BUSINESS MODEL DECONSTRUCTION

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Case Study: SINTEF’s lean Implementation Initiative

Introduction:

The strategic efficiency of an organization is dependent on the planning of the business model. The business model is necessary for outlining the operational aspects of a business, recognising the specific sources of revenue, target customer base, product offerings and the sources of financing. The following assessment aims to present a delineation of the business model of Instacart. The particular highlights of the report include a description of the business, its industry, market and the products and services provided by the organization (Aversa et al., 2015). The evaluation of the business model canvas of Instacart would also be focused upon a thorough evaluation of the nine building blocks and the interplay between the blocks. Furthermore, the assessment also evaluates the critical success factors associated with Instacart that contribute to its sustainability alongside identifying the factors contributing to downside risk. 

Business Description:

Instacart specializes in the doorstep delivery of groceries through online orders and is popular in the majority of popular cities in the USA. The industry in which Instacart operates is the online grocery delivery industry and it serves a wide market in the major cities of the USA. The company was established in the year 2012 which indicates its considerably new presence in the industry (Instacart, 2018). Furthermore, the products served by the company include groceries as well as home essentials. The company is headquartered in San Francisco, California, USA and is valued at $2 billion (Instacart, 2018). The reputation of Instacart in the on-demand delivery sector has prompted many entrepreneurial establishments to review the business model of the company to make a mark in the emergent sharing economy. A critical evaluation of the nine building blocks of the organization’s business model canvas could facilitate productive insights into the capabilities of the organization to make a formidable impact in the on-demand industry (Instacart, 2018).

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Business model canvas:

As per Breuer & Lüdeke-Freund (2017), the business model canvas (BMC) is a promising tool for outlining the business plan of an organization in terms of functional aspects that are denoted by the building blocks used in the canvas (Breuer & Lüdeke-Freund, 2017). The business model canvas of Instacart could be illustrated as follows:

According to D’Souza et al (2015), the foremost aspect of the BMC of Instacart reflects on the customer segments which can be illustrated through a comprehensive evaluation of the segment dimensions, composition of the individual segments and the behavioural traits as well as alternatives for the customer segments (D’Souza et al., 2015). The key customer segments observed in the case of Instacart include online users, stores and shoppers that are associated with unique personas. 

First of all, the users that place online orders are characterized by the inclination to deliver groceries and home essentials at their doorstep (D’Souza, 2017). This customer segment is particularly apprehensive of shopping and elderly people form an imperative part of this segment. Stores also comprise a significant customer segment as they are characterized by the aim for improvisation of sales as well as increasing the outreach among existing and potential customers. Shoppers included in the customer segment are associated with a distinct persona that involves possession of a car and smartphone alongside the will to perform as a freelance shopper (Klang, Wallnöfer & Hacklin, 2014). 

Value propositions are accounted as another significant element in the business model canvas. The value proposition can be recognized through the problems of recognized customer segments that are fulfilled by the business. In the case of Instacart, the value propositions are aligned with the unique persona of individual customer segments. For online users or customers, the value proposition is presented in the form of a flexible approach for grocery shopping that is provided within a specific duration of time and is also independent of weather conditions (Laing & Laing, 2016). 

The value proposition for the stores associated with Instacart includes improvement in sales and the number of customers while the shoppers’ customer segment is facilitated with the proposition of a flexible working schedule as well as establishing contacts with other people.

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As per Mikhalkina & Cabantous (2015), Channels as the building blocks of the BMC of an organization refer to the entities utilized by the company for communicating the value proposition to specific segments. Channels also involve the entities used for the provision of products and services to customers (Mikhalkina & Cabantous, 2015). The primary channels implemented by Instacart in its BMC involve the website and the mobile application for distinct operating systems i.e. iOS and Android. 

The aspect of customer relationships in the case of the business model canvas reflects the approaches through which customers can interact with the company during the sales and product lifecycle. Instacart is capable of maintaining its customer relationships aspect in the BMC through social media channels of the organization and customer service support (Mateu & March-Chorda, 2016).

The revenue streams included in the BMC are derived through mapping the persona of customer segments onto the value propositions. The distinct revenue streams identified in the case of Instacart include the membership fee for Instacart Express which accounts for revenue from stores, delivery fees account for revenue from online users and the surcharge on store price is responsible for a revenue stream from shoppers (Proff & Fojcik, 2015).

The key activities of an organization’s business model canvas are reflective of the particular initiatives needed for the delivery of value propositions as well as the functioning of other significant aspects of the business (Meeuwen, Walt Meijer & Simonse, 2015). The BMC of Instacart reflects on the key activities as local market management, creation and management of technological infrastructure, provision of customer service and shopper management.

Key resources of an organization could be defined as the unique strategic assets that provide a competitive advantage over peers in the industry. Instacart’s partnership with local stores as well as technological infrastructure is the primary key resource that is supported further by the skilful shoppers (Mateu & March-Chorda, 2016). 

Another crucial element in the business model canvas refers to key partners that involve the local stores and financial partners of Instacart. The local stores serve as prolific contributors to the organization’s supply chain as location-based delivery is enhanced through the presence of Instacart with local stores (Mikhalkina & Cabantous, 2015).

