Individual Portfolio : Strategic Decision Making

Individual Portfolio : Strategic Decision Making

  1. Individual analysis of aspects of the nature of the business model your group has created and the collective cognitive processes of business model design that your team experienced

 

 

Fig. 1 – Positioning of Group 4’s model on Verganti’s matrix

 

 

 

 

 

 

 

 

 

 

 

 

 

  1. A) Verganti’s matrix

This report believes Group 4’s business model to sit left of the middle on Verganti’s matrix, with changes made essentially being radical in nature. The main drivers that influence the innovation process are a technology push and the needs of a particular niche market. As we have chosen to compete in a fictional environment where governments are encouraging the uptake of new technologically superior cars across Europe, our model is trying to be a more fitting rewrite of a car renting model, one which aims to adapt to this new world of robot cars.

 

One could expected that some of the similar services existing today, like Zipcar, Enterprise, Hertz, etc. would be able to keep up, seeing that they are already established businesses. This is why our model is based on the belief that there is a niche market of senior citizens who previously may have lacked access to such services or were hesitant to take advantage of them. And as some people do not buy products, but meanings (Verganti, 2009), we have tried to focus on the user experience of this segment. By providing convenient and accessible mobility to the front doors of elderly citizens, we are essentially addressing a potential need for independence. The model is based on the idea that some senior citizens don’t want to possess a car of their own as it is expensive. What they do want, however, is to be given a sense of freedom, a feeling that they are able to go out and do what they want without having to rely on help from relatives or friends. Even though we offer booking through our website or mobile apps, we recognize the fact that a significant number of elderly people are not familiar or don’t use the internet at all (Appendix F). This is why we also have phone bookings and customer representatives to help bridge the transition. What our service is trying to say to senior citizens is: “The future is friendly” and “Don’t be afraid to let us help you make the next step”.

 

To summarise, our innovation has focused on two strategies: utilising breakthrough technology and offering an improved service enabled by better analysis of senior citizens’ needs.

 

  1. B) VIEW Psychometric

A comparison between our group process and the business model innovation reveals some discrepancies, which have logical explanations. Even though this report has already stated that the business model introduces radical changes, a closer look at our group’s VIEW psychometrics reveals a strong inclination towards the Developer style. This directly relates to orientation to change and should have

 

influenced the direction of our decision making. Typically, developers are likely to make incremental changes, placing an emphasis on improvement, possibly of something already existing. This practical side of developers does not seemingly fit with the final result of our model. However, the radical change within our concept is mainly driven by new technology which we have not created, i.e. it is an external factor that we as designers are complying with. We are merely adopters of this new technology, more concerned with how to fortify the link between it and the niche market of senior citizens.

 

Another critical relationship is that between our results as a group and our personal preferences for deciding. Being almost unanimously task oriented, the common concerns were always related to pushing the process forward. Even though discouraging at times, especially when good ideas were being turned down, this approach gave life to what became our business model for car renting of robot cars. This is hardly surprising, as Tristan and David who have the highest scores for task-oriented deciding were the ones to come up with the idea for robot cars. From my point of view, this predisposition of theirs made them unconsciously guard their idea, pushing to achieve outcomes in what they already established to be our common goal. On a few occasions during our discussions we were on the precipice of turning our work on its head, but the stagnancy of a few of our members who had high Developer scores did not allow for exciting changes. Consequently, it is or common task orientation that kept us digging into a model which is already in place and finding ways to put it into a futuristic context.

 

 

 

 

 

 

 

 

  1. Individual critical evaluation of the new business model
  2. Systems diagram

 

Fig. 2 – Systems diagram of Group 4’s business model

(Critical success factors highlighted in green)

 

 

 

 

The aim of this section is to analyse the coherence of the model in delivering the value proposition, as well as to evaluate its ability to execute the critical success factors necessary. The analysis will cover the key elements provided below.

