Business Model Innovation Essay
A business model is a method that the company uses in order to generate more income and also yield profits so as to achieve its goals and objectives (Zott, Amit, & Massa, 2011). The business model provides guidance to the management of any firm on the techniques to employ so as to earn more income and also for the continued success of the firm (Osterwalder & Pigneur, 2010). Once the best products to use are set, then the business plan is completed hence leading to the creation of a business model. In this task, we are going to look at the business model of the Volvo Group located in Sweden which is involved in manufacture and service of trucks and also constructs equipment. We will review the business model of the firm, the resources, its significance, value, and SWOT.
The Volvo Group is a manufacturing firm which produces buses, trucks, and construction equipment. It also manufactures and supplies financial services, marine, and industrial drive systems. It was created in 1927, serves worldwide and has over 90000 employees and the products are sold in over 190 markets globally. The aim of the company is to be the best and successful transport company in the whole world. How they interact with their customers and the community as a whole is what drives them to achieve their desired goals and objectives. The Volvo Group company has valued which guide them to day to day activities. They value customer success, trust, passion, change and performance (Palo & Tahtinen, 2011). The business model of Volvo Group is the best as compared to all the other manufacturing companies in the world. This has led to its success in the market because they are able to fit the target customers and also the market needs. The company ensures that they understand what the customer needs and try to come up with techniques to meet their needs and this leads to the creation of more profits. By using the business models, the company is able to identify the value proposition, the target market and choosing the best technology in their daily operations. The business models in this firm are important because it provides the management of the firm with the right justifications so as to ensure the client needs are met. According to Osterwalder &Pigneur, the success of Volvo Group in the market is enhanced by the good marketing strategies (Osterwalder & Pigneur, 2010). To ensure that the business model of this company succeeds, they apply the contingency theory. The company has also employed fashionable management strategies for its success and survival in the markets which are most times competitive. In this case, the Volvo Group has allowed more partnerships, innovations and supply chains to be used in its operations (Gebauer & Kowalkowski, 2012).
Due to the advancement in smart-connected products, opportunities and threats have emerged in the Volvo Group business model (Kaplan,S., 2012).The opportunities includes that the company aims at growing global road freight sector. Further, the company has an outlook for a global trucks market by manufacturing new trucks, cars, buses and construction equipment. The company also aims at improving global construction industry. There is also need for partnerships, collaborations and alliances with other companies something which is an opportunity for growth and expansion of the company. Additionally, there is an opportunity to use advanced technology in the service motor industry.
On the other hand, there are threats related to Volvo’s business models. There is high competition in the market by other firms which manufacture the similar product. Also, there are problems and fluctuations in exchange rates which affect the businesses economic attempts to advance its business operations in the global markets. Environmental regulations and policies in various countries in which it operates also threaten the success of its business operations for they are adverse. Finally, the manufacture of more improved vehicle features that are produced by their competitors threatens Volvo’s competitiveness in the automobile sector.
In the recent years, there has been the growth of global road freight sector both in volume and value. The company expects the freight sector to increase in the next five years by over 6%. In the world, Volvo Group has been the best leader in the manufacture of trucks and is able to take the advantage of the growth. The growth of the trucks market is expected to increase and the company will be able to benefit from any high demands. The company aims at improving the global construction industry in the recent past (Ulaga & Reinartz, 2011). Expenditure on infrastructure is expected to rise hence the company is going to benefit. The advancement in technology has given the company the opportunity to manufacture new products that suit the customer demands. There are sufficient resources which the company provides to the workers in different departments. This has led to the creation of new products. The company has increased its market share through collaborating with other companies.
However, the company is faced with a very stiff competition from other companies which produce similar products which have affected its performance. They compete with companies like CNH, Caterpillar, Hitachi, and Cummins. This has led to increased pressure on prices hence affecting their bargaining power. There has been a change in regulations from country to the country, especially in the construction industry, industrial engines and diesel vehicles (Frow, Ngo, & Payne, 2014). This has led to rise in compliance costs. Volvo Group operations are done globally and this has led to fluctuations in the currency especially the US Dollars. Their competitors have manufactured new products hence this has affected their operations.
