Integrating a more Customer-centric Approach

Business Model in to Agung Motor: Lean Thinking

By

Agung Priatna Gani

Student Number: s34801

Tutor

Adeyemi Banjo

A thesis submitted in partial fulfillment of the requirements for the degree of

International Business Administration

IBA – Financial Service Management

Wittenborg University

(June 2016)

©Copyright by Gani, Agung Priatna 2016

All Rights Reserved

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EXECUTIVE SUMARRY

Agung Motor (AM) is a used-car dealer that operates in JABODETABEK, which are Jakarta and its surrounding city. AM main operational activities include buying and selling of used cars, and to a lesser extent selling new cars as well. AM wants to increase their market share and profitability, and grow into a larger player in the market (without having to invest a large amount of capital). The owner of AM would also like AM to generate revenues in a sustained way, so that he can diversify his business portfolio. However, even though the client used car businesses have been covering their costs, they have a very little growth. This little growth condition of AM is caused by a lot of different factors, some apparent factors are; they have no formal customer database, they have no clear idea of what their customers value from them (no formal market research), no clarity for their future direction, and a lack of common language.

This consultancy project is formulated to address the issue. Integrating a customer centric business model will give clarity and create a common language for AM. In formulating a customer-centric business model, the consultant will have to understand what do AM customers value from their business. The consultant also believed that by integrating a more customer-centric approach business model into AM they will be able to achieve their objectives.

The consultant a telephone questionnaire in order to get a better understanding of AM customers. The result of the research are as follows (see chapter 5:

AM customers value product quality the most AM customers think that the inventory / product availability of AM should be

improved the most

The consultant also analyzed AM current business model (see chapter 5.2) along with the analysis of its strengths, weaknesses, opportunities, and threats (SWOT). The consultant has to analyzed the cause of the problem, before he can recommend the solutions. The consultant concludes (chapter 6) that the cause of very little growth condition of AM (aside from the apparent factors mentioned in earlier paragraph) are:

Weak customer reach Narrow geographical area of customers that AM reach Limited capital Limited inventory / product availability

At the end of this consultancy project report (chapter 6.2 – 6.4), the consultant recommends two strategies to tackle the issue mentioned above, formulated the desired business model and lastly propose the plan of actions to implement the recommendations.

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ACKOWLEDGEMENT

First praise is to Allah, the Almighty, on whom ultimately we depend for sustenance and guidance. Second, my sincere appreciation goes to my tutor Mr. Adeyemi Banjo, whose guidance, careful reading and constructive comments was valuable. His contribution helped me shape this into its final form and I express my sincerest appreciation for his assistance in any way that I may have asked.

I would also like express my gratitude for the clients –AM and the owner –, and for all of AM personnel. That have assisted me during the data collection process, and for all the knowledge that they shared for me. Not forgetting the warm hospitality, they offered during my stay in Indonesia. Without their supports, it would almost be impossible to finalize this study

Moreover, none of this could have happened without my family. My sister, who offered her encouragement through phone calls and messages every once in a while. To my parents and my brother and sister– it would be an understatement to say that, as a family, we have experienced some ups and downs in the past years. Every time I was down, you showed me how to never give up and I am forever grateful. This final project stands as a testament to your unconditional love and encouragement.

Last but not least, I would like to send my gratitude to all other people whose names I did not mention above, who have helped and supported me in this graduation assignment. Without them, it would be almost impossible to finalize this thesis.

“I confirm that this project is my own work and no part of it has been previously published elsewhere or submitted as part of any other module assessment”

Word count (chapter 1 – 6): approximately: 11.400o Excluding in text reference, table & figure

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TABLE OF CONTENTSEXECUTIVE SUMARRY..................................................................................................ii

ACKOWLEDGEMENT....................................................................................................iii

TABLE OF CONTENTS...................................................................................................iv

LIST OF TABLES & FIGURES.......................................................................................vii

GLOSSARY.....................................................................................................................viii

ABBREVIATION............................................................................................................viii

1. LETTER OF UNDERSTANDING, FORMULATION OF PROBLEM & GAP.......1

1.1. Term of Reference................................................................................................1

1.2. Objectives..............................................................................................................2

1.3. Aim of this Consultancy Project & Future Aim...................................................2

1.3.1. Aim....................................................................................................................2

1.3.2. Future Aim (not in the scope of this consultancy project).................................2

1.4. Deliverables of this Consultancy Project..............................................................2

1.5. Problem Statement................................................................................................3

1.6. Research Questions...............................................................................................3

1.7. Formulation of Type of Consultancy Assignment................................................4

2. ANALYSIS OF PROBLEM AND CONCEPTUAL FRAMEWORK (AM & INDONESIAN USED-CAR MARKET..............................................................................5

2.1. Brief Introduction of AM......................................................................................5

2.1.1. Overview of AM Organizational Chart / Table.............................................6

2.1.2. Overview of AM Financial Performance......................................................8

2.1.3. Overview of AM Strategies...........................................................................9

2.2. Overview of Indonesian Used Car Market.........................................................12

2.3. Use of Model.......................................................................................................13

2.3.1. 9 Building Blocks........................................................................................13

2.3.2. SWOT Analysis...........................................................................................15

2.3.3. Fish-bone Diagram (Ishikawa)....................................................................15

2.3.4. Flowchart to describe AM Operational Processes.......................................15

3. LITERATURE REVIEW..........................................................................................16

3.1. Organization’s Profitability.................................................................................16

3.2. Customer-centric Business Model......................................................................18

3.3. Lean Thinking.....................................................................................................20

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3.4. Summary.............................................................................................................21

4. RESEARCH METHODOLOGY & METHODS......................................................22

4.1. Research Approach.............................................................................................22

4.2. Research Strategy................................................................................................22

4.2.1. Action Research...........................................................................................22

4.2.2. Mini-survey..................................................................................................23

4.3. Research Methods (Data Collection Techniques and Analysis).........................24

4.3.1. Data Collection............................................................................................24

4.3.2. Data Analysis...............................................................................................25

4.4. Time Horizons.....................................................................................................26

4.5. Reliability & Validity..........................................................................................26

4.5.1. Reliability....................................................................................................26

4.5.2. Validity........................................................................................................26

4.6. Ethical Considerations........................................................................................27

4.7. Summary.............................................................................................................27

5. ANALYSIS & RESULTS.........................................................................................28

5.1. Mini-survey.........................................................................................................28

5.1.1. Ranking Question Results & Analysis........................................................29

5.1.2. “Should be Improved” Results & Analysis.................................................30

5.2. Action Research..................................................................................................31

5.2.1. Customer Segments.....................................................................................31

5.2.2. Value propositions.......................................................................................32

5.2.3. Channels......................................................................................................34

5.2.4. Customer Relationships...............................................................................35

5.2.5. Revenue Streams.........................................................................................36

5.2.6. Key Resources.............................................................................................37

5.2.7. Key Activities..............................................................................................38

5.2.8. Key Partnership...........................................................................................39

5.2.9. Cost Structure..............................................................................................40

5.3. Summary.............................................................................................................42

6. CONCLUSION & RECOMMENDATIONS............................................................44

6.1. Conclusion of the Diagnostic Work....................................................................44

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6.2. Recommendations of Strategies..........................................................................46

6.2.1. Strengthen AM’s Network of Brokers.........................................................46

6.2.2. Competition and Cooperation (Coopetition)...............................................50

6.3. Desired Business Model......................................................................................51

6.4. Plan of Actions....................................................................................................52

Appendix 1. Phone Questionnaire.....................................................................................55

Appendix 2. Flowchart of AM Processes..........................................................................57

Appendix 3. Approved Research Proposal........................................................................59

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LIST OF TABLES & FIGURES

Figure 2.1. Agung Motor Dealer (Temporary Dealer)....................................................................5Figure 2.2. AM Current Organizational Chart.................................................................................6Figure 2.3. AM Future (2 branches) Organizational Chart.............................................................7Figure 2.4. Toyota Avanza & Daihatsu Xenia................................................................................9Figure 2.5. BMW X1 & BMW X5..................................................................................................9Figure 2.6. ANDALAN Finance & BFI Finance Logo.................................................................10Figure 2.7. Reaching Prospective Customers through Brokers’ Personal Connection &/ Networks........................................................................................................................................11Figure 2.8. Car Sales Growth by Country, 2006-2014..................................................................12Figure 3.1. shows the key features of excellent customer service.................................................17Figure 3.3.2. Shifting Perspective from Organization-centric to Customer-centric......................19Figure 4.1. Action Research Spiral................................................................................................23Figure 6.1. Fish-bone (Ishikawa) Diagram of AM Problem’s.......................................................45Figure 6.2. AM's Customer Reach.................................................................................................47Figure 6.3. Geographical Area of AM's Target Customer Segment..............................................48Figure 6.4. Illustration of the Network of Brokers........................................................................49Figure 6.5. Formulation of AM’s Desired (customer-centric) Business Model............................51

Table 2.1. AM brief financial report & NM for comparison …………………….............8Table 5.1. Summary of Ranking Question Results …………………… …………...…...29Table 5.2. Frequency of each category being mentioned as “Should be improved”) .......29Table 5.3. AM Customer Segment’s SWOT……………………………………………32Table 5.4. AM Value Propositions’ SWOT…………………………………………......34Table 5.5. AM Channels’ SWOT………………………………………………....…….35Table 5.6. AM Customer Relationships’ SWOT…………………………………….…36Table 5.7. AM Revenue Streams’ SWOT…………………………………………...….37Table 5.8. AM Key Resources’ SWOT……………………………………………....…38Table 5.9. AM Key Activities’ SWOT………………………………………….……….39Table 5.10. AM Key Partnership’s SWOT………………………………………….......40Table 5.11. AM Cost-Structure’s SWOT……………………………………………....41Table 5.1. AM Business Model's SWOT……………………………………………...42

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GLOSSARY

Pareto Showroom who has strong relationship with auto finance and has a lot of advantages

ABBREVIATION

AM Agung Motor

BM Business Model

NM Naura Motor

Mr. L Owner and Director of AM

Mr. F Accounting & Bookkeeping of AM

Mr. S Head Supervisor of AM

Mr. Y Operational Director of AM

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1. LETTER OF UNDERSTANDING, FORMULATION OF PROBLEM & GAP

This chapter will provide a brief introduction of this consultancy project. This consultancy project is designed to explore the possibilities, in which the consultant can integrate a more customer-centric approach business model in to Agung Motor (from this point, Agung Motor will be stated as AM). This project significantly requires a deep understanding of AM customers1, and AM organizational capability. The purpose of this consultancy project is to find a best way2 to integrate a more customer-centric approach business model in to AM.

1.1. Term of ReferencePurpose/ objectives

AM wants to increase their market share and profitability, and grow into a larger player in the market, without having to invest a large amount of capital (with their limited capital / within their capability).

The consultant need to give a clear strategy and plan of actions to achieve the objective mentioned earlier.

Questions

How can AM increase their market share and profitability, and grow into a larger player in the market, without having to invest a large amount of capital?

Principles and approaches

Due to confidentiality issue, the consultant will use an alias when mentioning AM personnel in this report (see Abbreviations for the descriptions of aliases).