 

Value proposition:

  • Aimed at niche market of senior citizens
  • Low rental charges
  • Easy booking
  • At-your-door distribution of cars

 

To start off, the business model is coherent in terms of its positioning in accordance to key trends, one of the four main areas of the environment as described by Osterwalder and Pigneur (2010). Aiming the service at senior citizens is a logical choice of customer segment, as it’s a niche market showing significant growth opportunities. According to official projections, between 2004 and 2050, the number of young persons aged 0-14 in the EU will drop by 18%, the working-age population (15-64) will fall by 16%, whereas the elderly population aged 65+ will rise sharply by 77% (Carone and Costello, 2006). Consequently, our model is sound in regards to compliance with regulatory and technological trends – the futuristic scenario on which it is based calls for a rethinking of mobility, as governments are encouraging the uptake of robot technology within the industry.

 

However, there are some questionable sections within the business model which might challenge initial suggestions of low rental charges. As stated in our business concept summary, our cost structure is between cost and value driven. This would not make sense, as the former focuses on minimizing costs wherever possible, maintaining a lean cost structure, whereas the latter is indicative of an approach

 

where value creation is sought regardless of cost implications (Osterwalder and Pigneur, 2010). On closer inspection of the relationship between our profit formula, as well as the key processes and resources we have to deliver our value proposition (Fig. 3), one could find a closer resemblance to what Hagel and Singer (1999) describe as an unbundling model. Having several conflicting cultures in a single entity and striving to develop each on our own could result in considerable trade-offs.

By aiming to deliver all it has set out to achieve, the model would incur expenditure which would largely prevent it from implementing a low-cost element within its cost structure.

 

Fig. 3 – Relationships affecting the Value Proposition and conflicting cultures within the business model

 

 

 

 

On the other hand, having a variety of booking channels is a suitable and coherent part of the business model, as it actually helps deliver the value proposition. As already mentioned in this report, some senior citizens are not familiar or don’t have the internet, so providing them with the opportunity to book over the phone or have a customer representative help them is a necessity for the service to function properly.

 

The model also has steps in place to ensure the successful distribution of vehicles to the doorsteps of customers. The inventory of fleet vehicles eliminates intermediaries in distribution, while the customer database allows for keeping an accurate profile of users and for storing their information.

 

To summarise, this report believes that the model is coherent in that it would likely be able to execute the critical success factors necessary to attract customers and provide them the service it intends to, however, delivering the low-cost aspect of the value proposition does not seem feasible at this stage (Fig. 3).

 

 

  1. Competitive business strategy

 

  • Competitors’ reaction

This report will now explore a few ways in which competitors might respond to Group 4’s business model. This would be done through the use of Porter’s four-part framework for predicting competitor behaviour (Fig. 4), as well as his more famous five forces analysis in order to establish what shapes competition within the industry (Appendix G).Due to the limitations of this report, Zipcar would be the main focus of the models used within this section, though references would be made to other companies and the potential reaction of participants in the market.

 



Fig. 4 – Porter’s framework for competitor analysis applied to Zipcar

Model as seen in Grant (2010); Modified by author.

 

 

In terms of competitive scope, rivals could either focus on a single segment (in this case senior citizens) or aim for industry-wide competitive advantage through cost leadership or differentiation (Porter, 1980). In the case of the former, a copying of Group 4’s model is a likely response, at least for those not having participated in this niche market specifically. In terms of industry-wide competition, this report has listed a few predictions below.

 

Cost based competition – Membership model to raise switching costs:

 

Barriers to entry for car sharing are extremely low and over time the technology that enables customers to book, locate and access vehicles has become commoditised. With nearly anyone being able to acquire vehicles, parking spots and insurance, competing on the basis of price is a viable option for competitors.

 

Our model, for example, has a joining fee as well as rental charges. Competing companies might eliminate their joining/annual fees and instead price hourly rentals aggressively. Another approach would be to implement a membership model as opposed to the transaction-driven one, typical of traditional car rental businesses. This could involve enrolling through an application process in order to become part of a larger network of users, forcing customers to familiarise themselves with the company’s policies and culture. This would create a structural tie, making dissatisfied customers less likely to seek alternatives in the short term and would thus slightly raise switching costs (Hooley et al., 2012).This is because even though car enthusiasts may be willing to sign up for more than one service, the regular customer is less likely to maintain a number of memberships simultaneously.

