Disruptive Innovation and Volvo's Business Model: An Analysis

This essay explores the concept of disruptive innovation within the context of Volvo Group, a major heavy-duty automobile manufacturer. It examines how Volvo utilizes innovative business models, particularly smart-connected products, to understand customer preferences and align product devel...Read More

Running head: DISRUPTIVE INNOVATION
Disruptive Innovation in Volvo
Name of the Student:
Name of the University:
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Introduction:
Osterwalder and Pigneur (2010) defines business model in their book ‘Business model
generation’ as the combination of nine building blocks consisting of customer segments, value
propositions, channels, customer relationship, revenue streams, key resources, key activities, key
partnerships and cost structure.
Disruption can be defined as far as business models are concerned, can be defined as the
innovation which creates a new product which goes on to create new values for the customers
and disrupting the market of an existing product.
Business organisations today use innovative business models to bring about more radical
products which creates new values for customers. They use smart-connected-products like
software accessible on diverse electronic devices like tablets and computers to gain information
about customer preferences. They then align their new product development with customer
preferences thus creating value for the latter. The essay would explore this concepts of disruptive
business model with Volvo Group in its background.
Volvo is one of the largest heavy duty automobile manufacturing company based in
Sweden using disruptive innovation. It is a public limited company listed on the Stockholm
Stock Exchange and NASDAQ (Appendix 1). The main products of the company are trucks,
buses, construction equipment, marine engineering equipment and financial services. The very
product line of the company reveals that the company requires to carry on disruptive innovation
as a part of its business model to cater to its customers which are mostly other business
organisations. The vast capital base and revenue base of the company provides base its
continuous disruptions.

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Key Arguments:
Bohnsack, Pinkse and Kolk (2014) mentions disruptive innovations have both
advantages or opportunities and disadvantages of threats to the companies implementing
them. The disruptive innovation today have become a significant part of the research and
development strategies of multinational companies like Volvo. Pinkse, Bohnsack and Kolk.
(2014) point out that the first advantage of disruptive models led by smart equipment. They point
out that companies today gain information about preferences of customers using smart connected
products like smart phones and tablets. Dodgson (2018) points out to the next advantage of this
disruptive innovations at multinational companies. The multinational companies today are spread
all over the world and are connected internally through smart technology platforms like cloud.
They research teams dedicated to develop products for these companies acquire, share and
manage data from customers to bring about new products. Thus, disruptive innovation helps
companies to improve their products and introduce new products by aligning the entire process
with the market needs. This results in generation of immense revenue, thus rendering the
companies financial sustainability. .
Adams et al. (2016) point that that disruptive innovations not only render financial
sustainability but also environmental sustainability. The industries like automobile and civil
construction are responsible for environmental pollution. Disruptive innovation allow them to
find out sustainable methods of operating like using less polluting fuel to operate their equipment
and vehicles. Nugent and Werema (2015) point that the next advantage which disruptive
innovation and smart technologies have ushered is that all business organisations today are
bound to adopt sustainable methods to operate in the market. The market goodwill of business
organisations are not restricted to revenue generation alone. Their goodwill is equally dependent

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on their response to sustainability issues and adopt sustainable business model. Non-sustainable
business models of multinational companies which remained virtually unchallenged in the past
decades, are replaced by more sustainable business models by their competitors today in matter
of years. Thus, companies are bound to adopt sustainability and disruptive innovation to exist in
the market. However, smart technology and artificial intelligence driven disruptive innovation
also poses challenges to the present business world.
Munos and Orloff (2016) point out that disruptive innovation is extremely expensive
which requires companies to invest immense capital. They contradict Dodgson (2018) on his
notion of disruptive innovation and financial sustainability. They skirt the opinion of Nugent and
Werema (2015) and point out that the short lived nature of present business models rapture the
financial positions of companies. The companies have to invest immense amount of money
towards disruptive innovation and are often forced to change the business model within years
even before earning returns on the capital invested in the previous innovation. This have dire
impact on the financial position of the companies.
Andreas (2018) in his work points out that disruptive innovations can help companies to
turn around but one can point out as per Munos and Orloff (2016), disruptive innovation requires
immense capital investment. Thus, one can point out that advantages of disruptive
innovation are restricted to multinational companies which are financially strong. The
small firms are deprived of these advantages and are often forced to the brink of extinction or
acquired by large companies. Thus, disruptive innovation in the big companies actually prove
fatal to small firms.
Volvo being a leading automobile and engineering company uses advancements and
disruptive innovations to develop new products. The company conducts innovations in its

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product line right from trucks to family cars which reflects its customer centric innovative
power. The company offers long haul trucks which are designed to offer safety to drivers as well.
This shows that the company’s business model is not only centred on revenue generation but also
safety of customers. the company has officially announced its plan of releasing a fleet of electric
cars once, establishing its disruptive innovation prowess (express.co.uk, 2018).
Findings:
The nine block business model by Osterwalder and Pigneur (2010) consist of key
partners, key activities, value propositions, customer relationships, customer segments, key
resources, channels, cost structure and revenue streams. The key activities consist of
activities which companies perform add value to the customers and generate revenue. For
example, the main business activities of Volvo consist of manufacturing of plants, equipment
and vehicles. The key partners, the next component of the multinational equipment and
automobile maker consist of laboratories and mechanical companies with which it conducts
innovations. The third component consists of value propositions which consist of the marketing
mix of business organisations to add value or customer satisfaction (Andreas, 2018). For
example, Volvo incorporates modern and sustainable models of automobiles to enhance
customer satisfaction. The company manufactures cars and trucks which are not only hardy but
meet the requirements of the customers purchasing them. The company incorporates features like
seat belts and special tyres to ensure safety of the drivers. One can point out that Volvo is a
leading manufacturer of buses and trucks globally. The company maintain high quality of
vehicles to ensure safety of passengers and drivers (volvotrucks.co.uk, 2018). This clearly points
out to the stakeholder responsibility of Volvo. The company adds value to its customers,
passengers, drivers and all the other stakeholders not only financially but also ethically. The next