To minimize the risk of AM personnel giving biased / dishonest answer to the consultant (due to a fear of change, and etc.), the owner of AM is the only person who knows the consultant real objectives.

Deliverables

The consultant will have to make a report of the strategy and plan of actions for AM to achieve the objectives mentioned earlier, as well as giving a presentation to AM management.

1 What do AM customers value the most from their business2 To formulate the desired business model for AM (including strategy and plan of actions for AM to achieve their objectives)

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1.2. Objectives

The objectives of this consultancy project are:

1. Understand what do AM customers value from their business2. Formulate the desired business model (based on the first objectives), which:2.1. Give clarity for AM future directions2.2. Create a common language for AM

1.3. Aim of this Consultancy Project & Future Aim

1.3.1. AimAfter implementing the consultant recommendations, the consultant believe that:

AM have a better understanding of the things that their customer value from their business

AM have a clarity for their future direction AM have a common language –everyone in AM heading towards the same

direction, together, and faster (Pijl, 2014) AM team empowered

1.3.2. Future Aim (not in the scope of this consultancy project)When AM has achieved the aims (mentioned earlier in 1.3.1) in the future, the consultant hopes that:

1. AM have a higher service standards & increasing customer satisfaction2. AM gaining a sustainable competitive advantage through business model

innovation (Sorescu, Frambach, Singh, Rangaswamy & Bridges, 2011).3. Achieve the owner ambition (see section 1.5)

1.4. Deliverables of this Consultancy Project

The consultant will formulate the desired business model for AM, as well as the strategy incorporated in the desired business model, and the plan of actions AM need to take in order to implement the desired business model. The desired business model will hopefully create a common language, and give clarity for AM future directions –the desired business model will be formulated in the form of 9 Building Blocks model (see figure 2.9)–.

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The consultant believes that the deliverables of this consultancy project will help AM in achieving their objective (see 1.1).

1.5. Problem Statement

The client used car businesses3 have been covering their costs, but they have a very little growth. Mr. L (the owner of AM) would like AM to increase the profitability and grow into a larger player in the market. He would also like to generate revenues in a sustained way, so that he can diversify his business portfolio. In order to achieve Mr. L ambition, the most important things are AM need to generate more cash flow and profit.

As an automotive retailer, AM are not able to diversify their product and they cannot simply markup their price4 to increase the profitability of their business. The more plausible way for AM to increase their profitability is; to increase the scale of their businesses without increasing as much cost.

The consultant found out that AM have several Problems, which are:

They have no formal customer database They have no clear idea of what their customers value from them

o They have never done any formal market research They have no clarity for their future directions

o Clarity about what steps to take, “what to do” and “what not to do” The owner does not communicate his vision to the people in the organization in a

clear mannero They need a common language, for everyone to move towards the same

goal

1.6. Research Questions

The questions which the consultant aim to answer in this consultancy project are as following:

“How can a more customer-centric approach business model be integrated in to AM5?”A. “What is AM current business model?”

a. “What are AM business model strengths, weaknesses, opportunities, and threats (SWOT)?”

B. “What do AM customers value the most from their business?”3 From NM time until now / AM4 Since they are in a competitive market5 While keeping in mind about lean thinking

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a. What can be considered a customer-centric business model?”C. “What are the strategies that need to be integrated into AM business model?”

a. “How can AM integrate those strategies? (Plan of actions)”b. “What is lean-thinking?”

i. “Is it relevant to this consultancy project content?”

1.7. Formulation of Type of Consultancy Assignment

As mentioned in section 1.1, the client (AM) objectives are to increase their market share and profitability, and grow into a larger player in the market, without investing a large amount of capital (with their limited capital / within their capability). In order to achieve the client objectives, the consultant formulates this consultancy project proposal. The consultant is led to believe that by innovating AM business model –integrating a more customer-centric approach business model into AM –, they will be able to achieve their objectives (Zott, Amit & Massa, 2011; Ernst & Young, 2015).

This consultancy project will start with identifying AM current business model and finding the possible causes of AM current state –very little growth – (Doing diagnostic work). Based on the findings of the research, the consultant will design and formulate the desired business model, as well as the strategy incorporated inside it (Improving systems and methods). Last but not the least, the consultant will formulate the plan of actions to implement the consultant recommendations –the desired business model – (Develop action proposals).

In conclusion, this consultancy assignment types are:

1. Doing diagnostic work2. Develop action proposals

a. Which hopefully will result in improving systems and methods

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2. ANALYSIS OF PROBLEM AND CONCEPTUAL FRAMEWORK (AM & INDONESIAN USED-CAR

MARKET

2.1. Brief Introduction of AM

AM (figure 2.1) is a newly formed6 used car showroom operates in JABODETABEK7, which are Jakarta and its surrounding city. AM main operational activities include buying and selling of used cars, and selling new cars as well.

Figure 2.1. Agung Motor Dealer (Temporary Dealer)

6 As of March 2016, as a result of an unforeseen circumstances which forced owner to open new showroom (previous showroom was Naura Motor)7 Jakarta, Bogor, Depok, Tangerang, Bekasi

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2.1.1. Overview of AM Organizational Chart / TableDue to confidentiality purpose, the consultant will use an alias8 every time he need to mentioned peoples name in this paper. In figure 2.2 (below), reader can find AM current organizational chart. During the consultant stay in Indonesia, Mr. L (owner) shared his vision and plan for AM future. Mr. L are planning to open a new branch of AM in 2 / 3 months9, hence Mr. L are preparing Mr. S (Head Supervisor) to manage all of AM branches in the future.

Figure 2.2. AM Current Organizational Chart

As the name suggested, Mr. F (Accounting & Bookkeeping) are responsible for accounting and bookkeeping of AM. Mr. F have no direct control / authority to AM business and personnel. The block “Network of Brokers” (in the figure) represents the networking of freelance fee-based brokers. Currently, AM have about 10 regular brokers, the brokers may come to do business with AM through the Owner, Head Supervisor, and / or Operational Director.

8 Description can be found in the Abbreviations9 As of March 2016, so in about May / June 2016 new branch of AM will be open

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Network of Brokers

Operational Director

Accounting & Bookkeeping

Head Supervisor

Owner

Currently Mr. Y (Operational Director) is the person in charge of AM daily operations. In Mr. L plan for the future, Mr. Y will be the operational director of AM first branch and there will be another person who will be in charge of AM second branch. Hence there will be an Operational Director for each branch. Figure 2.3. shows the illustration of AM future system

Figure 2.3. AM Future (2 branches) Organizational Chart

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Operational Director

(Branch 2)

Network of Brokers

Operational Director

(Branch 1)

Accounting & Bookkeeping

Head Supervisor

Owner

2.1.2. Overview of AM Financial PerformanceMarch 2016 Monthly Turn

Over (In IDR)Monthly Turn Over (In EUR10)

Net Profit for AM in %

Agung Motor (AM)

Rp549.000.000 € 36.720,00

30%

On Average Monthly Turn Over (In IDR)

Monthly Turn Over (In EUR)

Net Profit for NM in %

Naura Motor (NM)

Rp721.000.000 € 48.223,00

28%

Table 2.1. AM brief financial report & NM for comparison

In Table 2.1 (above) reader can find brief information about AM turnover and net profit for March 2016, and the consultant also put information of NM11 as a comparison. On a good month, the turnover of NM can reach as high as around Rp1.000.000.000 (€66.860, 00). During a bad month, the turnover of NM could fall to Rp415.000.000 (€27.755, 00). Aside from the pure profit12 of car sales, AM also get profit through refund from auto finance / leasing company13 and from insurance company14.

Description of Refund

Percentage of interest which the customer will pay to auto finance / leasing company, paid by auto leasing company to AM upfront.

10 As of 22nd March 2016 exchange rates11 Previous showroom owned by Mr. L12 Sales price – cost of procurement – cost of repair (if any) 13 About 5% of principal debt / price of car sold14 About 0.5% of principal debt / price of car sold

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2.1.3. Overview of AM StrategiesSince AM dealer located in the middle and lower-middle class area, Mr. L have developed strategies to meet AM prospective customer needs. Some of AM strategies will be briefly mentioned below.

Inventory Management

Since most of AM customer comes from middle and lower-middle class, hence most of them are looking for affordable and economical cars. For that reason, AM inventory are managed in a way that match the prospective customer demand. 90% of AM inventory consists of high demand / easy to sell product that are affordable and highly economical, such as: Daihatsu Xenia, Toyota Avanza (figure 2.4), and etc. As a variation, 10% of AM inventory consists of higher price / premium product, such as: Honda CR-V, BMW X1, BMW X 5 (figure 2.5), and etc.

Figure 2.4. Toyota Avanza & Daihatsu Xenia (Source: http://4.bp.blogspot.com/-o7k3cEAx9xw/UydZXy2SpDI/AAAAAAAAARY/VCFkHgK7Yos/s1600/Avanza+Xenia.JPG)

Figure 2.5. BMW X1 & BMW X5 (Source: http://media.caranddriver.com/images/media/51/2016-bmw-x1-xdrive25d-inline1-photo-660794-s-original.jpg; http://www.automobilesreview.com/gallery/bmw-x5-xdrive35d-10-year-edition/bmw-x5-xdrive35d-10-year-edition-02.jpg)

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Network Relationship (Auto Finance / Leasing Company)

AM have developed a network relationship with several auto finance / leasing company. Among several different auto finance, AM are a Pareto – Showroom who have strong relationship with auto finance and has a lot of advantages – showroom for two auto finance / leasing companies, which are ANDALAN Finance and BFI Finance (see figure 2.6. for logo).

Figure 2.6. ANDALAN Finance & BFI Finance Logo (Source: http://siva.jsstatic.com/id/8360/images/photo/6922662.png; http://cdn-kisikisi.jobs.id/assets/images/logo/bfi_finance_indonesia_tbk_pt.jpg)

BFI Finance offers a low interest rates with a high down payment. ANDALAN Finance on the other hand, offers a high interest rates with a low down payment. Since most of AM customer are a working employee – Their source of income is their salary –, they prefer a purchase through credit. As the consultant has already mentioned earlier, most of AM customers come from middle and lower-middle class. Hence even through credit, most of them prefer credits that offer a low amount of down payment.

Mr. L has gained ANDALAN Finance Head Area (West Indonesia) trust. Prospective customers whom usually have a hard time to get their leasing agreement approved15, can be helped by AM to get a lease from ANDALAN Finance16.

15 Example: They do not have assets (house) / still live in a rented house, but actually able to meet the monthly payment; they can only pay a little amount of down payment (less than ANDALAN standard); etc.16 Under condition of “buyback guarantee”: if within the first 6 months, customer cannot continue their payment, AM have to buy the car back.

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Brokers

Mr. L stated, “Most of us are more incline to trust the people whom we know more than we trust strangers. The same goes for most of AM prospective customers.”. People usually buy/sell cars from/to the people they know, or at least from their acquaintance referral. The goal of this strategy is to be able to reach into each of the brokers’ personal connection (figure 2.7). Which basically makes the use of brokers to find buyer and/or to get information about cheap car being sold17 a fairly good strategy. As the consultant have already mentioned earlier, AM can make use of brokers’ personal connection and networks for a fairly cheap price18. At the moment, AM have about 10 regular brokers.

