Strategic Management(MGT4802)

Assignment
Group- 04
Reinventing Your Business Model
Prepared For:
Major General (Retired), Alauddin M A Wadud, Bir Protik ndc (India),
psc (USA), MBA (RRU- Canada), MDS (NU- BD)
Adjunct Faculty
Department of Business Administration - General
Prepared By:
MAISHA MOONWARA NABI (ID:19231008)
SADIA MUSARRAT (ID: 19231012)
ABID ALAM (ID: 19231032)
MD.TASEEN AL RASHID (ID: 2023011044)
ANIKA TABASSUM PROMITY (ID: 2023011098)
ADIB AL WASY (ID: 2023011110)

Department of Business Studies (General)

Section: B

Date of Submission: 23/07/2023

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Reinventing Business Model

Introduction
Business model innovations are needed to address the shifts in an organization's competitive
landscape. However, new model innovations are difficult for two reasons: a lack of definition,
and the fact that few companies understand their current business model well enough to know
when success requires a new model. The purpose of the article is to provide a roadmap for
business model innovations that includes three steps. The main idea is to start by thinking about
the opportunity to satisfy a customer's needs. Construct a blueprint or model for satisfying that
need, and then compare that model with your existing model to see if a new business model is
needed. When Apple introduced the iPod and iTunes store, they crafted a revolution that
completely changed the landscape of not only their industry but society as a whole. In the
process, they created a nearly $10 billion product that they have continued to build from. While
Apple is the most famous example of this brand of innovation strategy, they are not the only
company that has successfully leveraged a truly disruptive business model to spark a paradigm
shift. But most of the established companies find it difficult to pull off the growth by reinventing
the existing business model because they don’t understand their current business model well
enough to know if it would suit a new opportunity or hinder it, and they don’t know how to build a
new model when they need it. This paper will help to understand the business model in a
broader aspect as well as will help to assess whether an adjustment is needed.

Business Model

A business model is an outline of how a company plans to make money with its product and
customer base in a specific market. When creating a business model, one of the most important
parts of the process is planning. One has to determine what you'll be selling, who your customers
will be, and how your business will make money. Apple's business model is based on innovation
and consumer-centric devices. They are able to keep their loyal consumer base due to easy-to-use
designs and data migration to new product lines.
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The elements of a successful business model

A successful business model has 4 elements-

Customer Value proposition:

Customer value proposition starts with targeting the customer, solving the problem of that specific
target market, and getting the job done. A successful company is one that has found a way to create
value for customers. Once we understand the problem and its solution including the full process,
we can design the offerings. Offerings that satisfy the problem and fulfill the need. This is defined
not only by what is sold but also by how it’s sold. The need for a customer value proposition
increases with the amount of satisfaction that has been created by certain companies with their
offerings.
To identify the value proposition, we must answer few questions
About the product:
● What does it do?
● How does it work?
● What features does it have?
● What does using the product feel like?
To the customer:
● What emotions would drive you to purchase this?
● What are the rational reasons to purchase?
● Are there any hidden needs solved by the product?
● Why would a person not want to switch to your product?
● How is the customer currently dealing with the problem this product solves?

Profit Formula:
The profit formula is a blueprint that outlines how a business generates value for itself while also
offering value to customers. Without making a profit a business can not expand and grow, invest
more to develop, and hire potential employees to sustain in the market. It is made up of the
following elements:
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● Revenue model: The Revenue Model is the result of the multiplication of price and
volume.

● Cost Structure: Direct expenses, indirect costs, and economies of scale are all part of the
cost structure. The cost of the primary resources required by the company model will
largely determine the cost structure.

● Margin model: The contribution required from each transaction to generate desired
profitability, given predicted volume and cost structure.

● Resource velocity: how quickly the company needs to turn over inventory, fixed assets,
and other assets—and, in general, how efficiently it needs to use resources—in order to
support the predicted volume and profits.

Key Resources:

The most important assets necessary to make a company model operate are referred to as Key
Resources. These key resources will drive the company’s cost structure and that will determine
what the business needs in terms of funding. Key resources consist of people, technology,
equipment, information, channels, partnerships, alliances, and brands.

Key resources can be divided into four categories

● Physical Resources: A business may need manufacturing facilities or a warehouse,

storefront, vehicles, machines, point of sales, computer, office space, there are a lot of
different things that a business might need. These are all going to be added to the cost
structure of the business

● Intellectual Resources: Intellectual capital is considered an asset as patents, copyrights,

trademarks, trade secrets, and also things like databases with customer information.
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Intellectual resources are very important to develop and also to protect. Also, intellectual
property is going to drive the cost structure.

