Navigation Menu+

Zara business model

The soft underbelly of business model innovation

busmod2By Nicolai Foss

Business models have become important tools in the top-manager’s toolbox. A business model is the articulation of the logic by which a business creates and delivers value to customers. It also outlines the system of revenues and costs that allows the business to earn a profit. It is both a map—i.e., a mental representation—and the real structure of the company’s internal and external activity systems.

However, in spite of more than a decade’s interest in business models and the innovation, their specific leadership and organization design challenges are only beginning to be understood. What is specific about these challenges is that top-management needs a map of the existing business model and the one it aspires to implement and execute, and a plan of how to get there. Moreover, business models can be very complex systems, with many interlocking elements, requiring coordination. Hence, business model innovations are truly major organizational change projects.

busmodThe one element highlighted by company communication may be, if not by any means unimportant, then an element that only becomes successful when it is properly linked to the other elements of the business model. For example, Zara’s fast fashion business model rests on the tight integration of imitative design, short product life cycles, flexible manufacturing, efficient logistics, and cheap prices.

This becomes salient when firms seek to innovate their business model. The degrees of freedom are far from unlimited. Zara’s ability to innovate is constrained by the current set of elements in place. Changing any of these elements will have ramifications for the entire system. The general point is that what Company X does to business model element a has implications for what it can do to business model element b, and perhaps c, d, etc.

Related Posts