Components of Business Models
Question:
Discuss about the Disruptive Business Models for Technology and Values.
A business model is the basis for every company’s rationale that governs the economic, social cultural and other aspects. It is in fact a framework based on which companies plan out the objectives and goals for that financial year. The different components of a business model include revenue sources, supply chains, economic plans, resources, customers, technology and values. With same existing technologies and innovations, different business models lead to different economic and profit outcomes. Business models help in identifying goals, resources, revenue generation streams and customer bases in order to form an economic plan or budget that helps in reducing risks and avoiding past mistakes that have caused inconvenience in the firms. Business models help in articulating or formulating values created for customers (Chesbrough, 2010). It also helps in linking suppliers to manufacturers and producers so that there is easy communication and efficient means of production. Disruption is another phenomenon that gives firms greater visibility to ongoing issues in the industry and breaking old business models and building new business models that help exploring better and newer opportunities for firms (Jong, & Dijk, 2015). Disruptive business models also help in the construction of better cost analysis and helps perform better budget analysis and reach out to a wider section of clients by including a wider demography of clients in its base.
The existing assets and business models in place need to be under an effect of continuous change in order to adapt to the newest forms of technology and information. In today’s generation if business model functions do not involve a system of smart products that keep the system evolving continuously, they increasingly become unreliable and are often displaced and sometimes even destroyed completely. This makes it even more difficult for new and incumbent companies to evolve continuously and eventually they exit the industry due to lack of updated technology and lack of the use of smart products (Johnson, Christensen & Kagermann, 2008). At the same time for bigger firms or sometimes even small firms, continuous evolution with the help of changing business models helps them to achieve greater levels of profit and hence goal achievement. Studies suggest that disruptive business models are emerging as new tools that provide a holistic approach to solutions of most business problems. Instead of capturing the already existing values of firms, it tends to create new values for the firms on a regular basis. Activities of firms are majorly impacted by these models.
Smart products help in transforming the already built beliefs and values of firms about all the decisions they make starting from making money to gathering information and analyzing the same for collaborating with other firms so that they can extend the limits of the existing industry as a whole. Smart products help replace hardware with software and help replace multiple working systems with one single system that can secure, analyze and process data. Smart products also help provide connectivity in between one source of data to another, from one source to multiple sources and amongst different sources also (Porter & Heppelmann, 2014). Hence the use of the same for transformation and disruption of old business models is very important. In other words, change of values and working of every business using information gathered by smart products is continuously needed to cater to the changing demands of the clients and the changing models of firms which may be partners or competitors (Osterwalder & Pigneur, 2010). It is also noteworthy to mention that business models move from one industry to the other hence bringing about the necessary changes from industry to industry.
Impact of Disruptive Business Models
Procter and Gamble is one of the top multinational manufacturers based out of Cincinnati, Ohio in the United States. It is leading the world market at an unprecedented level of marketing and profitability. It is known for its networking and product diversification (SANTORI, 2017). Being one of the top companies in the world, like every other multinational firm, Procter and Gamble is also exposed to certain opportunities and threats while functioning in the world market. These opportunities and threats are discussed in the subsequent paragraphs.
As the major markets that are dominated by P&G include the markets of America and other developed and developing countries, opportunities for this firm highly lie in the area of expanding in the rural markets where the firm has not reached yet (Ming & Ke, 2012). This can be helped with the use of smart products by gathering information from those markets and specializing products according to the rural needs of those customers and forming a different set business models to work on the cost of those products. The next line of opportunity for this firm lies in the field of acquiring other firms that have customized products which are different in some ways from the products produced by Procter and Gamble. This can again be done with the help of smart products by acquiring information from those firms, processing and analyzing the same to form new integrated business models. Increased purchasing power of consumers will also help open up new avenues of growth for the firm. The smart products can be used to bring about changes in the products and increase usability of those products according to the increasing and changing demands of the new target base.