● Human Resources: Human resources are required for every company. Researchers,
engineers, marketing people, salespeople, various types of operations people are the major
human resources that any business need in running the business operation smoothly and
successfully

● Financial Resources: Businesses have to buy inventory, fund manufacturing, conduct

R&D for business development, and also financial commitment; also, smooth cash flow.
So it varies from company to business that what type of financial resources would help
them to cope with competitors and they need to have access to grow a successful business

Key processes:

key processes describe how that identified customer value will be delivered to both the customer
and the company. Successful companies have operational and managerial processes that allow
them to deliver value in a way they can successfully repeat and increase in scale. These may
include such recurrent tasks as training, development, manufacturing, budgeting, planning, sales,
and service. Key processes also include a company’s rules, metrics, and norms. A Company needs
to integrate its key resources and processes in a unique way to get a job done perfectly for a set of
customers. Through this, it creates an enduring competitive advantage. A company with a high-
value proposition and great key resources can fail if it doesn’t focus on key processes.

● Processes: Design, product development, sourcing, manufacturing, marketing, hiring and

training, IT.

● Rules and metrics: Margin requirements for investment, credit times, lead times, supplier
terms.

● Norms: Opportunity size needed for investment, approach to the customer, and channels.
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How great models are built

● Creating a value proposition: It’s not possible to invent or reinvent a business model
without first identifying a clear customer value proposition. The most important attribute
of a customer value proposition is its precision: how perfectly it nails the customer’s job to
be done. Companies trying to create the new often neglect to focus on one job; they dilute
their efforts by attempting to do lots of things. In doing lots of things, they do nothing well.
One way to generate a precise customer value proposition is to think about the four most
common barriers keeping people from getting particular jobs done: insufficient wealth,
access, skill, or time. Ratan Tata first realized the need for a car for large middle-class
families watching a large number of motor scooters sneaking precariously in and out
around the cars as one bike was bearing the whole family at a time. So, the company
decided to work for the insufficient wealth barrier by producing cars at the cheapest price
as Indian middle-class families are unable to buy cars.
● Designing a profit formula: To generate profit and run the business, a company needs to
design the profit formula. Based on situations, Companies need to design a profit formula
differently. Since Ratan Tata wanted to break the wealth barriers, they had to build cars
for the families by lowering the price of the cars. And, to do that here comes the magic of
designing a profit formula. If they were able to build a car within one lakh rupees they
could sell the cars at the price of roughly US$2500 which is less than half the cost of the
cheapest automobile on the market. Without designing the profit formula, this isn’t possible
at all. It necessitated a large fall in gross margins as well as a severe reduction in several
cost structure elements. He realized, however, that if he could greatly boost sales volume,
he could still make money, and he recognized that his target market of consumers was
potentially enormous.
● Identifying key resources and processes: The companies must consider the key resources
and processes needed to deliver that value after identifying and articulating the value
proposition for both customer and the business. Companies will almost always need to
integrate their key resources and processes in a unique way to get a job done perfectly for
a set of customers to create an enduring competitive advantage. Focusing first on the value
proposition and the profit formula makes clear how those resources and processes need to
interrelate. To gain a competitive advantage among car industries, Tata hired young
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experienced engineers who aren’t influenced by the existing ones and they dramatically
minimized the number of parts in the vehicle, resulting in a significant cost saving. This is
how they identified the right key resources. At the other end of the manufacturing line,
Tata envisioned an entirely new way of assembling and distributing its cars. The ultimate
plan is to ship the modular components of the vehicles to a combined network of company-
owned and independent entrepreneur-owned assembly plants, which will build them to
order. The Nano will be designed, built, distributed, and serviced in a radically new way—
one that could not be accomplished without a new business model.

When the old model will work

A new business strategy isn't necessarily required to capitalize on a game-changing opportunity.

In some cases, a company's current model proves to be revolutionary in a new market.

It can be understood when the previous business model can cater to new customer value
proposition with its profit formula, existing key resources, and processes, and also using the same
core metrics and SOP of the previous model.

When a new business model is needed

Business-model innovation should not be taken lightly by established companies. Companies often
create new products that disrupt competitors without fundamentally changing their own business
model. There are clear times, however, when creating new growth requires venturing not only into
the unknown market territory but also into the unknown business model territory. There are Five
strategic circumstances that often require business model change:

● The opportunity to serve the demands of significant groups of potential customers who
are shut out of a market due to present solutions being too expensive or complicated for
them through disruptive innovation. (Ratan Tata)
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● The opportunity to capitalize on a brand-new technology by wrapping a new business

model around it or the chance to exploit a tried technology by bringing it to a whole new
market. (Apple and MP3 players)
● The ability to bring a job-to-be-done focus to a situation where one does not currently exist.
This is typical in industries where corporations focus on products or customer segments,
leading to increased commoditization as existing items are refined further. Companies
can redefine industry profitability by focusing on delivering the offer. FedEx, for example,
did not try to compete on price or marketing. It focused on meeting a need for packages to
arrive much far faster and more reliably than any provider could at the time.