Mr. L is currently using a personal approach as a kind of strategy to retain brokers. Some example of such personal approach include:

Give them a comfortable place to be Provide coffee, tea, and snacks Occasionally have a talk with them Lend them money when they really need it (For hospital bills when their kids are

sick, their wife gave birth and etc.)

17 As a kind of free-lance sales person & free-lance procurement agent18 Fee based, usually about Rp1.000.000 / transaction

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Prospective Customer

Broker

Figure 2.7. Reaching Prospective Customers through Brokers’ Personal Connection &/ Networks

2.2. Overview of Indonesian Used Car Market

In PWC reports titled “Riding Southeast Asia’s automotive highway” by Wijeratne, D. & Lau, S. (2015), it is stated that the growth of car sales in Indonseia from 2006-2015 to be 18% (figure 2.8). There are opportunity for growth in the market, and peoples have a growing interest in the automotive industry as well. As an evidence, Google search quieries on automitive in Indonesia has been growing 62% compare to the previous year (Wijeratne & Lau, 2015).

Figure 2.8. Car Sales Growth by Country, 2006-2014 (Source:https://www.pwc.com/gx/en/growth-markets-centre/publications/assets/Riding_Southeast_Asia_automotive_highway.pdf)

Although there are economic downturn in Indonesia (Trading Economics, 2016), Jefri Rudyanto Sirait (Director of PT Serasi Autoraya) said that “There are plenty of the well-off peoples in Indonesia who have a consumptive culture. Cars are considered as fashion, just like smartphones which need to always be updated (changed) to a newer model, and this trend tend to be unaffected by economic downturn.” (Wiangga, 2015). Customers are

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selling their cars in order to buy a different one. New cars market may tend to be stagnant as an impact of political and economical condition, but that does not apply to the used car markets. As an example, “Mobil 88”19 sales at 2014 are growing by 36% compare to their previous year when they sold more than 19.000 units (Wiangga, 2015). The cars segment which have the highest demand are the multi purpose vehicle (MPV). Sirait also said that “Consumers are family oriented, so they need cars that have a large capacities.” (Wiangga, 2015).

The facts mentioned earlier indicate that there are rooms for growth in a used-car markets in Indonesia. AM need to grab the opportunity and try to grab a bigger piece of the cake (AM need to grow their market share).

2.3. Use of Model

2.3.1. 9 Building Blocks Osterwalder and Pigneur (2010, p. 14) define business model as “A business model describes the rational of how an organization creates, delivers, and captures value”. Sorescu, et al. (2011, p. S4) on the other hand, propose a working definition of business model as “A business model is a well-specified system of interdependent structures, activities, and processes that serves as a firm’s organizing logic for value creation (for its customers) and value appropriation (for itself and its partners)”. Although the former seems to be simpler than the later, both of the definitions of a business model are actually quite similar. Therefore, the consultant believe that a business model can best be described through nine building blocks model (figure 2.9): customer segments, value propositions, channels, customer relationships, revenue streams, key resources, key activities, key partnership, and cost structure.

19 Used car showroom and Subsidiaries of PT Serasi Autoraya

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Figure 2.9. The 9 Building Blocks (Source: Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers (Osterwalder & Pigneur, 2010, p. 18-19)

The customer segments building block defines the different groups / segment of customers an organization aims to target / to reach and serve, the value propositions building block describes the products and/or services which create value20 for a specific customer segment, the channels building block describes how a company can reach and communicate with its customer segments to deliver value proposition, the customer relationships building block reflect the type of relationships an organization establishes with specific customer segments, the revenue streams building block reflect the revenues an organization generate from each customer segment, the key resources building block describes the principal assets required to make a business model work, the key activities building block describes the most important things an organization must do to make its business model work, the key partnership building block describes the network of partners and suppliers that make the business model work, the cost structures describe all costs incurred to operate a business model (Osterwalder & Pigneur, 2010).

Joan Magretta (2002) mentioned that the whole (business model) is not simply the sum of its parts (elements), it is fundamentally about how the elements of the business model fit together21 to create and appropriate value. If these interdependencies reflect a high level of complementary / synergy among the elements of business model, then the business model is likely to be more cohesive and effective in achieving its purpose (Porter, 1996). Sorescu, et al. (2011, p. S4) specified that the beneficial interplay of the elements of a business model is pivotal to its successful implementation. Hence, the consultant will seek to formulate the desired business model that have a high level synergy among its elements.

20 Value maybe qualitative (e.g. customer experience, design) or quantitative (e.g. price)21 Multi-layered interdependencies among the elements of a business model

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2.3.2. SWOT AnalysisIn the analysis & results chapter (chapter 5), the consultant will use a SWOT analysis to analyze each component of AM current business model. SWOT asks four big simple questions. The first two – what are your organization’s strength and weaknesses? – assess organization internally. The second two – what opportunities does your organization have and what potential threats does it face? – assess organization’s position within its environment (Osterwalder & Pigneur, 2010, p. 216). The consultant will ask these four questions with respect to each component of AM business model –nine building blocks –. The SWOT analysis will be written based on the primary research done for this consultancy project.

2.3.3. Fish-bone Diagram (Ishikawa)The fish-bone diagram will be used to describe the possible causes of AM current condition / problem (very little growth of business) based on the primary research results. The diagram will be added in section 6.1 (figure 6.1)

2.3.4. Flowchart to describe AM Operational Processes The consultant will describe several of AM business operational processes in the form of flowchart. The flowchart will be included in the appendix 2.

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3. LITERATURE REVIEW

In reviewing available literatures, the purpose of this chapter is to establish a theoretical and the concept for topics related to this consultancy project. It introduces key concepts and definitions of the terms that the consultant uses from past literatures. This chapter is formulated to describe the theoretical background of the consultant ideas to do this consultancy project, in order to achieve the client objective (to increase their market share and profitability, and grow into a larger player in the market, without having to invest a large amount of capital (with their limited capital / within their capability)).

3.1. Organization’s Profitability

An organization’s survivability and success are depended on their profitability. Organizations are able to generate profits by attracting new customers to purchase their products / services, as well as retaining the customers to make repurchase (customer retention). Therefore, an organization’s ability to attract and retain customers is pivotal to the organization’s survivability and success (Hallowell, 1996). One of an important factor to attract customers is to understand their behavior in buying decision processes. In understanding a car customer behavior, one important questions arise “what are the determinant factors in customers’ decision to make a purchase / buying a car?”. Vikram Shende (2014), who did a research on the customer behavior of car customer in India. He analyzed the determinant factors of customers’ purchasing behavior, in several different segments of car (primarily based on overall vehicle length). He concludes that while purchasing mini segment car (3.2m – 3.6m) customer is highly cost conscious, for mid-size segment (4.25m – 4.5m) customer focus is for safety, driving & seating comfort, brand. Also mid-size segment requires value for money, best features and customer friendly vehicles. In higher segment cars like Executive (4.5m – 4.7m) and Premium (4.7m – 5m), brand image is the main deciding factor which gives assurance of meeting their needs in terms of safety, performance and feature requirements (Shende, 2014). Those several determinant factors of customer purchasing behavior can be categorized as product quality (Jahanshahi, Gashti, Mirdamadi, Nawaser, and Khaksar, 2011). Therefore, it can be said that the product quality is a critical factor in attracting customers in the automobile industry. Then, another questions emerge “How can an organization retain their customers (attract repurchase)?”. An organization that has a high rate of customer retention means that they have a high level of customer loyalty (Hallowell, 1996). Gustaffsson, Johnson, and Roos (2006) mentioned that customer satisfaction has a positive effect on retention. Jahanshahi et al. (2011) in their study of Indian automotive industry –by using the case of Tata Motor’s Company –, mentioned that there is a

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positive relationship between customer satisfaction and customer loyalty in the context of the Indian automotive industry. Hence, a chain of organization success can be formed as:

Customer satisfaction customer loyalty (customer retention) Profitability Organization’s survivability and success.

Pilkington and Chai (2008) studied the importance of quality of products and services on customer satisfaction and found out that loyal customers mostly lie in category of customers who have used higher quality products. This implies that better quality of products tends to increase customers’ loyalty (Jahanshahi et al., 2011). Researches by Chai, Ding, and Xing (2009) show that quality of services to a customer is one of the most important factors in identifying new customer needs, and Jahanshahi et al. (2011) specify that the key to customer satisfaction and loyalty is providing the customers with their undiscovered needs. Other studies done by Bastos and Gallego (2008); Yi (1990); Chai et al, (2009); Bloemer, and Kasper (1995) also show the importance of products and services quality in enhancing customer satisfaction and loyalty. Jahanshahi et al. (2011) did a research on the effects of customer service and product quality on customer satisfaction and loyalty, and they conclude that the quality of customer service and the quality of products promotes customer satisfaction, and also there is a positive relationship between customer satisfaction and customer loyalty in the context of the Indian automotive industry. Therefore, the chain of organization successes can be formed further as:

Customer service quality + Product quality Customer satisfaction Customer loyalty (customer retention) Profitability Organization’s survivability and success.

According to Newby & McManus (2013) excellent quality of customer services is based upon not just the knowledge and skills of the individual but also upon the way that the organization as a whole, from top management downwards, pulls in the same direction and presents a clear, positive message to customers.

Figure 3.9. shows the key features of excellent customer service (Newby & McManus 2013)

For an organization to have an excellent customer service, the whole part of an organization has to focus on customer (Newby & McManus, 2013). In EY publication of

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the future of automotive retail (2015) stated that the future of automotive retail will shift from transactional towards customer-centric.

Osterwalder and Pigneur (2010, p. 14) defines business model as “A business model describes the rational of how an organization creates, delivers, and captures value”. Sorescu, et al. (2011, p. S4) propose a working definition of business model as “A business model is a well-specified system of interdependent structures, activities, and processes that serves as a firm’s organizing logic for value creation (for its customers) and value appropriation (for itself and its partners)”. A change (innovation) in the organization business model can be a useful instrument, in order to have the whole organization shift their perspective to customer focused. By emphasizing a customer-centric focused on the organization business model, an excellent level of customer service quality will eventually emerge. Consultants at IBM Global Business Services, interviewing 765 corporate and public sector leaders world-wide, found that firms that were financial outperformers put twice as much emphasis on business model innovation as underperformers (Zott, Amit & Massa, 2011). In conclusion, innovating an organization business model towards customer-centric focused, can lead an organization (operates in automotive industry) towards a better profitability and success. The chain of organization successes can be formed further as:

Innovating the organization business model (towards customer-centric) Excellent Customer service quality + Product quality Customer satisfaction Customer loyalty (customer retention) Profitability Organization’s survivability and success.

3.2. Customer-centric Business Model

In the reports of Ernst & Young (2013) statements about customer-centric operational model can be found, and these statement can helps in describing a customer-centric business model. A customer-centric business model builds around a deep understanding of the organization customers, what they value and the contribution each makes to the profitability of the company (Ernst & Young, 2013, p.7). Osterwalder and Pigneur (2010, p. 128) mentioned a similar notion22 in their book, which expressed as “building business model on customer insight”. They describe the notion, as shifting perspective from an organization-centric into customer-centric business model design (figure 3.2).

