The ultimate aim of a business is to make money. To achieve its goal, the company aligns its resources into a business model to generate the product or service for its consumers. A business model is the framework of a company by which it generates revenue and makes a profit through its operations.
The metric to analyze the efficiency and effectiveness of a business model is the gross profit and return on investment. Another way of comparative analysis of different business models is the value addition or convenience that it provides to its consumers by solving their problem or by providing a new dimension to handle situations. More the value addition to consumer, more will the willingness of the consumer to pay and hence more will be the scope of revenue and profit generation.
Since a lot of players of same domain are coming on the horizon every day with almost same business model, consumers are having choice to move from one to other. As a result, it has become an inevitability for every business model to enrich it as per the market trends or as per the consumer expectations.
Let’s take an example of logistics business model. Simple logistics solution is to collect goods from point A and drop it at the desired destination B within the defined timeframe. Now, there are two basic aims that needs to be looked while deciding the improvement strategies –
- Making the existing business model more attractive for consumers
- Removing non-value added services/ steps to enhance the performance of the system
To achieve both of these aims, here are few suggestions from FS –
[A] User-Friendly and More Accessible Business Model
Convenience is one of the major factors that attracts consumers to select a specific product or service from a particular player. Reason, why hyper-local delivery concept became so popular in major cities of India, is the value additional that it provides to the consumers in terms of time-saving. The more simplicity is added into a complex business model, more are the chances of market reach. So, the first milestone towards business model enhancement is making is the most user-friendly model by removing the obvious obstacles from it.
For logistics business model, following strategies can be used –
- Easy access for consumers to check the availability of feet as per their requirements can avoid the unnecessary struggle of getting the right information.
- Stress-free booking, change or cancellation process can add more convenience to consumers.
- Real-time tracking of shipment can help consumers to get the right status at any point of time.
- Easy payment solution can help consumers to get rid of the hard cash involvement.
- Convenient process of solving consumer queries, discrepancies can bring more consumers to the company.
[B] Use of Technology to Improve the Performance
Technology is the need to enhance the performance of simple business model. Eg – GPS enhances the performance of cab aggregator business model, payment wallet enhances the performance of manual exchange of currency for buying. Technology not only attracts the consumers but also reduces the operational cost if utilized in a proper manner. So, it’s good to add technology into business model to optimize the revenue model –
Logistics business model can be enhanced by adding following technologies –
- Autonomous fleet has potential of bringing more efficiency and cost saving over manual operations. Autonomous guided vehicles, cranes, robots, truck platooning etc can bring more intelligence and efficiency to the simple supply chain.
- Data analytics can provide the solution for optimized movement of goods and hence can reduce the fuel consumption.
- Internet of Things can provide highly integrated “Transportation and Warehouse Management Solutions” connecting in-vehicle sensors and other integrated devices over the network. This real-time tracking of data can enhance the efficiency of the system.
[C] Incorporation of Supporting Products and Services
Any product or service requires supporting products or services to sustain or enhance its defined life span. Eg – spares parts are always required for maintenance of automobile, warehouse management support is required to run the inventory based e-commerce. Consumers are always in need of these products or services once become user of main product. So it’s a good idea to incorporate these services in business model to provide more value to the consumers under the same umbrella and hence, to enhance the scope of revenue generation.
Approach to integrate such supporting services shall be as follow –
- First, add those services which require less resource utilization and can easily be recovered if anything goes wrong.
- Once the stability and acceptance of above services are visible, those shall be added which requires less development time.
- In parallel, services having high development time shall be established and merged in alignment with consumer demands.
For a simple business model of logistics, following services can be incorporated based on the above approach –
- Delivery planning and management solutions like optimization of delivery flow, tracking, and handling of missed or pending consignments are the service requiring less resource blockage and hence shall be incorporated to add more value to consumers.
- Inventory planning and management solutions like forecasting, consumer analysis, and Inventory allocation are the services with short development time if the required data is available to analyze. So, these services shall be added once consumers start showing interest in delivery management solutions.
- Other services like after sales support have high development time and resource utilization and hence shall be incorporated at later stage.
[D] Removal of Non-value Added Activities
Any step that doesn’t add any value to the final product is non-value added service/ step. Eg – Inspection activity of semi-finished or finished product at any stage is because of the system inefficiency and hence a non-value added activity. So focus shall be on system development rather than inspection improvement. These activities not only surge the cost of the product but also increase the production time. Removal of all such non-value added steps is essential to maximize the efficiency of system.
Value stream mapping is a lean-management method for analyzing the current state and designing a future state for the series of events that take a product or service from its beginning through to the customer. So, any step that is not adding any value to the final product shall be removed from the chain.
In the contemporary competitive world, it’s necessary to provide more and more convenience to consumer to remain ahead in the race. A business model that can handle all the needs of consumer under one umbrella will definitely have high probability of success.
Wish you luck for your startup. Stay tuned with FS for more updates.