Magretta (2002) simplifies the business model into the generic value chain that is underlying in all businesses: The activities required to make the product and the activities required to sell the product. In our last rollover due to the high level of idle time in comparison to other teams it was clear that we did not engage enough in activities related to selling the product. Our marketing and advertising costs were lower than other teams, which saved on costs, but badly affected our profitability. I think that perhaps some risk adversity was what held us back from spending more on marketing, and because of past experience in the practice rollover where we were the only team who had entered that particular market and so did not need to spend much on advertising at all. The problem, therefore in this scenario was risk adversity.
The reading from this week that has helped to analyse the problem of risk adversity further is Kim & Mauborgne's Blue Ocean Strategy. This reading talks about how greater opportunities lie in creating uncontested market space that makes the competition irrelevant. Instead of competing within the boundaries of an industry for a limited amount of market share, there is the possibility of creating a "blue ocean" fuelled by innovation and customer value. Risk is high in this strategy as there are so many unknown factors, but the rewards can be much greater as you have a huge advantage over any other business that tries to enter the market space you have created. Adopting an openness to taking risks and perhaps being more creative or innovative with the simulation will be helpful in the weeks to come to ensure we gain a competitive advantage.
It is obviously not possible to create a whole new industry in the simulation as the markets have already been decided along with customer demand, product preferences; and we are limited to manufacturing bikes. However; I do not think that this automatically means that being creative and taking some risks will not pay off. As long as the product we are selling is appealing to the market and the numbers make sense we should have a successful business model (Magretta, 2002). The theory suggests that innovation can occur incrementally and it does not mean drastically changing everything in the business; but rather adopting a different perspective and appealing to a customer value point that may have been unmet in your or competitors current product offerings (Kim & Mauborgne, 2004).
The action that needs to be taken is an open discussion within the team around our attitudes to risk; any ideas of how to be creative within the confines of Mikesbikes; and which markets are perhaps uncontested or have the most "Blue Ocean Strategy" space within them for us to take over. We may also benefit from having a conversation with Peter around innovation in the simulation and examples of how teams may have created incremental product or process innovation in the past.
Kim, W. C., & Mauborgne, R. (2004). Blue Ocean Strategy. Harvard Business Review, 82(10), 76–84. Retrieved from http://search.ebscohost.com.ezproxy.auckland.ac.nz/login.aspx?direct=true&db=buh&AN=14599913&site=ehost-live&scope=site
Magretta, J. (2002). Why Business Models Matter. Harvard Business Review, 80(5), 86–92. Retrieved from http://search.ebscohost.com.ezproxy.auckland.ac.nz/login.aspx?direct=true&db=buh&AN=6623782&site=ehost-live&scope=site