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What business model pattern would a company like Zara - a vertically integrated clothing firm that controls retail, design, manufacturing, logistics, etc. of all their clothing - fall into? Their competitive advantage is in speed and time to market. They are able to translate customer intelligence (wants, trends, fashions) much quicker through their wholly-owned chain vs. the comp.
In my mind, definitely not unbundling, Free, or multisided in my mnd. That leaves Open and Long Tail. Open doesn't feel right - they are vertically integrated, though they seemed to be manically focused on the customer. Long Tail - but i don't think their value prop is selling less of more, per se.
Any perspectives here would be appreciated. I'm thinking there are a lot of vertically integrated firms with a similar approach.
A broader question - do most (if not all) business models fall into the five patterns?
I have to agree with Erwin, the patterns identified in the BMG are certainly not intended as an exhaustive list. These are some of the more common, and studied patterns in the current literature.
It's quite possible that Zara is typical of a different pattern. Are there other companies that display the same, or similar approach in structuring their business? If you could identify one or two, then next step would be to see if they share common traits. From that you may be able to identify a separate pattern to test against others.
Erwin, Mike, you are both spot on. The 5 patterns in the book were just an initial set of popular and new management concepts described in the business model pattern language.
Mike, your suggestion of identifying companies with similar business model dynamics is a great suggestion. Maybe we could draw a pattern for vertically integrated firms. Zara's distinction is that it is particularly good at managing the information flow along the value chain and adapting its collection accordingly in an extremely short amount of time.
In my industry, another example is Apple - the quintessential "vertically integrated" example. From Retail to Semiconductor design to software OS and Apps, they tightly control all aspects of the product. I think this is a key aspect to all vertically integrated firms - their control over all aspects of the value chain that are most important. Interestingly, they do not manufacture their silicon or devices - that is outsourced to TSMC or Samsung.
I remember reading Clayton Christensen say in regards to integration (conservation of integration)- that it is fluid. It moves in the value chain to those problems that are hardest to solve (and where un-coincidentally the profits are). Once those "hard problems" are solved (via standards), integration moves in the value chain to the next "hardest problem", and where the profits are/will be. That concept resonates with me.
So, IMHO vertically integrated models arise when there are hard problems that cannot be solved - that may be a general pattern. Their achillies heel appears to be scale - horizontal models usually do them in via scale advantage. But, with Zara, and Apple, this vertically integrated model really seems to be their comp advantage, where they are tackling problems that can't be solved otherwise. The Andoid battle with Apple is most interesting..Can the Honeycomb (and follow ons) OS really deliver an on-par experience with the tightly controlled experience of Apple's iOS/iPad?
Some interesting comments Rick.Your mention of the vertical pattern of Apple vs the scale pattern of Android makes me wonder whether we haven"t seen this integration battle play out before, historically, think Beta-VHS, Mac vs Windows computers.
The later example raises a point Alex has spoken to many times. I don't think Apple has changed a great deal of its integration philosophy from the time leading up to, during the departure of Jobs. Yet over that period the company lost a lost of ground, and were in difficult times.
The key, I believe, to the turn around in that company was the development and recognition of the 'environment' approach to go along with the high end design and quality of the products that became the ipod success. The effective integration and control of the product development and manufacturing is only part of the equation, the other part is the business model that extended the product to an environment. Would Apple have been so successful if the ipod was just another personal listening device with slick design and a much higher price tag than the Rio or the Walkman?
What is it that has made Zara so successful? Does their product development approach really give them that intangible, or hard to duplicate, advantage? If you can tease out what makes them significantly different from the customer's perspective, you can then test that out against other companies to see whether it is a repeatable pattern.
Hi Mike, Fantastic comments. Totally agree. Apple changed the business model with iTunes. There were MP3 players before Apple, that is for sure.
It got me thinking about whether that problem could have been solved without vertical integration. Could another (horizontal) company have done the heavy lifting of integrating the iTunes store, and running a perfectly seamless equisite music experience as Apple? Did it require this type of model?
For my day job, I've been focused on the new "tablet" segment - and the Apple iPad tablet experience has dominated so far. What is jumping out at me is they are the only one that has a real tablet that is seamless and equisite in experience - the horizontal Android makers are really struggling to keep up. They just can't make it work technically nearly as well as Apple's tightly integrated solution. It is right now at least, the hardest problem to solve, and Apple is solving it, i believe from their vertically integrated approach.
Great points on Zara. Your question (what makes Zara so successful) made me think of something Michael Porter said on strategy - "Fit locks out imitators by creating a chain that is as strong as its strongest link". It appears that Zara has created a chain (due to integration) that an imitator would have to replicate and beat the strongest part of the chain to have a chance to win. Zara's strongest link? I don't know specifically - but it might be the entire chain, and their ability to quickly communicate and drive market intelligence at a much more rapid pace than "horizontal" players. The hardest problem to solve may be the TTM dynamic has changed - everything is on internet time now, and firms must adapt to that speed, or die. A vertical approach may be just what is needed in that type of market - to solve that type of problem. It might drive other players to organize in this type of business model to cope.
Great suggestion on what Zara is from the customer perspective, and see if you can tease out from them what makes them better. I'll have to noodle on that one :)
Your question (what makes Zara so successful) made me think of something Michael Porter said on strategy - "Fit locks out imitators by creating a chain that is as strong as its strongest link". It appears that Zara has created a chain (due to integration) that an imitator would have to replicate and beat the strongest part of the chain to have a chance to win. Zara's strongest link? I don't know specifically - but it might be the entire chain, and their ability to quickly communicate and drive market intelligence at a much more rapid pace than "horizontal" players. The hardest problem to solve may be the TTM dynamic has changed - everything is on internet time now, and firms must adapt to that speed, or die. A vertical approach may be just what is needed in that type of market - to solve that type of problem. It might drive other players to organize in this type of business model to cope.
I think you have hit the mark.
This is innovative mind thinking and Quick decision making will also leads to serve better in the market.
A right business model have always contained right business approach to perform well in the businesses.
I are not aware of specifically. A right business type have always contained right business method to perform well in the businesses. This is innovative intellect thinking and Quick decision making will leads to serve better already in the market. A right business type have always contained right business method to perform well in the businesses.
Also I `m interested how they make the delivery of products for international markets or maybe they just have their own factories which produce the clothes for their local Zara markets?
Business model innovation is the new strategic imperative—by now, this is becoming more generally acknowledged. But companies routinely fail at self-reinvention because they are so busy pedaling the bicycle of their current business models they leave no time, attention, or resources to design, prototype, and test new ones. Even where investments are made in innovation, those efforts are focused on new products and services delivered through today’s business models and on making the current models operate more efficiently.