Business Model Innovation - Honda, Ford - Case Study Example

4.1 Introduction to business model innovation The business model of a business can be defined in various ways. First, it is the manner in which a business conducts its day-to-day activities. it is also the manner in which a business undertakes the business with the key stakeholders. This is hence the determinant of the success of a business. This is because it determines the level and the degree of relationships that the business maintains with the stakeholders. Some of the stakeholders of the business include its customers, the shareholders, the management and the suppliers among others (Manganelli and Klein, 2004). The business model hence is the manner in which a certain business sets and aligns itself in order to undertake its respective mandate. This is also in order to be able to meet the high levels of competition that exists in the market. Successful alignment makes it possible for the business to be able to counter the competition that is present in the market. It is also through a good business model that a business is able to foster its growth level. Through such, a business is able to be successful in its undertakings and profitable ion its activities of business. The business model can be classified into two broad categories. They are the value proposition and the operating model. The different classifications are based on the different undertakings that the business embarks on. Different parts make up the operating model. The three parts are the cost model, the value chain that the operation operates under and the organization itself. The operating model hence deals with the various mechanisms that are put in place by the company in order to attain a certain level of profitability. The profit motive and how it will be attained are hence the main objectives of the operating model. On the other hand, the value proposition similarly has three different dimensions. They are the revenue model, the target segment and lastly the product or service offering. The service offering also involves the products that the company produces. This classification involves the various methods and techniques that the company put in place so as to see to it that it attract the customers to its products. They include such things as marketing in order to attract the actual and other potential customers to the consumption of the products, goods and services of the company. Marketing involves the creation of product knowledge and information to the customers of the product. Through equipping them with adequate information, then they will be able to consume the products without any fear. They also involve other aspects of the products. Such aspects include the quality, quantity and the branding that is used by the product in order to attract the customers (Morgan, 2010). They are hence factors that are put in place so as to attract the target population and to encourage them to partake the products of a company. The revenue model in this classification involves such aspects as the pricing of the products of the company. The prices should be competitively profitable for the company. Companies need to align themselves in a way that they will be able to counter the competition that is prevalent in the market. This can be done through the innovation of their systems so as to come up with new products that are competitively able to fit in the market. Innovation involves a change of the systems that are previously used by the business and coming up with new ones that will be able to overcome all odds and to grab the attention of the customers. A good example of a company that changed its systems to come up with a successful plan is Facebook. Innovation does not always involve the invention of completely new systems. Rather, it involves the modification of the previously existing systems so as to arrive at a new product that is competitively existent in the market. This is the case of Facebook. They modified their presence by embarking on the innovation of their approach and their reach to attain an outcome that was competitively fit for them and that was fair for their development. For companies to attain maximum growth and progress in their operations, they must endure enterprise transformation. This can be termed as the improvement in the undertaking of activities of the company. As such, the businesses must develop their systems, their culture and their workflows in a way that they facilitate continuous improvement to give utmost high value to the customers. This is hence an improvement in the positioning of the business to attain the set goals and targets of the business. Market transformation is hence the transformation and the adjustment and change of the operations of a company. Transformation can be through the change in how the business undertakes its activities and the strategies that it employs in its operations. Enterprise transformation can take place through a number of was (Zeid, 2014). They include innovation, invention, transformation and diversification among other strategies. Several market forces necessitate the need for enterprises to transform. They include competition in the market, development and other shifts in the levels of technology, change in the demand patterns of the consumers. Business change is very crucial for the success of a company. As such, there are many examples of businesses and organizations that have succeeded due to the input of change in their undertakings. Through the examples, it is very clear and evident that business change is a vital element of business success. Some of the common examples of the businesses that have made huge returns due to transformation include among others; Facebook, Google, PayPal, apple and YouTube among many others (Zhenya, 2014). They are the common indicators of how change can be beneficial to a company. The undertaking of business transformation is an undertaking that involves the taking in of a given degree of risk in order to make the best returns from the undertaking. It is hence through the acceptance of the risks that exist that the actual business gain will be made from the undertakings. 