Companies which adopt modern technologies should be able to maximize profits and increase their market share. Such companies intend to have a competitive advantage by refining their business processes and make use of information technology. This has led to the growth of various information technology systems like Enterprise Resource Planning Systems (ERP). As a result of these developments, many companies have largely invested in ERP systems, because they are reckoned to integrate the various business processes. Notwithstanding the benefits of implementing an ERP system, many companies are under increasing pressure to adapt or change their business models. By implementing an ERP system, companies should ideally be in a position to relate their operational and business strategy. As competitors play the catch up game there is constant pressure on companies to renew, innovate and change their business strategies from time to time in order to reassert their distinctiveness. This paper discusses the four methodologies, as defined by Linder and Cantrell (2000), that are used in changing or altering business models.
A business model is a company's plan or roadmap to operate profitably in a given business line. The business model of a company is expected to be in conformation with its strategy. Much has been written and spoken about strategy over the last 40 years. However there is a great deal of confusion as to what strategy means. The boom period following the internet revolution and the subsequent recession may have helped in making things clear to some extent.
Successful companies use radical strategies when they need to change their entire business model. They change their business model and assert their distinctiveness whenever their competitors catch up. For example, Apple introduced iPod and iTunes and grew its worth from $1 billion, in 2003, to over $150 billion by the end of 2007. Companies use regular or common strategies when they need to change only their position in the market. An example of this is a routine marketing strategy used by a company to increase its market share. (using strategy)
Linder and Cantrell (2000), have laid out four models that can be used by companies in changing business models. With the help of these strategies companies will be able to target new customers, sustain growth and competition.
With the help of the realization model, companies look to increase their profits and also find ways for growth possibilities with their current business model. When compared with the other models like renewal model, extension model and journey model, the realization model has the least amount of actual or visible change. When a company expects to expand and grow its operational area, it ramps up its resources and capacity, but it does not make any significant changes to its business model.
W.W.Grainger, Inc is the single largest company in North America, supplying products used in maintaining facilities. It has an annual turnover of $ 6 billion and operates in North America, Canada and China. Ever since its incorporation in 1927, W.W Grainger has been using several technologies in support of its day to day operations. However, it felt a need to implement ERP systems in order to integrate all its business processes, increase its productivity and provide better customer service. W.W Grainger felt that it needs to reach its customers through all possible channels like retail, internet or telephone sales, without changing its original business model. It intended to save the time of customers by offering a wide range of products by means of all the possible channels.
W.W Grainger replaced its fifty legacy systems by implementing twenty SAP modules. Therefore it could integrate its business processes and cut down costs. As a result of implementing SAP, they have a better system in place for receiving orders and are also in a position to retrieve real time data concerning any product or customer. Customer satisfaction levels have increased due to appropriate customer relationship management by W.W Grainger. Encouraged by the positive impact of the ERP implementation, a new centre for distribution was opened in China and it has resulted in bringing down costs.
Companies following the renewal model change and revamp their business model from time to time when a number of reasons like competitors, emergence of new technologies and cost structures start affecting their profit margins. Such companies work towards developing products that are extraordinary and trend setting. This model is generally followed by companies that prefer to have an advantage over their competitors with reference to the value curve. Such companies enter into new product segments and focus on establishing new customer pool. While doing so, such companies continue to stay on top in their current business and increase their brand value. Therefore they are in a position to demand a premium for their products.
DuPont is a classic example of a company following the renewal model. Its R&D develops chemicals and materials that were unknown earlier. It commands a premium from early adopters and starts ramping up production in order to gain valuable experience and keep the per unit price lower than its competitors. When the competitors eventually catch up and the products are more or less similar, DuPont's brand name would still command a higher price. However, DuPont moves out of the market once the product is fully commoditized. In the recent past, it has stopped concentrating on chemical pesticides and has started focussing on genetically-engineered and bug-resistant plants.
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