Business Model Design and Innovation


BusinessModel Design and Innovation

TheExternal Factors of Demand

Theexternal factors of demand determine the performance of the marketand are used to predict the expected market environment that a firmwill face. Therefore, the factors of demand provide the insights thatinform the type of the business model to be designed (Osterwalder &ampPigneur, 2010). Successful business model will be the one thatreflects these factors and responds to the business environmentcreated by the factors of demand.

Asa factor of demand, consumers provide a company with the informationon the needs that its business model of a firm should address.According to Osterwalder and Pigneur (2010), customers are the mostimportant building blocks of a business model because they are thesources of value to the firm. A business model also should considerthe changes in consumer preferences and fashions that form trends(Kaplan, 2011). Through the trends, a firm develops a responsivebusiness model. Therefore, a successful business model should addressthe needs of the customer and the customer environment.

Theexternal factor of price in the market affects the market demand, andso plays a role in the designing of an innovative business model. Byconsidering the prevailing price levels of a product, a company isable to establish a business model that will be aimed at producingproducts with competitive prices. This is the core reason whybusinesses use innovation to develop new and unique business modelsthat makes them competitive.

Asan external factor of demand, competition in the market helps abusiness to develop unique business models that beats thecompetition. To development of successful business models, a companyshould understand the extent of the competition that prevails in themarket so as to innovate new models (Kaplan, 2011). Therefore,competition helps an organization by informing its business modelswith the success and failures of other competitors.

BusinessModel Design and Innovation

Thisis a process of rethinking about the model of a business organizationas well as business goals as it relates to the market. It is aprocess of rethinking around customer needs and business objectivesto develop a model that addresses the dynamic nature of the businessenvironment. Through the business model design and innovation, a firmdevelops a model that realigns the resources, the processes andprofit strategies of a firm to new prepositions of capturing thevalue (Osterwalder &amp Pigneur, 2010).

Theprocess involves considering and rethinking of the internal factorsof a business in relation to value creation. This will help thebusiness determine how internal resources will be restructured tocreate, deliver and capture value. For example, a firm can redesignits human resource through innovation to conform to a new structurethat will increase the productivity of its business operations.

Inaddition, the process involves rethinking of how to align thebusiness to external environmental factors. This is because businessorganizations are human beings that interact with the externalenvironment to create, deliver and capture value. According toOsterwalder and Pigneur (2010), business models give the businessorganization the rationale to achieve this value. The process ofbusiness model design and innovation opens the business toopportunities by considering the environmental factors. For example,a company will understand the impact of technology in the businessenvironment and use it to leverage its internal and externalprocesses of innovation and communication.

Challengesto a Business model Design and innovation

Oneof the main challenges is the adoption of the process of designing abusiness model into a business organization. The challenge existswhere organizations find it a problem in developing business modelsusing new approaches. This happens in terms of managing thetransition of businesses from the form-taking approach toform-finding approach. The form-taking approach involves adoption tothe assumption of a complete business model by the stakeholders of abusiness while form-finding involves incorporation of all the ideasof the stakeholders to collectively develop a common business model(Kaplan, 2011). The process involved in the collective process poseschallenges because of the diverse interests of each of thestakeholders.

Uncertaintyin the environment provides the challenge of predictability of thebusiness environment. The dynamic world of business creates alimitation to the business model adopted by an organization indeveloping its business operations (Osterwalder &amp Pigneur, 2010).This challenge is further worse for a business model design that isnot dynamic enough to match the rate at which the businessenvironment is changing. This means that a business will have todevelop dynamic and flexible business models that allow changes inthe future as the market environment changes.

Anotherchallenge is the implementation and progress of the business designmodel in terms of resilience and adaptability. Kaplan (2011) arguesthat the implementation of the business model is a key process in thesuccess of business model design and innovation. This is because itproves that the business design is appropriate to the interests ofthe stakeholders of a firm. The business model may not be resilientenough to incorporate the goals of the model and those of thestakeholders. Therefore, the implementation process leads to avariation between these two interests. If a process is not adaptableenough to all stakeholders, the process fails at the implementationstage.


Kaplan,P. (2011). TheBusiness Model Innovation Factory: How to Stay Relevant When TheWorld is Changing.New York: John Wiley &amp Sons

Osterwalder,A., &amp Pigneur, Y. (2013). BusinessModel Generation.New York: John Wiley &amp Sons