 

 

Differentiation – Network effect:

 

Competitors could also attempt to sidestep one big issue – buying and maintaining cars which users may not want to rent frequently. In the ideal scenario for Group 4’s business model, vehicles are almost all booked, yet there is still always some available because of people coming and going. This is only possible with a large membership base.

 

However, a radically different approach could be to eliminate the cost of having company owned cars by building a network between people who own this new type of robot vehicles and those who want to rent them. Essentially an intermediary function, this would shift the cost from maintaining a fleet of cars to screening the driving histories of customers and matching them to other users, as well as providing insurance, a competitive response similar to the current strategies of Relayrides (Relayrides, 2013) and Getaround (Getaround, 2013).

 

 

Concluding thoughts on competition:

The analysis of this section points to a few ways in which key players in the car sharing industry compete. Some like Zipcar simply leverage technology and lower transaction costs, making renting a viable alternative to asset acquisition. Others, such as Relayrides and Getaround, are dramatically expanding through the use of information technology, creating a sort of peer-to-peer car sharing approach.

However, the ongoing consumerisation of digital technologies calls for a reengineering of consumption. Competitors would be able to easily copy Group 4’s business model and recreate the technology to be able to dispatch cars to peoples’ homes. Sensible competitors would realise at an early stage that using technology to speed up existing ways of doing things is not as profitable as using it as an enabler for fundamental reinvention of old processes.

 

 

 

 

 

 

  • Appraisal of whether business model will be sustainable and robust

As already stated in the evaluation section earlier, the business model has the necessary components to execute its critical success factors and function adequately. However, further changes would need to be made in order for the model to be sustainable in the long run – with the growth of the industry the requirements for critical success factors shift as well (Angwin et al., 2011).

 

Research by Frost & Sullivan (2010) gives predictions for the future of the car sharing market which point to an acquisition of car sharing organisations by rental companies to enter new markets and support larger target bases. Additionally, smaller car sharing organizations are likely to face acquisition by national operators to cater to rural areas. It is possible for Group 4’s business model to adapt to such forecasts through co-operation with other small companies in order to increase the size of its value pie ahead of time (Brandenburger and Nalebuff, 1996) This is likely to make the model more sustainable, as evidenced by the increase in membership numbers that Zipcar experienced after its acquisition by Avis (BBC, 2013).

 

 

With the industry being in its growth stage, a convergence of the dominant set of service features is soon to follow. It is difficult to establish at this point whether the model will be flexible to change, but its ability to achieve competitive advantage would be further constrained by the dynamics of the industry as it strides towards the next stage of the industry cycle (Angwin et al., 2011).

 

 

 

 

 

 

  1. Required Appendices

 

Appendix A: Assessment 1 – Group Work

Our industry of choice will be the automotive industry in the EU.  We will be concentrating on advancing technology in this market. Our scenarios will have a focal time horizon of 20 years. The variables used for the construction of our scenarios are ‘will robot technology be taken up’ and ‘affordability of car ownership’.

“How will car ownership change within the next 20 years?”

 

Cross-Impact Matrix:

 
 
 
 
 
·         Will robot technology be taken up

·         Affordability of car ownership

·         Governmental response to diminishing commodities

 

High
·         Road taxes / duties

·         Competition & employment laws

·         Ageing population

·         Pollution levels

·         Technological advances

·         New entrants to manufacturing market

·         Emissions requirements

·         Availability of self-drive technology

·         Import/export taxes & regulations

·         Legislation regarding CO2 emissions

·         Government pushing public transport

·         Excess capacity & price pressure

Degree of Uncertainty
Low
High
 
 
 
 
 
 
 
 
 
Low
 
Level of Impact

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Scenario Matrix:

 
 
Collision
Carpocalypse
Affordability of car ownership
High
Low
High
Low
Will robot technology be taken up?
 
 
The Grid
Sharing’s Caring

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Scenarios:

 

Sharing’s Caring

 

Due to the rising costs associated with owning your own vehicle, the car sharing market becomes a more economically viable option for the average person. Governments encourage the uptake of robot technology within the industry to reduce accidents and congestion through speed and route monitoring and control.

