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Business Model Innovation
 

Business Model Innovation

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Business Model Innovation Business Model Innovation Presentation Transcript

  • Business Model Innovation
    • M&S vs ZARA
    • Gest D201 – Case 4
    • Spring 2007
    • Prof. Ludo Van der Heyden
    • INSEAD, Fontainebleau & Singapore
  • Competing in Business Models: M&S vs ZARA
    • Brief introduction to fashion industry
    • Business purpose ?
    • Customer segment ?
    • Customer offer ?
    • Supply process ?
    • Performance ?
    • Core competences & organizational structure ?
    • ZARA in the business model matrix
    • Conclusions & take-aways
  • Competing in Business Models: M&S vs ZARA
    • The fashion industry: waste & the impossibility of perfect forecasts
  • Why is profitability in textile so low, when margins are so high? Actual Demand Possibility of excess stock even with low demand Possibility of excess demand even with high demand ExpectedDemand Perfect forecasts do not exist in real life!
  • Classic textile Business Process: 12 month lead time Design Mfg Dist Sell Purchase Raw Mat Discount
  • Competing in Business Models: M&S vs ZARA
    • Brief introduction to fashion industry
    • Business purpose ?
  • ZARA Business Purpose (or Story)
    • Conquer the world of fashion
    • Using a low cost approach
    • Focus on the young –
    • that’s where fashion lives today
    • By being a supply chain rather
    • than a full producer
  • Competing in Business Models: M&S vs ZARA
    • Brief introduction to fashion industry
    • Business purpose ?
    • Customer segment ?
  • Zara Customer Segment Low cost fashion for the 16 to 24 year olds
    • Get it approximately right
    • Eliminate creative design
    • Define a fast-response supply chain including design
    • Finalise design knowing material supply constraint
    • Optimise the supply process for speed and cost
    • Manage follow-up (next batch) and customer flows
    Low cost Fashion
    • Respond to what customers want – create a « demand » chain
    • Copy trendy fashion fast
    • Create a s tore experience
    • Create a network/brand
  • Competing in Business Models: M&S vs ZARA
    • Brief introduction to fashion industry
    • Business purpose ?
    • Customer segment ?
    • Customer offer ?
  • ZARA Customer Offer
    • Service company : scans and selects
    • new fashion, designs, delivers and sells
    • Limited variety at any time
    • The product’s essence is : fresh looks!
    • Does the brand help ?
  • Zara Customer Offer : characteristics Fresh/Fast «  Quality  »: -/+ Cost
    • Fast copying
    • Of leading styles
    • Fast delivery
    • in own stores
    • Limited editions
    • Raw material: medium
    • Knit: poor
    • Look: grand!
    • Customer satisfaction:
    • fashion at low price!
    • Low monetary cost
    • Low time cost:
    • “ the Zara experience”
    « Flexibility »: -/+
    • Limited customer variety:
    • only what is on display –
    • and in limited choices
    • But every customer is participating
    • in the process:
    • helps determine the next batch
  • Competing in Business Models: M&S vs ZARA
    • Brief introduction to fashion industry
    • Business purpose ?
    • Customer segment ?
    • Customer offer ?
    • Supply process ?
  • Classic textile design process: Creative Design Preliminary Designs Final Product Design
  • ZARA design process: Creative Design OUTSOURCE and SCAN Preliminary Designs COPY and SIMPLIFY Final Product Design ADAPT and OPTIMIZE
  • ZARA Supply Process in full: 5 day lead time !!! Step 2: Simplify « hits » & produce library of designs Step 1: Scan fashion shows Purchase Raw Mat Step 3: Final Design of next batch Mfg Shopping experience Dist Step 2: Shoppers (and store mgers) « pull » next design (shape) & designers « adapt » Step 3: Designers « pull » next RM batch
  • Comparing with Dell Supply Chain: 2 day lead time, but no on-line design ! Simplify & design new product offer Step 1: Dell scans market & current offer Sell Pick Comps « Mfg » (Assembly) Customers Select Dist Step 2: Customers « pull » product & supply chain adapts Step 3: Customers « pull » RM resupply Comps Supply
  • Competing in Business Models: M&S vs ZARA
    • Brief introduction to fashion industry
    • Business purpose ?
    • Customer segment ?
    • Customer offer ?
    • Supply process ?
    • Performance ?
