Discuss about the Business Model Analysis-Volvo Sweden.
A business model is a structure comprising of 9 modeling blocks which a business uses to define itself. Several businesses have combined business models with a strategy so that they achieve success. This essay is going to look at Volvo Sweden and the type of business model they have adopted. It gives an overview of the term business model and disruption, after which the opportunities and threats faced by Volvo Sweden are discussed. An analysis of the business model framework of Volvo is also analyzed and further discussed in terms of profit making and as a value proposition. The essay then concludes with an overview of all major points discussed as pertains to the business model of Volvo Sweden.
The business model is a concept that has been studied for many years. Many researchers have carried out studies on the business model concepts and their application in various organizations. Murray & Scuotto (2016), look at the application of business model canvas in an entrepreneurial setting. They feel that the business model canvas is best suited to an entrepreneur, due to keeping ahead with technological changes in the industry. The model effectively guides an entrepreneur through their journey since current markets are being transformed by different digital and social technologies. Teece (2010), further emphasizes the value creation aspect of a business model. He describes the business model as further defining the architecture of value creation. It brings together and solidifies customer needs and their ability to pay hence enabling the company to respond and deliver value, converting customer payments into profits. Schaltegger et al. (2012) have investigated the link that exists between business models and business cases so that corporate sustainability can be advanced. He finds out that a business model can be used by companies in implementing strategies that will enable them to operate efficiently. Further to this, a researcher like Seelos (2014), used the business model as a tool for improving healthcare access in poor regions. This shows that the business model can be applied in various settings. Sanchez & Ricart (2010) have also developed business models which can be used in low-income markets. Business models can be tailored to different markets.
Business models can also be disrupted to create new markets. Various scholars have studied this. Sackman (2017) explains to us how the dominant firms can be slow respond to radical innovations since they may lack competence. This can lead the organizational capabilities to be obsolete. A capability that makes a company a leader in the market may in future be a competency trap and disruptions in technology can lead to disruptions in business models. Business model innovation, which leads to market disruptions can be incremental or radical, according to Velu (2015). The incremental model leads to minor changes in value proposition or creation while a radical change involves all major business model elements. Berglund & Sandtrom (2013), argue that the degree of business model innovation should be studied by looking at organizational boundaries and looking at how different resources can influence the outcome.
The business model analysis looks at Volvo Group, Sweden, a company that has been highly successful because it has put in place an effective business model. Volvo is the world’s leading manufacturer of construction equipment, marine engines, industrial engines trucks and buses. The company further provides financing and servicing solutions for customers who purchase products. The headquarters of the company are in Gothenburg and it has over 100,000 employees and production facilities in over 18 countries. The company has a presence in more than 190 markets hence showing the type of global presence that it has (Volvo Spain,2018). The company’s business model has been so effective such that the net sales were about Eur 35 billion in 2017. The company is public with its shares being listed on Nasdaq Stockholm.
In its day to day business, Volvo Sweden faces many opportunities and threats. There is a huge opportunity in the road freight business. This sector has been growing over the past years, hence a great investment opportunity. The sector is expected to further grow by 6% hence Volvo can take advantage of its truck business to tap this market.
There is a transportation boom all over the world. In continents like Africa and Asia, there is wide use of public transportation hence the need for buses (Buckley & Ghauri, 2015). Volvo can further tap into such markets so that they become providers of buses which are highly required in these places. Better still, there are many industries all over the world and Volvo can take advantage and become a supplier of various industrial equipment in different markets. This can also apply to the marine sector.
Despite its presence in over 190 markets, Volvo still has an opportunity of expansion into new markets. The company has an opportunity to tap into the growing construction sector. The globe is a large market and Volvo can still expand since all over the world, there is a need for the types of products that the company manufactures. Several countries have a construction boom since the real estate markets are expanding and there is a shift by many businesses to have their own premises and consumers to build their own houses. Volvo can, therefore, take advantage of this boom to sell its construction equipment.
Volvo also faces many threats in the market. One of this is that sometimes there is economic instability that leads to inflation hence leading to the company losing market since some consumers are unable to afford any purchases during that time (Chiarini, 2015). Inflation also leads to the company’s raw materials costing much more hence affecting the final prices of Volvo’s products (Kim,2016). Loss of market share is not good for Volvo since acquiring new consumers is also another process.