 

The Grid

 

An intricate web of electronic pathways replaces conventional roads to accommodate the influx of futuristic self-driving cars. Intelligent highways puppeteer cars which are also able to communicate with each other and monitor road conditions, thus preventing any collisions and allowing for more efficient journeys.

 

 

Carpocalypse

 

The new technology that self-driven cars present does not appeal to the general public despite governmental attempts to encourage its adoption. The governments is

 

forced to retract subsidies for self-driven cars due to the economic depression, whilst running costs for regular cars increase to extortionate levels.

 

 

 

 

Collision 

 

In a thriving economy where technological advancements are rapid, a series of high-profile crashes cause the public to rethink the safety of self-driven cars, making the place of such a technology in society questionable. Plummeting sales force manufacturers to revert back to driver-controlled vehicles as safety becomes consumers’ top priority.

 

PESTLE Analysis:

 

Political:

 

  • Changes in taxation and duties for road users: Fuel duty has been frozen for the last 2 years; however any rises could curb people’s driving and damage the economy (BBC, 2013). Also, road tax is more expensive the less efficient the car (Gov.uk, 2013) which can influence the public’s purchasing decisions.
  • Government legislation regarding C02 emissions (Key Note, 2002): The Chancellor announced that he would extend a 100% first year tax allowance for buyers of ultra-low emission vehicles, as well as introduce new company car tax rates for the lowest emitting cars (BBC, 2013), which will encourage people to invest in newer models with these specifications, in order to save money. The Government is also currently giving out a 25% subsidy towards the purchase of electric cars (Gov.uk, 2013).
  • Government promoting the use of public transport with funding: Government are keen to reach their climate change goals, create economic growth and reduce their carbon footprint through developing sustainable transport projects (Gov.uk, 2012), and changing public perceptions around public transport.

 

Economic:

 

  • Future economic stability will have a significant impact on car sales within the EU. In September 2013, car sales in Europe fell to its lowest level since 1990 and sales are expected to continue falling (Foy & Bryant,

 

  • 2013). Real income and consumer confidence will have to increase to see an improvement in sales.
  • Due to excess capacity within the automotive industry (The Economist, 2011), European car manufacturers are facing remorseless price pressure
  • from low cost labour economies such as Eastern Europe, China and India (PWC, 2010).

 

Socio-Cultural:

 

  • Gaining both government and public acceptance for self-driven vehicles will be a critical factor in whether these technologies are rolled out in the future. Whilst governments, including the UK, have passed legislation allowing the testing of autonomous cars on public roads (BBC, 2013), there are public concerns regarding the safety of these technologies, such as the system crashes, security breaches and inaccurate maps (KPMG, 2013).
  • It is predicted that around 29.5% of the EU population will be 65 years or over by 2060 (Eurostat, 2012). So that this growing ageing population can maintain safe mobility, developments can be made to make the physical and cognitive requirements of driving less demanding through technological and ergonomic advancements (Box et al., 2010).

 

 

Technological:

 

  • SME’s within the UK car manufacturing industry are increasing the potential for technological advancements, this is due to the high levels of research and development within the sector (Ruddick, 2011).
  • New technologies and new companies are beginning to emerge within the UK car manufacturing sector this can be seen with Google in 2010 when they unveiled a new technology that enabled a practically sightless man to drive their prototype vehicle (Ruddick, 2011). This allows us to assume that the future holds a much more technology-based industry with a number of players within the market that are not here today. Furthermore electric cars with advanced safety technologies are allowing vehicles to maintain a 360-degree view of their environment allowing them to scan for risks and take evasive action when required. It is these technologies that allow us to predict that in the future vehicles will drive themselves (Foy & Bryant, 2013).

 

 

 

 

 

Environmental:

 

 

  • Light duty vehicles are responsible for around 15% of the EU’s CO2 emissions. The European Commission has set an emissions target of 95g CO2/km for all new cars by 2020 (EEA, 2011). As a result, car manufacturers will have to invest heavily in new technologies that can deliver the required fuel efficiencies in the short and long term.
  • Pollution is reaching dangerous levels in many towns and cities across Europe. London for example shows levels of nitrogen dioxide (toxic exhaust emissions) that are 50% higher than the suitable levels set by EU standards (Stubbs, 2013). If the level of pollution continues to rise, governments may be forced to intervene which could have an impact on car demand.
  • If the rate of consumption of crude oils continues, the current crude oil reserves will be used up by 2052 (Ecotricity, 2013). In order to respond to this change, car manufacturers will need to invest in alternative fuels to power cars in the long term.