  • Why is profitability at ZARA so high, when margins are so low: value??? Actual Demand Excess stock and unmet demand are avoided by stopping production when market saturates ExpectedDemand Small batches Zara as a “Lean Enterprise”
  • Waste elimination at ZARA: examples
    • Advertising: eliminated for not necessary in a « pull » model; too slow anyway and our offer is localised
    • Discount Sales: eliminated through quick response & the strategy that we are always “below” demand
    • Design: largely out-sourced to the “market” and replaced by active scanning – greatly facilitates a“process-based organisation”
    • Product complexity: 3 types, sizes, and colours greatly reduces the product complexity, allows us to operate with reduced inventories and working capital – with little loss in customer value
  • Competing in Business Models: M&S vs ZARA
    • Brief introduction to fashion industry
    • Business purpose ?
    • Customer segment ?
    • Customer offer ?
    • Supply process ?
    • Performance ?
    • Core competences & organizational structure ?
  • Core competences at ZARA
    • Scanning: fashion trends, market trends
    • Fast supply chain: 1 week final production cycle, two day outbound logistics, fast adaptation of leading trends
    • IT systems: library of models, CAD/CAM …
    • Flexible production system: small and flexible sewing shops in Galicia
  • Organizational Structure at ZARA ???
  • Competing in Business Models: M&S vs ZARA
    • Brief introduction to fashion industry
    • Business purpose ?
    • Customer segment ?
    • Customer offer ?
    • Supply process ?
    • Performance ?
    • Core competences & organizational structure ?
    • ZARA in the business model matrix
  • ZARA positioning: Industrialisation–Step 1: standardisation! Supply Process Product Offer Rigid Line flow Manual shop Batch flow High customisation Some customisation High standardisation Mass merchants M&S High fashion (Dior, Chanel, …)
  • ZARA positioning: Industrialisation–Step 2: add customisation! Supply Process P roduct Offer Rigid Line flow Manual shop Batch flow High customisation Some customisation High standardisation Mass merchants M&S ZARA High fashion (Dior, Chanel, …)
  • Industrialisation: Step 2 – Strategic value gained from positioning Supply Process P roduct Offer Flexible Process Rigid Process High customisation Low volume High unit margin High quality High standardisation High volume Low unit margin Low quality M&S: Out of Fashion! ZARA High fashion: Out of price!
  • Industrialisation–Step 2: redefinition of classic industry trade-offs Supply Process P roduct Offer Continuo u s flow Manual shop Batch flow High customisation Medium customisation Low customisation ? ?? Mass merchants M&S ZARA Chanel
  • Competing in Business Models: M&S vs ZARA
    • Brief introduction to fashion industry
    • Business purpose ?
    • Customer segment ?
    • Customer offer ?
    • Supply process ?
    • Performance ?
    • Core competences & organizational structure ?
    • ZARA in the business model matrix
    • Conclusions & take-aways
  • Take-away #1: ZARA = lean enterprise in fashion industry
  • ZARA vs M&S summarized: The «Lean» and « Focused » Entreprise
  • Process Focus summarized: The «Lean» Entreprise – from Toyota …
  • Take-away #2: business model life cycles (and « disruptive business models»)
  • S-curve: business model life cycles Improvement Effort Bus Model Performance ① Probe & learn ② Dominant design emerges (ind standard) ③ Competition shifts to process features: cost, quality, speed ④ Limits to improvement appear ⑤ Maturity settles in
  • Disruptive business model change: setup Time Performance: M&S quality (RM, cut, fit, variety … )  While customers change: M&S quality as perceived by  M&S or « 50+ » ?  « 16/24 » ? ① A world champion approaching maturity …
  • Disruptive business model change: disruption Time Performance: ZARA quality « freshness » M&S ZARA  M&S is overtaken by a competitor they view as offering a product of « inferior » quality to theirs!!!
