Discuss about the Business Model for Captures and Creates Value.
Michael Lewis has described business model as ä term of art”. And, business model is quite similar to the term art as, it is one of the things which, lots of people feel that they can recognize when they see it but, they’re not able to completely define it. People’s definition of the phrase business model relies on the way they’re using it. Business Model is a term used by many people around the globe. But not all of us know well enough what it actually means. It is the rationale which describes how an organization or industry delivers, captures and creates value. It’s the assumptions about what an organization gets paid for. It is the story which describes how organizations function and how a business runs. All it really means is the strategy the companies formulate to make money (Ovans, 2013). In addition to what a company gets paid for, the assumptions are also about the markets. They are about ascertaining the competitors and the customers, the behaviors, about the weakness and the strong suit of a company and the technology and its dynamic forces. It is an answer to the fundamental questions like how more money can be earned and, how company can create value for consumers at reasonable price (Marsden, 2015). It is an abstract illustration of an enterprise which may be graphical, textual or conceptual, which is related to all the financial, co-operational and architectural arrangements prepared by any organization for the present as well as all the products and services that the organization will offer in future. And, on the basis of these measures the organizations strive to achieve its objectives and goals.
A business model consists of two parts. The first part has all the activities in relation to creating something like buying raw materials, creating designs and then, manufacturing the product and so on. The second part comprises of the activities of selling a product or service like finding customers, distribution of the product or the delivery of service and making the transaction of the sale. The term business model is used to describe a wide range of essential features of a business like the process of business, offerings, infrastructure, prospective customers, trading practices, structure of the organization, operational processes, purpose, and policies made. Business models also categorize the businesses mainly in the entrepreneurial way. Business models are also used by the people in the management department of a company to look for the possibilities of development in the future.
Disruption is the new normal. Disruptive brands comprehend the consumer trends in the market before they become a trend and capitalize on the prediction of the trends better than the competitors in the market. It is when a new market and the value network starts disrupting the existing value network and the market which displaces the established companies’ services and products (Christensen, Raynor, & McDonald, 2015). Disruption is a process in which a small company with a lot less resources is able to challenge a company with greater resources and which is already established. When the already established company focuses on the improvement of its products and services to offer them to their more demanding and profitable customers, they start ignoring the need of other segments. The new companies then, begin to be disruptive by targeting the customers who have been overlooked by the bigger companies and gain their foothold by providing products and services more suitably and at lower prices (The Economist, 2015). They do not face much resistance from the big companies as they are busy chasing the high-profitable and demanding sectors. And, when the small companies move upmarket and they deliver the performance with the same advantages of their initial success to the prospective customers of the big companies, and their offering are embraced by the conventional customers, disruption is said to have taken place (Clinton, 2014).
Disruption innovation is the introduction of a better business model than the existing one in the market. When the current business model starts making smaller developments, that is when a new business model is adopted. And, triumph through innovation means constant disruption. The disruptive brands grow at a very good speed and keep changing the flight of customers’ point of view. These brands are daring, attractive, authentic and challenging which are invisible and below the radar before it is too late to capture the competition brought by them. They break the existing and accepted convention and norms and shape the society and the culture in their innovative methods (Denning, 2014). According to Richard Branson, Disruption is like taking risk by following one’s intuition. It involves doing things in unconventional way. Disruption is not only about advertising, for it to happen, there is need for having a clear vision about position where they wants to see their brand and manner in which they can reach that position.
IBM was facing bankruptcy when the leaders of IBM missed the shift from the mainframe computers to desktop computing because they thought that, personal computers were gadgets for personal productivity instead of what it really was, which was transformative platform for technology, which would later go on to reinvent a lot of economy and industries. IBM missed a lot of important key technology shifts. They went into huge losses. More and more customers were abandoning IBM saying that their era had passed and labeling them as dinosaurs. It was when the core business of IBM of mainframe computers started going down which resulted in a cash crisis, in a way that the corporation started moving towards the business of software and services. They started thinking of reinventing on an ongoing basis as, it was the Information Age and thought of evolving the business models of the company and also the portfolios of the business models (Power, 2014). IBM realized that they need to stop relying on the old and traditional practices of R&D, internal processes and innovation. They felt the need to advance their technologies and started focusing on increasing the role of software in the products and services they provided. They started using the resources and making great use of them which were outside their boundaries. They started taking advantages of the wider networks of dealers, prospective customers and entrepreneurs (Van Kralingen, 2010).
