We are living in the time when everything is changing faster than we can adapt to. New technologies, events, researches are emerging almost every day leaving behind those that were created yesterday. We are looking forward new solutions to the issues of our lives and want everything to be up-to-date. Companies are inventing new ways to attract the clients, reducing the price, improving advertising and making their production highly competitive. In this case disruptive business models occur.
Disruptive Business Models
Disruptive business model uses innovative technologies that offer new versions of existing products. They are easy to use, cheap and do not necessarily have a high quality. Usually their production implies lower profitability and earnings (Harvard Business Review, 2015). Since companies are wishing to produce profitable new products, the success of disruptive technologies is often prevailing in the market for large companies as a complete surprise. The company's success is often the main cause of subsequent errors. They often suffer, because those are the best management practices that enabled them to become leaders in the industry to prevent them from developing disruptive technologies that ultimately steal their markets.
Disruptive business models are usually the result of some technological innovation that creates new products or services that can replace existing technologies and changing market dynamics. The concept of strategic inflection point is much broader, as this phenomenon may be caused by non-technological factors or events. However, both of these events have the potential to almost instantly derail any company.
Model of direct retail sales of Dell with a completely new logistics and efficiency of business operations enabled the company to displace such giants like Compaq and Hewlett-Packard from the market (Harvard Business Review, 2011). The company's strategy was a typical case of disruptive business model based on the lowest segments of the market. It was believed that these computers were of poor quality. Even the students, who receive a scholarship at Harvard University, had to get a special permission from the authorities to spend part of their scholarship to buy a Dell computer, rather than the more respectable brand (Harvard Business Review, 2011). Now Dell computers are the top ones and most of the departments at Harvard Business School are equipped with them.
Another source of disruptive innovation is contributing to the so-called technology. Instead of changing the functionality of the product or the process, promoting disruptive technologies allows the company to implement the strategy more quickly and use the time as a source for a competitive advantage. Information technologies facilitate the exchange of information between different actors and help to build the value chains. Closer communication speeds up business processes from product development to supply chain management. Although they are the least noticeable to consumers, contributing to changes in technology, such as information technology can play a very important role, as they help to make the best decision and to ensure financial management. For example, Wal-Mart has introduced important changes in their information management technologies that contribute significantly to the improvement of its ability to monitor and treat their partners, supply chain and finance (Lutz, 2016). Now the dominant retail, Wal-Mart, uses commercially available technology of computer communication to maximize and integrate its supply chain with suppliers, thus creating a new business model with a considerable cost savings.
After the fall of profits in the second quarter of 2015, Gap announced the transition to a new business model (Schlossberg, 2015). In this case, there should be mentioned the so-called "fast fashion". For Gap, this model is not new, but until today the American retailer has not yet implemented the fast-fashion in its purest form.
One of the biggest omissions Gap had was the fact that the design of a new line of clothing had too long "reach" for the clients. There has been too long delivery to the stores and the logistics was rather complicated. As a result, the collection is not updated as quickly as needed. Moreover, these models have been rather scarce. Buyers often complained about the lack of an assortment, of bright colors and suitable models (Schlossberg, 2015).
Gap CEO said that in the spring of 2016 the company will begin to test the fast fashion in its purest form (Schlossberg, 2015). At the beginning a few brand stores will sell a small collection under this concept. Gradually, their number will increase as well as the demand for such goods. Gap has also declared on the optimization of their business. In particular, it was announced the closure of 175 loss-making stores in the US and Europe (Frobes.com, 2016).
Once a customer has passed the guard post, he/she is excited at the sight of models collection: I want everything at once. The secret of the store’s success is simple: speed. At Zara each collection was produced in record time, and as late as possible, for a full hit in fashion trends. In addition to traditional seasonal collection, the brand specializes in the manufacture of clothing, produced in small batches with constantly updated models that never repeat again (Schlossberg, 2015).
