Opportunities And Threats Of Smart Connected Products: A Case Study Of Volvo’s Business Model

The Concept of Business Model and Disruptive Innovation

Discuss about the Evolution of Connected Vehicle Technology.

Modern day business has changed and so is the ways in which companies are transforming themselves. Innovation has become one of the most crucial parts of the strategies of the firm. Disruptive innovation has been adopted by many multinational organisations (Giannoutakis & Li, 2012). It can be understood that the business models which have made excellent profits to their organisations in the past are failing in these days. Many opportunity and threats have been created by the disruptive technological innovations like smart connected products. Volvo has been one of the largest supporters of the innovative products. Business models today are subjected to displacement, outright decisions and fast disruptions. Volvo is one of the largest manufacturers of buses, trucks and other construction equipment (Volvo group, 2018). This report illustrates about the opportunities and threats that are created by smart connected products. It also gives idea regarding the business model framework by Pigneur and Osterwalder in terms of Volvo as well as two perspectives of business model.

As per Hildebrandt, Hanelt, Firk & Kolbe, (2015) organisation’s business model for any firm is known as a rationale of how a firm captures and generates values as well as delivers in economic, culture, social or some other contexts. Construction process of business model forms a part of strategies of business. Business model is known as larger range of informal and formal description that showcases central business aspects. It includes sourcing, operational processes and polices, trading practices, target audience, offerings etc. Firm’s business model offer three components like value capture, value creation and value delivery. These all factors generates new financial model that describes the method in which an organisation captures economic values from its operations in business.

Apart from this Kuschel, Remneland & Kuschel, (2011) suggests that disruption is known as business administration that refers to as the innovation that may generate create value network and new market. This is eventually disrupting a value network and the market that is present. It is capable of making displacement in the market like the alliances, products or the establish organisations that are market leaders. It contains details related to the values that any organisation offers to its potential targeted market. This enhances the margins of profit for the firm. The products that exist in the market have been replaced by the smart connected products.

Smart Connected Products and their Impact on Business

Any smart connected product is capable of getting linked with other products in a manner that they are able to take decisions as per the requirements (Porter & Heppelmann, 2014). Many a time decisions are taken based on the past experience. It is a type of disruptive technology as it makes business smarter than what exist in the market. These innovations have higher flexibility and hence can solve many issues of the firm. Every smart connected product acts as a node in the larger network and interacts among themselves by sending and receiving data.

Vehicles these days are have gone smarter since they require those devices which act smartly as per the situations (Narla, 2013). With the concept of smart cars is also being used in the trucks like the Volvo is having research on the unmanned trucks that are capable of delivering the products on the far across destinations. Smarter equipment that is required in construction industry.

There are many smart connected products that Volvo is making like trucks, buses, cars, cranes, rollers etc. Several sensors are connected with such products which are capable of making adjustments as per the work they are assigned to do (Dimitrakopoulos, 2011). In the increasing demands of the drivers for which companies are highly concerned about requires the trucks that can be operated from the distant location just with the use of network. Vehicles are capable of making navigations and reaching to particular locations without human interference. With the development of Internet of things these smart connected product is having a great future. Since everything in the environment is getting connected hence accessing the environment has become easier. This can benefit the owner of the truck who supplies some fresh products by automatically adjusting the temperature as per the requirement.

Smart connected vehicles have larger scope in the market as they are able to do several operations without human interventions. Owners of the firm faces many types of loses due to drivers faults because of tiredness. Such products are capable of reducing these problems as they are capable of making decisions without human interventions (Weber, 2017). It also helps the stakeholders like the consumers of the company and the owners of products to know the location of their vehicles. It also empowers the owners to sit in any part of the world and change the route of the vehicle whenever they want.

Volvo’s Business Model Framework

On the other hand it is also threatening the Volvo’s business as it empowers the smaller companies without even having huge experience in the industry to have control over their business and achieve success. Whenever a product gets connected to a network the acts as a node on which hackers attacks (Guerrero-Ibanez, Zeadally & Contreras-Castillo, 2015). By hacking the product they can enter into the network and can steal the data related to the operations of the company. It is not good for the security of the data that is of strategic importance. Larger number of products in the networks provides numerous loop holes for making security breaches. Competitors can take use of this data for their strategic benefits over the firm.

Volvo’s business model framework by Osterwalder and Pigneur is presented below

Key partners	Key activities	Value Proposition	Customer Relationship	Customer Segmentation
Subsidiaries such as VE commercial vehicle, Volvo buses, Construction equipment, Volvo Penta, UD trucks, Construction equipment. Developers of technology. Network of distribution EPC organisations Automotive firms Components and parts manufacturer. Manufacturers of machinery Collaborators Suppliers	Engineering and design. Production Support and service. Marketing Post sales Distribution Financial services Innovations and R&D	Volvo group’s mission is driving prosperity by providing transport solutions. Equipment and components of higher quality. Contract manufacturing. Self-driving vehicles.	Customer service Alterations Transformation Trust Innovation Automation Post sales services Relationship based on performance	EPC companies Municipalities and construction firm Manufacturers of equipment Plants and building. Carmakers