22 As this consultancy project topic (integrating a more customer-centric approach business model)

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Organization-centric business model design

Customer-centric business model design

What can we sell customers?

What job do our customer need to get done and how can we help? What are our customer’s aspirations and how can we help him live up to them?

How can we reach customers most efficiently?

How do our customer prefer to be addressed? How do we, as an enterprise, best fit into their routines?

What relationship do we need to establish with customers?

What relationship do our customer expect us to establish with them?

How can we make money from our customers?

For what value are customers truly willing to pay

Figure 3.10. Shifting Perspective from Organization-centric to Customer-centric (Source: Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers (Osterwalder & Pigneur, 2010, p. 129)

Therefore, a customer-centric business model requires the organization to: designing business process that recognize different customer segment needs, delivering a positive and seamless customer experience at every touch point across the customer life-cycle, maintaining an active dialogue with customers (and acting on feedback), fostering a culture that places the customer at the heart of the decision-making process (Ernst & Young, 2013, p.7).

3.3. Lean Thinking

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Shifting perspective

The term "lean" was coined to describe Toyota's business during the late 1980s by a research team headed by Jim Womack, Ph.D. (Lean Enterprise Institute, n.d.). Fostered by a rapid spread into many other industry sectors beyond the automotive industry, there has been a significant development and “localization” of the lean concept (Hines, Holweg, & Rich, 2004). Eventhough there are various definition of the concept of lean available in the literatures, it is mostly concern as eliminating waste / non-value adding activities. There are plenty of succesful lean applications in a range of different settings however, the lean approach has been criticised on many accounts, such as the lack of human integration or its limited applicability outside high-volume repetitive manufacturing environments (Hines et.al, 2004).

Therefore the consultant decide that the concept of lean thinking are irrelevant in designing the deliverables of this consultancy project. Instead, the consultant will focus on design themes –that represent ways in which a retailing business model may appropriate value– proposed by Sorescu, Frambach, Singh, Rangaswamy, & Bridges (2011). The design themes are operational efficiency –In a nutshell, efficiency refers to doing things right, that is, faster, cheaper, simpler –, and operational effectiveness. While efficiency refers to doing things right, effectiveness entails doing the right things (Sorescu et al., 2011). In other words, the consultant will seek to formulate the deliverables that reflects a high level of operational efficiency and effectiveness.

3.4. Summary

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To summarize the literature review, innovating an organization business model towards customer-centric focused, can lead an organization (operates in automotive industry) towards a better profitability and success. The chain of organization successes can be formed further as:

Innovating the organization business model (towards customer-centric) Excellent Customer service quality + Product quality Customer satisfaction Customer loyalty (customer retention) Profitability Organization’s survivability and success.

A customer-centric business model requires the organization to: designing business process that recognize different customer segment needs, delivering a positive and seamless customer experience at every touch point across the customer life-cycle, maintaining an active dialogue with customers (and acting on feedback), fostering a culture that places the customer at the heart of the decision-making process (Ernst & Young, 2013, p.7).

The consultant think that the concept of lean thinking are irrelevant in designing the deliverables of this consultancy project. Instead, the consultant will seek to formulate the deliverables that reflects a high level of operational efficiency and effectiveness.

4. RESEARCH METHODOLOGY & METHODS

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This chapter will provide readers with an overview of the methodology and methods employed for this particular research. This consultancy project is an applied research, where the consultant will utilize primary data or information gathered, as well as existing knowledge from the literature in order to achieve the objective of this research. The purpose of this research has an exploratory nature. Since in this research project, the consultant will search to find a best way23 to integrate a more customer-centric business model in to AM. The next section will be mainly discussed this consultancy project research approach, strategy, methods, time horizons, reliability and validity, as well as the ethical considerations.

4.1. Research Approach

This consultancy project will not be dealing with testing hypothesis (deductive) or developing a theory (inductive). However, since the consultant have to use an existing knowledge and theory from literature, and gather data through action research (a combination of observation and unstructured interview) to get to the end result. It can be said that this consultancy project leans more on to an inductive approach (Saunders, Lewis & Thornhill, 2009, p. 124-128).

4.2. Research Strategy

4.2.1. Action ResearchThe consultant will mainly use action research as this consultancy project research strategy. Action research’s typically works through several cycle of stages which involves a process of diagnosing or constructing issues (fact finding and analysis), planning action, taking action, and evaluating action (Saunders, Lewis & Thornhill, 2012, p. 183). The stages mentioned earlier are forming a cycle, and several cycles of action research are forming an action research spiral (Figure 4.1).

23 See section 2.3.3

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Figure 4.11. Action Research Spiral (Source: Saunders, Lewis & Thornhill, 2009, p. 148)

Although due to the time constrain, this particular consultancy project will mainly be dealing with diagnosing or constructing issues (fact finding and analysis), and planning action stages. In other words, the consultant will do a “half-cycle” action research.

Participation is a required component of action research (Saunders, et al., 2012, p. 184). The clients are participating the action research process in the form of collaboration. The consultant is not only informed by abstract theoretical knowledge (known as propositional knowledge), but also by Mr. L and AM personnel everyday lived experiences (their experiential knowledge) and knowing-in-action (knowledge that comes from practical application) (Reason, 2006). Through action research, the consultant will have a better understanding of AM environment and organizational capability, in order for the consultant to give the best recommendations to achieve this research project objectives (Saunders, et al., 2009, p. 147-148).

4.2.2. Mini-surveyAdditionally, a mini-survey will be employed in order to reach the first objective of this project (understand what AM customer value from their business). The client mentioned that using a self-completed questionnaire (internet mediated, postal, and delivery and collection questionnaire) might be burdening AM customers, so it might decrease the response rate of the survey. It would also hard to set-up a time to meet AM customers (they are mostly working) in order to do a structured interview. Hence telephone questionnaire was employed as the research instrument for the mini-survey. Telephone

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questionnaire will likely have a high response rate (Saunders, et al., 2012, p. 421), and AM customers will not have to set aside as much time compare to a structured interview.

4.3. Research Methods (Data Collection Techniques and Analysis)

This consultancy project will use a mixed-method research (Saunders, et al., 2009, p. 152). The consultant will mainly use a qualitative approach to achieve this research project objectives, and to a lesser extent a quantitative approach will be used for the mini-survey24.

4.3.1. Data CollectionMini-survey

The consultant uses a mini-survey in order to get an understanding of what does AM customers value from them. As mentioned earlier (section 4.2.2), telephone questionnaire is the instrument employed during the data collection process. Through the client informal database, the consultant was able to find 53 names25 of AM customers. The sample for the mini-survey will be the 53 peoples of AM customers.

Participants are asked to rank several category of AM product & services in a sequence of importance –from their perspectives–. The consultant also asked, “What are the most important thing we should improve? (The thing which “if improved” will make AM a better used-car dealer)”, in order to get a better understanding of AM customers’ perspective.

Questions are asked for the participants to:

Rank several categories (will be stated in section 5.1) of AM product & services in a sequence of importance –from the customer perspectives–.

Stated the most important category to be improved, in order for AM to be a better used-car dealer

Action Research

The consultant collected data through a combination of observation and unstructured interview. The consultant spent two and a half months (1st week of February – 2nd week of April) in Indonesia to do the action research (in AM). The owner of AM (Mr. L) is the only one who knew 100% of the consultant purpose of working there. The other personnel of AM only knew partially, since there is no need for them to know the whole story (it might hinder the process if they knew). Hence, it can be said that the consultant is acting as an “observer-as-participant” as well as a “participant-as-observer” (Saunders,

24 See section 5.2.225 Including phone numbers

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et al., 2012, p. 345). The consultant mostly spents a lot of time with Mr. L, in order to understand the client perspectives on AM business and its environment. During those time, the consultant mostly listen, observe, and asking questions. The consultant have also observed most of the client day-to-day activities, such as; meetings with business networks, dealing with procurements of product (buying cars), meetings with AM management personnels and/or with AM floor employees, as well as entertaining AM business networks in general. The consultant also have a lot of discussion regarding “how AM do their business” and “why AM do what they do”. The consultant have also discussed several of his idea that might be implemented.Aside from that, the consultant also interacts with AM personnels (Managements, as well as floor employees and brokers) whenever there is a chance. The consultant mostly asked questions and listening to their answer, in order to understand their perspective on AM business environment in general.The consultant keep a personal note, to write any important point which can be usefull to achieve this project objectives.

4.3.2. Data AnalysisMini-survey

The data will be analyzed using Microsoft excel. Respondents answers (to rank AM product & services category in a sequence of importance) will be put as a number, and every respondent answers on each category will be added. Respondents mostly place the categories that have a low total number in a high ranking. Based on those numbers, the average rank can also be calculated. Then the consultant will have an idea of the order of importance (of AM product & services) from the customers’ perspectives (Appendix 1. Phone questionnaire answer notes). In other words, the consultant will know what do AM customer value the most from their business. The category, which is mentioned the most from the question of “what are the most important thing we should improve? (The thing which “if improved” will make AM a better used-car dealer)” will be a main priority for the consultant, in forming the recommendations (deliverables) by the end of this report26.

Action Research

Since qualitative data collection results in a non-standardized data, there is a need to classify the analysis into categories (Saunders, et al., 2012, p. 547). Hence, the consultant will use the 9 Building Blocks model (see figure 2.9) to categorize the data derived from the action research (including; observations, disscusions, and unstructured interview). As the name suggested, the categorization will be divided into 9 sections; customer segments, value propositions, channels, customer relationships, revenue streams, key resources, key activities, key partnership, and cost structures. The consultant chose the 9 Building Blocks model to categorize in analyzing the data, in order to facilitate the reader to get a better understanding of how the consultant get to the end result / deliverables

26 See 2.3.3

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(since the derivelables will be in the form of 9 Building Blocks as well) (Saunders, et al., 2012, p. 563).

4.4. Time Horizons

As the consultant have already mentioned in earlier section27 by the end of this research project, the consultant will give recommendations to achieve the research objectives. Since this research project will not be dealing with the actual implementation and/or the result of such implementation, it can be said that this research project is a cross-sectional study (Saunders, et al., 2009, p. 155).

4.5. Reliability & Validity

4.5.1. ReliabilityThe main threat to the reliability of this consultancy project is the consultant bias. To deal with this threat, the consultant will have to always be critical to his own thinking. The consultant has to always try to observe and think from different perspectives, and keep challenging his own ideas. Another threat to reliability is the consultant effect; the consultant might hinder the consultancy project processes by simply being present. To minimize the chance of the consultant effect, the owner of AM (Mr. L) is the only person who knows a 100% of the consultant purposes28.

4.5.2. ValidityTo deal with the internal validity of the mini-survey, the consultant did a pilot test prior to administering the real test to AM customer (Saunders, et al., 2009, p. 372). The consultant has also discussed the issues (such as; form of survey, words use for question, and etc.) of mini-survey with the clients, as well as receiving feedback. Since this research project will deal with a specific organization in a specific environment, the consultant think that the end results will not have a high-level of external validity (Saunders, et al., 2009, p. 158).

