The Concept of a Business Model

Business Model of Procter & Gamble

A business model is the plan that describes the foundation of how a company develops, provides and captures value in cultural, social and economic contexts. It is the model that shows all the major aspects of a business like objective, target segment, key processes, offerings, infrastructure, organizational structure, key sources, operational processes and policies. Each and every organization develops a business model when it starts any business in process. The major objective of this essay is to review a brief literature about the business model and disruption. The paper includes some opportunities and threats due to utilization of smart connected products in the operations of Procter & Gamble Company. Furthermore, two aspects of business model framework i.e. value proposition and key resources and capabilities are explained.

According to Osterwalder, Pigneur & Tucci (2005), the business model is a tool which includes different elements and their relationships and enables to express the business idea of a firm. It includes the description about the value that an organization offers to its targeted audiences and about the infrastructure of a firm along with its partners’ network for developing, marketing and providing value. Further, the authors stated that business model assists the firms to generate increased profits and revenues from its business activities (Osterwalder, Pigneur, & Tucci, 2005). To explain this, the extensive research of authors has given a canvas model with nine building blocks that includes all the related aspects of an organization. This nine building block’s framework is known as business model canvas of an organization.

In this context, Kaplan (2012) stated that the business model of a company offers three components i.e. value creation, value delivery and value capture. Under this, value creation states how a firm creates value and focuses on providing better experience to its targeted customers. Value delivery describes how the company provides that value focusing on the operating model of business. Lastly, value capture considers the financial model that explains how a firm captures economic value from its business operations (Kaplan, 2012).

In today’s changing environment, the efficiency of business model has been increasing so companies are using disruption or disruptive technologies to create and capture more economic value. In this context, Williams (2018) stated that disruption has become an actual buzzword in today’s competitive landscape. By the use of disruption, the businesses are transforming the way the businesses work and interact with its targeted audiences (Williams, 2018). The companies are relating the disruption to innovation and technology. It refers to the utilization of innovative technologies in the business to attain more competitive advantage. Robles (2015) has given the characteristics of disruptive business i.e. entrepreneurs start the business with targeting a small market and lower gross profits. Adoption of disruptive technology or innovation transforms the complex and expensive products into the things which are simpler and affordable which the people can use (Robles, 2015).

The Nine Building Blocks of a Business Model Canvas

According to Keys (2017), the businesses are finding the new ways to interact with customers considering the shift in their needs and convenience. For example, a person who has booked a hotel knows that it is not always instinctive, pleasant and cost effective experience. AirBnB has become a disruptor enhancing in this sector by enhancing that hospitality experience, providing local rooms in apartments or homes at savings for the tourists and revenues for the host (Keys, 2017). Thus, it assists the organization in serving the customers more effectively.

Considering the disruptive technologies, today’s organizations are making advancements in its business by the use of smart-connected devices. Smart connected products are the technology innovations which assist the organization in expanding more opportunities for new functionality, higher product usage and capabilities (de Jong & van Dijk, 2015). These products are developed with the software, sensors, processors which allow the data to be exchanged between the business environment and product, producer and other systems. Procter & Gamble is one of the largest among the growing consumer product organizations across the world. This is one of the major companies that are using smart-connected products in its business operations. These products provide both opportunities and threats to Procter & Gamble. It has adopted Knowledge Capture Software internationally across 60 nations and P&G brands (Procter & Gamble, 2018).

Another example of this is that toothbrush of the company is getting smart connected treatment. Oral-B Genius product of Procter & Gamble connects a position detection sensor in the brush with app to assist the users recognize spots that they are missing with their oral hygiene techniques. With this, the company is able to attract more customers and retain them for long term. It offers the opportunity to increase its sales and customers with the use of smart-connected products. It has the opportunities to incorporate more innovative things in its products. In addition to this, it has engaged with the Amazon Dash devices which let the customers press a button to receive the delivery of paper towels and Olay facial cleansers (Ghosh, 2015). By this, the company is able to transfer the required information among its stores through smart technologies. Using these devices, it records the inventory and gives the related data to producers.

Apart from this, the smart-connected products are threatening the Procter & Gamble Company. One of the biggest threats is that people are not much aware about the smart technology incorporated by P&G. It is increasing the cost of production for the company so prices of its products are higher now. It can have adverse impact on the customer base of the company. Moreover, it is facing the threat related to security information on smart-connected devices (Porter, & Heppelmann, 2014). The competitors can steal the inventory information of the company and confidential information about its customers. This is the biggest threat for this largest nappies and other consumer products manufacturer.