Most of Zara production is concentrated at in Europe, thus allowing a quick response (Ruddick, 2014). In addition, if a model is not in demand, it is immediately removed from sale; created fashions immediately are tried on mannequins, and a little further they are maintained in the shooting studio for look books or online store. This way, there are practically no unsold stocks in warehouses.
There is no art director: stylists are working side by side with a single purpose - how better to meet the needs of the customers. Despite the fact that at Zara any mention of the word "copy" is an absolute prohibition as there are no direct copies from haute couture, many customers have obtained 50 euros pants that are so reminiscent of the model from the latest collection of Céline or Prada.
ZARA vs. GAP
Gap and Zara are the two biggest rivals in the business. While Gap has been supporting the standard model for the business, Zara has a disruptive model which is shaking up the whole business. Zara can go from an idea to an item prepared to dispatch in 2 weeks while for GAP it would really take 9 months (Ruddick, 2014). Zara had added to the three levels of ads which it used to perceive the necessities of clients rapidly and adjust while Gap's nine months are quite a while in the hyper aggressive style industry. The style business is always showing signs of change and Zara has perceived this, the design business continues changing on various components, for example, customer practices, the design business which is difficult to foresee and impact, and tastes frequently change. Fashion is additionally affected by what famous people wear. The low measure of stock pulled in clients all the more frequently each year, significantly more than the normal measure of times clients visit other retail locations. One of Zara's key strategies for manufacturing is to take care of danger was just little amounts of all things so they could minimize their imprint downs which counterbalance their higher generation costs in Spain, Portugal and other neighbor countries. Gap is basing its production in the Third World countries like China and Bangladesh (Ruddick, 2014). The assembling was truly done in sweat shops where work expenses were to a great degree low so they couldn't generally promptly change their plans. Zara then again put resources into substantial computerization and could complete mass customization at the same time taking care through an exceedingly complex underground monorail. They additionally charged lower costs than their rivals while keeping up a top of the line search for both stores and their garments so it was truly alluring for clients.
Why ZARA’s Business Model is Disruptive?
The strong players in the fast-fashion today are Zara, H&M and Forever 21. According to experts (Schlossberg, 2015), Gap will have to work hard to catch up with the giants of "fast fashion". Zara lightning respond to new design ideas and key collection on the world's major fashion weeks and remove them to the mass market. Just in this case the Gap is significantly lagged behind their competitors.
As Zara has an extremely high speed in producing its clothes there is a great amount of work to be done for its employees. It is not an easy task to combine the high quality with the high speed of production. Even though, some of Zara’s production has moved to Asia there is still a lot of work for the employees of Zara all over the world.
Zara’s business model is disruptive because they have completely innovative ideas, concerning production, retailing and marketing strategies. Moreover, Zara’s approach to managing the inventory twice a month and selling new collection every two weeks allows it to take the leading position in comparison to long-lasting Gap retail. Zara is always ready to respond to the fast changing customer needs and tastes.
What Business is ZARA in?
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Schlossberg, M. (2015). This Spanish retailer with the 'best business model' in apparel is scaring Gap, Abecrombie & Fitch, and J. Crew. Business Insider. Retrieved 31 January 2016, from http://www.businessinsider.com/zara-has-the-best-business-model-2015-12
Harvard Business Review,. (2011). Can HP Change its DNA?. Retrieved 3 February 2016, from https://hbr.org/2011/10/can-hp-change-its-dna/
Lutz, A. (2016). Walmart's entire business model is crumbling. Business Insider. Retrieved 3 February 2016, from http://www.businessinsider.com/challenges-to-walmarts-business-model-2015-10
Forbes.com,. (2016). Forbes Welcome. Retrieved 3 February 2016, from http://www.forbes.com/sites/greatspeculations/2015/06/18/gap-incs-to-close-175-gap-stores-in-an-effort-to-boost-its-profitability/#70f32bff26eb
Ruddick, G. (2014). How Zara became the world's biggest fashion retailer.Telegraph.co.uk. Retrieved 3 February 2016, from http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/11172562/How-Inditex-became-the-worlds-biggest-fashion-retailer.html