27 See 2.3.328 See 5.3.1

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4.6. Ethical Considerations

The consultant has already got the approval from Mr. L to do this research project in AM. In regards to the mini-survey, respondents have been informed about the purpose of the survey before starting. Due to confidentiality issue, the consultant will use an alias every time he need to mention person’s name in this paper.

4.7. Summary

This chapter explained the methodology and methods employed for this particular research. This research project leans more on to an inductive approach, and using a mixed-methods data collection technique and analysis. The consultant will mainly use action research as this consultancy project research strategy, and to a lesser extent a mini-survey will be employed in order to reach the first objective of this project (understand what AM customer value from their business). The consultant has taken measures in regards to reliability and validity issues, as well as ethical considerations.

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5. ANALYSIS & RESULTS

In this chapter, data results from the mini-survey and action research will be presented and analyze. This chapter will be mainly divided into three main sections. The first section will discuss the results and data analysis from the mini-survey. The mini-survey was conducted in order to answer the following research question “What do AM customers value the most from their business?”. The results from the mini-survey will also be used to guide the consultant in formulating the desired business model (deliverables29). The main focus of the second section would be the results and data analysis of the action research that divided into nine categories (figure 2.9. Nine Building Blocks Model); customer segments, value propositions, channels, customer relationships, revenue streams, key resources, key activities, key partnership, and cost structures. The purpose of dividing this section into nine categories is to structuring the data results and analyzing process in a manner, which facilitate the consultant in formulating the deliverables of this consultancy project (in the form of 9 Building Blocks as well). Last but not the least, a SWOT analysis of each nine building blocks of AM business model will be added in the second section as well.

5.1. Mini-survey

As the consultant have already mentioned in earlier section30, respondents were asked to rank several category of AM product & services in a sequence of importance (1 as the most important, 6 as least important), and to answer the following question “What are the most important thing we should improve?” (“if improved” will make AM a better used-car dealer). The descriptions of AM product & services categories are as following:

A. Quality of product (Cars)B. Staff (helpful –knowledge about product– & friendliness)C. AM networks with Auto Finance / Leasing Company (the ability to help

customers get a lease)D. The Showroom (Physical Showroom)E. Inventory / Product Availability & The ability to get the cars that the customer

wantF. Other (In case the consultant and client miss something out, and the

respondents want to add something else)

The total sample of respondents (AM customers) are 53, the consultant was able to interviewed 34 persons. The active response rate is 72%, 13 peoples were busy and

29 See 2.3.330 See 5.3

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unable to set up a time for the interview, while another 6 were unreachable (Total response rate is 64%) (Saunders et al., 2009, p. 220).

5.1.1. Ranking Question Results & AnalysisThe summary of the results will be presented in the table 6.1 below (see Appendix 2 for detail).

Category Number of times each category mentioned in ranks Total1 2 3 4 5 6

A 17 11 6 0 0 0 57B 0 4 9 19 2 0 121C 12 7 5 3 7 0 88D 0 1 0 8 25 0 159E 5 11 14 4 0 0 85F 0 0 0 0 0 0 0

Table 5.2. Summary of Ranking Question Results

In a glance, we can see that there are no respondents who wanted to add another product & service category in the ranking (category F). Several factors might be the reason for this, such as; The consultant and client did not miss anything, the client are not very honest in answering, or the clients might prefer to put less effort in answering the questions. Although the reason for that cannot be guaranteed, the consultant will assume that it is because there is no other category that the customers (respondents) want to add. Respondents mostly place the categories that have a low total number in a high ranking. The consultant will use an example to explain how he calculate the total in the table 6.1:

Category A: (Rank X number of times it mentioned) + (Rank X N) + …. = Total

A: (1 X 17) + (2 X 11) + (3 X 6) + (4 X 0) + (5 X 0) + (6 X 0) = 57

The average ranking for each category can also be calculated by, dividing the total number with the number of respondents.

Average Ranking: Total Number / Total Respondents

Hence the average ranking for each category is; A. 1.7, B. 3.6, C. 2.6, D. 4.7, E. 2.5.

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Therefore (based on the results), in answering the research question of “What do AM customers value the most from their business?”. The consultant now understand the rankings31 of the things that AM customers value from their business are:

1. (A) Quality of Product (cars)

2. (E) Inventory / Product Availability & The ability to get the cars that the customer want

2. (C) AM networks with Auto Finance / Leasing Company (the ability to help customers get a lease)

4. (B) Staff (helpful –knowledge about product– & friendliness)

5. (D) The Showroom (Physical Showroom)

5.1.2. “Should be Improved” Results & AnalysisIn regards to the question “What are the most important thing we should improve?” (“if improved” will make AM a better used-car dealer) in the mini-survey. The results will be presented in table 6.2 (below).

Category Frequency PercentageA 5 15%B 7 21%C 5 15%D 2 6%E 15 44%F 0 0%Total 34 100%

Table 5.3. Frequency of each category being mentioned as “Should be improved”

44% of respondents think that the Inventory / Product availability of AM need to improve the most. Seven of respondents (21%) think that AM mostly need to improve the quality of the staffs. Based on the results (Table 6.2) it can be said that most of AM customers are quite satisfied with the other category of product & services that AM offered. These results, will guide the consultant in formulating the deliverables of this consultancy project.

31 1 being most important – 5 being least important

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5.2. Action Research

Data results and analysis of the action research will be presented in the form of 9 Building Blocks Model (Figure 2.9). Based on the model, this section will be divided into nine categories –customer segments, value propositions, channels, customer relationships, revenue streams, key resources, key activities, key partnership, and cost structures –. This section can also serve the purpose of answering one of this consultancy project research question (“What is AM current business model?”).

5.2.1. Customer SegmentsThe customer segments define the different groups / segment of customers an organization aims to target / to reach and serve (Osterwalder & Pigneur, 2010, p. 20).

AM have two customer segments. The characteristics of each segments can be found below:

First segment (AM main target) characteristics:o Middle & lower-middle class (mostly live in Bekasi area).o Prefer affordable and highly economical cars, such as Toyota Avanza &

Daihatsu Xenia (Figure 3.4).o Purchase through credits

Second segment:o Every other car-buyers that are not included in the first segment.

AM business strategies, are mostly form to target the first customer segment. AM did not start in this manner. Their business strategies are evolving along the way, in order to grab the opportunity in the market. The profit margin from one customer of the first segment is considerably lower than the customer from the second segment, but AM can sell a larger quantity of cars to the first segment.

Mr. L (AM Owner) stated “The profit from one Toyota Avanza32 (first segment) may be significantly lower than Honda CR-V33 (second segment), but we can sold 3 to 5 Avanza in one month, while it might even take two months to sell one CR-V.”

32 Between Rp 10.000.000,00 – Rp 15.000.000,0033 Between Rp 30.000.000,00 – Rp 45.000.000,00

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AM Customer Segment’s SWOT

Strengths Weaknesses Well segmented focus Target segment is alligned with AM

geographical area

Target segment offered a low profit margin

Opportunities Threats A large number of customers (in the

target segment) still unreached by AM

Reaching those unreached customer can significantly grow AM scale

Highly competitive market Intense competition

Table 5.4. AM Customer Segment’s SWOT

5.2.2. Value propositionsThe value proposition describes the products and/or services, which create value34 for a specific customer segment (Osterwalder & Pigneur, 2010, p. 22). AM value propositions:

High quality product (cars)

Mr. L stated, “We are proud with the quality of cars we sell. Our cars prices may be a little bit higher than the market, but we put our customer satisfaction as our top priority. We try to buy cars that are still in a good condition, and even when it is not good enough, we will make the necessary repair (be it painting, engine parts, etc..) or even change the parts when its needed.”

Mr. Y (Operational Director): “Most of other dealers will try to buy cars as cheap as possible, and sell it as expensive as possible. That is why they will only repair the cars just to look good from the outside, they even use a low quality counterfeit parts.”

AM cars do have a little bit higher prices than the market standards. The reason for that is because they make any necessary refinement to their product for the sake of their customers’ satisfaction. Hence compare to other used-car dealer, AM have a higher rates of customer returns and customers referral.

Business Networks: Ability to help customers (with a poor data35) to get a lease from ANDALAN Finance (auto finance / leasing company)

34 Value maybe qualitative (e.g. customer experience, design) or quantitative (e.g. price)35 Example: They do not have assets (house) / still live in a rented house, but actually able to meet the monthly payment; they can only pay a little amount of down payment

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The reputation Mr. L have and the trust that ANDALAN management have for him, has enable Mr. L to help prospective customers (first customer segment) whom usually have a hard time to get their leasing agreement approved, to get a lease from ANDALAN Finance.

Mr. L: “Alhamdulillah, I have gained ANDALAN head area trust that enables me to help customers with a bad data to get a lease. But, it is under a buy-back guarantee. So that if within the first 6 months, customer cannot continue their payment, AM will have to buy the car back.”

Buy-back guarantee is a quite risky condition to help customers. Since AM are vulnerable to lost, if they choose to help the wrong customer. The consultant then asks the owner of AM the reason of implementing this kind of strategy.

Mr. L: “Well it is a quite risky strategy, but because of the experiences that I accumulated. I am able to read and see a person’s character by having a conversation with him. Asking questions, analyzing their answer, reading their body language and facial expressions. This way, I can decide if the prospective customers is actually willing to pay (worth to be help) or not.”

From Mr. L answer we can to see that the second value propositions of AM are heavily relies on the owner’s ability and tacit knowledge, and this kind of knowledge are harder to pass on to another personnel of AM as opposed to formal knowledge.

AM Value Propositions’ SWOT

Strengths Weaknesses

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Well aligned with the target customer segment needs

Customers are quite satisfied with AM value propositions (product quality & business networks)

Relies on owner’s tacit knowledge (hard to pass on the other AM personnel)

Opportunities Threats Customers are interested in a larger

inventories / product avalability AM can offer customers any car

that they wanted (product avalability as a new value proposition)

Substitute products are available in the market

Competitors are offering a lower price products

The weakness made it harder for AM to grow its scale

Table 5.5. AM Value Propositions’ SWOT

5.2.3. ChannelsChannels describe how a company can reach and communicate with its customer segments to deliver value proposition (Osterwalder & Pigneur, 2010, p. 26). AM channels include:

Physical Showroom

Mr. L: “Usually, most peoples who come to our showroom are only to ask the prices of our cars, to use it as a comparison.”

MA36 stated “Most of the time, peoples who come here are only asking prices. They rarely buy cars, most of the people who buy our cars are the one who is being introduced / invited by brokers, or our personnel.”

The consultant concludes that the physical showroom is rarely being the channel that attracts new customers. The showroom is mostly served as an office for AM personnel, the inventory storage (to park cars), and as a place to see AM cars (for customers that are invited by other channels)

Customer Referral / Mouth-to-mouth Brokers Personal connection of AM personnel

As MA stated earlier, most of AM sales comes through brokers and AM personnel. By keeping the customers’ satisfaction as its top priority, AM have a high rate of customer

36 One of the floor employee, job descriptions: Live in the showroom as guards, wash cars, and other miscellaneous job (make coffee, tea, etc.)

