The business model of an organization could be accounted as one of the mandatory elements required for effective operations of the company. The business model is the basic tool required by organizations to identify their key customer segments, customer relationships, revenue streams, and cost structure. It is essential to understand that the use of a business model canvas could help obtain a graphical representation of the business model.
The business model canvas presents the essential components of a business in the form of different blocks in the canvas which can be referred to at all times during the operations of a business (Baumgartner et al., 2012). The following report is intended to present an evaluation of the business model canvas of LEDVANCE, an international company specializing in lighting products and smart lighting applications. The evaluation of the business model would be preceded by a description of the company background, the product and service offerings as well as the market in which it operates. Furthermore, the report is also inclined to identify the critical success factors, downside risks, and possible recommendations for changes in the business model based on outcomes derived from the evaluation of the business model canvas.
The foundation of LEDVANCE was marked on 1 July 2016. The company was formed as a result of the decision of Osram to divest the lamp division including products such as halogen lamps, compact fluorescent lamps, and LED lamps. On March 3, 2017, LEDVANCE was sold to a Chinese consortium comprising three prominent investors at a cost exceeding 400 million Euros (Ledvance.com, 2018). The products offered by LEDVANCE include traditional lamp solutions, lighting solutions for smart homes and buildings, over-the-counter lighting solutions, and LED lamps.
The company serves a global market spread across 120 countries and is accounted as a notable name in the lighting industry. The global lighting industry is expected to depict steady growth over the next four years and the estimates of annual CAGR by 2021 have been predicted at 9%. Some of the notable trends in the global lighting market include preferences for data-driven lighting applications such as in the Internet of things and revolutionary advancements in LED technologies such as the transition from blue to violet LED (Ledvance.com, 2018).
The deconstruction of the business model of LEDVANCE could be realized effectively through a reflection on the individual components of its business model canvas that can be illustrated as follows.
Customer segments form the initial building block of the business model for an organization as it defines the target customer base that an organization would be serving. It is imperative to note that the success and sustainability of an organization are dependent on customer satisfaction (Carayannis, Sindakis & Walter, 2015). Therefore the business model must identify appropriate customer segments that can be catered to with the products and service offerings.
The identification of customer segments is solely based on the estimation of the notable behavioral traits associated with them, their demographic characteristics, and preferences for products. In the case of LEDVANCE, the customer segments include residential customers and business customers (Massa and Tucci, 2013). While residential customers rely primarily on the cost-effectiveness of lighting solutions business customers from various corporate verticals such as the automotive and construction sectors require flexibility.
The channels of an organization’s business model canvas are defined as the entities which are utilized by the organization for the provision of products and services to customers. The notable channels for LEDVANCE include the website, existing customer base, salesforce, global presence in the form of project teams, corporate offices in different countries, and dedicated teams in vertical markets (Keane, Cormican & Sheahan, 2018).
The value proposition is another significant building block that is interrelated with the customer segments component of the business model canvas. As to Euchner & Ganguly (2014), the value propositions of a business are derived from an evaluation of the distinct persona of the customers alongside the aims of the organization for resolving the needs of customers (Euchner & Ganguly, 2014). The value proposition of LEDVANCE includes adaptable and flexible lighting solutions and providing innovative solutions that can improve the quality of life of customers as well as the performance of business customers. The involvement of LEDVANCE in promoting the digital era through smart home and building lighting applications is also a credible value proposition of the company.
The customer relationships aspect in the business model canvas for an organization includes references to how customers can communicate with organizations and are associated with the company during the product lifecycle. In the case of LEDVANCE, customer relationships are maintained through innovative solutions for energy efficiency as well as long-term agreements with business customers (Osterwalder & Pigneur, 2010). The other notable highlights of customer relationships are identified in the form of intellectual property agreements, customer assistance, innovation, exclusiveness, and reputation as a global brand.
