Pattern description

Within this model, the company's focus is on the core competencies in the value chain. The other value chain segments are outsourced and actively coordinated. This allows the company to reduce costs and benefit from the suppliers' economies of scale. Furthermore, the focus on core competencies can increase performance.

Inventive problems

Application examples

A prominent example of the application of this business model is offered by sports equipment manufacturer Nike. In the early 1970s, under CEO Phil Knight’s stewardship, Nike started to outsource production of its products to low-wage countries such as Indonesia, China, Thailand and Vietnam, and to concentrate more on its own core competencies of R&D, product design and marketing. Cost savings from outsourcing and this new focus gave Nike an advantage over its competitors, establishing the company at the head of the sports equipment industry. Nike produces an estimated 98 per cent of its products in Asia today, making the Orchestrator pattern an integral part of its business model.

Indian telecommunications services company Airtel was founded in 1995. With over 260 million customers, it has evolved to become one of the largest telecommunications companies in the world. Airtel possessed very little to differentiate it from other telecommunications providers. It began to turn itself into an Orchestrator from 2002 onwards, laying emphasis on its core competencies marketing, sales and finance, and outsourcing other parts of its value chain such as IT support to companies such as Ericsson, Nokia, Siemens and IBM. Airtel negotiated contracts with these companies that allow it to incur only variable costs on the basis of capacity used. Trimming the value chain in this way made it possible for the company to offer its telecommunications services at very low rates. Its Orchestrator role increased Airtel’s revenues by up to 120 per cent and its annual net profits by some 280 per cent between 2003 and 2010.

China’s Li & Fung is also a profitable Orchestrator. It accepts production and development orders from prominent customers such as Toys R Us, Abercrombie & Fitch or Wal-Mart for a variety of goods ranging from toys to fashion accessories to apparel. Li & Fung does not produce these goods itself, but manages a global network of more than 10,000 suppliers who complete the tasks. As such, the company is a global supply chain Orchestrator with the core competence of connecting individual value chain partners and processes. Without owning a single factory, Li & Fung earns multi-billion dollar revenues every year.

References

The Business Model Navigator: 55 Models That Will Revolutionise Your Business