Key Resources	Channels	Cost Structure	Revenue Streams
95000 individuals It has its production line in 18 countries whereas it sells its product in more than 190 markets. Technology related to production Network Creative innovation thinking Brand Open innovation Intellectual property Open-minded and curious teams	Websites Authorised distributors Volvo museum Service centres Social media	Components Parts Software Raw materials Manufacturing or Assembling Production Distribution Taxes Research and development expenses per year are around 1.6 billion. Fabrics Technology Employees Facilities	Product sales such as Marine and industrial Equipment, buses, Equipment of construction. Technical services Spare part Components Rental Licensing Financing and insurance

In this model, there are many aspects but the two selected aspect for the business model canvas of Volvo are value preposition and resources. Value preposition of the firm includes it abilities to counter the challenges that are confronting their operations (Veldman & Verzijlbergh, 2015). Its objective is to provide best of facilities to their clients which assist in making their work easier. Volvo takes use of components and equipment of higher quality. The most crucial value preposition that Volvo wants to build is bringing the new slots of smart vehicles which are linked with several other devices.

Another business aspect that is present with the company is its high quality resources. This includes higher numbers of skilled labourers. It is having its production line in every regions of the world and sells its products in such a large number of firms. This will help the company in ensuring its long term growth. The skilled workers act as a value for the company as they empower the innovation process (Yu, Shih, Tsai, Wisitpongphan & Roberts, 2013). Firm has a name in having such a high quality production technology and has helped the firm in increasing the efficiency of the work process. It will also assist in eliminating the faults that can cause due to human errors. 

Both of these assets give competitive edge to the company over the other rivals. This is highly beneficial in the competitive environment that firm is facing. All this will assist the firm in adding the new consumers to the business process as well as retaining the old consumers. Smart connected products play a very highly essential role in this process.

Value Proposition and Resources: Two Key Aspects of Volvo’s Business Model

On the concluding statements it can be stated that innovations are highly important in modern day business. Disruptive innovations help the firm in increasing their growth in their business hence maintaining higher growth rates (Hank, Müller, Vermesan & Van Den Keybus, 2013). By producing smart interconnected products Volvo can expand its business as there are larger numbers of opportunities available for this firm. It helps in ensuring higher growth rate. This is crucial for attracting new as well as the old consumers of the firm. Volvo just needs to think about the threats that are posed by these products. The business model framework helps in understanding the business of the firm. With the amount of resources it has and the value preposition that firm adds to its business it is not hard for the company to grab all these available opportunities. Since such kind of disruptive innovation swill help in satisfying the needs of the consumers. This is important in the competitive environment that firm is facing.

References

Dimitrakopoulos, G. (2011, August). Intelligent transportation systems based on internet-connected vehicles: Fundamental research areas and challenges. In ITS Telecommunications (ITST), 2011 11th International Conference on (pp. 145-151). IEEE.

Giannoutakis, K. N., & Li, F. (2012). Making a business case for intelligent transport systems: a holistic business model framework. Transport Reviews, 32(6), 781-804.

Guerrero-Ibanez, J. A., Zeadally, S., & Contreras-Castillo, J. (2015). Integration challenges of intelligent transportation systems with connected vehicle, cloud computing, and internet of things technologies. IEEE Wireless Communications, 22(6), 122-128.

Hank, P., Müller, S., Vermesan, O., & Van Den Keybus, J. (2013, March). Automotive ethernet: in-vehicle networking and smart mobility. In Proceedings of the Conference on Design, Automation and Test in Europe (pp. 1735-1739). EDA Consortium.

Hildebrandt, B., Hanelt, A., Firk, S., & Kolbe, L. (2015). Entering the Digital Era–The Impact of Digital Technology-related M&As on Business Model Innovations of Automobile OEMs.

Kuschel, J., Remneland, B., & Kuschel, M. H. (2011). Open innovation and control: a case from Volvo. International Journal of Networking and Virtual Organisations, 9(2), 123-139.

Narla, S. R. (2013). The evolution of connected vehicle technology: From smart drivers to smart cars to… self-driving cars. Institute of Transportation Engineers. ITE Journal, 83(7), 22.

Porter, M. E., & Heppelmann, J. E. (2014). How smart, connected products are transforming competition. Harvard Business Review, 92(11), 64-88.

Veldman, E., & Verzijlbergh, R. A. (2015). Distribution grid impacts of smart electric vehicle charging from different perspectives. IEEE Transactions on Smart Grid, 6(1), 333-342.

Volvo group, (2018). Retrieved from: https://www.volvogroup.com/en-en/news/2017/may/news-2553066.html

Weber, T. A. (2017). Smart products for sharing. Journal of Management Information Systems, 34(2), 341-368.

Yu, S. H., Shih, O., Tsai, H. M., Wisitpongphan, N., & Roberts, R. D. (2013). Smart automotive lighting for vehicle safety. IEEE Communications Magazine, 51(12), 50-59.