The important things that IBM learned and focused on were: a) the business must be global. They should advance their technologies and should not stick to the old models and try and duplicate the same organizations and functions, b) sometimes the companies should completely change their portfolios. The companies that are in crises should look at their portfolios and figure out what the customers demand and what they will demand in the future and start investing in the growth opportunities and get rid of everything which does not fit the criteria of what they need, and c) success is not merely survival; it is delivered by leadership. The people leading the companies are initially inclined to resist the changes like technological, economic or social. But, they can only achieve success when they start accepting the changes and the trends relevant to their own company and start capitalizing on their strengths and resources (Dan, 2015). In addition to this, it also enhanced and leveraged it advantages. According to New York Times, “it created strong, long term customer relationships, deep scientific and research capabilities and an unmatched breadth of technical skills in hardware, software and services” (Plantes, 2011)
Corporations can no longer prosper as they could earlier have based on the business models of 20th century. Earlier, successful business models were a creation of an accident instead of a plan based on future sights and designs. They were more focused on improving through the same business models by more efficiently producing products and providing services (Clinton, 2014).
A lot of executives have vested their interests in the approach of “if it ain’t broke, don’t fix it” which holds them back. It is very difficult to convince them to change the dynamics and portfolios of their business models based on the threats which are yet to be faced by them and which have not yet emerged in front of them (Clinton, 2014). It was only later that the companies started tying their insights to the resulting economies and started linking their assumptions to the behavior of consumers to create a business model. They started doing what the old 20th century business models were incapable of doing i.e. delighting the consumers through transformational, disciplined and continuous innovation (Rick, 2015). The new business models went way beyond setting and implementing new set of regulations. It meant a completely different way of thinking, acting and speaking in the workplace. It means a change in the center of the core business of a company. It is a very big question for the leaders of big enterprises that if they are daring enough, whether they have the courage to make a change which actually means transforming quantitatively into a different organization. The organization willing and daring to accept the changes, will flourish. And the ones which resist the changing technology, economy and social cultures and keep with their conventional ways will become extinct (Johnson, Christensen, & Kagermann, 2008). But, if it was easy to be a viable business, to create, deliver and capture value in such a way that it meets the human needs lot of companies would have been doing it. But the main focus of the companies stays on making the best of their existing business models. The change and shifting old business models to evolve them is a powerful obstacle to innovation.
This case is a reminder that even the most successfully established industries can be destroyed by changing times. But even those companies, if they’re willing, can crawl their way back up if they are ready to reinvent themselves in such ways that would make them relevant and successful again in the new markets. They should be able to understand that transformation must be constant and a continuing process which should not end.
Christensen, C. M., Raynor, M. E., & McDonald, R. (2015). What Is Disruptive Innovation? Retrieved August 20, 2016, from Harvard Business Review : https://hbr.org/2015/12/what-is-disruptive-innovation
Clinton, L. (2014). Why it's time to disrupt old business models. Retrieved August 21, 2016, from GreenBiz: https://www.greenbiz.com/blog/2014/03/07/promise-and-challenge-business-model-innovation
Dan, A. (2015). The 25 Most Disruptive Brands Of 2015. Retrieved August 21, 2016, from Forbes: https://www.forbes.com/sites/avidan/2015/11/29/the-25-most-disruptive-brands-of-2015/#16e47b02504c
Denning, S. (2014). Business's Worst Nightmare: Big Bang Disruption. Retrieved August 21, 2016, from Forbes: https://www.forbes.com/sites/stevedenning/2014/01/07/businesss-worst-nightmare-big-bang-disruption/#7dad48853959
Johnson, M. W., Christensen, C. M., & Kagermann, H. (2008, December). Reinventing Your Business Model. Retrieved from Harvard Business Review: https://hbr.org/2008/12/reinventing-your-business-model
Marsden, P. (2015). 10 Hyper-Disruptive Business Models. Retrieved August 21, 2016, from Digital Intelligence Today: https://digitalintelligencetoday.com/the-10-business-models-of-digital-disruption-and-how-to-respond-to-them/
Ovans, A. (2013). What Is a Business Model? Retrieved August 20, 2016, from Harvard Business Review: https://hbr.org/2015/01/what-is-a-business-model
Plantes, K. (2011). Business model innovation lessons from century-old IBM. Retrieved August 21, 2016, from WTN News: https://wtnnews.com/articles/8730/
Power, B. (2014). How Watson Changed IBM. Retrieved August 21, 2016, from Harvard Business Review: https://hbr.org/2014/08/how-watson-changed-ibm
Rick, T. (2015, August 6). Old business models are being transformed digitally. Retrieved from Meliorate: https://www.torbenrick.eu/blog/technology/old-business-models-are-being-transformed-digitally/
The Economist. (2015). What disruptive innovation means. Retrieved August 21, 2016, from https://www.economist.com/blogs/economist-explains/2015/01/economist-explains-15
Van Kralingen, B. (2010). IBM's Transformation--From Survival To Success. Retrieved August 21, 2016, from Forbes: https://www.forbes.com/2010/07/07/ibm-transformation-lessons-leadership-managing-change.html