4.2 Business model innovation of Honda Since its inception in the 1940s, Honda has always been a highly innovative company in line with its corporate slogan of the power of dreams. The company’s website states that innovation is the rule at Honda not the exception. In fact since its production of the first Honda motorcycle, Honda had grown to become the world’s biggest producer of motor cycles by 1964 and in 1963, the company produced its first automobile the T360 mini-pick-up truck with its first sports car S500 coming the same year. The company would continue to innovate and hence expand its production line while expanding its operations overseas. However, Honda’s current business model innovation started back in 1990s when Kawamoto took over as the company’s CEO. He acted quickly changing the company’s corporate culture to that of market-driven product development which resulted in the company producing recreational vehicles including the Odyssey and the CR-V while refocusing away from its traditional sedans and coupes that had been popular with the company’s engineers though not with the buying public. Today, Honda boasts of being the preeminent engine maker in the world with its output being more than 20 million internal combustion motors annually. The company has never reported any losses since its inception and has its automobile operating profit ratio being 5% which consistently tops the industry. The company’s stock price has always been on the rise doubling in 2008 when the global economy was collapsing. In addition, Honda’s vehicles are considered the most durable and long-lasting of any automaker given that 75% of its cars and trucks sold 25 years ago are still on the road. Honda’s excellence in all its spheres of operations arises from its business operation model. According to Younghonda.com (2014), innovation is the rule and not exception for the company. The innovativeness is seen in the fact that its 1959 super cub innovation which was sold in the US market and changed motorcycling in America forever was highly innovative to the point of being bullet proof. The business innovation model is based on some factors as explained below. Honda is based on being global yet remaining local. In other words, the company is not a top-down company controlled by its headquarters unlike its rivals such as Toyota. The company’s manufacturing subsidiaries are to be found in numerous places globally and they operate autonomously in designing and producing vehicles that are based on local conditions and consumer behaviour. In fact, Honda has been praised for its localization strategy for its conviction on doing it all in one place. This implies combining engineers, design as well as manufacturing functions in each of its local facilities. This is unlike competitors who keep R&D as well as other design and technical functions at home. This ensures that their products meet local tastes and preferences and hence fetch high demand in the local markets. The company also encourages continuous innovation from its employees from all levels by demanding that they continually poke holes in the status quo. This is done through daily spontaneous meetings called “waigaya” where decisions whether large or small are reevaluated in the hope of finding better tactical or strategic choices. The company welcomes paradox as a way of promoting critical thinking and reassessing common wisdom which shapes new responses to ingrained expectations. To Honda, self-satisfaction is the enemy. Putting men before machine is another aspect of the company’s business innovation model. Unlike most of its competitors who prefer robots, Honda’s factories have been termed as the most labor intensive in the auto industry. Honda only employs robots in the most dangerous areas that are less fit for human than machines. This is aimed at ensuring assemblers remain engaged while their enthusiasm for the job is maintained while nurturing local innovation. To Honda, output and quality standards are too often set to the levels which technology can achieve as opposed to the boundless creativity of human imagination through use of machine. As such, mechanizing would make a local production facility incapable of further improvement and hence Honda’s perspective of placing men before machine. Hondas business innovation model is also helped by the fact the company’s CEOs have always been engineers from its prized research and development unit unlike its rivals who would prefer anybody else to lead the company but an engineer (gsma.com, 2015). As such, such CEOs strengths have always lay in product and process innovation in designing new vehicle models and features while conceiving new techniques for building the innovations faster and better. As such, the CEOs success is not measured by quarter to quarter sales but by how they cultivate individual creativity throughout Honda as well as by how they disburse the company’s corporate culture to the delocalized strategy and hence produce continuous innovation. Honda has always focused on factory flexibility and hence unlike its rivals, Honda is seamlessly able to produce multiple autos on a single assembly line one after the other and be able to switch a line over to a newly designed vehicle within hours. Conversely, this can take months in Honda’s rival factories. Honda achieves this through in-house engineering that is co-located at all their major production facilities and which serve as independent operations that are solely focused on local needs. Problems arising in the flexible company are addressed immediately by the team which in most cases is not delocalized in rival companies. This ensures that steady stream of automobiles going through the production lines are not impended. As such, Honda is able to alter production and capacity of individual models at a short notice based on local sales trends as well as success of competitive brands. This innovation of flexible factory by Honda was achieved through synchronized engineering where all vehicles coming to a factory share common designs including similar location and installation techniques for such functions as brakes and transmission. As discussed above, Honda’s business innovation model is based on continuous innovation and value for its men as well as localization in a bid to ensure local consumer tastes and preferences are strictly adhered to. This model is very hard for its rivals to copy and hence it has resulted in a number of firsts for the company including the biggest engine manufacturer in the world. Other notable innovations by the company include electric and alternative fuel vehicles (Gavin, 2015). Owing to the model, the company’s motor vehicle sales have been rising gradually over the years. The table below shows how the company’s sales have been increasing over the years. Calendar year Global production 2009 3,012,000 2010 3,643,000 2011 2,909,000 2012 4,110,000 It is worth noting that Hondas business model innovation has enabled the company to become the eighth largest automobile manufacturer in the world in addition to all its other productions. 