Individual Paper 2
What is stimulating new types of business models?
Introduction: This critical analysis is written on the bases of reading of an article which is “Rethinking the business model” by KPMG International.
Summary: Companies make a business model to gain a competitive advantage which is very necessary to get market shares. All the companies are always ready to provide unique value to its customers through their products and services and nowadays it becomes a key concern for corporate leaders because the main task of any organization is to manage their costs, grow their revenue and profits, and keep their customers happy. For this, all businesses adopt new types of business model which provide unique value to their customers and gain competitive advantages in the market.
Businesses change their business model on the bases of three most important factors which are:
1. The need to respond to new threats and opportunities in emerging markets (where the old ways of doing business may not work)
2. The impact of new technology
3. Changing customer requirements and buying behavior.
The key concept of changing or adopt new business model by any organization is Risk Management. A well-designed business model can help companies to achieve their objectives and identify the next big opportunity while managing the risks. Every company should create a culture of intelligent risk-taking in their working environment.
Argument: In this article KPMG international mention that one of the key reasons behind the change in the business model or adopting a new business model by any organization introduces new technology in the market. But according to me, companies acquire new technologies if it makes a big impact on their business and companies not change their complete business model due to this reason but add this as an opportunity and provide extra peripheral value to their customers. For example TATA, it’s a very big and old company, it regularly does research and adopt new technologies in their business but not change their core value. Companies should always work with their core business which gives them an image in the market.
Conclusion: All business changes their business model due to change in situations or environment. Companies do regular surveys or research for their business and found many new things such as new threats of their business, new opportunities in the market, change in consumer taste and preference, new technology come in the market and many more things related to their business. All the data which found during survey or research influence the businesses to change their business model or adopt a new business model which provide new or unique value to their customers.
What might prevent an organization from adopting an open business model?
Introduction: This critical analysis is based on an article which is “Why companies should have open business models” by Henry W. Chesbrough.
Due to change in business environment companies acquire new business model called Open Business Model. It allows companies to search new ideas from outside and allowing unused internal idea or technology to flow to the outside. It allows the organization to be more effective in creating as well as capturing value. In this model, an idea travels from invention to commercialization through at least two different companies. Through the process, ideas and technologies were bought, sold, licensed or otherwise transferred, changing hands at least once in their journey to market. Every company has their own or unique assets, resources and market positions so, it allows companies to use others uniqueness and generate profit.
There are various other things which prevent organizations from adopting an open business model such as:
· The cost of adopting open business model is so high and the potential value will be difficult to perceive because in this model ideas can flow from one place to another and find a place where they fit.
· The development costs of invention rises and product life cycles become shorter, this results the companies are finding it harder to justify their innovation investment and use open business model.
· Companies don’t have the courage to experiment with their business models because adopting new business model has some risk which may be dangerous for the company.
· When organizations think to use new business model so, they have a question that what happens with their traditional business model because it also plays an important role in the market and at the end, it gives a position in the market.
· Managing the coexistence of a new business model alongside an existing one cannot be easy.
· Many companies don’t have a capability to handle extra works or activity in their organization so, if companies use open business model at that situation, it results their quality of product or service will be decreased.
· Adopting an open business model requires much more funding and far greater organizational commitment than a small experiment in the organization. This often creates “losses” in the organization because it requires a lot of experience to handle this model or the opening up a company’s business model may not be easy.
Argument: In this article author said that handling new business model alongside an existing model is not so easy but most of the companies use this model as an extra source of revenue such as Disney, it gives licensing to third-party sources to make products such as toys, clothes and many more which related to them, and company charges a small fees or commission on every production. It builds a positive image or helps to develop strong brand equity with the traditional business model in the mind of the customer and it is also an extra source of revenue for Disney.
Conclusion: An open business model is the new type of strategy which used by the organizations to take competitive advantage among their rivals and generate extra profit or revenue with existing once. But varies drawbacks of the open business model which prevents organizations to adopt it such as high cost, high risk, require a lot of experience with the courage of taking the risk, shorten product life cycle, and handle traditional business model. If the risk management by a company goes wrong so, it becomes a loss for the company because it creates a negative image in the mind of customers.
Which organizations have a good track record of innovation and how do they achieve this record?
GE is a 123-year-old company, it starts their journey by inventing light bulbs and then comes into LED bulbs to jet engines and MRIs. Its Leader after leader shared a vision for growth that emphasized the “quality, speed, and execution” of GE’s innovation efforts. It used its core technologies to create new businesses. General Electric has had a focus on product innovation that has been a key component of its success. The firm’s commitment to innovation, underwritten by large expenditures for research and development, has remained remarkably consistent over time.
When it stressed the need to be innovative in services as well as products so it leveraging its manufacturing expertise to sell “a combined system of products and services jointly capable of fulfilling specific client demand.” When GE has no Idea where to go or innovate so, it starts Open Innovation in an organization which means, GE launched an “ecomagination challenge” a competition in which startups and inventors were asked to present technologies that could help GE accelerate its development of products and services. GE is at the Top of fast innovative companies in the world. It works according to environmental need, today’s world is become digitalized so, it transforming its industry into a digital industry company which connecting machines and businesses to the cloud.
GE has a three-step process to help the company for innovation:
1. Identify the trends shaping the business landscape.
Every year the company surveys what’s happening in the world around it. This information then shapes how it will proceed with its growth and innovation efforts.
2. Apply business goals that are unachievable if the units stay focused on the current business environment.
Business focus into three segments:
· Managing the core business
· Moving into adjacent markets
· Creating entirely new businesses.
3. Lay out the challenges, the trends, the targets, and have a discussion with key team members. The company convenes leaders from each of its units and surveys the above information and crafts the plans it will need to meet the goals. These innovation projects are then reviewed by the chairman once a month, which raises the profile of these efforts throughout the company and reinforces the importance of innovation.
To meet the challenges of executing innovative ideas, companies employ has three key tenets:
· Forget the rules that govern the core business.
· Borrow the key components of the core business that will give the new business competitive advantage.
· Learn how the breakthrough business should run- spend a little, learn a lot through testing your assumptions.