1. business and industrial

CHAPTER 2
THEORETICAL FOUNDATION
2.1
BUSINESS MODEL CANVAS
Osterwalder, Alexander (2010) defined that business model is a business
model that describes rationale of how an organization creates, delivers, and captures
value. It’s like a prototype of strategy to implement through organizational structure,
process, and systems. The business model contains of nine basic blocks, value
proposition, customer segments, customer relationships, channels, cost structure,
revenue streams, key activities, key partnerships, and key resources. In this thesis,
business model canvas will be used as basic foundation for the business.
2.1.1 VALUE PROPOSITION
The Value Propositions in business canvas is an overall view of a firm's
bundle of products and services that together represent value for a specific customer
segment. It describes the way a firm differentiates itself from its competitors and is
the reason why customers buy our products or services and not from another. Value
proposition can help company sustain from the competitors and the business not
easily to be copied by competitors.
A Value Proposition creates value for a customer segment through a distinct
mix of elements catering to that segment’s needs. Values may be quantitative (e.g.
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price, speed of service) or qualitative (e.g. design, customer experience). Factors or
elements to create value including: newness, performance, customization, getting the
job done, price-provide lower price with same quality, cost reduction by helping
customer reduce cost, risk reduction, accessibility- provide the product or services to
new customers, convenience/usability-make things easier to use or more convenience
for customers.
2.1.2 CUSTOMER SEGMENTS
Customer segments define a number of different groups of people or
organizations which we should aim to reach and serve. The intent is to create the
foundation for a relevant value proposition where the products match customer needs,
a adjusting pricing and discount schemes, service offerings attracting and keeping the
relevant customers loyal; for an adjust the go-to-market approach in order to utilize
the best use of a multichannel approach, to optimize sales efforts across the full
customer journey and to align marketing and messaging toward out target customers;
customer segmentation is grouped with specific ways relevant to marketing, such as
age, gender, interests, spending habits and so on.
Customer segmentation allows a company to target specific groups of
customers effectively and allocate marketing resources to best effect. It is an
important part of the theory of Customer Relationship Management (CRM), but also
is an important management tool.
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Customer segmentation procedures include: understand what customer needs
by collecting integrate data from various sources; developing methods of data
analysis for segmentation to group customers; identify most attractive segments;
develop unique value propositions by segment; develop unique go to market
strategies by segment.
2.1.3 CUSTOMER RELATIONSHIPS
Customer relationship in business model canvas is a relationship that been
establish by company with each customer segments. In business model canvas,
customer relationships are categorized into customer suggestion box and loyalty
program. Customer can give any suggestion and opinion related with the company
products and services which from the suggestion, the company will become better in
the future. Loyalty program will make the relationship between customer and
company keep maintain, customer will get information about company new products
and services, besides that for customer that celebrating birthday will get birthday card
from the company.
2.1.4 CHANNELS
Channels in business model canvas are about how the company communicates
with and reach the customers to deliver the company’s value proposition. Channels
have function as customer touch point and have important role for customer
experience. With channels, it will help customer to purchase some specific services or
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products that they want. Channels in business model canvas are divided into two
types, direct and indirect. For this thesis, the channels that will be used are
combination of direct and indirect types.
2.1.5 COST STRUCTURE
Cost structure in business modal canvas means all expense and cost by
operating a business, in order to minimize the cost to be competitive in the market,
there are two cost structure, fixed cost and variable cost, besides that includes cost
driven, minimize the cost as low as possible to create and maintain the most
economic cost structure by maximizing the automation and widely outsourcing.
Fixed Cost, cost that doesn’t change because of the quantity of production or services,
such as rental fee. Variable Costs, cost changes in proportion of quantity, such as
electricity or water fee.
2.1.6 REVENUE STREAM
Revenue stream in business model canvas describes how the company
acquires the money from its customer segment. The streams are basically the result
from company’s value prepositions that successfully delivered to its customers.
According to the theory there are several ways of generating the revenue streams,
such as by selling company’s assets; acquiring the usage fee or subscription fee;
leasing/renting company’s particular asset for a period of time; giving its customers
permission to use company’s intellectual property (known as licensing); deriving the
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brokerage fees; or earn revenue by advertising particular product, brand or service.
For this thesis, the revenue streams that will be acquired are from selling products,
renting services, and touring.