7.1 Ford Ford Company was established in 1903 and has been in operation since then. However, the company nearly went under in 2008 during the global financial crisis since the company had run into financial difficulties. However, its bad performance then was largely attributed to the corporate culture and hence business model it perused then. However, the company’s current business innovation model is best credited to Bill Ford Jr who after serving as the CEO decided in 2008 decided to let an insider take over the company as CEO. Previously, the culture that Henry Ford had created was such that managers were put to compete against each other. This kind of corporate culture was characterized by fierce loyalties and frequent turf battles .The culture is described as having been one of the most caustic corporate culture ever seen anywhere in business (Ford.com,2015). The culture was that people put advancement of their own careers and the success of their own divisions ahead of the company’s success and even of the bottom line. However, this was to change in 2008 with the appointment of Alan Mulally as the company’s CEO. When Allan joined the company, it was looking for a lifeline since it was experiencing financial difficulties. As such, the company had to use its existing assets in getting bank loans while making tough changes that were necessary for both the success of the company through the great recession but also to ensure the company’s comeback. As such, the company’s business innovation model was characterized by a number of factors as explained below. The company first of all underwent an internal merger in what came to be known as one ford. In this respect, all ford operations in Europe, Asia as well as other several subsidiaries and divisions were brought under one name. This was aimed at bringing about synergy in the company’s operations. In addition, company executives were gathered together and weekly meetings reintroduced and made compulsory. These meetings were now used to share information as well as helping to get ideas off the ground. In addition, the company with the leadership of the CEO adopted a no fail attitude where the workers were encouraged to be innovative and determined in bringing the company back to its feet. The CEO was well aware that the company would make a comeback and he ensured that this attitude was inculcated in all the people at all levels of the company. This boosted the company’s culture and Ford could now work as one united company towards a unified goal of financial success. The company’s business model innovation also involved the refining of the company’s brand while investing in its future. According to the CEO, true change was not only about the company’s people but more so about the company’s products and hence offerings. In this regard, the company made big changes in its product lines where it cut its offerings from 97 to just 20 (Mathew, 2015). For Ford, it was not just about the cars and trucks that the company offered but about the innovation and hence the technology in them. In this regard, Ford’s vehicles were changed from inside out and hence new products and partnerships were developed with powerhouses in the consumer electronics industry. Some of the major innovations included Ford SYNC voice activated technology which is able to turn a car into a smartphone. This communication system has become popular and there are now millions of cars with the system. Then there are later versions of the platform including MyFord Touch. As a result of increased innovation in the company, it has made great strides as far as fuel efficiency is concerned. In this regard, the company has delivered its best in class Eco Boost engine. It is such transformations credited to Mulally that helped the company make integral changes to become the industry leader as far as innovation is concerned and hence allowed the company to start producing cars as well as trucks that people desired to buy. It is such steps outlined above that saved Ford which is considered a global iconic brand from extinction. This has greatly changed the company’s fortunes with the company’s sales revenue over the last few years amounting close to $30 billion. In addition, the company’s stock that was once selling at $1.96 per share in the year 2009 has greatly improved in value and it has now passed the $12 per share mark today which is more than a 500 percent increase in value. It is clear from the Ford case study of the importance of companies adopting the right business innovation model if they are to succeed (Takahashi, 2009). Ford just like Honda could have gone through the financial crisis successfully without itself being affected. However, it lacked the right model. However, with the coming of mulally, the right model was adopted helping the company stand again on its feet. It is worth noting that when mulally joined the company, he had no experience in Ford’s industry unlike Honda CEOs. However, he had the expertise and track record that he needed to turn the company around. He knew that the company needed a change in its business innovation model and hence he recognized the need for changing the company’s culture not only to grow people but also to be more innovative and hence grow the brand and hence the business. In the end, the company has been able to do great work and it has been revolutionized. References, Manganelli, R &, Klein, M2004, The reengineering handbook a step-by-step guide to business transformation, New York, John Willey & Sons. Morgan, M2010, Executing your business transformation how to engage sweeping change without killing yourself or your business, San Francisco, CA, Jossey-Bass. Zeid, A2014, Business transformation: a roadmap for maximizing organizational insights, London, Rutledge. Younghonda.com, 2014, Honda creates the perfect business model, Retrieved on 3RD October 2015, from; http://www.younghonda.com/blog/2014/july/30/honda-greats-the-perfect-business- model.htm gsma.com, 2015, Connected cars: Business model innovation, Retrieved on 3rd October 2015, from; http://www.gsma.com/connectedliving/wp-content/uploads/2012/05/GSMA-Connected- Cars-Business-Model-Innovation1.pdf Gavin, D2015, The role of business model innovation in translationing ULEVs to market, retrieved on 3rd October 2015, from; http://orca.cf.ac.uk/71735/1/Gavin%20Harper%20PhD%202015.pdf Zhenya, L2014, Driving growth with business model innovation, London, Rutledge. Ford.com, 2015, Pedal power, Retrieved on 3rd October 2015, from; http://corporate.ford.com/homepage.html Mathew, C2015, What is the Ford Motor Company business model? Retrieved on 3rd October 2015, from; http://smallbusiness.chron.com/ford-motor-company-business-model-11391.html Takahashi, Y2009, Toyota borrows from Toyota’s blueprints for new hybrid Escape, USA Today, Retrieved 3rd October 2015. Read More