 

Legal:

 

  • Governments can influence the automotive industry through the controlling of imports and exports, by imposing taxes and regulations. The reason for this is that the automotive industry is seen as a substantial source of revenue for the government (Toyota, 2011).
  • Competition law and employment law are affecting the automotive industry as well. Many car manufacturers are changing their business model, as refinancing becomes more expensive. Competition law within the automotive industry includes distribution of the vehicles, after sale customer protection, spare parts, car insurance, and dealership agreements. With the EU new competition rules the rivalry between leading automobile manufacturers will be even more intense (Masons, 2010).

 

 

Appendix B: Contribution Confirmation Statement

We can confirm that everyone in the group has contributed adequately to this assignment:

 

Yulian Parmakov (10015799)

Marika Hemming (10062032)

Tristan Hensel-Coe (10063997)

Dom Booth (11023172)

Viktor Rachev (10015905)

David Gaynor (10037654)

 

 

Appendix C: Summary of Business Model Concept and Value Proposition

A niche market, low cost car rental service which aims to provide convenient and accessible mobility by robot transport for senior citizens, through the ability to order cars to your front door and partnerships with places of interest.

 

In an environment where rising costs associated with owning your own vehicle have soared, the car sharing market has become a more economically viable option for the average person. New cars are technologically superior to those we knew in 2013, with robot technology taking a front seat. Governments are encouraging its uptake across Europe, as speeds and routes are controlled, reducing accidents and congestion.

 

Our business model will focus on the needs of senior citizens in particular, who may have previously lacked access to the market. We will provide a low cost rental service for robot cars that can be ordered to your front door or picked up from a local point of interest. Booking is made easy through the phone, website or an app, with a personal customer representative on standby to help with any part of the process. Customers can have personal online profiles with previous journeys recorded and favourite locations stored.

 

Partnerships with points of interest such as supermarkets, hospitals, post offices, retail outlets, doctors’ surgeries and town centres provide us with car-parking spaces where robot cars can be charged at and picked up from, whilst we return the favour with advertising space inside the cars. We will raise awareness of our service by distributing leaflets and putting adverts in local newspapers, on the TV and radio, and also through our partnerships. An after-sale service will be provided through our own sales team over the phone.

 

Our most important resources will be the robot cars themselves, our partnerships, our customer representatives and our brand. Our main sources of revenue will derive from joining and rental fees; whilst our main costs will be our fleet of cars, their running costs, and salaries and rent.

 

 

 

Cost Structure

–          Between cost-drive and value-driven

–          Fixed: buildings, rent, salaries

–          Variable: marketing, fleet of cars, electricity (for running cars)

Key Partners

–          Strategic alliances with points of interest

–          Car suppliers

Key Activities

–          Mobility

–          Delivering

–          Marketing

–          Partnership management

Value Proposition

–          Convenience

–          Accessibility

–          Low price

 

 

Channels

–          Leaflets, newspapers, TV & radio advertising

–          Partner channels

–          Own sales force

–          App store

–          Online platform

Customer Segments

–          Niche market

–          Senior citizens

Key Resources

–          Cars, spaces, charging points, depot, headquarters, support centre

–          Partnerships, databases, brand

–          Human resources

Revenue Streams

–          Fixed joining fees

–          Fixed rental fees

Customer Relationships

–          Self-service booking

–          Personal assistance

–          Online platform

Appendix D: Business Model Canvas



Appendix E: Individual Learning Log

 

Group Assignment:

 

  • One week left to submit the assignment and the group hasn’t met or talked to each other.

 

  • Our first meeting consisted of mainly brainstorming and delegating the workload. Marika seemed really unhappy with the topic of car manufacturing/ car sharing, which led to time being spent on assuring her that there would be enough materials for us to gain information on the matter.