Another threat that is faced by Volvo is competition. Several companies are getting into the industry like bus and truck production hence leading to high competition. The company should make sure that it comes up with strategies for beating competitors so that it maintains its market share (Chang,2016). This may mean investing in new technologies and coming up with a way of ensuring the products remain superior in the market.
Volvo can use the business model framework as a way of supporting its current strategies. When combined, it will enable Volvo to effectively tap into new markets. The business model framework has 9 components to it. The 9 building blocks of the canvas are key partners, key activities, value proposition, customer relationships, customer segments, channels, key resources, revenue streams and cost structure.
Key partners are those that Volvo works with to ensure business success. Among Volvo’s key partners are machine manufacturers, automotive organizations, technology developers and its distribution network. Key activities are those that Volvo does to meet its strategy. Among the key activities for Volvo are marketing, research and innovation, financial services and service and support. Volvo carries out marketing to create awareness. Research and innovation is essential for the company to keep coming up with quality products and solutions. Financial services enable many customers to access the company’s services. Key activities need key resources to be effective. In Volvo Sweden, the key resources that the company uses are human resources as the company has over 95,000 staff. Other key resources are the brand, research facilities, intellectual property and a robust network.
One of the 9 building blocks is value proposition and this is what Volvo promises to deliver to its customers. Volvo’s value proposition is to bring prosperity by delivering various transport solutions, offering high-quality products to its consumers and contract manufacturing. In the customer relationship building block, Volvo intends to maintain this through customer service, innovation, building customer trust and giving after sales service. The customer segment building block defines Volvo’s target market which is EPC companies, construction companies, and carmakers.
Another building block in the business canvas model of Volvo is the channels that the company uses to sell its products. Volvo uses authorized dealers, website, social media and the Volvo museum. Volvo incurs different costs in trying to meet its strategies and these are shown under the cost structure building block. Some of the costs Volvo incurs are for buying parts, components, software installation, raw materials, production, and distribution. The final building block is revenue streams and Volvo gets its revenue from selling parts, provision of service, product sales and provision of technical service.
Volvo’s business model can be considered as a value proposition. This is because the company promises its customers value when it uses its products or services. The company promises its customers quality. Volvo has ensured that products are manufactured using the best material so that they are durable and the customer can use them for long. The products give customers service for a very long period. Volvo further promises value when the consumer uses the financial services offered. Consumers can purchase the company’s products through a financing system hence making it easier for businesses that are still growing and may not have all the required capital that they need to purchase a truck or bus for their operations. Such business can get financing, hence helping them to grow while at the same time getting value from Volvo products (Rothaermel, 2015). Volvo also offers servicing facilities to consumers who purchase products. The company schedules service times hence ensuring all equipment bought is working well and any parts that require replacement are identified early enough. Consumers are therefore able to get value from the company through the three services that are offered.
The business model of formula has enabled the company to get on a profit-making streak for the past number of decades. The company has successfully applied the business model and this has seen it make many sales hence positively affecting the bottom-line of the company. The company has over the years come up with aggressive marketing plans that have enabled it to successfully penetrate a wide number of markets and acquire many customers. Further still, the company has ensured that when entering new markets, it employs the best strategy suitable for that market (Gattorna, 2017). Through this, Volvo has acquired loyal customers and this has enabled it consistently make profits. The company has also adopted lean operations processes hence saving a lot of operational costs and greatly maximizing its profits. The company uses lead methods to ensure efficiency in production, hence there is no wastage, leading the company to be able to focus on profit making (Shi & Di,2015). Operational costs have greatly come down because of the use of lean processes. It has also enhanced the quality of the products that Volvo Sweden produces.
Conclusion
Volvo Sweden has been able to sustain its business model by applying various aspects of the business model. The company has been able to keep a key focus on customers and the value that they get, by putting in place various strategies. This has seen a lot of customer growth and retention by Volvo (Purkayashtha & Sharma,2016). The company has a bright future since it has learned how to effectively apply its business model while getting into different markets.
References
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