Revenue streams of an organization can be defined as the approaches through which the company can obtain revenue from its various business operations. The revenue streams can be associated with individual customer segments alongside reflecting on the value propositions which facilitate return value to the organization from the customers. As per Ojasalo & Ojasalo (2015), the general revenue streams can be recognized in the sales of equipment, contracts, and online orders as well as fees for customer service (Ojasalo & Ojasalo, 2015).
The revenue streams included in the business model canvas of LEDVANCE include fixed monthly fees from lease customers, additional revenue from innovative energy efficiency solutions, and estimated long-term revenue from business customers.
The building block of key activities in the business model canvas of an organization is reflective of the measures taken by an organization for delivering the value proposition to key customer segments through the channels to realize revenue streams (Taran et al., 2015). The key activities of LEDVANCE include lifecycle services such as customer support, performance management, and maintenance as well as project services including project management, equipment installation as well as integration, and programming facilities. LEDVANCE also specializes in the activity of advisory services that comprise solution design and energy audits (Trimi & Berbegal-Mirabent, 2012).
The business model canvas also reflects profoundly on the key resources of the organization that comprises tangible and intangible assets that can be used for accomplishing strategic performance. LEDVANCE is dependent on key resources of human resources, innovative technological advancements alongside a formidable presence in 120 countries that is characterized by a dominant position in several markets (Traganos et al., 2015). The physical infrastructure of LEDVANCE as well as its financial resources and intellectual property could be accounted as key resources.
The key partnerships block in the business model of LEDVANCE includes raw material suppliers, energy companies, subsidiaries, sponsorships, and raw material suppliers.
The final building block in the business model is the cost structure which can be associated with the expenses of designing customized lighting solutions, equipment installation, and maintenance and marketing. Other necessary elements of the cost structure include research and development, employee remuneration, infrastructure costs, and costs of facilities and distribution (Teece, 2010).
The explicit relationship between customer segments and value propositions in the business model of LEDVANCE could be noted as the latter is formed based on the characteristics of the customer segments. The key activities of LEDVANCE in the form of lifecycle and project services are responsible for influencing the cost structure of the organization in terms of facilities, marketing, distribution, and infrastructure for customer service. Another key relationship could be identified between customer segments and revenue streams of LEDVANCE that imply profoundly the direct sales from residential customers and lease or agreement fees from business customers (Ojasalo & Ojasalo, 2015).
The critical success factors which could ensure the sustainability of LEDVANCE in the global lighting market can be identified as adaptability to the current trends and addressing the concerns of market saturation for lighting products and applications. The global lighting market is renowned for its promising growth rate with increasing preferences for innovative and flexible solutions in lighting such as wireless lighting and smart applications for connectivity (Keane, Cormican & Sheahan, 2018).
Therefore, the alignment of research and development, design, and manufacturing to these trends would be a credible initiative for sustaining its performance among customers. Another significant aspect to be noted as a critical success factor is addressing market saturation which led to the withdrawal of major companies such as Samsung from the global lighting market (Zott, Amit, and Massa, 2011). The sale of LEDVANCE to the Chinese consortium can be presented as a viable example of sustainable performance in response to market saturation. Capitalizing on emerging and developing economies could be a plausible initiative for LEDVANCE in this context.
The downside risks for LEDVANCE could be identified from the changing industry landscape in the global lighting market. The disruption of the industry structure has been characterized profoundly by shifting focus from backlighting to general lighting. The majority of significant names in the LED and lighting component industry are involved in shifting their businesses downstream (Euchner & Ganguly, 2014). The general LED lighting market is gradually influencing the dynamics of the lighting industry across the entire value chain involving explicit references to the channel mix of the industry, potential influences on light engine standardization as well as the fragmented fixtures market.
The delineation of the business model canvas of LEDVANCE reflects profoundly on the fact that it has to diversify its customer segments rather than relying on two generic classifications of residential and business customers. This would help the organization in refining its value proposition thereby leading to the prospects for including new revenue streams. The commodity-based segment is becoming increasingly dominant in the market and hence the classification of different technologies suited to varying customer requirements. Furthermore, customer loyalty can be assumed as a function of product quality thereby implying the feasibility of sustainable performance despite threats of market saturation.
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