 

  • After a few meetings, different types of roles started emerging within our group. For example, David and Tristan came across as idea generators, whilst Marika and I were facilitators, mapping the process on boards and asking questions that provided a direction for the team.

 

 

  • The fast approaching deadline kept us on our feet, working closely together in our sessions, which I believed to be successfulas we were able to summarise our views view on how the task should be done. The final recording of the scenario excited the group, as it involved a much more different action-based approach in comparison to the statistical data we were analysing for the report itself. Even though this was our final meeting before the submission it made for a good bonding session, as for once we were all on the same page.

 

Business model workshop:

 

  • Marika often held a leadership stance, giving a direction to the project. Tristan, even though at times reluctant to agree, sided with her and backed up most of her decisions of how things should run.

 

  • This led to groupthink, as David on the other hand had a creative connection with Tristan, both of them bouncing ideas off each other constantly. The trio was quick to shutdown outside contributions within our group. For example, I thought we could create a far more intriguing business model around the notion of car insurance in the ‘Carpocalypse’ scenario. However, my ideas were rarely acknowledged beyond them responding “yeah, yeah” and carrying on the discussion of rental cars between themselves.

 

  • On a few occasions, Marika would decide that we need to go back and redo our scenarios and axis for the purpose of creating the business model, something I found highly unnecessary. I believe that if we hadn’t lost so much time debating whether we should do this or not we might have created a more polished version of our current business concept and value proposition.

 

 

 

Appendix F: Internet users and non-users by age group (years), Q1 2013

(Source: Office for National Statistics, 2013)

 

 

 

 

 

 

 

 

 

 

Appendix G: Porter’s Five Forces applied to the car sharing industry

Model as seen in Grant (2010); Modified by author.

 

  1. References

 

Angwin, D., Cummings, S. and Smith, C. (2011), The Strategy Pathfinder: Core Concepts and Live Cases, 2nd ed,West Sussex : John Wiley & Sons, p.73-337.

 

BBC (2013), Avis to buy Zipcar vehicle sharing firm for $500m, Available: <http://www.bbc.co.uk/news/business-20890174>,

[Last accessed 9th Dec, 2013].

Brandenburger, A. and Nalebuff, B. (1996), Co-opetition, New York: Currency Doubleday.

Carone, G. and Costello, D. (2006), Can Europe afford to grow old?,Finance and Development, 43 (3), p.1-2.

Frost & Sullivan (2010), Sustainable and Innovative Personal Transport Solutions – Strategic Analysis of Carsharing Market in Europe, [Online], Available: <http://xa.yimg.com/kq/groups/1088789/1632531212/name/F%26S_M4FA_European+Carsharing_Key+Findings.pdf>

[Last accessed 8th Dec, 2013].

Getaround (2013), Tour, [Online], Available: <http://www.getaround.com/tour>,

[Last accessed 8th Dec, 2013].

Grant, R. (2010), Contemporary Strategy Analysis, 7th ed,West Sussex : John Wiley & Sons, p.96-115.

Hagel, J. and Singer, M. (1999), Unbundling the corporation, Harvard Business Review, 77 (2), p.133-141.

Hooley, G., Piercy, N. and Nicoulaud, B. (2012), Marketing strategy & competitive positioning, Harlow: Prentice Hall, p.364.

Office for National Statistics (2013), Internet users and non-users by age group (years), Q1 2013, [Online], Available: <http://www.ons.gov.uk/ons/dcp171778_310435.pdf>

[Last accessed 8th Dec, 2013].

Osterwalder, A and Pigneur, Y. (2010), Business model generation, Hoboken, New Jersey: John Wiley & Sons, p.41-42.

Osterwalder, A and Pigneur, Y. (2010), Business model generation, Hoboken, New Jersey: John Wiley & Sons, p.206-207.

Porter, M. (1980), Competitive Strategy: Techniques for analyzing industries and competitors, New York: The Free Press.

Relayrides (2013), How it works, [Online], Available: <https://relayrides.com/how-it-works>, [Last accessed 8th Dec, 2013].

Verganti, R. (2009), Design-driven innovation: changing the rules of competition by radically innovating what things mean, Boston: Harvard Business Press.

 

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