Business Model Assessment

Jul 2, 2018
folder_opencategory: Business

Introduction

Due to dynamic nature of the world today, every person needs to constantly change and align himself/herself to the changes in the present. The same case apply to firms, they need to be responsive through varying factors of production as well as their structures in order to remain relevant to the current needs of the world (Drucker & Maciariello, 2008). Firms achieve this through improving their effectiveness in terms of their business and organizational structure. The current paper looks into the canvas model of Volkswagen Company (VW).

The responsibility of thriving for any firm rests squarely on managers as they are the ones who design changes and lead companies through them. For this reason, managers need to have effective assessment tools that are utilized to diagnose the effectiveness of firms’ processes and procedures compared to what was envisaged originally. As seen before, a firm could be in the right track as planned but still need to improve, especially due to changes in the environment. Managers at all time need to determine the effectiveness of their management style and their personal abilities, in order to ensure that a business is running continuously and is making profit. This gives feedback to management that style adopted is effective. One tool that is used to determine the above is a business canvas model. This describes the interplay of various factors in a business and is used for comparison from one time to another.

The tool called the business structure model describes the reasoning behind how firms chose to generate, convey and also retain value. Value, in other words, can be viewed a as admiration that a firm receives from society when it is able to create utility. A firm is said to be able to generate utility if its products are able to satisfy needs or wants of society at an acceptable level. If a firm is able to achieve this, then it will survive as society will support it through buying its products at a profit (Epstein, Freer & Roberts, 2002).

VW is one of the leading motor vehicle manufacturers in the world. It was ranked third in the year 2008 after the giants Toyota and General Motors (GM). This company is projected to clinch the top of the motor vehicle manufacturing in quantity by the year 2018. It has a canvas model that has enabled it to raise this far as it is the most promising motor vehicle manufacturing company in the world. The existing statuses of the building blocks in the canvas model of the VW will be discussed. Additionally, various flaws as well as the recommended response will be discussed in details in the following paragraphs.

The Canvas Structure of VW Company

Customer Segment

The customer segment as building block of a canvas model refers to the groups of people as well as organization that a company hopes to serve. Any business is created to serve the needs of customers since they are a very crucial in the survival of any firm. Regardless of the quality and the quantity of a product that is produced by a firm, a firm will make loses and close if customers do not purchase products. Although this vehicle manufacturer was created to develop cheap cars to serve the needs of Germans, it has evolved to produce a wide range of products aimed for the global middle class as well as the high class. It has successfully segmented its market and has gone ahead to make vehicles for all groups bearing in mind each groups specification, tastes and preferences as well as their financial abilities. The vehicle models in each category are as distinct as possible. However, the firm has deliberately ensured that there is maximum possible sharing of parts between the models for maximum productivity (Wright, Machin, & TV Choice Productions 2004).

This block of model canvas seems to be working well and might not need to be varied a lot. However, there has been a general observation that the brands for mass markets are very low in quality in the US market. This might need reevaluation of the American market so that it is segmented again such that VW can continue boosting its sales. There is a need to focus on the US middle class and produce vehicles for this class (Epstein et al, 2002).

Value Proposition

This refers to the package/bundle of products that generate value to each segment of customers. In the case of VW, it refers to all components that are grouped together such that a buyer can buy a vehicle as a unit. For instance, each market segment will require a product be presented or sold in a package with several items. A car buyer may need a car to come with insurance services, repair and maintenances packages, after sales services such as shipping among others. This attracts a buyer to move to a particular producer than the other.

VW Company has been able to cater for value proposition in ensuring that there is a local franchise or a subsidiary of VW in almost every market. This caters for sale, repair and maintenance of vehicles bought from this company. This form of value proposition is helpful and makes buyers to choose VW as they are assured to a considerable extent of maintenances as well as availability of parts.