In the recent past, the business model concept has become important in abstraction whereby models are necessary for a scientific approach. This is because it contains unique elements hence making it difficult to define. According to Osterwalder & Pigneur, the business model is a plan which contains operations of a business to ensure its success (Osterwalder & Pigneur, 2010). The Volvo Group mostly apply the business model canvas framework in its operations which illustrates the building blocks of a business model. Being an automobile company, the Volvo Group addresses its business model by using service business and product service systems (Neonen & Storbacka, 2010). Competition is not involved here because they use the business models to explain their services to the customers and coming up with a business plan and this is because the strategies are set. This makes the principle of Osterwalder & Pigneur applicable in Volvo Group. This is because according to them, competition is not necessary for the business model when setting its strategic plans.
The following business model perspectives are addressed in the Volvo Group business model: value proposition, set of capabilities and resources, the system of processes and profit formula. However, two business models will be discussed.
The Volvo Group business model takes into account profit formula which is used to ensure that profit-making and productivity are increased. For those customers who want to purchase the products on a loan based scheme, the company has shown the capability of providing solutions to them. The company has the best computer systems of the process which help them in planning series of actions. These series of actions help in improving the company’s profits. The profit formula used is the Gross Profit Margin (GP) which helps the company in understanding the net sales and profits made in a given period of time. Manufacturing capacity is increased by employing the right business models.
There are set of capabilities and resources business model used by Volvo Company. The Volvo Group company has employed over 90000 people so that they can be able to meet the customers’ needs by manufacturing products that are demanded by the customers in the market (Gebauer, Edvardsson, & Bjurko, 2010). The company has created value to the most targeted market especially in the automobile industry. The company ensures that the resources required are available so as to manufacture more automobile products, marine, trucks, and buses. The business model used by the Volvo Group is essential to the future success of the company (Kindstrom, 2010). The company is able to advance their innovations which makes them compete with the other companies that manufacture similar products. The business model also helps the company to collaborate with other companies in the world and this increases their productivity (Chesbrough, 2010). The business models contain important elements which the company uses to solve any issues and this has led to the generation of more profits. With the business model, the company can come up with different distribution channels and sale channels. To ensure their success in the market, the company has employed the right human resources and equipped them with the right resources required to improve productivity.
In conclusion, the right business models should be used by the companies to ensure success in their day to day operations. The managers are able to interpret the concepts used in their industry and also the key elements by using the right business models. With the business model, the company is able to grow rapidly and to meet their customer needs (Palo & Tahtinen, 2011). Finally, we have viewed that the Volvo Group business model contain; value propositions, set of capabilities, resources, systems of processes and profit formula. This company acts as a leader in the global automobile companies and they should learn from them the idea of applying the business models in their operations.by doing this, they will be able to increase their revenue, earn more profits and increase productivity (Kowalkowski, 2010).
Chesbrough, H. (2010). Business Model Innovation: Opportunities and Barriers. long-range planning, 43(2-3), 354-363.
Frow, P., Ngo, L.V, & Payne, A. (2014). Diagnosing the supplementary services model: Empirical validation, advancement, and implementation. Journal of marketing management, 30(1-2)\ 138-171.
Gebauer, H., & Kowalkowski, C. (2012). Customer-focused and service-focused orientation in organizational structures. Journal of business & industrial marketing, 27(7) 527=537.
Gebauer, H., Edvardsson, B., & Bjurko, M. (2010). The impact of service orientation in corporate culture on business performance in manufacturing companies. Journal of service management, 21(2), 237- 259.
Kaplan, S. (2012). The Business Model Innovation Factory: How to Stay Relevant when the world is changing. Hoboken, NJ: Wiley.
Kindstrom, D. (2010). Towards a service-based business model- key aspects of future competitive advantage. European Management Journal, 28(6), 479-490).
Kowalkowski, C. (2010). What does a service-dominant logic really mean for manufacturing firms? Journal of manufacturing science and technology, 3(4), 285-292.
Neonen, S., & Storbacka, K. (2010). Business model design: conceptualizing networked value co-creation. International Journal of Quality and service sciences, 2(1),43-59.
Osterwalder, A., & Pigneur, Y. (2010). Business Model Generation: A Handbook for visionaries, game changers, and challengers. Hoboken: Wiley.
Palo, T., & Tahtinen, J. (2011). A network perspective on business models for emerging technology-based services. Journal of Business & Industrial Marketing, 26(5), 377-388.
Ulaga, W., & Reinartz, W. . (2011). Hybrid Offerings: How manufacturing firms combine goods and services successfully . Journal of marketing, 75(6), 5-23.
Zott, C., Amit, R., & Massa, L. (2011). The business model: Recent developments and future research. Journal of management, 37(4), 1019-1042.