Just like opportunities, every firm is faced with some potential threats and the case is same also for P&G. The major threats that it is exposed to and which can be overcome with the use of connected products lie mainly in the field of competition. Competition is the only and most important source of threat as newer firms are entering the market with latest business models and technological innovations and targeting the same base of clients as Procter and Gamble. As newer retail brands are coming up in local markets at reduced costs threats to this firm are increasing in terms of reduced customer servicing.
The key features of the firm are explained with the use of the Osterwalder & Pigneur Business Model Framework as follows:
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Key Partners The key partners of P&G include Ernst and Young, Fameccanica.Data S.p.a., Firmenich, Logoplaste, Nippon Shokubai Company Limited, Novozymes and many others. |
Key Activities The most important activities of this firm include catering to changes in the client demands and changing the packaging style and using cost effective measures. The major distribution channels involve major brands and developed countries where the products of P&G are sold to retailers as well as direct customers. The various sectors of the company act as channels of revenue like different classes of products. |
Value Propositions For P&G customer satisfaction is kept as the top most priority and all its values aim to fulfill this one goal on an everyday basis. The different sets of customers are catered to by producing products of different types and quality. P&G produce beauty, family, health and personal care and fabric care. |
Customer Relationship The most important initiative taken up by the firm to solve customer problems is a two way approach where customers are involved in decision making and their feedback is considered as a crucial variable for implementation of changes and improvements in customer relationships. |
Customer Segmentation P&G provides services to primarily the developed and developing countries so its client base primarily consists of high to middle income customers |
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Key Resources The key resources include the infrastructure, employee diversification, technology, branding and its supply and distribution channels. |
Channels The channels through which P&G reaches its customers are mainly diversified and customized products, greater investments and using the most advanced technology to meet ever changing customer preferences |
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Costs P&G aims to minimize its costs by using efficient supply chain and reducing packaging costs. It also reduces costs by stopping production of items that don’t appeal to customers. |
Revenues Revenues earned by the firm are high as it uses smart products and business models that undergo regular disruption to adapt to the changes in the industry and the revenue generation is also increased by acquiring of firms that are specialized in the production of certain products. |
The most important way in which P&G remains one of the top firms is through its use of business models based on value propositions where it aims at meeting changing customer demands by using latest technology and trained employees in the different sectors. Its value proposition also involves decision making with the use of customer feedback and diversification of products and manufacturing of new products based on customer preferences. Another way through which the firm uses business models is through the use of extensive resources and its immense capabilities in the field of production and acquiring of other firms using smart products.
To conclude it can be asserted that business models are increasingly becoming unreliable and hence the use of disruptive business models and getting adapted to changes in the industry is necessary at every moment. P&G being one of the top manufacturing firms also follows the same strategies to compete in the market and uses smart products to constantly remain updated and cater to the changing market conditions and demands of its customers. Undoubtedly P&G is one of the biggest firms and has a bright future as it adapts to the changes while maintain stability which most other competitors fail to do.
References:
Chesbrough, H. (2010). Business model innovation: opportunities and barriers. Long range planning, 43(2-3), 354-363.
De Jong, M., & van Dijk, M. (2015). Disrupting beliefs: A new approach to business-model innovation. McKinsey Quarterly, 3, 66-75.
Johnson, M. W., Christensen, C. M., & Kagermann, H. (2008). Reinventing your business model. Harvard business review, 86(12), 57-68.
Ming, L., & Ke, T. (2012). Product Positioning Research of P & G Camay. In Information Engineering and Applications (pp. 65-71). Springer, London.
Osterwalder, A., & Pigneur, Y. (2010). Business model generation: a handbook for visionaries, game changers, and challengers. John Wiley & Sons.
Porter, M. E., & Heppelmann, J. E. (2014). How smart, connected products are transforming competition. Harvard Business Review, 92(11), 64-88.
SANTORI, C. (2017). End-to-end synchronization as competitive advantage in the FMCG market: the case of Procter & Gamble.
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