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Business Model (BM) is a buzz word in today's corporate world. According to Jane and Susan (2000) when individuals talk about "business models" they mean basically three things namely business model components, live models of business, and the most used these days by companies; change models. The concept has evolved as an important subject in the present corporate world.For the success of any organization or business a good business model must be used. Over the years various individuals have come out with different business models. This paper will discuss on the change model, as in detail of the 'four types of business model change strategies' defined by Linder and Cantrell (2000) namely Realization, Renewal, Extension and Journey models. These models will be discussed in terms of strategy development and implementation in an ERP environment. To have more clarity on the models certain examples of companies across the globe will be analysed on each model and see how the ERP products and capabilities could be used to enhance these approaches in those companies.
In most of the organizations there is always pressure to change the business models depending on the new change in technology, law changes, changes made for competition, or the change in the customer taste. According to Linder & Cantrell (2000) a change model is the organizations main logic of how it will change with time to attain profits in the fast moving world. Chain model consists of Realization, Renewal, Extension and Journey models. The figure 1 describes the change models.
The four types of business model change strategies were defined by Linder and Cantrell (2000). They gave a detailed description to the four types in detail in the article "Changing Business Models: Surveying the landscape". They interpreted the model as follows:
Realization model is the method in which companies utilize the value of their present business model to increase their profit and to expand. Most of the companies increase their return of investments by enhancing some part of their day to day operations. When you compare with other model realization model it is with the least change. The business model of the company is not changed in this model, whereas it gives more advantage to convert core business of the company to maximum profit. (Eng K Chew & Petter Gottschalk, 2009). Even though there is no visible change in the company's business models they expect to expand geographically.
Jane and Susan (2000) give a description on the factors which comes under the realization model and the description of each. Some of the factors are
Maintenance of the brand
extension in the product lines
getting closer to customer by cross selling of products within the customers in the company,
Expanding in the product or service line as a shop providing all the product and services under a single umbrella, providing an additional channel for service and sales.
Companies like Costco (www.costco.com)uses realization model. All throughout the globe they have the same business model .Costco is a warehouse with membership, giving its members the best bargained prices on branded merchandise. Their strategy is to make the shopping experience a memorable one. Costco is using the internet to make their business model more rigid and to make full use of their current operating model. Costco has replicated their business model all throughout the globe and has been successful. The realization model has geographical expansion. Companies like Amway (www.amway.com) have expanded its wings all across the globe. They still operate on the chain marketing methodology giving incentives to the person who added you on to the chain. If we take the example of banks in Australia like commonwealth bank they has added internet banking to help their customers to get added advantage and ease of banking.
This model is used by companies to do improvement in their platform which produces the products and delivers services. It is also used for adding up to the brand value of the company, its cost structure, the technology used and its capacity to react to the increasing competition in the market. This model is mainly used by firms who are into innovation to be in the forefront of the price graph or value graph. The core skill of the renewing firm is sometimes used to create new one which is sometimes entirely new.
A clear example of companies using this model is Aurora Foods and the Gap .Renewal Model is followed in these companies. Aurora foods strategy is to buy product companies having good brand value and position in market but has been let out as a non performing company by its owners. Because of this negligence the product was not marketed properly and managed. The company believed that by taking over these neglected brands they could refine and grow theses brands. The renewal activity in Aurora Foods' was shown by the acquisition of Mrs. Butterworth's brand of syrups and pancake mixes, the Kraft foods Log cabin syrups, the Duncan Hines line of baking mixes from Procter & Gamble and lots more. They also purchased the products like Waffles by Aunt Jemima and lender's bagels which was performing poor and brought the companies to profit with their marketing and branding and the procedures for cost cutting .Similarly, Apple Inc is an example of company using the renewal model. They sell their iphones through its online and retail stores. Where as they have developed an iTunes store online for techno to put their application online and gain percentage out of what is been sold in the store. This is a smart way of innovation and using the renewal model for growth. Companies like Aurora foods uses renewal model where a totally different product is been developed .In this case it might be using a different business model to operate. Apple Inc when uses the renewal model provides new capabilities and relationship.
Some of the functionalities in renewal model are: providing new services, taking over new brands, new service platforms or products, operate in untouched market.
This model is used by companies to enter into new markets, new businesses or new location. The existing business is not replaced in this model but it adds to the old one new logic of operation and functionalities. In an extension model companies expand to new areas. The model of operation is to expand to new markets, add new value chains, services and products. The newer business is added to the existing ones. There is lot of integration between businesses when a new one is added to the old one. An example of this would be Shell which is a gas and oil company getting into retail store business at their gas station. Deccan aviation a company in India who were doing charter helicopter services moved into airline industry seeing the opportunity. They are now exploring into logistics business. Companies like Safeway and Coles have come out into the market with their own consumer products.
