What is a Business Model?

Discuss about the Business Model and Disruption Of Volvo Company.

The business model is a unique culture made by organizations, entrepreneurs, and companies to their style of business to increase profits of the company. The business model that is developed by the company is aimed at ensuring sustainability and fair competition in the market. The business model targets consumers by seeking to offer the best solution to beat the competitors. It does this by driving the customers to get the products, that is, advertisement (Bocken, Short, Rana & Evans, 2014). There are different types of business models unique to each organization. Some of the commonly used business models are; direct sales, franchise model, freemium model and subscription model.

The business model is not constant, but are bound to change. Market portfolios might change at a particular time making it necessary to change the model.  They could be a new government policy. Therefore, to realize profits, entrepreneurs have to change the model. These factors are called business disruptions.  Business disruptions are factors that lead to changes in the business model and culture of a particular business. This enables the company to suit specific current market trends (Dentchev et al., 2016). These disruptions include; rapid advancement and technology, globalization, brand bombing, customer dependency, among others.

Smart products can act as disruptions to companies in conducting their business. The products affect business models of great companies like Volvo Group Companies. Volvo is based in Sweden and manufactures service trucks and construction equipment (França, Broman, Robèrt, Basile & Trygg, 2017). The disruption of smart products might influence opportunities in the market or threaten them.

Smart connected products have many, of these physical components that influence the decision of the company through software updates, and made through to allow cars to continually be improved and optimized with the visits to the leader (Chesbrough, 2010).

The competitive landscape being reshaped by smart products in the positive way include;

Volvo cars could now be monitored and  report on themselves, the progress they made, the real environment .and creating new data management insights of different machines that are made by the company.

The company place control made software in their cars so that, it is easier to monitor any unprecedented action by their trucks. The software can also be used to remote-control the vehicle, therefore, increased safety measures (Schaltegger, Hansen & Lüdeke-Freund 2016).

Disruptions to Business Models

The car uses the self-coordinated product to control what happens to the car. The effect of this is the creation of secure action by the trucks for Volvo Company. This enables the driver, for example, to be notified of the fuel amount in the truck as it moves. The driver can control the engine action by a single a button that is a smart product. This influences the decision of the company.

The smart products influence the decisions in the following ways;

• There are more profound relationships between the company and customers: The Company has to improve their market strategies and accountability to the customers to maintain stability (Tukker et al., 2017).
• Creates high market barriers: There are many competing companies to Volvo based on these smart products that are readily available to all of them. They all fight for the same platform, therefore, limiting the advertisement market. This, in turn, creates a high market barrier for the Volvo Company.
• High fixed costs: With customers accessing so many products of the same kind, the company has to variate product cost to the others so that customers do not move to the cost-friendly companies. This is a model seeking to maintain the customers while it is disrupted by the smart product.
• Feature arm races: The addition of smart products in the car sometimes does not benefit the company since they do not fetch any revenues from the market. The company invests in such features hoping they would improve revenue. Sadly, the company does not carry any revenues from the smart product.

The above ways demonstrate how smart products have influenced the decision at the Volvo Company, therefore, changing the business model.

The business model of Osterwalder has nine essential features that can be used to explain the influence of the Volvo Company. Each of these features are discussed below:

Use of critical partners, such as suppliers from whom the business sources key resources or partners with whom the business collaborates. This illustrates that company should have good connections with a key stakeholder (Zott, Amit & Massa, 2011). Wheel Company that supplies wheels to the Volvo Company should be involved in the business modeling of the company. This is to ensure they keep abreast with the smart products and induce them in their supplies (Charles Jr., Schmidheiny & Watts, 2017).

Critical activities a required to deliver the service or product, such as channels of distribution, customer relationships, and revenue streams: The smart products improve feedback (Johnson, 2016). The feedback can be used to boost the relationship between the customers. It is easier to learn about challenges, customer demands and many more when the input is an instance. Therefore, the stakeholders can react with the help of the smart products (Porter & Heppelmann, 2015).

Key resources:  Resources vary from human resources to physical resources that are needed to sustain the company. With the smart products, it is easier to get the human resource for the company through making a social advertisement. Physical machines can also be made and used at the press of buttons (Larson & Larson, 2017).

Value propositions:  These are the needs of the customers that are satisfied by the company’s new product. The use of smart product enhances value proposition as it provides somewhat instant feedback (Johnson, Christensen & Kagermann, 2008). There are also other products, which when placed in the car, will help solve the customers’ needs (Porter & Heppelmann, 2014). This includes the coordination unit that informs the driver of the engine needs of the vehicle. The smart product thus enables the driver to hit a button that controls the rest of the truck (Boons & Lüdeke-Freund, 2013).