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return and customer referral. As an example, Mr. L stated that there are one customers who have bring three of his relatives to purchase cars from AM as well, and there is also one customer who have bought three cars from AM (at first he bought one car, and then he bought another one, and lastly he sold his first car to AM, to buy another different cars).

Third party website / platform for buying and selling cars (such as: www.olx.co.id/mobil/bekas/ ,www.mobil123.com/mobil , and etc.)

Then again just like the physical showroom, this channel is mostly used for a price comparison. Sometimes AM also advertise their product through third party website, and use these platforms to find information of cars to be procured as well.

AM Channels’ SWOT

Strengths Weaknesses Match / alligned with the target

customer segment Customer referral, brokers &

personal connection of AM personal: efficient

Channel reach among prospecttive customers is weak

Poorly integrated Physical showroom: ineffective &

inefficient Third-party website is ineffective

Opportunities Threats Brokers: growing AM networks of

brokers will also grow AM customer reach

When AM do not manage the network of brokers properly, those brokers might go /sell their information to competitors

Table 5.6. AM Channels’ SWOT

5.2.4. Customer RelationshipsCustomer relationships reflect the type of relationships an organization establishes with specific customer segments (Osterwalder & Pigneur, 2010, p. 28). AM do not have a formal customer relationship system. The type of relationship they establish with their customer is:

Personal Relationship

Basically, the person (can be the Owner, Operational Director, etc.) who brings a specific customer in, are the one who handle the relationship with that specific customer.

AM Customer Relationships’ SWOT

Strengths Weaknesses Match the target customer segment Lack of customer relationship

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preference systemOpportunities Threats

Indonesian are mostly valued personal relationship

A proper education for AM personnel (to maintain customer relationship) will improve AM overall relationship with customers

Relies on AM personnel ability to maintain customer relationship

Personnel mistakes can be costly for AM

Table 5.7. AM Customer Relationships’ SWOT

5.2.5. Revenue StreamsRevenue streams reflect the revenues an organization generates from each customer segment (Osterwalder & Pigneur, 2010, p. 30). AM have two streams of revenue:

Product (cars) Sales Refund from Auto-finance / Leasing Company (for customer that purchase

through credit)

Aside from revenues AM generate through selling their product (cars), AM also get a refund (for the customer who purchase through credit) from auto-finance / leasing and insurance company. Refund can be described as a percentage of interest that the customer will pay to auto finance / leasing company, paid by auto leasing company to AM upfront. The nominal of refund are usually about 5.5% of the price of the car sold37.

Mr. L stated “For a Leasing company, we (showroom) are a brokers. So this refund can also be labeled as a brokerage fee.”

AM Revenue Streams’ SWOT

Strengths Weaknesses Charge for what customers are

willing to pay for Revenues are transactional with few

repeat purchase

37 See 3.1.2

36

Revenues are quite predictable Dependent on single revenue stream Incur high cost before collecting

revenueOpportunities Threats

AM can find customers (buyer) for a specific car, before actually procure / buy that specific cars (secured revenue before incuring cost)

Dependent on single revenue streams (car sales)

Table 5.8. AM Revenue Streams’ SWOT

5.2.6. Key ResourcesKey resources building block describes the principal assets required to make a business model work (Osterwalder & Pigneur, 2010, p. 34). AM key resources are:

Financial: Capital Human Resource: Skilled personel (in selling cars as well as procurement),

tacit knowledge, personal connection of AM personnel

AM value propositions (see 5.2.2) mostly rellies on AM Human Resource. In maintaining the quality of the cars which they sell, to some extent recuired AM to procure product that are still in a good condition. Also in minimizing the risk (of buy-back) while helping customer get a lease, AM relies on the Owner ability and tacit knowledge.

Trust / Reputation of the Owner and AM personnel

Mr. L: “Gaining peoples’ trust and building a good reputation is long, and hard process. But with just one mistakes, you can lose both. In every field of businesses, I believe that trust and reputation is what can get you far.”

AM reputation is critical in keeping their business model works. The value propositions and channels of AM are dependent on AM trust and reputation. Maintaing AM reputation and the trust that stakeholders have for AM is crucial in keeping the revenue streams going.

AM Key Resources’ SWOT

Strengths Weaknesses Resource needs are predictable Trust & reputation are difficult for

Limited Financial resources

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competitors to replicateOpportunities Threats

Information (about cheap car on sale & prospective customers looking to purchase cars)

Trust & reputation are difficult to maintain / can be lost easily

Tacit knowledge are hard to pass on other personnel

Table 5.9. AM Key Resources’ SWOT

5.2.7. Key ActivitiesKey activities describe the most important things an organization must do to make its business model work (Osterwalder & Pigneur, 2010, p. 36). AM key activities are:

Maintaining the quality of products (cars)

Mr. L: “I keep reminding AM personnel about keeping customer satisfaction through our product quality from time to time.”

Even though maintaining the quality of AM products is one of their key activities. AM mostly relies on the owner’s personal approach to personnel. This personal approach is quite effective at the moment, but as AM grows its scale the consultant think that AM will need a more proper system to maintain its quality.

Selling cars

With car selling as AM main revenue streams, the activities of selling cars are obviously one of AM key activities.

Maintaining trust and reputation of AM, as well as the relationship with business networks (auto-finance/leasing company), and other stakeholders (brokers, customers, etc.)

As the consultant have already mentioned in earlier section, the activities mentioned above are crucial in order to make the business model works.

AM Key Activities’ SWOT

Strengths Weaknesses Execution quality is high Maintain trust & reputation are

Selling cars: quite ineffective (weak customer reach)

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difficult to copy Maintaining product quality & selling cars: can be copied easily

Opportunities Threats AM can standardize the activity of

maintining product quality AM can utilize a better channel to

strengthen their main activity (selling cars)

Trust & reputation are difficult to maintain / can be lost easily

Table 5.10. AM Key Activities’ SWOT

5.2.8. Key PartnershipKey partnership describes the network of partners and suppliers that make the business model work (Osterwalder & Pigneur, 2010, p. 38). The type of partnership that AM have is strategic alliances (with non-competitors). AM have a strategic alliances with:

Auto Finance / Leasing companies

Mr. L: “Pareto showroom can get a liquidation faster than a non-pareto showroom. For example in ANDALAN, we used to need to wait 1 – 2 weeks for liquidation, but now (after becoming pareto) we only have to wait between 3 – 5 working days.”

As the consultant have already mentioned (section 2.1.3), AM are a ‘pareto’ showroom for BFI Finance and ANDALAN Finance. Mr. L statement above describes one of the advantage of being a ‘pareto’ showroom. Fast liquidation also means a faster flow of cash, which can results in a higher return on investment.

Car repair and workshop

AM forge a relationship with a car repair and workshop, for a quality purpose. In order to maintain the quality of the product (cars) that they sell, most of the time they need to do some repair or painting for the car they procured. By having a strategic alliances with a car repair and workshop AM are able to use their services for a lower prices than the market standards, so AM can sell a high quality cars without increasing the prices as high.

AM Key Partnership’s SWOT

Strengths Weaknesses AM are focused & enjoyed working

with partners Competitors can imitate the same

kind of partnership as AM

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AM have a good relationship with their partners

Opportunities Threats Network of brokers can be added as

key partners: to help AM strengthen their customers reach, to increase AM information knowledge (about cheap car on sale & prospective customers looking to purchase cars)

Coopetition: with other dealer that targeted different customer segments

AM partners can also collaborate with competitors

Table 5.11. AM Key Partnership’s SWOT

5.2.9. Cost StructureCost structures describe all costs incurred to operate a business model (Osterwalder & Pigneur, 2010, p. 40). AM cost-structure are in between (the two extremes) cost-driven and value-driven. As mentioned in earlier section, AM focuses on the customers’ satisfaction through selling a high quality product. Maintining to sell a high quality products indicate a value-driven part of the business. Aside from that, AM management try to keep their operational day-to-day cost as low as possible (cost-driven). The of AM cost structure are:

Fixed costso Salary of personnelo Physical showroom rents

Variable costso Brokers fee (for selling car)o Personnel bonus and fee (for selling car) o Car / product repair costso Showroom water, gas, and electricity

Looking at the cost of the physical showroom and its impact on attracting new customers38, the consultant think that the value-for-money of the physical showroom is quite wasteful. While it is the other way around for brokers. The cost of brokers (broker fee) are variable, meaning that AM pay the cost for each car sold (for a specific person that sold the car). The consultant believe that brokers are an effective channel for growing AM businesses.

AM Cost-Structure’s SWOT

Strengths Weaknesses38 See 6.2.3

40

Cost are predictable Benefit from economies of scale

Operations are cost-inefficient High-cost to grow the scale of

business (to have bigger inventory = to buy more cars, and need more space to park the cars)

Opportunities ThreatsIf AM network of brokers can grow significantly, it can:

Reduce the cost to grow the scale of business: (give AM strong informational knowledge (about cheap car on sale & prospective customers looking to purchase cars), which means AM do not need to actually have a larger inventory to provide prospective customers with the cars that they desired)

Strengthen AM’s customer reach, without having to open another branch of physical showroom (which are cost-inefficient)

Unable to grow AM business scale without a significant amout of investment

Table 5.12. AM Cost-Structure’s SWOT

5.3. Summary

To summarize the results and analysis of the data collected through mini-survey and action research. In general, the findings can be concluded as following:

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AM customers’ mostly valued the quality of the products (cars), while a considerable numbers of customers valued the inventory / product availability (The ability to get the cars that the customer wants), and AM networks with auto finance / leasing company (the ability to help customers get a lease). Most of AM customers’ think that the inventory / product availability should be AM top priority to improve. Hence, the answer to the research question of “What do AM customers value the most from their business?” is the quality of products (car).

In answering the research question of “What is AM current business model?” a brief version of the nine building blocks model will be used as following:

5.2.8. Key Partners

Auto Finance / Leasing Company

Car Repair & Workshop

1.

5.2.7. Key Activities

Selling Cars

Maintain the Quality of Products

Maintain the Trust & Reputation

5.2.2. Value Proposition

High Quality products (used car)

Business Networks:Ability to help customers get a leasing agreement

5.2.4. Customer Relationships

Personal Relationship

5.2.1. Customer Segments

Middle & lower-middle class: who purchase affordable & highly economical cars, preferably through credit

Other car-buyers5.2.6. Key Resources

Financial

Human Resource

Trust & Reputation

5.2.3. Channels

Showroom

Customer Referral / Mouth-to-mouth

Brokers

AM personnel

3rd party websites5.2.9. Cost Structure

Fixed Costs

Variable Costs

5.2.5. Revenue Streams

Car (product) sales

Refund from Auto-FinanceFigure 5.3. Nine Building Blocks of AM Current Business Model

A brief summary of AM business model SWOT analysis can be describe in the following table:

Strengths Weaknesses

42

Well focused customer segment Value propositions are aligned with

target customer segment Customers are generally satisfied

with AM product & services

Channel reach among prospective customers is weak

Dependent on a single revenue stream

Opportunities Threats A large numbers of customer (in the

target segment) still unreached by AM (opportunities for growth)

Strengthening the network of brokers will; give AM strong informational knowledge –illusion of large inventory (ability to provide customers with any car that they want) –, and strengthen AM’s customer reach

Highly competitive market Unable to grow the scale of

business without investing a significant amount of capital

Table 5.13. AM Business Model's SWOT

6. CONCLUSION & RECOMMENDATIONS

This chapter will be divided into four main sections. In the first section, the consultant will conclude the diagnosis of AM main problem –very little growth–. He will use a fish-

43

bone (Ishikawa) diagram in order to describe the possible causes of AM problem. The consultant will propose his recommendations (strategy) for AM in the second section of this chapter –along with the possible benefits of the recommended strategies–. In the third section, the consultant will propose the desired business model –in the form of nine building blocks– that he formulated. Last but not the least, the consultant will propose a plan of actions –for AM– to implement his recommendations.