  • Other take-aways:
  • Other take-aways
    • The benefits of a focused & lean business model: story, segment, offer, supply chain process, performance, competences
    • Business models and processes include customers and their mindsets
    • The danger of disruptive business models
    • The curse of winners: increasingly rigid commitments to once winning business models
    • Qualify such words as quality & flexibility
    • The search for « lean » mass customisation
    • Go for simple organisational structures
    • A key innovative skill for general managers: designing new business models
  • Competing On Business Processes & Models
    • M&S vs ZARA : back-up slides
    • Prof. Ludo Van der Heyden
    • INSEAD
  • Competing on Business Models: back-up slides
    • The emerging network model of the firm
  • Classic Business Process: Linear Chain view R & D MFG Logistics, Dist & Sales
    • R&D: too slow, too expensive, insufficiently customer focused, does not pay enough attention to current manufacturing capabilities [clockspeed in months]
    • MFG: a permanent bottleneck, always late and reactive, not a distinctive competence – let’s outsource! [clockspeed in years]
    • Logistics: « shipping boxes » is not our competence either, let’s outsource this function as well;
    • Dist & Sales: insufficient attention to channel issues, unresponsive to customer, insufficient customer feeback … [clockspeed in days & weeks]
  • Business Model Revisited : The Network view New Product/Process Developt Manufacturing Operations Supply Chain Operations Partners’ Operations Executive Committee
  • Competing on Business Models: back-up slides
    • The emerging network model for the firm
    • Mass customisation in the automobile industry
  • Auto Industry Dynamics: the long road towards mass customisation Process P roduct Rigid flow Flexible Shop/ Garage High custom High unit margin Low volume Low custom Low unit margin High volume All mfgers at the beginning
  • Auto Industry Dynamics: standardising the product and the process Process P roduct Rigid flow Flexible shop High custom High unit margin Low volume Low custom Low unit margin High volume Ford Model T Baton Rouge plant All mfgers at the beginning
  • Auto Industry Dynamics: process & variety Process P roduct Rigid flow Flexible shop High custom High unit margin Low volume Low custom Low unit margin High volume Ford Model T Baton Rouge plant GM Multi-brand strategy All mfgers at the beginning
  • Auto Industry Dynamics: further process automation Process P roduct Rigid flow Flexible shop High custom High unit margin Low volume Low custom Low unit margin High volume Ford Model T Baton Rouge plant  VW’s Halle 54 GM Multi-brand strategy All mfgers at the beginning
  • Auto Industry Dynamics: introducing flexibility into the process Process P roduct Rigid flow Flexible shop High custom High unit margin Low volume Low custom Low unit margin High volume Ford Model T Baton Rouge plant  VW’s Halle 54 Toyota Just-in-time GM Multi-brand strategy All mfgers at the beginning
  • Auto Industry Dynamics: the long road to mass customisation!!! Process P roduct Rigid flow Flexible shop High custom High unit margin Low volume Low custom Low unit margin High volume Ford Model T Baton Rouge plant VW’s Halle 54 Toyota Just-in-time Renault, Toyota, GM … « New dist » GM Multi-brand strategy All mfgers at the beginning
  • Auto Industry Dynamics: the long road toward mass customisation
    • Long-term trend is clear: mass customisation
    • Short-term movements are rather chaotic and unpredictable : sometimes classical standardisation, then disruptive innovations, then again lots of classical innovations
    • … and also take a long time: Mass customisation (as practiced in the computer industry) in automobile industry is finally becoming a reality, but slowly : Renault had to postpone the introduction of “new distribution” project
    • In such environments industrial “holding” structures are more flexible: Toyota (with the Lexus), VAG (with VW, Skoda, SEAT, Audi …), Daimler-Chrysler (Mercedes, Chrysler, Smart, …)
  • Competing on Business Models: back-up slides
    • The emerging network model for the firm
    • Mass customisation in the automobile industry
    • Examples of business model (re-)design
  • Segmentation by business models: the food industry
  • 3x3 Bus Model Matrix in the Food Industry Process Offer Continuo u s flow Job shop Batch flow High custom High unit margin Low volume Some custom Avge margin Med volume Low custom Low unit margin High volume McDonalds INSEAD cafetaria La Tour d’Argent
  • Industry segmentation by a single company : the Accor Group in the hotel business
  • Industrialisation in the Hotel Industry: ACCOR Business Process S e r v i c e O f f e r Flow line: Inflexible Job shop: Flexible Luxury Comfort Minimal Basic Yes  No  F1 Ibis Novotel Sofitel
  • Corporate transformation at Lufthansa : realigning around focused business units
  • Restructuring along (more) focused business units The old Lufthansa: Functional Organization The new Lufthansa Group: Service Holding President VP HR VP Finance VP Mktg Technik President Technik Passen ger Catering HR Fin Mktg HR HR Cargo Cargo Cargo Cargo HR Fin Mktg Passenger Catering Passenger Catering Technik Passenger Catering Technik Fin Mktg Fin Mktg
  • Dynamics of focus: planned transformation at Lufthansa Integration & synergy Performance & competitive in market segment Low Low High High Old LH New LH Future LH ? Inter-mediate LH