Discuss about the Configurational Approach in Business Model.
A business model of an organisation is a plan to generate the profit and to make revenue out of it. The business model can explain the services or products of the organisations that they manufacture or provide in the market. The business model provides the plan to make the account of expenses with a step-by-step approach. As stated by Bocken et al., (2014), the business model explains the value proposition for the organisation as it is the straightforward statement about the company’s offerings of services or products to the potential clients or customers. The business model can differentiate the organisation from the competitors in the market. Different types of organisations use different business models, franchising, direct sales, brick and mortar or traditional business model. DaSilva & Trkman (2014) commented that business model can play the crucial role in success and it is needed to optimise the innovative technology of the business. In order to survive in this globally competitive market, the business model has the strength to maximise the return of the business from the high-cost investment. The business model provides help to drive the innovation that can help to find the new opportunities for the business.
Business model innovation can be defined as the development of unique and new concepts that support the organisational financial viability along with mission and vision statement. The business model innovation is the process taken by the organisations to bring the innovative concepts to fruition. Gobble (2014) supported this by saying that the primary goal of the business model innovation is to understand the new revenue resources by the developing product or service values and the process of delivering the products and services to the customers. In this digital age, most of the companies are focusing on the business model innovation because of the technologies are changing dramatically. According to Martins, Rindova & Greenbaum (2015), digital disruption has led to shortening the lifecycle of the business model of an organisation as innovation is the key to financial success. Companies those take the business model innovation should react towards the increased systemic risks and international competition. Therefore, business model innovation can foster the growth in the competitive global market. The organisations focus narrowly on business model innovation as most of the successful business model innovation requires the alignment of business objectives and alignment of IT. Focusing on the business model is the effective way to appeal the market segments and innovation in business model can broaden the market segments. In addition, the management of the organisations can search for the commonalities across the services and products when they opt business model innovation. The benefit of business model innovation is the increase in the cost of revenues, gross margin. Business model innovation can lower the investment in business and it can also reduce operating income of the business (Foss and Saebi, 2017). Moreover, one example of business model innovation could be Apple’s introduction of iPhone, iPod and iTunes that expanded the business beyond the desktop computers market. iPhone introduction during the time of the 2000s was the breakthrough in the Smartphone market and it introduced the iOS platform.
Most importantly, the business model can be customised with the needs of the organisation and it can change easily if needed as successful business always strives to find the innovation (Bohnsack, Pinkse & Kolk, 2014). Rapid business model innovation is taken by the organisations to achieve the desired revenue and success with high-end technological development, while innovation is the improvement of technological and strategic capabilities.
In this article, Fonterra organisation is chosen that currently operates in the dairy industry. The business model canvas of Fonterra is produced with major characteristics of the model. One major business trend is also explained with the theoretical model. The impact of this trend is also shown on the Fonterra’s business model.
Fonterra is a New Zealand based multinational dairy cooperative organisation. Fonterra was established in the year 2001 and it has its headquarter in Auckland. Fonterra serves worldwide and this firm is owned by more than 10,500 farmers across New Zealand. Fonterra is New Zealand’s largest company and Fonterra is responsible for almost 30% dairy exports in the world. Fonterra currently has more than 22,000 employees (Fonterra.com, 2018). Fonterra was formed by merging of New Zealand’s two major dairy cooperatives.
Major products: Fonterra is in the dairy industry as they manufacture dairy-based products and sells through retail. The major products of Fonterra are milk, butter, ice-cream, cream, yoghurt, curd, flavoured milk, milk powder and cheese.
Revenues: Current revenue of Fonterra touched NZ$ 19.23 billion and operating income of the organisation touched NZ$1.20 billion (2016-17). Total assets of the organisation were NZ$17.82 billion in the year 2016.
Fonterra has a secure and stable supply of milk in long-term as this cooperative firm has the strength of more than 10 thousand farmers. Fonterra has a global demand for the milk-based products and they can meet the demand as the organisation through the uniqueness of shareholder relationship. Fonterra was formed through the merging of the two large organisations; therefore, the organisation enjoys the growth of economic scale and numerous resources (Fonterra.com, 2018). Fonterra is doing its business in higher productivity in New Zealand and it has large numbers of workers within the company.
Relationship with the distribution channels needs to be good in order to export the products fast. The competitors in the market can pinch the suppliers with a better price. Fonterra has been facing the issue of technological infrastructure to communicate with the stakeholders. The organisation was formed through merging; therefore, the infrastructure and resources get resistance to relocate the resources. Fonterra is reliable on climate and it is less efficient on productivity compared to competitors in the market.
