The Significance Of Business Models And Innovation In Shaping Company Success
Creating Value for Customers in a Globalized Economy
Discuss about the Business Model and Disruption.
According to Wirtz et al., (2016)business models are indispensable to a business enterprise since business models elaborate on value creation, delivery and capture mechanism. Business models were known for their comprehensive outline of revenues, costs and profits associated with the entire business enterprise in order to deliver value to the customers. It helps a company or organization to operate business in an organized manner. A business model helps the company to deliver value to its customers in order to attract them by assessing what customers want and how the company/enterprise can meet those wants. However, in the opinion of Bocken et al., (2014) in a globalized economy customers have more options to choose from since business transaction and access to new products have been made easier with communication. Therefore business models are slowly re-shaping themselves in order to help the companies becomes more customer-centric by the use of innovation and technology. Today business models lack innovation and are imitated by other companies. Many companies fail to create a business model that will be responsible for a sustainable approach to business and differentiated from other business models. It is utmost necessary to implement business models wherever there are the questions of consumer choice, transactional expenses and heterogeneity amongst consumer products. Innovative business models according toArmada & Martin, (2016) are the best weapon to meet customer needs. In this context, it is relevant to take into consideration one of the most successful business models implemented by Southwest Airlines, specifically the hub and spoke model which was later on copied by Easy Jet. In the views of Wirtz et al., (2016) business models must change according to the changing needs of the market with the introduction of technologies and policies. What has been the major source of disruption for business models is the birth of information industry. Accelerated rise of internet and innovation and made many companies to rethink about their pre-existing business models since digital era has brought forth a major change in the scenario of culture. With the introduction of DVD rental Netflix, e-newspapers, online shopping sites there has been a major shift in consumer behavior itself. As globalization is about a fast-paced and more connected world companies need to align their business according to consumer demands and introduce differentiation so that it cannot be easily imitated and used by another company. Companies can only come up with a strategic business model on a careful segmentation of the market and subsequently creating a value proposition for each of the segment.
As opined by Wirtz et al., (2016) disruption in business models is primarily caused by digital innovation which provides value to the consumers at a far lower cost. This disruption has been apparent since 1997. The various facets of technology and digital innovation like cloud computing has changed the way one executes business by bringing forth innovation in the section of consumer interaction. Companies are grapping to come up with innovative business models that would place them in a competitive position by customer satisfaction. In the opinion of Christensen, Bartman& Van Bever, (2016) technology has also acted as a boon to many companies by helping them to develop a business model that placed them in direct contact with customers. One of the major disrupted industry that has failed to reshape their business model is print news media industry which is plagued by workers’ discontent and paper distribution.
Disruptive Digital Innovation and Changing Business Models
Smart connected products are a result of wireless connectivity has vastly altered the entire structure of industry. McDonalds, Philips and other companies with smart-connected products are remarkable and have become emblematic of global operation. According to Osterwalder and Pigneur (2010), there are four basic aspects of their theory and they are product innovation that includes company’s value proposition to the targeted market segment, customer relationship which forms of customer loyalty and trust, infrastructure or resources for networking and revenue model for the determination of cost and profit. Accordingly business models are all about communication. The ground-breaking BRIXO blocks are one of the best examples of LEGO smart-connected products, they are coated in chrome, add light, sound and motion to any given building block.At Lego smart connected products they have targeted a particular consumer segment by producing web connected toys with electronic sensors, motors and lights. In this way according to Osterwalder and Pigneur (2010) business model theory they have reoriented their business model with the help of product innovation therefore today their profits have increased by 30% (Christensen, Bartman& Van Bever, 2016). One of the many advantages that Lego has secured with smart connected products is that they have now become one of the leading producers of diversified products in an age when battery technologies and artificial intelligence have been threatening the old-fashioned industries. Lego has adapted a business model from a traditional marketing strategy to a viral and collaborative marketing strategy (Christensen, Bartman& Van Bever, 2016). The business model has huge room for innovation where the consumers are allowed to manipulate the products according to their imaginative faculties.