Smart Products as Disruptions to Business Models

Customer relationships:  The smart product improves customer relationship. It enhances communication between the company and its customers, therefore, strengthening their relationship. It also is at a lower cost than the “one-on-one” customer-producer interaction.

Channels to reach each customer: The smart products placed in the car can enable the producer to reach each of their customers. Furthermore, they will be able to monitor each of their clients (Dentchev et al., 2016).

Customer segments on which customer: This is the most valuable consideration to the company. The dealers who sell Volvo trucks are the most important customers as they link the company to the actual users of the trucks who buy from them. They should take part in the production of the company in using the smart products (Rainey, 2010). They get the demands of the customers. They also know what it takes to impress a customer using an intelligent product (de Jong & van-Dijk, 2015).

Cost structure:  The smart product costs a lot of money both to procure and install in the trucks. Without a promising response from the customers, this might affect the revenues of the company negatively as there is much investment to them too (Tukker et al., 2017).

 Revenue streams:  What does the customer pay for, to whom and through what means? This revenue streams have significantly improved with the coming of the smart products. The payment is electronically monitored, and this, therefore, enhances accountability. The customer also has a more natural method of pay.

Value proposition:

The value proposition in the case of business deals with what would make a customer choose a product over the other. Unique features and values of a product over another are essential value propositions features. The customer will go for products that solve the problem they are facing (Ardito, Carrillo?Hermosilla, del-Río & Pontrandolfo, 2018). The business model canvas stresses this by making it the point of intersection between the product made, and the reason behind the customer’s reason to buy it. It is the essential feature for most start-up entrepreneurs since they fail to evaluate it thoroughly. Failure to evaluate the business model for value proposition may lead the business astray.

Value proposition Features

• The newness of the product – customers, like instead new products that second-hand products
• Performance of the product – improved version will always attract
• Customization – products that reveal a customer’s personality
• Getting the job done -goal-oriented product
• Design –superior designs appeal to customers
• Brand and status – worldwide brands attract customers.
• Price –companies that offer free services at times get customers if they have other models to sustain their growth
• Cost reduction – a customer would go for a pocket-friendly product
• Risk reduction- The less risk a customer derives from a product, the more value a customer awards it
• Accessibility – easy to find products fetch
• Convenience – ease of use of a product makes the customer want to get it

These are the possible firm structures that enable it to traverse changes in the environment. They include skills of the business to have resources that integrate, configure, gain and release funds to match, create and adapt to the market change. These structures include;

• Distinct skill
• Procedures
• Organizational structures
• Decision rules
• Discipline

Smart Products Influence on Business Decisions

The capabilities can be divided into core capabilities that form the basis of the business. There can also be dynamic capabilities that change the market but maintains the business model.

Conclusion

For a starting business entrepreneur, it’s logical to look at all the disruptions before setting business models. This is to help get a perfect startup.  

References

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

Dentchev, N., Baumgartner, R., Dieleman, H., Jóhannsdóttir, L., Jonker, J., Nyberg, T., … & van Hoof, B. (2016). Embracing the variety of sustainable business models: social entrepreneurship, corporate intrapreneurship, creativity, innovation, and other approaches to sustainability challenges. Journal of Cleaner Production.

França, C. L., Broman, G., Robèrt, K. H., Basile, G., & Trygg, L. (2017). An approach to business model innovation and design for strategic sustainable development. Journal of Cleaner Production, 140, 155-166.

Johnson, G. (2016). Exploring strategy: text and cases. Pearson Education.

Johnson, M. W., Christensen, C. M., & Kagermann, H. (2008). Reinventing your business model. Harvard Business Review, 86(12), 50. Scroll down to find the article. 

Larson, A., & Larson, A. (2017). Method: Entrepreneurial Innovation, Health, Environment, and Sustainable Business Design. Darden Business Publishing Cases, 1-7.

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

Porter, M. E., & Heppelmann, J. E. (2015). How smart, connected products are transforming companies. Harvard Business Review, 93(10), 96-16. 

Rainey, D. L. (2010). Sustainable business development: inventing the future through strategy, innovation, and leadership. Cambridge university press.

Schaltegger, S., Hansen, E. G., & Lüdeke-Freund, F. (2016). Business models for sustainability: Origins, present research, and future avenues.

Tukker, A., Charter, M., Vezzoli, C., Stø, E., & Andersen, M. M. (Eds.). (2017). System innovation for sustainability 1: Perspectives on radical changes to sustainable consumption and production. Routledge

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