Business Model Innovation for Fonterra: A Case Study

Running head: BUSINESS MODEL INNOVATION
Business Model Innovation
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1BUSINESS MODEL INNOVATION
a) Business model and business model innovation
A business model of an organisation is a plan to generate the profit and to make revenue
out of it. The business model can explain the services or products of the organisations that they
manufacture or provide in the market. The business model provides the plan to make the account
of expenses with a step-by-step approach. As stated by Bocken et al., (2014), the business model
explains the value proposition for the organisation as it is the straightforward statement about the
company's offerings of services or products to the potential clients or customers. The business
model can differentiate the organisation from the competitors in the market. Different types of
organisations use different business models, franchising, direct sales, brick and mortar or
traditional business model. DaSilva & Trkman (2014) commented that business model can play
the crucial role in success and it is needed to optimise the innovative technology of the business.
In order to survive in this globally competitive market, the business model has the strength to
maximise the return of the business from the high-cost investment. The business model provides
help to drive the innovation that can help to find the new opportunities for the business.
Business model innovation can be defined as the development of unique and new
concepts that support the organisational financial viability along with mission and vision
statement. The business model innovation is the process taken by the organisations to bring the
innovative concepts to fruition. Gobble (2014) supported this by saying that the primary goal of
the business model innovation is to understand the new revenue resources by the developing
product or service values and the process of delivering the products and services to the
customers. In this digital age, most of the companies are focusing on the business model
innovation because of the technologies are changing dramatically. According to Martins,
Rindova & Greenbaum (2015), digital disruption has led to shortening the lifecycle of the

2BUSINESS MODEL INNOVATION
business model of an organisation as innovation is the key to financial success. Companies those
take the business model innovation should react towards the increased systemic risks and
international competition. Therefore, business model innovation can foster the growth in the
competitive global market. The organisations focus narrowly on business model innovation as
most of the successful business model innovation requires the alignment of business objectives
and alignment of IT. Focusing on the business model is the effective way to appeal the market
segments and innovation in business model can broaden the market segments. In addition, the
management of the organisations can search for the commonalities across the services and
products when they opt business model innovation. The benefit of business model innovation is
the increase in the cost of revenues, gross margin. Business model innovation can lower the
investment in business and it can also reduce operating income of the business (Foss and Saebi,
2017). Moreover, one example of business model innovation could be Apple's introduction of
iPhone, iPod and iTunes that expanded the business beyond the desktop computers market.
iPhone introduction during the time of the 2000s was the breakthrough in the Smartphone market
and it introduced the iOS platform.
Most importantly, the business model can be customised with the needs of the
organisation and it can change easily if needed as successful business always strives to find the
innovation (Bohnsack, Pinkse & Kolk, 2014). Rapid business model innovation is taken by the
organisations to achieve the desired revenue and success with high-end technological
development, while innovation is the improvement of technological and strategic capabilities.
In this article, Fonterra organisation is chosen that currently operates in the dairy industry. The
business model canvas of Fonterra is produced with major characteristics of the model. One

3BUSINESS MODEL INNOVATION
major business trend is also explained with the theoretical model. The impact of this trend is also
shown on the Fonterra's business model.
b) Company summary
Fonterra is a New Zealand based multinational dairy cooperative organisation. Fonterra
was established in the year 2001 and it has its headquarter in Auckland. Fonterra serves
worldwide and this firm is owned by more than 10,500 farmers across New Zealand. Fonterra is
New Zealand’s largest company and Fonterra is responsible for almost 30% dairy exports in the
world. Fonterra currently has more than 22,000 employees (Fonterra.com, 2018). Fonterra was
formed by merging of New Zealand's two major dairy cooperatives.
Major products: Fonterra is in the dairy industry as they manufacture dairy-based
products and sells through retail. The major products of Fonterra are milk, butter, ice-cream,
cream, yoghurt, curd, flavoured milk, milk powder and cheese.
Revenues: Current revenue of Fonterra touched NZ$ 19.23 billion and operating income
of the organisation touched NZ$1.20 billion (2016-17). Total assets of the organisation were
NZ$17.82 billion in the year 2016.
Strengths and Weaknesses
Fonterra has a secure and stable supply of milk in long-term as this cooperative firm has
the strength of more than 10 thousand farmers. Fonterra has a global demand for the milk-based
products and they can meet the demand as the organisation through the uniqueness of
shareholder relationship. Fonterra was formed through the merging of the two large
organisations; therefore, the organisation enjoys the growth of economic scale and numerous