6.1. Conclusion of the Diagnostic Work

In doing the diagnostic work for AM, the consultant identified several possible causes of AM main problem –very little growth–. As the consultant have already mentioned in earlier chapter (section 1.5), he found that AM; have no formal customer database, have no clear idea of what their customers value from them –never done any formal market research–, have no clarity for their future directions, and the owner does not communicate his vision to the people in the organization in a clear manner –results in a lack of common language–. After the research, the consultant was able to identify another possible causes of AM problem. He then decided to categorize those set of possible causes into six major categories:

1. Customer Insight2. Financial3. People / staff4. Market Share5. Management 6. Business Operations

In order to facilitate the reader, the consultant will use a fish-bone (Ishikawa) diagram (figure 6.1) to describe the possible causes of AM main problem.

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Figure 6.12. Fish-bone (Ishikawa) Diagram of AM Problem’s

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6.2. Recommendations of Strategies

The consultant recommends two strategies for AM. The first strategy is to utilize and strengthen AM network of brokers, in order to have a stronger customer reach, and a stronger informational knowledge –illusion of a larger inventory –. The second recommended strategy is a coopetition with other used car dealer, who are mainly targeting a different customer segments from AM. The next section will provide the description of each of the recommended strategies, as well as its possible benefit.

6.2.1. Strengthen AM’s Network of BrokersThe network of brokers is one of AM strategy (see section 2.1.3 for detail). As a channel to reach customers of AM, brokers are considered to be quite effective and efficient. The consultant believes that by strengthening AM’s network of brokers can give AM several benefits, which are:

Stronger customer reach (reach more customer in the target segment) Stronger informational knowledge;

o Give illusion of large inventory (what the customer wants): By being able to provide customers with any cars that they wanted

o Provide information for better procurements: cheap and good quality car on sale

If successful, can replace ineffective and inefficient channel –physical showroom might become obsolete, no need for a new branch (may even be no need for physical showroom at all) which have a high fixed-cost–

Low-cost for value strategy, in order to grow AM scale and achieve its objectives (section 1.1)

The consultant will provide several illustrations to visualize the benefit of this strategy. The first illustration (figure 6.2) will show the customer base of AM, in a geographical picture. The second illustration (figure 6.3) will show the geographical area of AM’s target customer segment –unreached market / opportunities for growth–. The third figure (6.4) illustrate the advantages of the network of brokers –the benefits mentioned earlier –.

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Figure 6.13. AM's Customer Reach (map of JABODETABEK –Jakarta, Bogor, Tangerang, Depok, Bekasi–. Surface: Jakarta (661.52 km2), and its surrounding city (1,357.49 km2))

Figure 6.2. Descriptions:

Square: the location of AM showroom and office Circle: the geographical area of AM customers, the size of the circle represents

quantity of customers

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Figure 6.14. Geographical Area of AM's Target Customer Segment (map of JABODETABEK –Jakarta, Bogor, Tangerang, Depok, Bekasi–. Surface: Jakarta (661.52 km2), and its surrounding city (1,357.49 km2))

Figure 6.3. Descriptions:

Square: the location of AM showroom and office Circle: the geographical area of AM customers, the size of the circle represents

quantity of customers Green Stripes: represents the geographical area of AM’s customer segments –

unreached market / opportunities for growth–

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Figure 6.15. Illustration of the Network of Brokers (map of JABODETABEK –Jakarta, Bogor, Tangerang, Depok, Bekasi–. Surface: Jakarta (661.52 km2), and its surrounding city (1,357.49 km2))

Figure 6.3. Descriptions:

Square: the location of AM showroom and office Circle: the prospective customers Star: Brokers Star –link– Circle: brokers and their personal connection / networks Green-Arrow: AM Reaching prospective customers through brokers personal

networks and connection

Reader can find the detail of brokers and their personal connection in the earlier chapter (section 2.1.3. Brokers, and figure 2.7.)

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Retaining Brokers

To be able to strengthen / grow the network (of brokers) that AM have, they will need another strategy to retain brokers –aside from the personal approach (see 2.1.3. for detail)–. The new strategy has to attract new brokers (to be in AM network of brokers), as well as retain them in the future. General characteristics of brokers in Jakarta area can be describe as:

Indonesia are the largest Muslim country (a majority of Indonesian are Muslim), and generally most of the brokers are Muslim

Brokers have a relatively low income: they usually have a hard time to save their income (priorities children education for savings)

Because of that reason, the consultant recommends AM to provide rewards (aside from fee) for the network of brokers. The form of rewards is a religious travel package (Umroh) to Mecca and Medina in Saudi Arabia, for two people39. The rewards can be given in a kind of competition system. All of the brokers who are doing business with AM will be appraise in a point system (based on the profitability they make for AM).

As mentioned earlier (brokers can hardly save money), most of the brokers are only dreaming of going for Umroh. They never think that it will be possible for them to go to Mecca and Medina for the religious trip. Hence, the consultant believes that by providing this reward annually AM can attract much more brokers to do business with AM, the appraisal systems will also stimulate competition between brokers to bring the most profitability form AM.

For a Non-Muslim brokers, a rewards can be a travel package to Europe / other attractive destinations.

6.2.2. Competition and Cooperation (Coopetition) In the same sense as AM who targeted a specific customer segment (but still serve another segment as well), there are plenty of similar competitors. AM can form a coopetition relationship, with competitors that mainly focus on a different customer segment than AM. There are several possible benefits from this strategy:

Strengthen AM market reach: Coopetitors can refer prospective customer that they cannot served to AM, and vice versa.

o Satisfy the customers that come to AM even when AM cannot actually serve them (maintain reputation)

Strengthen informational knowledge: Procurement information (to buy cars/inventory)

39 Broker who are the most profitable for AM (annual) and their spouse

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6.3. Desired Business Model

They consultant will use a nine building block canvas (figure 6.5), in order to describe the formulation of the desired “customer-centric” business model for AM.

Key Partners

Auto Finance / Leasing Company

Car Repair & Workshop

Network of Brokers

Competition – cooperation (coopetition)

1.

Key Activities

Brokers Retainment

Selling Cars

Maintain the Quality of Products

Maintain the Trust & Reputation

Value Proposition

High Quality products (used car)

Business Networks:Ability to help customers get a leasing agreement

Product Availability: Ability to provide customers with any cars that they wanted

Customer Relationships

Personal Relationship

Customer Segments

Middle & lower-middle class: who purchase affordable & highly economical cars, preferably through credit

Other car-buyers

Key Resources

Financial

Human Resource

Trust & Reputation

Channels

Showroom (may become nonessential)

Customer Referral / Mouth-to-mouth

Brokers

AM personnel / sales

3rd party websites5.2.9. Cost Structure

Fixed Costs

Variable Costs

5.2.5. Revenue Streams

Car (product) sales

Refund from Auto-FinanceFigure 6.16. Formulation of AM’s Desired (customer-centric) Business Model

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As discussed in the literature review (section 3.2.), designing a customer-centric business model is described as designing business model on customer insight; based on the value that customers are willing to pay for. A result from the research indicates that, AM customers value the “quality of their product” the most, and followed by “inventory / product availability –ability to get the product that the customer wants –”. Hence the desired business model is formulated to fulfill the later research indications – inventory / product availability (ability to get the product that the customer wants) –.

6.4. Plan of Actions

The plan of actions to implement the consultant’s recommendations are as following:

To strengthen AM’s network of brokers (section 6.2):1. Develop the reward system / competition for network of brokers

1.1. Develop appraisal system: to analyze the profitability each broker’s make for AM –to give the rewards to the right broker –

2. Inform the current network of brokers that AM have:2.1. Rewards all of them with a domestic trip (Bali) as a group2.2. Aside from a holiday, during the trip AM management will inform

them about the reward system / competition of brokers2.3. The news about the reward system will travel fast

Competition & Cooperation (Coopetition):1. Finding a suitable coopetitors partners, by analyzing competitors who:

Mainly target different customer segment Have different inventory management system:

Have different stocks than AM, and will always be

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Appendix 1. Phone Questionnaire Telephone Questionnaires Notes of Answer

NameRanking

A B C D E FOkta*** 1 4 2 5 3Ad* 2 3 1 5 4Riz** 2 3 1 5 4Bi** 1 5 3 4 2A*i 1 3 5 4 2R** 2 4 1 5 3Sam*** 2 4 1 5 3Syah**** 1 2 5 4 3Fir**us 2 4 1 5 3Kri*** 1 2 5 4 3Ri*** 2 4 1 5 3R*** 3 2 1 5 4Al** 1 4 2 5 3Air****a 3 4 1 5 2Gi** 1 3 4 5 2Amru**** 1 4 3 5 2Aul** 1 4 5 2 3An**i 3 4 1 5 2Fi*** 2 4 3 5 1E** 3 4 2 5 1Ha**s 1 3 4 5 2Rach**t 1 3 5 4 2Rian** 2 4 1 5 3Er***ga 1 4 2 5 3Nad** 2 3 5 4 1He**i 1 4 2 5 3Di** 3 4 1 5 2Jo***nes 1 3 5 4 2Faiz 2 4 1 5 3Nor*** 1 4 2 5 3*lia 2 3 4 5 1A**on 3 5 2 4 1Mika** 1 4 3 5 2An**i 1 2 3 5 4

57 121 88 159 85Average RANK 1.7 3.6 2.6 4.7 2.5

55

Category:A. Quality of product (Cars)B. Staff (helpful –knowledge about product– & friendliness)C. AM networks with Auto Finance / Leasing Company (the ability to help

customers get a lease)D. The Showroom (Physical Showroom)E. Inventory / Product Availability & The ability to get the cars that the customer

wantF. Other (In case the consultant and client miss something out, and the

respondents want to add something else) Green cells: Answer to the questions of “What are the most important thing we

should improve?” (“if improved” will make AM a better used-car dealer).

