Volvo Group- Business Models
Innovation and Sustainable Business Development
A business model entails the methods employed by a firm to earn the revenues projected in its strategic plan. Business model views the business as a system and guides the management on the best strategies of making money and enhancing its survival (Osterwalder & Pigneur, 2010). The creation of a business model involves the completion of business plans by determining the right products to pursue. This assignment explains the business model of Volvo Group, Sweden; manufacturer and service of trucks and construction equipment. In its business model, the Volvo Group pursues the manufacturing of buses, trucks, construction equipment and marine and industrial engines. Also, the Volvo Group offers clients with complete solutions for financing and service. Due to the company’s great desire to achieve customer satisfaction, the company has approximately 100,000 employees, production facilities in 18 nations, and differentiates its product sales to over 190 global markets (http://www.volvogroup.com/en-en/about-us.html). In this essay, Volvo Group’s business model, its significance, value proposition, resources, SWOT, the system of processes and other factors will be credibly analyzed.
Volvo Group has one of the best business models among all manufacturing companies in the world. The management has a specialized department that maps out to create an ongoing value for clients and customers interests (Palo & Tähtinen, 2011). Today, Volvo’s success in the market is contingent upon its excellent business model and how its crafting fits the target audience and its market needs. The company has a diverse entrepreneurial competence in conformity to what customers demand as well as the strategies of meeting these customer demands to increase sales hence profitability (Kowalkowski, 2010). The use of business models in Volvo Group aims at articulating the value proposition, target market segmentation identification, defining the value chain structures, selecting the right technology and features and enhancing a proper estimation of its cost structure and profit potentials in its operations into the market (Chesbrough, 2010). For the case of Volvo Group, business models offer the management with a rationale for creating an appropriate venture in which all customer needs are upheld. On the theoretical perspective, business modeling goes hand in hand with business planning, and this is applied to Volvo Group. Good marketing strategies by Osterwalder & Pigneur enhance Volvo’s success in the market too. The contingency theory is highly applied to enhance the business model success given the proper application of the grid matrix by the management. Fashionable management strategies are also effectively used in the company to enhance growth and survival in the competitive market. In its matrix, the company has enhanced partnerships, collaborations, supply chains, alliances and open innovation to its business model.
The existing business model of the Volvo Group is faced with various threats and opportunities that are caused by the advances of smart connected products. The threats and opportunities that the Volvo Group is exposed to are presented in the matrix below:
| i. Manufacturing of new trucks, cars, buses, construction equipment and industrial engines
ii. Advanced technological and digital revolution in the service motor industry
iii. Diverse market hence possibility to increase market share
iv. Possible partnership, collaborations, and alliances with other companies
| i. Stiff competition from other automobile firms that dominate the international markets such as BMW, Mercedes Benz, and Audi.
ii. Different business environments, regulations, and policies in various countries in which it operates
iii. Improved innovative vehicle features advanced by its competitors threaten reduced market share
iv. Unexpected problems and fluctuation in exchange rates
The current era of technological revolution offers Volvo Group with numerous opportunities to innovate new product designs that suit the current demand in the automobile sector. The 100,000 employees of the company work in different departments in which the company provides sufficient and appropriate resources that facilitate creativity and innovativeness with the use of technology. New designs, models, and structures of cars have been innovated (Kindström, 2010). Further, the company has been able to expand the size of Volvo trucks resulting to the establishment of possible partnerships with other companies such as Yokohama Tires. As a result, the company increases its market share and possibility to expand in more global markets other than the already exploited 20 countries.
However, the company is threatened by other big players in the industry such as BMW and Audi who have the financial power to invest huge capital just to compete out other upcoming players in the automobile industry. High competition in the market makes the company adjust its business modeling plan to fit in the level of technology advanced by other companies, and this is costly to Volvo (Frow, Ngo, & Payne, 2014). In its business model, the company plans to exploit all the market opportunities in the 20 countries and other target markets. The operation in different countries exposes Volvo to financial risks due to exchange rates fluctuation witnessed in different countries. Further, the business plans set to apply in different countries differ and are subject to error since the business environments differ from one country to another (Gebauer, Edvardsson, & Bjurko, 2010). There is a possibility that the norms, policies, and regulations governing business operations are unfavorable to Volvo’s business model, and this threatens its sustainability in such an environment.
The business model concept has turned out as a popular topic of interest in the business world (Osterwalder & Pigneur, 2010). Today, there are not enough words for defining business modeling given the unique elements it contains. Osterwalder & Pigneur (2005, p. 17) describes business model as the key logic behind any business’ functioning for its lays down a proper tool for its conceptualization and understanding. In the context of Volvo Group, business model canvas framework is broadly used (Osterwalder & Pigneur, 2010). The management of Volvo group takes into account its service business and product-service systems in addressing its business model fit as an automobile company (Kaplan, 2012). However, in its endeavor to use business models in describing its services to the customers and laying down a business plan that fit its purpose, the element of competition is not taken into account as these strategies are set. In this policy, Osterwalder & Pigneur, 2010 principle is applied by Volvo for they argue that a business model should not take into account the competition element when setting its strategic plan for both financial and automobile service provision.
Volvo Group’s business model is designed from various perspectives: value proposition, capabilities, and resources, systems of process and profit formula to the analysis. Volvo Gropu creates value to its target market segmentation which is in the automobile industry. To meet the customer needs effectively, the company has hired over 100,000 employees in its premises only to manufacture automobile products in the quality demanded by the people in the market. The human resources of the company are sufficient for the purposes of manufacturing trucks and buses, construction of marine engines, promotion of the manufactured products in the target market, and the selling of the aforementioned products into the markets (Gebauer & Kowalkowski, 2012). Further, in its business model; Volvo has shown capability in providing complete solutions for financing and servicing of customers who want to acquire vehicles on a loan based scheme. Also, the company has established excellent systems of processes that aid the management in planning a series of actions within its computer systems to advance production materials from one stage of completion to another (Nenonen & Storbacka, 2010). The Volvo Group profit formula is also included in its business model and it seeks to increase profit making and productivity of the company. The gross profit of the company is expressed as a ratio of gross profit (GP) in terms of its net sales (GP/Net Sales).
The Volvo Group’s Business model has a great significance to the company’s future. Business modeling opens a great chance for the company to enhance innovativeness in future and compete out the well-positioned automobile companies in the world (Ulaga & Reinartz, 2011). Also, business model opens a future opportunity for Volvo to diversify its business operations and partner with other global players hence improve productivity through automobile service delivery. Further, the application of business model concept presents Volvo with tools for solving sustainability issues hence increase profit making (Eriksson & Kovalainen, 2008). Further, the company has a great opportunity of establishing reliable distribution channels, supplies, and sales channels, as well as successful execution of business transactions. Today, the company is rethinking its manufacturing and supply chain processes. The application of the right business models will help the company increase its manufacturing capacity and service delivery to customers hence enhancing overall success in the market.
In conclusion, companies that succeed in the generation of commercially sustainable operations are those that invest in the application of the right business models. Excellent business models play an important role in establishing key elements such as distribution channels and business transactions execution. Business models help managers in interpreting industry concepts that enhance success in the industry. The proper integration of business model with customer demands enable companies to thrive, grow and enhance sustainability in the market. Finally, the business model system is centered on activities that focus on customer value proposition, company resources and capabilities, and system of processes. Therefore, other automobile companies should copy the idea of Volvo in integrating business models to its main strategic plans in order to meet customer demands effectively and enhance profitability and productivity in the markets.
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