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component of the Osterwalder and Pigneur (2010) business model is customer relationship which
is dependent on value creation of companies. The companies create products which create value
and benefit the consumers. Companies like Volvo give discounts to their loyal customers besides
offering them superior vehicles. The company partners with leading banks to make financial help
available to customers, both business and individual customers. These customer centric business
strategies create customer satisfaction and encourage customers to acquire Volvo vehicles even
in the future. This strong customer relationship companies like Volvo enjoy can be attributed to
their successful customer segmentation strategies. As far as Volvo is concerned its main
customer segments consist of business customers which buy trucks and buses and individual
customers who buy cars (Andreas, 2018). Appropriate marketing mixes in terms of pricing and
products create satisfaction among customers. For example, the business customers can avail
business loan from partner banks to acquire Volvo commercial vehicles while individual
customers can acquire personal loans to buy Volvo cars. This maximises customer satisfaction
among the customer segments paving way for the nineth component of the model, revenue
generation. The supply channels of companies like Volvo consist of suppliers of automobile
parts producers from all over the world. The suppliers provide it with key resources which enable
it to manufacture its high quality automobile products. One can point out that the global
operations of companies like Volvo create immense costs. They distribute the costs over the
immense revenue base which they gain by causing value addition to an international base of
customers (Basuil & Datta, 2015).
Thus, the key findings from the discussion of the nine block business model are, the
business organisation should try to create value and maintain long term relationship with
appropriate customer base to generate high revenue. This would render them the financial

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strength to distribute their costs and execute their key activities like production and
partnering with other business houses. This in turn would render them more revenue
apving ways for strengthening of their business models (Osterwalder and Pigneur, 2010)
The business models of multinational companies like Volvo today encompass value
propositions and profits (two components of the business model). Business organisations
today create products to satisfy the demands of the consumers. The companies like Volvo do not
only stress on present revenue generation but also factors like consumer safety while consuming
their products, availability of loan and after sales services to consumers. These strategies enable
them to maximise the value of the products before the customers, thus creating strong image
before the latter. The loyal consumers promote the brands among their acquaintances and also
prefer the brands like Volvo while considering future purchases. Thus value creation also paves
ways for future business generation as well. Thus, business models of companies overlap their
value creation and profit motives (Garcia‐Castro & Aguilera, 2015).
Conclusion:
One can conclude from the discussion that business models play important roles in the
business generations of companies, especially MNCs like Volvo. The business organisations
must maintain a customer and market centric business model. They must incorporate changes
like change in customer preferences and market trends in the models from time to time. This
would keep the models pertinent and applicable for longer span of time. They must also ensure
that their strategies create value to stakeholders like customers and suppliers. They must not
commit any unethical activity which breach stakeholder interests. The smaller companies should
also acquire resources to bring about disruptive innovation even if on smaller scale. They can
also take support or at least learn from the experience of larger firms to bring about the

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innovations. The MNCs can also help these small scale firms to bring about disruptive
innovations as a part of their CSR.
References:
Adams, R., Jeanrenaud, S., Bessant, J., Denyer, D., & Overy, P. (2016). Sustainability‐oriented
innovation: a systematic review. International Journal of Management Reviews, 18(2),
180-205.
Andreas, K. (2016). The combination of turnaround management, blue ocean strategies and
disruptive innovation as tools in guiding companies in overcoming their recession
problems and develop a long-term healthy economic performance. JOURNAL OF
SOCIAL SCIENCE RESEARCH, 10(1), 1962-1967.
Basuil, D. A., & Datta, D. K. (2015). Effects of industry‐and region‐specific acquisition
experience on value creation in cross‐border acquisitions: The moderating role of cultural
similarity. Journal of Management Studies, 52(6), 766-795.
Bohnsack, R., Pinkse, J., & Kolk, A. (2014). Business models for sustainable technologies:
Exploring business model evolution in the case of electric vehicles. Research
Policy, 43(2), 284-300.
Dodgson, M. (2018). Technological collaboration in industry: strategy, policy and
internationalization in innovation (Vol. 11). Routledge.
Garcia‐Castro, R., & Aguilera, R. V. (2015). Incremental value creation and appropriation in a
world with multiple stakeholders. Strategic Management Journal, 36(1), 137-147.

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Munos, B. H., & Orloff, J. J. (2016). Disruptive innovation and transformation of the drug
discovery and development enterprise. Boston: US National Academy of Medicine.
Nugent, J. H., & Werema, G. (2015). Does profit maximization impact sustainability?-An
examination.
Osterwalder, A., & Pigneur, Y. (2010). Business model generation: a handbook for visionaries,
game changers, and challengers. John Wiley & Sons.
Pinkse, J., Bohnsack, R., & Kolk, A. (2014). The Role of Public and Private Protection in
Disruptive Innovation: The Automotive Industry and the Emergence of Low‐Emission
Vehicles. Journal of Product Innovation Management, 31(1), 43-60.
Smith, L. (2018). Volvo’s NEW electric car to have over 250 miles of range, here’s when it will
launch. Express.co.uk. Retrieved 20 April 2018, from https://www.express.co.uk/life-
style/cars/898263/Volvo-V40-new-electric-car-2019-release-date-price
Volvo Trucks. (2018). Volvotrucks.co.uk. Retrieved 20 April 2018, from
http://www.volvotrucks.co.uk/en-gb/home.html

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Appendix:
Appendix 1: 5 year stock price of Volvo Group: