Discuss about the Disruptive Innovation in Volvo for Business Model Generation.
Osterwalder and Pigneur (2010) defines business model in their book ‘Business model generation’ as the combination of nine building blocks consisting of customer segments, value propositions, channels, customer relationship, revenue streams, key resources, key activities, key partnerships and cost structure.
Disruption can be defined as far as business models are concerned, can be defined as the innovation which creates a new product which goes on to create new values for the customers and disrupting the market of an existing product.
Business organisations today use innovative business models to bring about more radical products which creates new values for customers. They use smart-connected-products like software accessible on diverse electronic devices like tablets and computers to gain information about customer preferences. They then align their new product development with customer preferences thus creating value for the latter. The essay would explore this concepts of disruptive business model with Volvo Group in its background.
Volvo is one of the largest heavy duty automobile manufacturing company based in Sweden using disruptive innovation. It is a public limited company listed on the Stockholm Stock Exchange and NASDAQ (Appendix 1). The main products of the company are trucks, buses, construction equipment, marine engineering equipment and financial services. The very product line of the company reveals that the company requires to carry on disruptive innovation as a part of its business model to cater to its customers which are mostly other business organisations. The vast capital base and revenue base of the company provides base its continuous disruptions.
Bohnsack, Pinkse and Kolk (2014) mentions disruptive innovations have both advantages or opportunities and disadvantages of threats to the companies implementing them. The disruptive innovation today have become a significant part of the research and development strategies of multinational companies like Volvo. Pinkse, Bohnsack and Kolk. (2014) point out that the first advantage of disruptive models led by smart equipment. They point out that companies today gain information about preferences of customers using smart connected products like smart phones and tablets. Dodgson (2018) points out to the next advantage of this disruptive innovations at multinational companies. The multinational companies today are spread all over the world and are connected internally through smart technology platforms like cloud. They research teams dedicated to develop products for these companies acquire, share and manage data from customers to bring about new products. Thus, disruptive innovation helps companies to improve their products and introduce new products by aligning the entire process with the market needs. This results in generation of immense revenue, thus rendering the companies financial sustainability. .
Adams et al. (2016) point that that disruptive innovations not only render financial sustainability but also environmental sustainability. The industries like automobile and civil construction are responsible for environmental pollution. Disruptive innovation allow them to find out sustainable methods of operating like using less polluting fuel to operate their equipment and vehicles. Nugent and Werema (2015) point that the next advantage which disruptive innovation and smart technologies have ushered is that all business organisations today are bound to adopt sustainable methods to operate in the market. The market goodwill of business organisations are not restricted to revenue generation alone. Their goodwill is equally dependent on their response to sustainability issues and adopt sustainable business model. Non-sustainable business models of multinational companies which remained virtually unchallenged in the past decades, are replaced by more sustainable business models by their competitors today in matter of years. Thus, companies are bound to adopt sustainability and disruptive innovation to exist in the market. However, smart technology and artificial intelligence driven disruptive innovation also poses challenges to the present business world.
Munos and Orloff (2016) point out that disruptive innovation is extremely expensive which requires companies to invest immense capital. They contradict Dodgson (2018) on his notion of disruptive innovation and financial sustainability. They skirt the opinion of Nugent and Werema (2015) and point out that the short lived nature of present business models rapture the financial positions of companies. The companies have to invest immense amount of money towards disruptive innovation and are often forced to change the business model within years even before earning returns on the capital invested in the previous innovation. This have dire impact on the financial position of the companies.
Andreas (2018) in his work points out that disruptive innovations can help companies to turn around but one can point out as per Munos and Orloff (2016), disruptive innovation requires immense capital investment. Thus, one can point out that advantages of disruptive innovation are restricted to multinational companies which are financially strong. The small firms are deprived of these advantages and are often forced to the brink of extinction or acquired by large companies. Thus, disruptive innovation in the big companies actually prove fatal to small firms.
Volvo being a leading automobile and engineering company uses advancements and disruptive innovations to develop new products. The company conducts innovations in its product line right from trucks to family cars which reflects its customer centric innovative power. The company offers long haul trucks which are designed to offer safety to drivers as well. This shows that the company’s business model is not only centred on revenue generation but also safety of customers. the company has officially announced its plan of releasing a fleet of electric cars once, establishing its disruptive innovation prowess (express.co.uk, 2018).
The nine block business model by Osterwalder and Pigneur (2010) consist of key partners, key activities, value propositions, customer relationships, customer segments, key resources, channels, cost structure and revenue streams. The key activities consist of activities which companies perform add value to the customers and generate revenue. For example, the main business activities of Volvo consist of manufacturing of plants, equipment and vehicles. The key partners, the next component of the multinational equipment and automobile maker consist of laboratories and mechanical companies with which it conducts innovations. The third component consists of value propositions which consist of the marketing mix of business organisations to add value or customer satisfaction (Andreas, 2018). For example, Volvo incorporates modern and sustainable models of automobiles to enhance customer satisfaction. The company manufactures cars and trucks which are not only hardy but meet the requirements of the customers purchasing them. The company incorporates features like seat belts and special tyres to ensure safety of the drivers. One can point out that Volvo is a leading manufacturer of buses and trucks globally. The company maintain high quality of vehicles to ensure safety of passengers and drivers (volvotrucks.co.uk, 2018). This clearly points out to the stakeholder responsibility of Volvo. The company adds value to its customers, passengers, drivers and all the other stakeholders not only financially but also ethically. The next component of the Osterwalder and Pigneur (2010) business model is customer relationship which is dependent on value creation of companies. The companies create products which create value and benefit the consumers. Companies like Volvo give discounts to their loyal customers besides offering them superior vehicles. The company partners with leading banks to make financial help available to customers, both business and individual customers. These customer centric business strategies create customer satisfaction and encourage customers to acquire Volvo vehicles even in the future. This strong customer relationship companies like Volvo enjoy can be attributed to their successful customer segmentation strategies. As far as Volvo is concerned its main customer segments consist of business customers which buy trucks and buses and individual customers who buy cars (Andreas, 2018). Appropriate marketing mixes in terms of pricing and products create satisfaction among customers. For example, the business customers can avail business loan from partner banks to acquire Volvo commercial vehicles while individual customers can acquire personal loans to buy Volvo cars. This maximises customer satisfaction among the customer segments paving way for the nineth component of the model, revenue generation. The supply channels of companies like Volvo consist of suppliers of automobile parts producers from all over the world. The suppliers provide it with key resources which enable it to manufacture its high quality automobile products. One can point out that the global operations of companies like Volvo create immense costs. They distribute the costs over the immense revenue base which they gain by causing value addition to an international base of customers (Basuil & Datta, 2015).
Thus, the key findings from the discussion of the nine block business model are, the business organisation should try to create value and maintain long term relationship with appropriate customer base to generate high revenue. This would render them the financial strength to distribute their costs and execute their key activities like production and partnering with other business houses. This in turn would render them more revenue apving ways for strengthening of their business models (Osterwalder and Pigneur, 2010)
The business models of multinational companies like Volvo today encompass value propositions and profits (two components of the business model). Business organisations today create products to satisfy the demands of the consumers. The companies like Volvo do not only stress on present revenue generation but also factors like consumer safety while consuming their products, availability of loan and after sales services to consumers. These strategies enable them to maximise the value of the products before the customers, thus creating strong image before the latter. The loyal consumers promote the brands among their acquaintances and also prefer the brands like Volvo while considering future purchases. Thus value creation also paves ways for future business generation as well. Thus, business models of companies overlap their value creation and profit motives (Garcia?Castro & Aguilera, 2015).
Conclusion:
One can conclude from the discussion that business models play important roles in the business generations of companies, especially MNCs like Volvo. The business organisations must maintain a customer and market centric business model. They must incorporate changes like change in customer preferences and market trends in the models from time to time. This would keep the models pertinent and applicable for longer span of time. They must also ensure that their strategies create value to stakeholders like customers and suppliers. They must not commit any unethical activity which breach stakeholder interests. The smaller companies should also acquire resources to bring about disruptive innovation even if on smaller scale. They can also take support or at least learn from the experience of larger firms to bring about the innovations. The MNCs can also help these small scale firms to bring about disruptive innovations as a part of their CSR.
References:
Adams, R., Jeanrenaud, S., Bessant, J., Denyer, D., & Overy, P. (2016). Sustainability?oriented innovation: a systematic review. International Journal of Management Reviews, 18(2), 180-205.
Andreas, K. (2016). The combination of turnaround management, blue ocean strategies and disruptive innovation as tools in guiding companies in overcoming their recession problems and develop a long-term healthy economic performance. JOURNAL OF SOCIAL SCIENCE RESEARCH, 10(1), 1962-1967.
Basuil, D. A., & Datta, D. K. (2015). Effects of industry?and region?specific acquisition experience on value creation in cross?border acquisitions: The moderating role of cultural similarity. Journal of Management Studies, 52(6), 766-795.
Bohnsack, R., Pinkse, J., & Kolk, A. (2014). Business models for sustainable technologies: Exploring business model evolution in the case of electric vehicles. Research Policy, 43(2), 284-300.
Dodgson, M. (2018). Technological collaboration in industry: strategy, policy and internationalization in innovation (Vol. 11). Routledge.
Garcia?Castro, R., & Aguilera, R. V. (2015). Incremental value creation and appropriation in a world with multiple stakeholders. Strategic Management Journal, 36(1), 137-147.
Munos, B. H., & Orloff, J. J. (2016). Disruptive innovation and transformation of the drug discovery and development enterprise. Boston: US National Academy of Medicine.
Nugent, J. H., & Werema, G. (2015). Does profit maximization impact sustainability?-An examination.
Osterwalder, A., & Pigneur, Y. (2010). Business model generation: a handbook for visionaries, game changers, and challengers. John Wiley & Sons.
Pinkse, J., Bohnsack, R., & Kolk, A. (2014). The Role of Public and Private Protection in Disruptive Innovation: The Automotive Industry and the Emergence of Low?Emission Vehicles. Journal of Product Innovation Management, 31(1), 43-60.
Smith, L. (2018). Volvo’s NEW electric car to have over 250 miles of range, here’s when it will launch. Express.co.uk. Retrieved 20 April 2018, from https://www.express.co.uk/life-style/cars/898263/Volvo-V40-new-electric-car-2019-release-date-price
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