A 1 + page discussion is describing disruptive business models. You should use examples of companies that have introduced disruptive business models to help with this description; like Dell Computer, Walmart, Southwest Airlines or perhaps Apple.
Disruptive business model refers to any business innovation, which creates a new market and value network for a company or a product and in so doing, disrupts the existing value network and market (Shaughnessy, 2016). This consequently displaces established markets, products, and leading firms. The term was coined by Clayton M Christensen in 1995 and has since been used to describe disruptive phenomena on an existing market. Many software companies have embraced the concept of disruption through the creation of apps for on-demand and lived content consumption. In response to this disruption, existing software companies have responded through the creation of effective and useful apps relevant to the consumer demands.
Disruption exists in two categories, the first being low-end disruption which targets consumers who do not place emphasis on quality or performance demanded by consumers at the high end of the market. Usually, this type of disruption aims at coming up with an already available product at a price lower than what is already on the market. On the other hand, the new market disruption is another form of disruption where customers who have needs which were previously not addressed by exiting markets are the main target. This is particularly common in the fashion market where an emerging company may decide to focus on fashion for the elderly because the existing fashions target only young people.
Many successful companies have come up with disruptive business models to overtake already established businesses and to keep up with their competitors within a given market. One such company is the Southwest Airlines. This Airline company aimed to break apart from previous arrangements in the Airline Industry and introduce a new arrangement in the industry (Diaconu Maxim, 2012). By so doing, the Airline Industry concentrated on lower costs of flying and based its competition on ground transportation rather than already existing airlines. Southwest Airlines emphasized on short distance flying as opposed to long distance flying which most of its competitors were engaging in at the time. The company's disruption strategy came in the form of operational cost reduction that allowed it to become a cheaper alternative to most passengers. This strategy was however not very effective until the company invested in effective aircraft which would ensure a reduction in its fuel costs. Southwest Airlines has since managed to become one of the leading airline industries in the United States.
Apple, one of the leading technology companies in the world has over the years employed a disruptive technology model to maintain a lead in the technological market. The company has recognized the importance of an advanced, more personalized software technology. The company has established a cloud-based solution (i-cloud) with an aim to create a mental, physical and emotional experience with its customers without infringing on the privacy of its customers. This strategy also allows Apples' customers to decide for themselves the role that company in their lives ("Four-Closure: How Amazon, Apple, Facebook & Google Are Driving Business Model Innovation," 2012). Apple's advanced and personalized technology has disrupted the technological industry and has placed it ahead of its competitors. To date, Apple remains a role model company in the technological field.
A summary description of Gap's approach to the apparel manufacturing and retail business. Gap, in this case, is a proxy for the industry business model.
Gap, an American global clothing, and accessories retailer have become one of the leading clothing retailers in the fashion industry. The company has particularly emphasized on low production costs, which is achieved through manufacturing offshore. This ensures that the potential risks such as fashion misses are effectively offset. The company has also clinched a lead through geographical and brand expansion. The number or retailer Gap retailer stores increased by 2060 in 2014 alone. Moreover, the company grew across multiple brands such as Old Navy, Piperlime, and banana republic thus representing different market niches.
Description of Zara's approach to the apparel manufacturing and retail business.
Zara's key to success lay in linking fashion design to manufacturing and distribution in a way that allowed for a rapid response to the customer needs. This approach led to the rapid growth of the company over a short period. The company emphasized on manufacturing new clothes within a short period and in limited amounts to avoid risks and at the same time to serve their customer's constant need for changing fashions (Daniel, 2015). The company also emphasized on a decentralized decision-making process that allowed it to thrive in an already competitive fashion industry. The company promoted innovation amongst its members. This innovation ensured that Zara could stay ahead of its competitors in the fashion industries. The company took into consideration all types of fashion for all ages and sizes. This maximized its potential for customers who felt left out in the fashion industry. Unlike focusing on what its competitors were doing, Zara set out to do things differently and to set a standard in the fashion industry.
Unlike its competitors, Zara manufactured locally, making its production costs higher than that of its competitors who manufactured offshore. It however created demand for its products by keeping up with the changing demographics and urbanization, ensuring that it was ahead in the fashion world. As a result of its ability to offer a variety of fashions within a short period, an average customer visited the store seventeen times each year unlike in competitor stores where an average customer could visit three times every year. To manage production costs, Zara focused on fabricating apparel, which had a short life span and would, therefore, increase the frequency of customers at its retail stores (Daniel, 2015). This also served to reduce the overall cost of production.
Zara differentiated itself from its competitors by establishing defining competencies that its competitors did not possess. One of these competencies was time to market where the company would move from designing a fashion trend to manufacturing it within two weeks establishing it as a leading fast fashion industry. Besides time to market, Zara had design team commercials who decided what the company would manufacture and sell. The store managers also played an important role in gathering relevant information from consumers through observation and conversation to come up with an ultimate product based on consumer demand and interest.
Compare these two approaches and describe how Zara can effectively manage the core risks inherent in this industry much better than Gap.
The fashion industry is of a dynamic nature. This calls for companies involved in this industry to constantly come up with new and diversified fashions within a short period Daniel, 2015). With an increasing change in consumer demand and fashion trends, Gap fails to provide consumers with a constant supply of fast changing fashion and thus fails to keep up with changing trends in the fashion world. Gap faces the risk of fashion miss by launching clothes only twice every year as Zara launches new trends every two weeks. Additionally, Zara focuses on a decentralized decision-making process, involving many of its employees in deciding the next step for the industry. Store managers are encouraged to engage in small conversations with customers to get to the bottom of what the customers want. This allows for a diversity of ideas from which the best can be picked. This is, however, different in Gap where decision-making lies in the hands of a few elite designers and managers.
Discuss why Zara's approach is disruptive to the other industry competitors, like Gap.
Zara's approach is disruptive because it does not emphasize on quality but on changing fashions. While companies such as Gap have made a name based on their high-quality clothes, Zara has made a name based on its ability to bring new fashions into the market. Consumers in the fashion world are more interested in new fashions than in the quality of the products. Zara, therefore, becomes more enticing to most consumers of fashionable products. To adopt Zara's strategy, Gap will have to completely redefine its position in the fashion industry and change its advertising strategy, a move that might compromise the company's position in the fashion world (Behara & Davis, 2015).
Answer the question – What Business is Zara In? This is a simple two-word answer. Fast Fashion business.
Behara, R. & Davis, M. (2015). Navigating Disruptive Innovation in Undergraduate Business Education. Decision Sciences Journal Of Innovative Education, 13(3), 305-326. http://dx.doi.org/10.1111/dsji.12072
Daniel J. Doiron. (2015).WHAT BUSINESS IS ZARA IN? Richard Ivey School of Business Foundation
Diaconu Maxim, L. (2012). The Development of the Low-Cost Carriers' Business Models. Southwest Airlines Case Study. Annals Of The Alexandru Ioan Cuza University - Economics, 59(1). http://dx.doi.org/10.2478/v10316-012-0016-7
Four-Closure: How Amazon, Apple, Facebook & Google Are Driving Business Model Innovation. (2012). Chinese Business Review, 11(11). http://dx.doi.org/10.17265/1537-1506/2012.11.004
Shaughnessy, H. (2016). Harnessing platform-based business models to disruptive power innovation. Strategy & Leadership, 44(5), 6-14. http://dx.doi.org/10.1108/sl-07-2016-0061