Fonterra has string grip in Australia and New Zealand market and it produces 2 billion litres of milk every year. It gains a large market share in Australia and New Zealand market as it has 1,300 farmer suppliers in Australia and New Zealand. In New Zealand, it has more 85% of market share in dairy industry.
The business model of Fonterra is much like a linear business model as farmers work hard to produce milk from the cattle and workers create value to produce valuable milk-based products for the customers. The key partners of the business are the farmers and the key suppliers that help the business to export international market. Fonterra provides ‘minimum viable products’ to the customers; however, the value proposition of the business is associated with the different types of milk based products. Value-driven design of the business is based on mainly multidisciplinary of the design optimisation. Fonterra tries to maximise the values so that the business can require the performance. Values of Fonterra lies within the concept of cooperative business model and this organisation has large production plan that is enabled to produce a large amount of products. The suppliers can send the products across the globes. The large market segment of the organisation provides another value as Fonterra has more than 87% of market share in New Zealand. Moreover, Fonterra also follows the Multi-sided business model and it is solely associated with the value delivery of the organisation. The value creation of the organisation is associated with the customers. Fonterra listens to the customers and they make new products through co-creation. Value capture in the market can be understood through the revenue generation of the organisation (Dee, 2016). The current revenue of the organisation is growing as the market share is also increasing.
In recent time, digital transformation is the process of integration of technology digitally into all areas of business that can fundamentally change the operation and delivery process to customers (Matt, Hess & Benlian, 2015). The digital transformation of the business can change the organisational culture as it requires the continuous challenge the status quo and it likes to experiment the business process. Digital transformation can also be defined as walking away from the long-standing business process that can help to favour new practices. Digital transformation can help the organisation to have extra customers that live across the globe. As stated by Majchrzak, Markus & Wareham (2016), the digital transformation of the business refers to the different thinking, change of the leadership, innovation encouragement and new business models. The organisations need to focus on the digitisation assets that help to increase the use of technology to utilise the experience of the employees. The organisations can use digital transformation to make the organisation more profitable as the statistics found that organisations that use digital transformation are 25% more profitable than average market competitors. Digital transformation is used to attract the external customers or for the internal employees.
The organisations are trying to use digital technology integration so that the technology leader should consider embarking on digital transformation. Most of the organisation starts from the first stage of Digital Infancy and it is the reaction phase; the organisation needs to find out the change for digitally empowering. The second stage is digital childhood; in this stage, the organisation finds out the strategy so that it can develop the capacities to begin to make customer persona to design the customers’ preferences. The third stage is digital adolescence, in this phase, the organisation needs to the synthesis of the strategy by carrying digital technology in unexplored territories (Wajcman, 2016). It is possible to focus on the minimal condition of digital strategy to create database management. The last stage is digital maturity, in this phase, the organisation can start with optimisation of the digital programme where the organisation can learn endless new channels and it can cater towards functionality and method.
Digital transformation means adoption of digitisation that would impact on the organisational operational agility customer experience, culture and leadership and workforce enablement (Hess et al., 2016). In Fonterra, the organisation does not use digital technology much as they only use digital technology to communicate with the customers. Fonterra can use digital transformation for two purposes, communication among employees and communicate with the customers. Digital transformation can be used in Fonterra taking the help of Big Data and analytics. Fonterra can sell the milk-based products to the customers using online media, they can track the suppliers using online media and they can communicate with the external customers. Fonterra can start live reporting and tracking to facilitate responses to alter the situation in order to gain cost benefits and reduce the decision-making time. Fonterra can use the digital transformation in improving the opportunity capture through using intranet software (Kulins, Leonardy & Weber, 2016). Fonterra can better monitor the supply chain by notification through correcting the schedule of non-conformance issue. Fonterra can achieve the immediate result of optimising the sources and reduce the time lag of price visibility on the internet.
Conclusion
Fonterra has been using the traditional business model of linear and value-driven business model. Fonterra can use digital transformation in order to focus on the outcome-based model as determined by the results of the customers’ business. The organisation can expand into new markets and industries using the digital transformation as they expand the business to produce fruit juice. Fonterra can use persuasive digitisation of services and products that can accelerate the ways of designing and deliveries of the products. Digital transformation provides a realisation of the value of using digital platform that is cost effective and it helps to reach large customer segments.
Fonterra needs to identify the transformation objectives of the digitalisation. This objective can increase digital customers and it can transform the business process to decrease the costs, integrate the supply-chain partners and improve the productivity. Fonterra can study the technology enablers in the market where the organisation can use intelligent automation, Internet of Things and cyber-security. Fonterra needs to use the future platform using the eco-system of on-demand services. Digital transformation can enable the digital workplace, it can also start digital communication and it can adapt the simplifying management.
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