2.1.7 KEY ACTIVITIES
Key activities in business model canvas is the most important thing that a
company must to do In order to ensure that its business model viable. Key activities
like key resources, it is a foundation to create and deliver critical business value
proposition, to maintain customer relationships, to access to markets, and acquire
basic income. Platform/network activities including networks, matchmaking
platforms, software, and even brands can function as a platform. Key Activities in
this category relate to platform management, service provisioning, and platform
promotion.
2.1.8 KEY PARTNERSHIPS
Key partnerships could be distinguished into four types, such as strategic
alliances between the company and another or more non-competitors firms that have
the same interest on creating an alliance for catch the collective and sustainable
benefit; joint ventures strategy which combine different connections and resources to
develop or build new business; co-opetition (cooperative-competition) partnership
which means an alliance between competitors to benefit each other; buyer-supplier
relationships that create reliable supplies.
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According to the business model canvas, there are three types of motivations
for creating a partnership, that is optimization and economy of scale partnership
(usually formed to reduce cost); reduction of risk and uncertainty (partnership can
help reduce risk in a competitive environment characterized by uncertainty);
acquisition of particular resources and activities (partnership can be motivated by
needs to acquire knowledge, licenses, or access to customers).
By having partnership, enterprise will be able to combine its talents, resources,
knowledge and assets to build a stronger business model. In this thesis, the company
will use the strategic alliance to create reliable partnerships with the bicycle supplier,
that make the company and the supplier have a good service level agreement and give
a chance to the company to sell various types of bicycle.
2.1.9 KEY RESOURCES
Key resources in business model canvas is describes the company resources
that allow to create or offer a value proposition to customers and earn revenues. For
the key resources, it can be physical, human, financial, or intellectual. Besides that,
key resources also can be owned by the company itself, acquired from key partners,
or leased, it depend on the type of business model that used by the company. In this
thesis, the key resources that used by the company are owned by the company,
especially for the physical resources and human resources, for physical resources that
needed for this business model is like land, building, equipment, and bicycle.
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2.2
INTERNAL ANALYSIS
Osterwalder, Alexander (2010) the internal analysis provides four
perspectives from which to assess the elements of a business model, while the
business model canvas provides the focus necessary for a structured discussion.
The internal analysis is going to reveal the company most important
weaknesses and strengths. It’s actually like an honest appraisal or true evaluation of
company services, operations, environmental analysis and also provides a strong
foundation for creative strategy development. The results of the internal analysis will
be matched with the key success drivers revealed in the industry analysis.
A well-defined internal analysis will obviously give the business a good sense
of its basic competencies and the desirable improvements that can make to help meet
the requirements of potential customers within its intended market. The capability
and the resources are the strengths of any organization. If we talk about the strengths,
then the uniqueness ideas of products, services and differences atmosphere are the
powerful strengths of the business.
In this thesis, the goal of the business is to provide bicycle store that customer
can get the product information with easy and reliable, besides that to create a place
for customer to gathering and comfort that make the customer. Tool analysis that will
be used for this thesis is TOWS analysis.
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2.2.1 TOWS THEORY
Weilhrich (1982) TOWS analysis is a tool to analyze situational from external
and internal company. TOWS analysis is another variant or the opposite from SWOT
analysis which SWOT analysis is tool for companies that have existing business and
want to make a strategy for expanding, improvement for the products and services, or
keep exist from the competitors based on the strength that the company already have.
For new business or companies that want to launch new product or services, it’s
better to use TOWS analysis tool to make a company strategic, because TOWS
analysis allow the company to analyze the external factors first, then make strategic
to overcome or minimize the external factors.
TOWS analysis based on two types of analysis; external analysis and internal
analysis. External analysis is covering the T for Threats and O for Opportunities in
TOWS analysis, while internal analysis is covering the W for Weaknesses and S for
Strengths. The purpose of TOWS analysis is the company must know and understand
about the threats for their business, then see the opportunities from external
environment, after that define the weaknesses based on the threats and opportunities
and in the end decide the strength that company must have to overcome the
weaknesses, minimize the threats, and maximize the opportunities to expand the
business. TOWS analysis can help company to generate strategic options that can be
implemented for the future.
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2.3
EXTERNAL ANALYSIS
External analysis is needed to analyze the external environment and external
factors that will help the company to make decision or strategy for the business.