● The necessity to keep low-end disruptors at bay. For example, Minimills posed a threat
to the integrated steel mills a generation ago by producing steel at a lower cost.

● The necessity to adapt to a changing competitive landscape. Because of decreased

worldwide manufacturing costs, Hilti had to adapt its business strategy; “good enough”
low-end competitors had begun to eat into the market for high-quality power tools.

● Companies should only seek business model reinvention if they are certain that the
potential is substantial enough to justify the effort. And there's no purpose in implementing
a new business model unless it's not only new to the company but also new to the industry
or market.

These questions will help in determining whether reinventing the business model should be the
right decision

● Can you nail the job with a focused, compelling customer value proposition? - Indicates
the effectiveness of the new model.

● Can you devise a model in which all the elements—the customer value proposition, the
profit formula, the key resources, and the key processes—work together to get the job done
in the most efficient way possible? - Scrutinizes the efficiency of the new model.
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● Can you create a new business development process unfettered by the often-negative
influences of your core business? - scrutinizes the effects of the core model.

● Will the new business model disrupt competitors? - judges the ability to convert more
customers to the company.

Answering "yes" to all four questions significantly increases the likelihood of successful
execution. When a new model is reinforced, it should complement the core model. The business
can prosper further and when all the 4 questions answer yes.

How Dow corning got out of its own way

The old Business models

Being an American multinational chemical corporation, Dow Corning initiated their business with
silicone-based products for the use of the US military in World War II. It had sold thousands of
silicon-based products and provided sophisticated technical services for an array of industries
which generated a constant stream of profit, making the chemical company a sustainable one. But
sooner customers experienced; silicone products no longer needed technical application. Rather
the same consumer base asked for basic products for low prices, pivoting the value proposition of
the company.
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Re-invention of Dow Corning's Business model:

Established / existing New business unit

business

Negotiated contracts, Customer value proposition Bulk prices, sold through the
customized solutions internet

High margin, high overhead Profit formula Lowering the operational

retail price for value-added expenditure, spot market
services pricing, high throughput
screening (HTS)

R&D, sales and service Key resources and processes IT system, maximum
orientation automation

How they coped with new challenges:

As the low-end product segment was constantly commoditizing, Dow Corning sought an
opportunity to penetrate a market for which consumers now have a separate demand. Now it
had to produce on a higher scale and sell them at much lower retail prices. In 2002, CEO Gary
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Anderson asked Don Sheets to form a new team for this new business proposition. The team
determined the price point had to drop 15% to sustain the new customer value proposition.

The company used to be an expert in giving tailor-made customized services as per requirement.
Now a new set of expertise has to be acquired. They implemented automation as much as they
can afford within the cost structure, trained their employees to fit in and some of them had to
leave with a golden handshake.

Xiameter was born as a result of this new business entity with a completely different set of rules.

Xiameter teams core focus was on:

• Patencies for the newly incorporated programming and machinery

• Higher efficient competency for producing higher bulk of products
• To work separately from Don Sheets team, for fresh idea implementations

Soon with the power of patience, the company became a successful one. The risk of letting all the
old mindsets go, finally paid off. The key reason was the adaptation with a separate set of demands
and quickly taking execution. Learning through the process is another reason for their successful
reinvention of their old business model.

Nokia fails, Kodak fails

Despite being the market leaders, Nokia and Kodak failed. Nokia failed to adapt to the new
customer value proposition of affordable smartphones. Kodak used to produce the best quality
chemically printed photographs, undermining the prospect of digital photographs. They were the
best of a market that perished over the course of time, but they failed to adapt and others grabbed
the opportunity. Thus, adaptation in business plays a huge role as far as sustainability is concerned.
Thus, reinvention sometimes is inconceivably important for a business to grow more.
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Conclusion
Today, the largest market capitalizations have new entrants that use innovative business models,
such as Apple, Alphabet, Microsoft, or Amazon. The need for institutionalized innovation has
never been more paramount. A changing competitive landscape where markets are constantly
changing. Faced with the enormity of a competitive environment, demanding consumers,
fluctuating customer needs, and the acceleration of competitive threats, innovation is the key to
achieving market share in a world devoid of natural organic growth. Business model innovation is
as important as product innovation. Companies have to reinvent their business model to reframe
their focus and discover new capabilities that will lead to transformational change if required for
the time being in such a competitive landscape. And, with the right leader, right visualizer, a
prescient, we can create coherent, successful, and sustainable business transformation.