The factors in extension model are to create exclusive brand or rather backward integration, forward integration where companies move forward to new business, integration in horizontal way, changing an internal capability to external market.
In journey model the old business model is totally abandoned and a new logic of operation is been used. The idea behind this change of business model may be for getting into a global level by the company from the local market that it operates, it might also be a shift from one industry to another. A new business model is been created in a journey model. The companies who change through journey model don't go back to the old model. A clear example of it would be companies expanding globally. The value propositions of these companies is shifted to show their reach globally .Along with the globalization this model includes migrating to different upscale market and downscale market doing competition in price to other brands.
Examples of companies using this model are Goodyear Tyre, Boeing, Honda and Dell. The Nokia company is a standard example of company who used this model .Nokia was a paper and rubber manufacturing company initially .Seeing the opportunity in the telecommunication market they shifted to this business and have grown globally. Another example is Accenture a global consulting company which started as a law firm initially.
The factors involved in Journey model are : product to price is commoditized, to attract customers in a global reach, to market the companies own products , the products are up marketed from the cost point of view , up market in service of products offered.
The company's business operating model is not changed in a realization model, whereas in a renewal and extension model it could change. In the journey model the business model changes.
Strategic Development and Implementation in an ERP environment
All the business requires a strategy .According to Gartner report (2004) there are nine main processes for creating the strategies. The last step in Gartner's report states that the execution of the strategy and evolution of it must be managed. These days' companies have shifted from a business unit strategy to business model strategy. Change model is one of the commonly used business model.
The last process is shown through an integrated strategy management tool. All the components in this process are linked to one another and they feed each other.
Figure 2. Integrated Strategy Management Model
The drivers that show the step by step process in strategy development to implementation are shown in the diagram above. The main drivers are key strategies, architecture, strategy sum sheet, financial tools, and project definition/selection. The top in the list is development of IT application change, operation and people/sourcing strategies. Next is the strategy survey sheet; budget (reduces the planning time to 12 months). The definition of actual project and selection sets the IT strategy moving. This forms the basis for the execution of the strategy. Organizations using the change models have to have a strong IT strategy. In this context comes the use of good ERP systems by the companies. Since there is always shift of business models in the organizations using change models a good stable ERP system like SAP, Oracle is needed by organizations.
ERP system products and capabilities:
According to Jeanne G Harris and Thomas H Davenport (2006) ERP system (Enterprise System) is "an integrated software package". It means that the particular software package takes care of the organizations day to day activities. The system will have a centralized database and individual application for each module.
ERP enhancing the Change Models:
In most cases the company's strategy is tied to the enterprise system used. In the enterprise world we often come across three main terms namely integrate, optimize and analyze. This is explained in the figure 3 below.
(Source: Accenture Report -New Growth from Enterprise Systems. Copyright 2006)
It means that for the firms to get maximum benefits out of an ERP system implemented they should think of integrating the different departments in the organization, all the business processes should be optimized and used and finally all the data in the system should be analyzed (helps to make better decisions). If the ERP system is implemented in the right manner and used in the right way it will bring higher results in the financials of the organization. It also adds on by helping the organization to attain and own unique capabilities. This is a key thing which helps organization to attain good results in performance. The study done by Accenture Institute in 2005 and 2006 on companies has shown that organizations are using ERP systems to create value in their business and to attain unique capabilities to get analytics which helps in making decisions for the management. When we talk about the business models discussed earlier under change model, each one of it need a reliable and sturdy system to support it. Businesses these days need integration to suppliers, vendors, customers etc. The most crucial part is to integrate with the customers or rather on the sales side. Organizations attain this niche with the ERP software's used. The unique capabilities that the organizations attain out of the ERP software's help them to attain success in their business. The change model talks about utilizing the value of their present business model, to do improvement in the organizations platform which produces the products and delivers services, to enter into new markets or new businesses or new location, to use a new logic of business operation. All this is possible only with a system which can integrate, optimize and analyze. ERP systems like SAP, Oracle are leaders in this arena and provide the best solutions. SAP concentrates on the best business practices in the market and helps organizations to attain success at a much faster rate.
To conclude, it is found from referring to the studies done by many institutes like Accenture Institute that ERP system has helped organizations to stay focus on their business model and attain success in their business. A good business model like change model is what makes businesses succeed and a good ERP system supports the goal.