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Appendix 2. Flowchart of AM Processes

Sales Processes (cash/credit)

Continued next page

57

Procurement Purchase Process (bought from individual & From Auction)

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Appendix 3. Approved Research Proposal

1.1. Problem Statement / Reason for this Research Project

Through the conversations the consultant had with Mr. L, the consultant found that NM business have been doing fine so far, but it is in a stagnant state. Mr. L have an ambition to grow his capital and ultimately use it for other businesses. The consultant will briefly mention Mr. L ambition for NM to the reader in a way that can be easily understood:

In the future Mr. L want NM to be independent40 and to be able to:o Generate cash-flow for NM itself 41

o Generate cash-flow for Mr. L and his family daily expenseso Ultimately generate capital to be used for Mr. L other businesses in the

future

For Mr. L to achieve his ambition, NM need to have a strong system and/or foundation. NM need to be able to react to trends in the market (flexible), everyone working in NM need to move towards the same direction/goal, NM team need to be empowered, and the most important thing is NM need to generate more cash-flow. As an automotive retailer, NM cannot do anything about the product they sell42 and they cannot just increase their product price to gain more profit43. The more plausible way for NM to generate more profit is to sell more product, while also having less expenses44.

In EY publication of the future of automotive retail (2015) stated that the future of automotive retail will shift from transactional towards customer-centric. EY publication gave the consultant an idea to integrate a more customer-centric approach business model in to NM45. Consultants at IBM Global Business Services, interviewing 765 corporate and public sector leaders world-wide, found that firms that were financial outperformers put twice as much emphasis on business model innovation as underperformers (Zott, Amit & Massa, 2011), this fact supported the consultant idea46. The consultant have already got the approval from Mr. L about this idea, and the consultant is ready to go to NM for this project.

The consultant will briefly conclude the reasons for integrating a more customer-centric approach business model in to NM:

To realize Mr. L ambition40 Can be running smoothly, even without Mr. L41 All operating expenses, and all expenses to grow42 In a sense that, they cannot gain a sustainable competitive advantage through their product43 Since they are in a competitive market, and if they increase their product price no one will buy cars from NM44 Be effective and efficient / implementing Lean thinking45 The consultant will always keep in mind about lean thinking, in doing this project46 Integrate a more customer-centric approach business model in to NM, which is a business model innovation

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To achieve reason above, NM need to:o React to trends in the market: a shift from transactional towards customer-

centric (Ernst & Young, 2015)o Have clarity on NM future direction: clarity about what steps to take, what

to do, and what not to do (Pijl, 2014)o Create a common language: everyone in NM heading towards the same

direction, together, and faster (Pijl, 2014)o Empower NM team: give them the right tools and skills for the future

(Pijl, 2014)o Sell more product, while also having less expenses: ultimately, the

consultant want NM to gain competitive advantage through business model innovation47 and also eliminating non-value adding activity48

1.2. Research Objectives

The objective of this research project is to integrate a more customer-centric approach business model in to NM49. By achieving the objective mentioned earlier, the consultant hope that NM will gain a sustainable competitive advantage (Sorescu, Frambach, Singh, Rangaswamy & Bridges, 2011).

In a nutshell, the ultimate purpose that the consultant hope to achieve from this project are50:

1. Integrating a more customer-centric approach business model in to NM51

a. Which will:i. Give clarity for NM future directions

ii. Create common language –everyone in NM heading towards the same direction, together, and faster (Pijl, 2014)

iii. Empower NM team

b. Which hopefully will lead to:i. Understanding what NM customer value the most from them

ii. Higher service standardsiii. Increasing customer satisfactioniv. cutting non-value adding activity and/or expenses

2. NM will have a higher sales while also having less expenses 3. NM will gain a sustainable competitive advantages

47 NM need to understand what do their customer value from their business, eventually offer the best at what their customer value from them (compare to NM competitors)48 Non-value adding from customer point of view49 While keeping in mind about lean thinking / innovate in accordance with lean thinking50 In a step by step purpose to achieve51 The same as footnotes number 17

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4. Achieve Mr. L ambition52

1.3. Importance of this Research Project

This research project will serve as an application of a numbers of different theory and literature on business model that are available in the web. The consultant will mainly applying the theory and concept that are incorporated in a journal of retailing by Sorescu, et al. (2011, p. S3-S16) titled “Innovation in Retail Business Model”. This research project will hopefully contribute to the advancement on business model literature.

From NM point of view, this project will be a foundation for NM to eventually gain competitive advantage53, and ultimately achieve Mr. L ambition for NM54.The consultant would also like to mention a personal reason of the importance of this research project. Mr. L have played a big role in shaping the consultant to be who he is today55. Without Mr. L, the consultant will not be where he is right now. On that personal note, the consultant have a strong eagerness to apply the skills and knowledge that he acquired during his studies, to help56 Mr. L achieve his ambition.

1.4. Research Questions

The main research question of this research project is:

“How can a more customer-centric approach business model be integrated in to NM?” -While keeping in mind about lean thinking- (primary research, action research)

Sub-research questions: What is business model? (secondary research, literature review) What can be considered a customer-centric business model? (secondary research,

literature review) What is lean thinking? (secondary, literature review) What do the customer value from NM business? (primary research, mini survey) What is NM current business model? (primary research, action research)

1.5. Scope & Limitations

1.5.1. Scope

This research project objective is to integrate a more customer-centric approach business model in to NM. Through the literature that the consultant found in the web, a central

52 See section 1.253 See section 1.354 See section 1.255 Mr. L is a mental and character development mentor of the consultant56 The consultant want to be useful for Mr. L / in a way to repay the deeds of Mr. L., even when Mr. L never and will never ask for it

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aspect of the definition of a business model that the consultant use is that it incorporates interdependencies that transform a set of structures, activities, and processes into an integrated system (Sorescu, et al., 2011, p.S4). Joan Magretta (2002) mentioned that the whole (business model) is not simply the sum of its parts (elements), it is fundamentally about how the elements of the business model fit together57 to create and appropriate value. If these interdependencies reflect a high level of complementary / synergy among the elements of business model, then the business model is likely to be more cohesive and effective in achieving its purpose (Porter, 1996). Sorescu, et al. (2011, p.S4) specified that the beneficial interplay of the elements of a business model is pivotal to its successful implementation. Thus, the consultant will seek to integrate a more customer-centric approach business model which have a high level synergy among its elements in to NM.

1.5.2. Limitations

Due to the time constraint, this research project will not be dealing with the actual implementation and the result of those implementation. By the end of this research project, the consultant will give the recommendations about “what” and “how” to integrate a more customer-centric business model in to NM58.

1.6. Timetable for this Research Project

See appendix

2. Literature Review

Considering the word count limit for this research proposal, the consultant will write this section in a brief and concise manner. Key concepts and definitions of the terms which the consultant use from the past literatures will be briefly describe in this section. The consultant will include a more comprehensive literature review in the final report of this research project.

2.1. Definition of Business Model which are used for this Research Project

The consultant will be mainly guided by the theory and concept that are incorporated in a journal of retailing by Sorescu, et al. (2011, p.S3-S16) titled “Innovation in Retail Business Model”. They propose a working definition of business model as “A business model is a well-specified system of interdependent structures, activities, and processes that serves as a firm’s organizing logic for value creation (for its customers) and value appropriation (for itself and its partners)” (Sorescu, et al., 2011, p.S4).

57 Multi-layered interdependencies among the elements of a business model58 And the justification / reason for such recommendations

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As the consultant have already mentioned earlier59, the consultant will seek to integrate a more customer-centric approach business model which have a high level synergy among its elements in to NM.

2.2. Customer-centric Business Model

In the reports of Ernst & Young (2013) the consultant found statements about customer-centric operational model, which the consultant think can help him to describe a customer-centric business model. A customer-centric business model builds around a deep understanding of the organization customers, what they value and the contribution each makes to the profitability of the company (Ernst & Young, 2013, p.7).

A customer-centric business model requires the organization to: designing business process that recognize different customer segment needs, delivering a positive and seamless customer experience at every touch point across the customer life-cycle, maintaining an active dialogue with customers (and acting on feedback), fostering a culture that places the customer at the heart of the decision-making process (Ernst & Young, 2013, p.7).

2.3. Lean Thinking

The term "lean" was coined to describe Toyota's business during the late 1980s by a research team headed by Jim Womack, Ph.D. (Lean Enterprise Institute, n.d.). Since then, there has been a significant development and “localization” of the lean concept (Hines, Holweg & Rich, 2004). Although there are numerous definition of lean available in the literatures, the consultant will try to be concise. What the consultant means when he mentioned “lean thinking” in this research project is, to only do value adding activities and reduce/eliminate waste/non-value adding activities60. The consultant hope to achieve this research project objectives while keeping in mind about lean thinking. Meaning, to innovate in a way that are in line with lean thinking.

3. Research Methodology

This section will provide readers with an overview of the methodology selected for this particular research. This research project is an applied research, where the consultant will use existing knowledge from the literature in order to achieve the objective of this research.

59 See section 1.6.1 for detail60 Value from the eye of the customers

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3.1. Research Purpose

The purpose of this research has an exploratory nature. Since in this research project, the consultant will search to find a best way61 to integrate a more customer-centric business model in to NM

3.2. Research Approaches

As the consultant have already mentioned earlier62, this research project will not be dealing with testing hypothesis (deductive) or developing a theory (inductive). However, since the consultant have to use an existing knowledge and theory from literature, and gather data through observations and hands-on experience63 to get to the end result64. It can be said that this research project leans more on to an inductive approach (Saunders, Lewis & Thornhill, 2009, p. 124-128).

3.3. Research Strategy

For this research project, the consultant will use action research as the research strategy. Through action research, the consultant will have a better understanding of NM environment and organizational capability, in order for the consultant to give the best recommendations to achieve this research project objective (Saunders, et al., 2009, p. 147-148).

Additionally, the consultant will use mini-survey in order to find out what do NM customer value from their business. Although, the consultant will not get in to much detail about this in the final report.

3.4. Research Methods (Data Collection Technique and Analysis)

This research project will use a mixed-method research (Saunders, et al., 2009, p. 152). The consultant will mainly use a qualitative approach to achieve this research project objective, and to a lesser extent a quantitative approach will be used for the mini-survey65.

3.5. Time Horizons

61 Give recommendations about “what” & “how” / see section 1.6.262 See section 1.663 Action research64 See section 1.6.265 See section 3.3

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As the consultant have already mentioned above66, by the end of this research project, the consultant will give recommendations to achieve the research objectives. Since this research project will not be dealing with the actual implementation and/or the result of such implementation, it can be said that this research project is a cross-sectional studies (Saunders, et al., 2009, p. 155).

3.6. Reliability and Validity

In this section, the consultant will briefly talk about the threat to reliability and validity of this research project, and how he plan to deal with those threat.

3.6.1. Reliability

The main threat to the reliability of this research project is the consultant bias. To deal with this threat, the consultant will have to always be critical to his own thinking. The consultant have to always try to observe and think from different perspectives, and keep challenging his own ideas.

3.6.2. Validity

To deal with the internal validity67 of the mini-survey68, the consultant will do a pilot test prior to administering the real test to NM customer (Saunders, et al., 2009, p. 372). Since this research project will deal with a specific organization in a specific environment, the consultant think that the end result will not have a high-level of external validity69 (Saunders, et al., 2009, p. 158).

3.7. Ethical Considerations

The consultant have already get the approval from Mr. L to do this research project in NM. To be in the safe side, the consultant will also use an alias whenever he need to put a person name in the final report.

66 See section 1.6.267 For the mini-survey to measure what is intended to be measured68 See section 3.369 The extent which this research project results are generalizable

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