Discuss about the Innovation and Sustainable Business Development for Supply Chain.
With the rapid global changes in recent decades, it has become increasingly crucial for business corporations to ensure value generations and profit-making activities simultaneously. The colossal growth of information technology has unleashed the power of public media, which, in turn, has raised questions over the value chain of business corporations, small and large alike. As a result, a wide range of organisations are revamping their value-chain mechanism, apparel industry being one of them. Growing concern over sourcing of raw material and supply chain relations have compelled major players of this industry to reconsider their existing business models and adapt to new ones that can successfully exhibit both the elements of innovation and sustainable business practice. Levi Strauss & Co. is one such company that has adapted to a new type of business model for enhancing their value chain management and also to implement sustainability in their business.
The thesis statement of this paper is adopting an e-business archetype can help a business to successfully incorporate sustainability and innovative elements into business.
The validity of this statement will be ascertained after a critical analysis on business model and its associated niches. Now, in order to delve into the debate over appropriate business model that should be practiced by Levi Strauss & Co. it is imperative to define the term ‘business model’. In the opinion of DaSilva & Trkman (2014), business model can be referred to as a conceptual tool containing a set of elements required for successfully operating a business, recognising the revenue sources and forecast the finance details accordingly. In other words, business model is the way through which an organisation generates revenue and earns profit from organisational operations. Naturally, a typical business model consists of several sub-sections, such as, ecosystem, offer, customer and finance (Zott & Amit, 2013).
Figure 1: Basic elements of Business Model and their inter-relationships
(Source: Bocken et al. 2013, p.12)
Now, in case of Levi Strauss, incorporating a sustainable business model would offer several benefits such as providing value to stakeholders, the society and the environment. In this way, selecting a sustainable business model can help the organisation to earn profit with added value (Bocken et al. 2013). Levis Strauss & Co. operates through a franchise model in Australia (Levis.com.au, 2016). They manufacture and distribute their products both through online and brick-and-mortar stores. In order to address the concerns over supply chain and value generation processes, the company need to incorporate sustainability into their business model.
E-Business Archetype and Activity System
Following this lead, the business archetypes can be discussed here. As stated by Bocken et al. (2014), the concept of archetype is borrowed from Carl Jung’s concept of personality archetypes, which described the core personalities derived from the society to build a unique personality. Similarly, business archetype also refers to the fundamental ideas that are embodied in a business. Euchner & Ganguly (2014) has identified three primary types of business archetypes, namely product, service and trade. In addition, there are also four other secondary archetypes that accounts for the success for a business, such as, brokerage, marketplace, subscription and ecosystem.
From this point of view, an e-business archetype entails both the elements of primary as well as secondary archetypes. In this case, all three primary archetypes are included, while the secondary archetype used in e-business is marketplace. Through an effective combination of these archetypes Levi Strauss & Co. operates their business in Australia. Similarly, Zott & Amit (2013) has mentioned that activity system can be defined as a series of activities performed by an organization as well its stakeholders (vendors, partners and customers). Therefore, interdependency is a crucial element in activity system that helps to gain a deeper understanding on the organisational activities. Such interdependencies are created and managed by business managers, who mould the organisational activities for linking different types of transactions into a close-knit system. However, as Zott & Amit (2017) has pointed out, activity system can also lead to increased competition as the type of business model is directly related with the extent of competition. In other words, the stronger the competition, the tougher value generation process will be.
In the opinion of Zott & Amit (2015), three primary design elements of an activity system include content, structure and governance. While content here implies the selection of suitable activities such as procurement of raw materials, structure denotes how relationship between different activities. In addition, it also incorporates the significance of different activities in a business model. The third element that is governance is involved with administration of respective activities. In this case of Levi Strauss & Co. content would incorporate acquisition of raw materials, production, marketing and delivery. Similarly, governance in case of Australia can be cited as Franchising, the approach through which this company operates their business in Australia. In case of activity system structure, it is imperative to focus on the value chain process of this organisation.
Cost-Revenue Architecture Continuum
As stated by Porter & Heppelmann (2015), value chain is a series of activities performed by an organisation for delivering valuable products or services to the customers. Therefore, in case of Levi Strauss & Co., value chain entails the decision making process, sourcing raw materials, manufacturing products and finally delivering them to market. Levi Strauss being a major player in Australian clothing industry, their value chain is essentially aimed at maximising margin while optimising the primary activities so that maximum output can be derived from the support activities.
Figure 2: Cost-Revenue Architecture Continuum
(Source: Nas, 2016, p.277)
On the other hand, cost-revenue architecture depicts how a business can reshape their business model for pursuing a greater sales margin (Iacob et al. 2014). Figure 2 illustrates the different elements of this architecture. While on one end there is commodity product (for example Levi’s Jeans) signifying high scale and low margin, ‘luminary constant’ resided on the other end – exhibiting high margin and low scale.
Spieth, Schneckenberg & Ricart (2014) has suggested that in order to align this revenue architecture into existing business model of Levi Strauss & Co., three major factors should be taken into account, namely business strategy, systems and programs. Here, strategy will help to align the marketing strategy with existing business model and the system will augment sales by integrating business channels, brand, people and business processes into one unit. Similarly, programs such as buyer engagement campaign will, help to make the marketing and sales more intensive and effective as well.
Now that these three types of business models have been critically evaluated, their role in addressing the static and dynamic problems faced by Levi Strauss in Australia can be explained. As for this company, static problems would be underdeveloped infrastructure (roads, resources, electricity and so on). On the other hand, dynamic problems can be denoted as consumer preferences, inflation, waste generation, ecological degradation and so on (Asl & Wong, 2017). Based on the discussion made above, it can be postulated that adopting a calculated business archetype, with suitable proportion of activity system, cost-revenue architecture and e-business model, could help Levi Strauss & Co. to address these problems effectively.
For example, the clothing manufacturer earlier used a Take-Make-Waste model in their business. Under this model, the company procured raw materials from different vendors, manufactured clothing materials and delivered the produced goods to the market, generating a large amount of waste meanwhile. Naturally, it was an unsustainable business model. In order to address the dynamic problems such as waste management, ensuring ecological balance, the company needs to adopt Borrow-Use-Return model. This model not only helps an organisation to contribute their business optimally but also take-care of the well-being of the environment. Thus, it is a sustainable business model and can benefit Levi Strauss & Co.
Solving Static and Dynamic Problems
Furthermore, understanding the business context of Levi Strauss & Co. is also equally significant as without this knowledge the gravity and implications of manager’s decision making process could not be ascertained. Based on the actors such as people, nature of organisation and organisational system, it can be stated that Levi Strauss & Co. operates in a highly competitive Australian clothing market. As Boström & Micheletti (2016) have stated, taste for clothing changes over time and this is reflected in customers’ preferences. Naturally, change is inevitable in this industry and this organisation is also subject to this change.
Now, after all the discussion made about business models, their implications and issues, it can be stated that all three business models have their own advantages and disadvantages. Furthermore, the rising concern over sustainability is also a major issue when selecting appropriate business model. Therefore choosing a sustainable business model such as Borrow-Use-Return model would be most suitable for Levi Strauss & Co. in their Australian market.
Figure 3: Sustainable Borrow-Use-Return Model
(Source: Boström & Micheletti, 2016, p.12)
Reference List
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