, 2010). Several designs must be developed which could be improved and polished in the later stages. The design should be able to capture all the needs of the business. The design stage can include testing the models and making appropriate changes until a decision of the final model is made. The second last stage is the implementation of the model (Osterwalder & Pigneur, 2010). Implementation involves putting the developed model into use. The new model is implemented by putting it into operation with the hope that it will help achieve organizational goals. Management of the model is the last phases which involve evaluation of the model. Evaluation is critical as it helps to identify loopholes which are then rectified. A model does not guarantee success after it is implemented. Continuous changes have to be made to ensure that the model is successful.
Challenges to Business Model Design and Innovation
The design and innovation of business models are faced with numerous challenges that the business must seek to overcome. Osterwalder and Piqneur (2010) observe that the innovation of business is often unpredictable and could be messy if the various processes are not followed keenly. There are numerous decisions that the management must make in the development of business models. The management must invest time and resources in the design stages to ensure that the innovation process is a success. The commitment by the management to give time to all the process will ensure that the new business model achieves the growth potential of the organization.
The different phases of the development of business models are faced with unique challenges. The initial stages of mobilization could limit the team in charge to narrow down their ideas rather than expanding the scope of ideas that should be incorporated into the model. When ideas are not fully explored, such that the team focuses on a single idea, the resulting model could fail. The business can address this issue by involving different people in the mobilization stage so that more ideas are brought forwards and proper analysis is conducted to ensure that only the best decision is reached (Osterwalder & Pigneur, 2010). If the phase of understanding is done hurriedly, there are chances that errors can be made which could go a long way to the implementation stage. The team involved in the development of such models should take time to engage in extensive research that will widen the scope of findings when used to develop the model.
The design phase could see the team in charge of being preoccupied to a certain mindset. The preoccupation might be misleading which could see the business failing to come up with a comprehensive design that meets the overall goals of the business. The team could be tempted to deciding on a model without even conducting the necessary tests (Veit et al., 2014). While implementing the model, it is important that the team in charge is made aware of the unknowns that could potentially arise (Pangarkar, 2011). The other challenge that is common in business model development is the temptation to skip continuous evaluation of the model. At the initial stages, the model might appear to meet all the expectations. However, the same model might fail which calls for continuous evaluation to fix all the problems that arise while in use. The evaluation will ensure that the model adjusts to the changes that occur in the external business environment.
Afuah, A. (2014). Business model innovation: concepts, analysis, and cases. Routledge.
Osterwalder, A. & Pigneur, Y. (2010). Business model generation. Hoboken, NJ: John Wiley & Sons.
Pangarkar, N. (2011). High performance companies: Successful strategies from the world's top achievers. Hoboken, NJ: John Wiley & Sons.
Rothaermel, F. T. (2017). Strategic management concepts (Custom 3rd ed.) New York, NY: McGraw-Hill.
Root, G. N. (2015). Five components of an organization's external environment. Houston Chronicle. Retrieved from http://smallbusiness.chron.com/five-components-organizations-external-environment-17634.html
Veit, D., Clemons, E., Benlian, A., Buxmann, P., Hess, T., Kundisch, D., ... & Spann, M. (2014). Business models. Business & Information Systems Engineering, 6(1), 45-53.
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