LEGO has a clear market segmentation that targets children and young tech-inclined professionals. Lego has acquired Osterwalder and Pigneur business model by including six principles of using customer insights, visual thinking, ideation, storytelling and prototyping in producing smart-connected products. Lego has studied the market carefully and therefore discarded its old business model with a sharp decline amongst children of traditional toys. Its business model has adapted computer modelling and computer aided design in order to keep up in a fast-paced design world and maintain relevancy amongst consumers.
Their business model is an example of business models of value propositions with which Lego has delivered value to customers and earned revenue growth. Their smart-connected products have helped them to achieve competitive advantage by being valuable, innovative, non-substitutable and hard to imitate. Lego with the help of its firm managerial abilities have demonstrated ways by which they can hold on to profit in the market by adjusting to new business models (Abrell, &Durstewitz, 2016).
Business model canvas LEGO
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Key Partners · Disney · Warner Bros · WWF · MIT Media Lab · Plastic Suppliers |
Key Activities · Manufacturing · Sales · Customer Service · Business Consultancy |
Value Propositions · Video Games · Book and Magazines · Children’s Clothing |
Customer Relationship · Has developed a global LEGO structure · Has a Strong Community · Developed Social Networking · Online Stores · Huge Collection |
Customer Segments · Children · Young Professionals · Schools · Business Leaders · Families theme park regulars |
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Cost Structure · Headquarters · Offices · Design Tools · R&O · Manufacturing · Advertising · Purchases |
Key Resources · World’s most innovative brand · Talent · Creativity and Innovation · 1 tire manufacturer · 700 million of interlocking toys distributed worldwide |
Channels · Schools · Google Play · App Store · Legolands · Amazon |
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Revenue Streams · Product sales · Tickets · Business Consulting Services · Licensing and Royalties |
- With the help of their smart-connected products they have enticed customers and expanded the customer loyalty base (Bak, 2015). The customers pay for value and it lets Lego to convert the payments into profit.
- LEGO has reinvented themselves by integrating innovation into their products. Using smart-connected products they have generated more value to the consumers using minimum resources (Wirtz et al., 2016).
- LEGO has been successful in implementing the business model for profit formula by streamlining the operations and smoothening the manufacturing process. It has earned huge profit by catering to the 21st century technologically updated children and expanding its market penetration into the major emerging countries.
It has changed the old business model of LEGO by integration Osterwalder and Pigneur, 2010 model and accommodating a clear definition of products, creating a clear customer interface pillar, enhancing customer relationship, managing the resourced in order to create value for the customers and creating a clear cost structure.
- There is always the threat that people will stop buying these products during times of financial crisis as LEGO has faced in 2004 and stop buying these products if it do not fit into their regular lives (Bak, 2015). Lego should continuously focus on products that enable in earning long-term customer loyalty.
- Consumer values change rather slowly and this could saturate the popularity or sale of smart-connected products (Christensen, Bartman& Van Bever, 2016).
Business Model as Value Proposition
- LEGO offers innovation to children and adult alike. It promotes vast scope of imagination due to its innovative structure and interlocking formula. It has invested money in manufacturing customized robots as well.
- LEGO toys also act as learning toys since it helps in processing information regarding how physical objects can relate and interact with one another.
Business Models as a Set of Capabilities and Resources
- The model helps in understanding the manner in which LEGO has positioned its resources as per market segmentation. It has resulted in innovation and customer tailored toys
- Its resources have helped it to achieve product development and implement education and logistics into the toys.
Smart-Connected Products and Diversification
Therefore to conclude the discussion it can be stressed that smart connected products have transformed the face of competition. Some of the key findings from the above discussion are that in any business smart-connected products are bound to bring customer value with the help of product differentiation. LEGO has revolutionized itself and adopted new business model with the help of smart-connected products. This is the future of business since these products have enabled many companies like Philips, Ralph Lauren to establish long-term relationship with consumers and achieving a harmonious consumer experience. The future of toy industry that Lego is creativity and innovation and to encourage the same within children like they have planned in 1958 with the introduction of brick. If LEGO continues to spot trends and replenish its business it can maintain the competitive advantage that they have created in the market. If LEGO can maintain its IT innovation they can easily turn their fortunes in order to deal with future challenges.
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