Value Creation, Delivery, and Capture in Business Model

The business model framework given by Osterwalder, Pigneur & Tucci is created below:

Key Partners · Different brands i.e. Olay, Head & Shoulders, Dawn, Venus, Rejoice, and Mach3. · Media and Ad Agencies · Suppliers · Retailers and distributors · Sponsors	Key Activities · Manufacturing the consumer products under different brands. · Distribution · Marketing · Research and development · Branding	Value Proposition · Variety of personal care and health care products · Products with superior quality · Leading brands · Immense presence in retail stores. · Different market segments all over the world.	Customer Relationships · Excellent customer experience · Brand awareness · After sales response from customers · Direct communications with customers · Discounted coupons and offers · Online availability of products.	Customer Segments · House hold items · Mass Population · Different targeted audiences for different product segment i.e. men, women and kids. · People from all income levels.
Key Resources · 20 manufacturing plants in 20 states of United States. · Huge brand portfolio · Human Resources · Extensive distribution network · Facilities · Retail stores	Channels · Grocery Stores · Distributors · Baby shops · Shopping malls · Promotion and advertisement.
Cost Structure · Production costs · Supply chain and logistics · Cost of raw materials · Taxes · Salaries and wages	Revenue Streams · Sales of good from retail stores · Online stores · Cash on delivery of products · Payment by debit and credit cards

The two selected aspects of the business model canvas are value proposition and resources and capabilities. Value proposition of a company includes its competencies to handle the threats and position itself in such a way that people wish to purchase it (Roos, 2014). The value proposition of P&G includes that it is manufacturing the goods considering the needs and preferences of customers. It is delivering higher quality at affordable prices. It is offering a wide range of products for Personal and health care. In addition to this, the company deals in some other market segments like household items. Thus, the value proposition of company includes the things as per the needs and expectations of customers. This value increases when it delivers high quality products to targeted customers. It assists the organization in retaining existing customers and creating new customers (Osterwalder & Pigneur, 2010). The company is able to attain more competitive advantage in global consumer product industry.

Another block is the resources and capabilities of the business model. P&G owns various resources and capabilities which assist the organization in operating its business efficiently. One of the key resources of P&G is human resources which help in manufacturing and delivery of the products. It has 20 manufacturing plants in 20 states of United States which produce the products. The company has developed an extensive distribution network that connects all the channels effectively and delivers the products to final customers (P&G, 2018). Retail stores of the company are well managed. Promotional and advertising strategy is the major capability of P&G. These resources and capabilities assist the organization in enticing more customers towards its brands. As the result of this, the sales and revenues of company are increasing continuously.

From the above essay, it can be stated that business model is a significant framework which assists an organization to grow in competitive business environment. In the future, P&G can identify its resources and capability that can be used to fulfill the needs of targeted audiences. It enables the organization to know about the competitors and create the strategies accordingly. By enhancing its business model, the organization can enhance its growth in the consumer product industry and it can overcome the challenges posed by smart-connected products. The company can encourage the people towards its smart-connected products through effective advertisement and promotion.

References:

de Jong, M., & van Dijk, M. (2015). Disrupting beliefs: A new approach to business-model innovation. McKinsey Quarterly. 

Ghosh, S. (2015). Why P&G and L’Oreal are exploring the Internet of Things
Retrieved from https://www.campaignlive.co.uk/article/why-p-g-loreal-exploring-internet-things/1372922.

Kaplan, S. (2012). The Business Model Innovation Factory: How to Stay Relevant When The World is Changing. Hoboken, NJ: Wiley.  

Keys, L. (2017). 5 Ways Disruption Has Changed the World — And How Businesses Can Adapt to the Future. Retrieved from com/article/296345“>https://www.entrepreneur.com/article/296345.

Osterwalder, A., & Pigneur, Y. (2010). Business Model Generation?: A Handbook for Visionaries, Game Changers, and Challengers. Hoboken: Wiley.

Osterwalder, A., Pigneur, Y., & Tucci, C. L. (2005). Clarifying business models: Origins, present and future of the concept. Communications of the Association for Information Systems, 16, 1–40.

P&G, 2018, Caring About Your Look & Beauty. Retrieved from https://www.pg.com/en_EG/products/look.shtml.

Porter, M. E., & Heppelmann, J. E. (2014). How smart, connected products are transforming competition. Harvard Business Review, 92(11), 64-88. 

Procter & Gamble. (2018). P&G: Our Brands, [Online], Retrieved from https://us.pg.com/.

Robles. (2015). 3.1 Literature Review: Defining Disruption. Retrieved from https://medium.com/disruptive-startup/3-2-literature-review-defining-disruption-5c26fa17152.

Roos, G. (2014). Business Model Innovation to Create and Capture Resource Value in Future Circular Material Chains. Journal of Resources, 3, 248-274.

Williams, A. (2018). What disruption really means and how to handle it. Retrieved from au/what-disruption-really-means-and-how-to-handle-it”>https://www.shortpress.com.au/what-disruption-really-means-and-how-to-handle-it.