For the segment that purchases commercial vehicles, the company offers a variety of bodies as well as some fittings that will enable commercial vehicles to perform well under various circumstances. In some market segments’, the VW Company offers financial services to dealers such that they can be able to advance their vehicles to various buyers on higher purchase or leasing. This ensures that dealers are not forced out of the market as company continues retrieving its money from the final buyer. This helps in catering for the specific needs of each segment in a way that each segment will find the product available, accessible as well as able to meet the needs of each buyer (Staib, 2009).

Channels

Channels describe the ways and means in which the firm is able to communicate to consumers or potential buyers. This also enables the firm to deliver its value proposition to consumers. VW has various channels through which the value proposition gets to buyers. As seen early, this firm has an assembly line in or close to every market where the product is finalized and delivered to buyers. These points act as the contact points between buyers and the company. Additionally, it is from these points that buyers get after sales services and also share after sales costs such as maintenance among others. Through such points, a customer is able to evaluate the value proposition and compare with others in the market.

VW Company can achieve more by ensuring that its channels are not only utilized to deliver products to the market and should include collection of product information. Such centers have been traditionally utilized only for purchase of products; however, they can be applied to formulate friendlier customer relations such that customers and the company can establish friendship which will make buyers freer to contribute to the product development. This does not happen in these centers and instead, the company conducts formal research to identify what potential customers would need before designing a new product which is expensive.

Customer Relationship

This is the fourth most crucial building block in the business structure. It refers to how the market segment relate with the company. It involves the company being proactive and taking measures that encourage promotion of familiarity and friendship between the company and the market segments. VW Company through its subsidiaries and various sellers’ outlets is able to meet with its customers who buy their vehicles. However, in most cases, it does not have a robust customer relation centers and this role is left to dealers everywhere. The company needs to build robust customer relation points where buyers can develop a personal or automated relationship with the firm. This can be essential in boosting sales through promoting loyalty among customers (van der Aalst, Benatallah, Casati, Curbera, & Verbeek, 2007).

Revenue Streams

This refers to how a business makes it money out of each customer segments. It can be viewed as a means of collecting profit. The amount in each stream is obtained when costs are subtracted from the amount obtained from selling to each customer segment. Through determining this, the company is able to get the spending power of each segment and can be able to establish other revenue stream (s), for instance, if a firm realizes that a market segment has a very high purchasing power and have purchased the maximum units of one product, the company can go ahead and design another product that it feels could be appealing to the same group and present it.

When the VW company realized that it had sold almost the maximum units of VW Polo and Bentley in the US market, it went ahead to develop VW Skoda and Bugatti Veyron. These were other revenue streams it developed. VW has a product for many market segment as well as revenue streams in the world. Some of these streams bring in one stop revenue when a product is sold on cash basis while others bring in revenue continuously when a product is sold in hire purchase, leased out among others (van et al, 2007).

In the developing markets such as India, VW has not been able to capture significant proportions of this market. The market is controlled by Suzuki, which sells 50% of vehicles. One of the challenges was price of the vehicles built by VW. In order to capture this market, VW can work on developing cheap units for this market segment to boost sales and therefore, create a revenue stream. Additionally, VW can also develop another revenue stream in India and other populous markets by financing businesses and individuals that wish to purchase their vehicles. Buyers can repay these loans as time advances and as their business makes profits. All these are the ways through which VW can get more units bought and as a result, have a larger revenue stream.

Key Resources

This block can be seen as describing the factors of production needed by a firm to produce. However, it includes all assets (material and none material) that are required to make the business structure work. They include all the factors of production and resources that enable the movement of a product as well as its information to the market and also the movement of revenue back to the firm (Ananthan, Appannaiah, & Reddy, 2010).

VW requires very large quantity of high quality steel. This is readily obtained from Germany steel companies, which have over 150 years of experience in refining steel. The company also taps the centuries old German workmanship in steel work and dyeing for production of vehicles. In the old European and the US market, the distribution chain is well established and customer segments are also established which generates enough revenue streams unless during recessions.