The cost structure elements are required to understand the interplay between key activities and value propositions to influence revenue. The cost structure of Instacart is characterized by the commission-based payment offered to shoppers, salaries and remuneration for employees and the running costs of the technological infrastructure.

Organisational Behaviour

Key relationships:

The key relationships identified from the business model canvas of Instacart can be illustrated as follows.

The customer segments and value proposition blocks are interrelated as the specific persona of the individual customer segments is used for framing the value propositions. The relationship between value propositions and customer segments is responsible for the identification of channels and customer relationships in the BMC. 

The customer segment building block can also be related to the revenue streams in which the latter is estimated through an evaluation of the customer segments (Klang, Wallnöfer & Hacklin, 2014). Another promising set of relationships identified in the case of the business model canvas of Instacart reflects on the key activities, key resources and the cost structure of the organization.

Critical success factors:

The sustainability of Instacart in the on-demand grocery delivery sector is dependent on the identification and management of critical success factors which can be presented as follows.

Retention of shoppers is a crucial aspect owing to their part-time employment. The working approach of Instacart shoppers is on a freelancer basis along with flexible schedules. Therefore, the management of shoppers could serve as a critical success factor for Instacart (D’Souza et al., 2015). 

Customer trust has been subject to depreciation owing to the complaints regarding unreasonable pricing of products that involve higher pricing than the in-store prices. Therefore Instacart has to communicate the appropriate reason for higher mark-up prices concerning the flexibility of product delivery at the doorstep.

Stock management is another crucial concern that can help Instacart to leverage its partnership with the local stores to ensure sustainable service delivery to customers. This aspect could be addressed through the provision of updated information to customers regarding stock availability (D’Souza, 2017). 

Downside risk:

The elements of Instacart’s operations that can contribute to downside risks include the role of shoppers and the inefficiency of technological infrastructure in particular functional aspects such as customer relationship management. The role of shoppers as part-time employees of the organization has to be considered as their flexible working schedules and roles as freelancers could lead to discrepancies in the management of functional aspects of the organization (Breuer & Lüdeke-Freund, 2017). 

The stagnation of technological infrastructure could also be responsible for downside risk owing to the subsequent impact on cost structure, channels and customer relationships. The activities of Instacart are also reflective of minimal references to the management of partners that can contribute to downside risks in terms of delivery of desired value propositions. 

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Conclusion and Recommendations:

A critical review of the different aspects of the business model canvas leads to the identification of critical challenges for the organization. Therefore, from a personal perspective, the changes that should be included in the business model would emphasize primarily the use of data with a focus on the interrelation of the channels, customer relationships, key partners, cost structure, key resources and key activities in the business model canvas (Klang, Wallnöfer & Hacklin, 2014). 

The key activities of Instacart would involve data collection and management of data across multiple platforms to anticipate the trends of customer segments and partners. The initiative would be related to the key resources that imply a change in the technological infrastructure through the inclusion of data collection and analytics platforms that would be able to perform dynamic schematization and acquisition of data from the website, mobile applications and the cloud services facilitated by Instacart.      

References

Aversa, P., Haefliger, S., Rossi, A., & Baden-Fuller, C. (2015). From business model to business modelling: Modularity and manipulation. In Business models and modelling (pp. 151-185). Emerald Group Publishing Limited.

Breuer, H., & Lüdeke-Freund, F. (2017). Values-based network and business model innovation. International Journal of Innovation Management, 21(03), 1750028.D’Souza, A., Wortmann, H., Huitema, G., & Velthuijsen, H. (2015). A business model design framework for viability; a business ecosystem approach. Journal of Business Models, 3(2), 1.

D’Souza, A. (2017). A business model design framework for the viability of energy enterprises in a business ecosystem.

Instacart. (2018). Instacart: Groceries Delivered From Local Stores. Retrieved 21 March 2018, from https://www.instacart.com/

Klang, D., Wallnöfer, M., & Hacklin, F. (2014). The business model paradox: A systematic review and exploration of antecedents. International Journal of Management Reviews, 16(4), 454-478.

Laing, C. L., & Laing, G. K. (2016). The student-as-customer metaphor: A deconstruction using Foucauldian constructs. Australasian Accounting Business & Finance Journal, 10(1), 40.

Mikhalkina, T., & Cabantous, L. (2015). Business model innovation: How iconic business models emerge. In Business models and modelling (pp. 59-95). Emerald Group Publishing Limited.

Mateu, J. M., & March-Chorda, I. (2016). Is experience a useful resource for business model innovation?. Technology Analysis & Strategic Management, 28(10), 1195-1209.

Proff, H., & Fojcik, T. M. (2015). Business model innovations in times of long-term discontinuous technological change-an empirical examination of the automotive industry in the transition to electric mobility. International Journal of Automotive Technology and Management, 15(4), 418-442.

van Meeuwen, D. P., van Walt Meijer, Q. J., & Simonse, L. W. (2015). Care models of eHealth services: A case study on the Design of a Business Model for an Online Precare Service. JMIR research protocols, 4(1).

Appendix

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