Based on external environment and external factors, company can know their position
and can decide direction for the future business. By understanding the external factors
and external environment, company can generate strategic options for face the
challenge to expand the business from external like culture, economic condition,
regulations, and technologies. To do external analysis there are some tools that can be
used like game theory, five porter forces, or PESTEL to determine the external
factors. For this thesis, analysis tool that will be used for external analysis is PESTEL.
2.3.1 PESTEL THEORY
PESTEL analysis is a tool or framework that used to analysis the external
environment and factors for the business, its help reviewing a position or strategy and
company direction in the future. Besides that, the tool can help to identify and
analysis the changes of the current and potential changes that will affect the business.
PESTEL analysis also can be used to identify potential of a new market.
PESTEL means Political, Economic, Social, Technological, Environmental,
and Legal.
Political means political factors internally or externally in the country that will
affect the business, the stability political condition and environment can help to
design companies strategy, example of political is tax policies.
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For this business, Indonesia government showing their support for Indonesia
bicycle industry by creating car free day program that purposed for socialization
to Indonesia citizen to not too depend on motorcycle or car and minimize the
environment pollution.
Economic means economic condition or direction of the country that will affect
the business, economic condition can help company to determine the short or long
term strategy, example of economic is inflation rates.
Based on Indonesia Investment, from 1998 – 2013 Indonesia GDP keep
increasing every year which in the last 3 years, the average was 6 % with 7
million people every year became middle class people, from Indonesia economic
condition, it had an opportunity for bicycle industry.
Social means social factors which represent every country different culture and
mindset that need to be consider when build a business strategy, especially for
company that new entering the market, example of social is social classes or
living conditions.
Currently in Indonesia with the high awareness of healthy life, people try to
search sport activities, one of sport activities that been choose by people is riding
a bicycle. Bicycle itself in Indonesia not only as sport tool, but also has become a
lifestyle for people, in big city, many people went to office using bicycle and
create community like bike to work.
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Technological means technology factors that will influence the business,
technology can help on process improvement, creating new products or services,
and improvement existing product, example of technological is mobile commerce.
Technology in bicycle had been improved, it can be seen by electric bicycle
which make bicycle become a popular transportation for travelling and bike
sharing system that help people to rent bicycle with simple payment system.
Environmental means location or geographic factors that will influences business,
a good location or choosing geographic will impact to the business growth and
market, example of environmental is waste disposal.
Java islands which have a various bicycle communities like in Central Java that
had hundreds of bicycle communities will become opportunities for this business,
besides that the geographical of Java island that had many mountain, make Java
island a perfect place for people that like riding bicycle in nature.
Legal means all legal aspects that will affect the business, the different between
political and legal is political refer to attitude and legal refer to rules that become
law, example of legal is regulations. Indonesia had regulation for car free day that
published by Jakarta’s governor (Peraturan Gubernur Nomor 119 Tahun 2012
tentang Pelaksanaan Hari Bebas Kendaraan Bermotor) that later been followed
by another city in Indonesia.
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2.4
BLUE OCEAN STRATEGY
According to Kim, W.Chan and Mauborgne, Renee (Blue Ocean Strategy, pg
29) “There are four actions framework to reconstruct buyer value elements in crafting
a new value curve”. The four actions framework will help the company to create their
business to keep compete with their competitor. The four actions framework is
consist of four questions that challenge company’s strategic logic and business model.
The four questions are:
Which of the factors that the industry takes for granted should be eliminated?
It means the company must consider eliminating factors that the company has
long competed on.
Which factors should be reduced well below the industry’s standard?
It means the company must determine whether the company’s products or
services have been losing to the competitors.
Which factors should be raised well above the industry’s standard?
It means the company must uncover and eliminate the compromises that the
company forces customer to make.
Which factors should be created that the industry has never offered?
It means the company must discover new sources of value for customer that
create new demand and strategic.
In this thesis, based on the four actions framework the company tries to analyze and
create a new value in bicycle industry.
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Table 2.1 ERRC Matrix
Reduce
Raise
Hardcover catalog
Easy to access product information
Bicycle display
Nature bicycle track
Individual bicycle rider
Customer engagement
Passive seller
Eliminate
Create
Focus on one business
Kiosk information
Shopping center
Membership
Big city view
Place for gathering
Touring bicycle