Due to these, the company is able to develop and deliver value proposition to the market. VW does not seem to have much issue with this block and it can remain as it is. The company is also integrating the recent technology in its value proposition. Such include intelligent lights, GPS assisted navigation, establishing companies pages in the social media among others.

Key Activity

This refers to the core business activities of the company. This is involves the actual making of the products. VW Company is involved specifically in vehicle manufacturing as well as financial services. Vehicle manufacturing is achieved through development of vehicles while financial services occur through investing in other companies as well as buying them (Schermerhorn, 2008).

In the key activities, VW can offer financial services to the emerging markets aimed at improving accessibility and affordability of its products. These financial services can include loans to organizations wishing to buy VW vehicles but lacking finance. In the long run, this will increase revenue streams for the company.

Key Partnerships

This block explores various strategic relationships that a business makes with suppliers and partners. A firm can form such relationships with suppliers, competitors, enter into joint ventures or buy suppliers. VW has formed partnerships with Porsche, which begun as its subsidiary by buying nearly 50% of Porsche shares. However, VW does not seem to be eager in forming partnership with any other firm but it prefers buying them. This has been seen through attempted acquisition of Porsche and Suzuki, Audi and Lamborghini. This happens due to the confidence that VW has in its CEO. However, this can be risky as the company does not have anyone to share risks with. In case of a loss in any of the markets, VW would absorb the whole loss alone which would not be desirable. Although buying other companies pools together with the technologies of all the acquired firms, VW should get a way to share risks in cases of turbulent markets (Gutek & Welsh, 2000).

Cost Structure

This refers to all costs that are incurred in running a business. They include the cost of all factors of production as well as costs used to ship products to the markets and the cost of maintaining customer relationships. VW incurs all these costs in the manufacturing of vehicles and delivering them to the market. Additionally, a good customer relationship is forged through the factory or dealers. Additionally, VW also incurs cost in research and also buying of innovations in order to improve its value proposition. The cost structure of VW seems to be working. Since the financial challenges in early 1990s, VW has grown through innovation and is projected to be the leading vehicle manufacturer by the year 2018 (Ananthan et al, 2010). It aims to achieve this through further market segmentation in order to develop more revenue streams. This will also happen through acquisition of other manufactures wherever possible. Additionally, VW also hopes to adopt further cost cutting technology in addition to parts sharing that will further reduce the cost of production and therefore boost the margins.

One aspect of cost structure that VW Company should adopt is spreading out the risk through ensuring there is financial independence of the subsidiaries such that the mother VW Company does not own everything. This will ensure that each unit is more innovative and also that the financial risk is well spread out.

References

Ananthan, B. R., Appannaiah, H. R., & Reddy, P. N. (2010). Business management. Mumbai [India: Himalaya Pub. House.

Drucker, P. F., & Maciariello, J. A. (2008). Management. New York, NY: Collins.

Epstein, D. G., Freer, R. D., & Roberts, M. J. (2002). Business structures. St. Paul, Minn: West Group.

Gutek, B. A., & Welsh, T. M. (2000). The brave new service strategy: Aligning customer relationships, market strategies, and business structures. New York, NY: AMACOM.

Schermerhorn, J. R. (2008). Management. (9th ed.). Hoboken, NJ: J. Wiley.

Staib, R. (2009). Business management and environmental stewardship: Environmental thinking as a prelude to management action. Basingstoke: Palgrave Macmillan.

van der Aalst, W. M. P., Benatallah, B., Casati, F., Curbera, F., & Verbeek, E. (2007, January 01). Business process management: Where business processes and web services meet. Data & Knowledge Engineering, 61(1), 1-5. doi: 10.1016/j.datak.2006.04.005

Wright, P., Machin, C., & TV Choice Productions. (2004). Business structures. Bromley, Kent: TV Choice.

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