Archetype
Also called: Network orchestrator
See also: Integrator, Layer Player, Multi-Sided Market, Open Business Model
| Key Partners | Key Activities | Value Propositions | Customer Relationships | Customer Segments | |||||
| Key Resources | Channels | ||||||||
| Cost Structures | Revenue Streams | ||||||||
How: Focus on the core competencies of the value chain and outsource the rest to a network of peers in which participants interact and share in the value creation, while your business coordinates the activities.
Why: Outsourced value chain segments are actively coordinated to benefit from economies of scale from the suppliers.
This business model is part of the Business Model Patterns printed card deck.
A collection of business models that will help you understand the key drivers of business model success. The card deck will be ready for purchase in the end of 2023 and is now undergoing rigorous testing.
Reserve your deck!Orchestrator companies focus on their areas of expertise, entrusting external service providers with the responsibility of executing activities that fall outside of these competencies. As the director of the value chain, these companies spend a significant amount of time coordinating and synchronizing the efforts of individual contributors to value creation.
While the transaction costs associated with this approach may be comparatively high, they are offset by the ability to take advantage of partners’ specialized skills.
An essential benefit of the Orchestrator pattern is the close cooperation it fosters with external partners, whose innovative capabilities can enhance one’s own production. This mutually beneficial relationship allows the Orchestrator company to remain competitive in an ever-evolving market.
Where did the Orchestrator business model pattern originate from?
The origins of the Orchestrator pattern can be traced back to the 1970s, when the pressures of growing globalization and the need to cut costs compelled a growing number of companies to outsource segments of their value chains to countries with lower production and labor costs. The Asian Tigers, with their export-oriented industrialization strategies, were among the primary beneficiaries of this first wave of outsourcing.
Pioneers in the Fashion Industry
One of the pioneering industries to embrace the Orchestrator pattern was the fashion industry, which early on began to move large portions of its production to Asia. A notable example of this business model in action is offered by sports equipment manufacturer Nike. Under the leadership of CEO Phil Knight, in the early 1970s, Nike began outsourcing the production of its products to low-wage countries such as Indonesia, China, Thailand, and Vietnam, and instead focusing on its core competencies in R&D, product design, and marketing.
The cost savings and newfound focus yielded by this strategy gave Nike a significant advantage over its competitors, propelling the company to the forefront of the sports equipment industry. Today, an estimated 98% of Nike’s products are produced in Asia, making the Orchestrator pattern an essential component of its business model.
Applying the Orchestrator business model
The Orchestrator patteren is especially interesting for businesses active in numerous steps of their value chain. By focus their efforts on those activities where the company excels and outsource the rest, they can both reduce costs and increase flexibility.
It is of paramount importance for the Orchestrator to keep their cards close to the chest, as to not risk being replaced by a rival firm. To be an effective Orchestrator, one must possess the ability to actively manage and coordinate with a diverse set of partners.
When is it advantageous to be an Orchestrator?
The Orchestrator business model can be advantageous to implement compared to the Layer Player and Integrator business models for several reasons:
- Increased flexibility. By coordinating the activities of multiple specialized service providers, an Orchestrator can provide a wide range of services and solutions to customers. This allows them to adapt quickly to changing customer needs and preferences, as well as to take advantage of new opportunities as they arise.
- Improved efficiency. By managing the delivery of services to customers, and coordinating the activities of multiple service providers, an Orchestrator can improve the efficiency of the value chain. This can lead to cost savings and increased productivity.
- Greater control over the value chain. By managing the relationship between service providers and customers, and coordinating the activities of multiple service providers, an Orchestrator can have greater control over the entire value chain. This can make it easier for them to coordinate activities with other companies and partners.
- Increased customer value. By providing a one-stop-shop for customers, and coordinating the activities of multiple service providers, an Orchestrator can increase the value that they provide to customers. This can lead to increased customer loyalty and higher customer lifetime value.
- Differentiation. By providing a unique combination of services and solutions to customers, an Orchestrator can differentiate itself from competitors, which can be difficult for Layer player or Integrator to achieve.
- Revenue streams. By acting as intermediary, the Orchestrator can generate revenues from multiple sources such as commissions, transaction fees, and subscription fees.
When is it better to take on another role in the value chain?
However, it also has some challenges such as dependence on service providers and customers, risk of losing control over the value chain, risk of becoming commoditized, and complexity.
- Dependence on service providers. As an Orchestrator, a company may be dependent on the performance and availability of multiple specialized service providers. This can make them vulnerable to disruptions in the supply chain.
- Dependence on customers. As an Orchestrator, a company may be dependent on the demand and preferences of customers. This can make them vulnerable to changes in customer needs or preferences.
- Risk of losing control over the value chain. By coordinating the activities of multiple service providers, an Orchestrator may lose control over the value chain. This can make it difficult for them to coordinate activities with other companies and partners.
- Risk of becoming commoditized. By coordinating the activities of multiple service providers, an Orchestrator may become a commodity, making it difficult to differentiate themselves from competitors and maintain their competitive edge.
- Complexity. Coordinating the activities of multiple service providers can be complex and time-consuming. It requires a high degree of coordination and communication to ensure that the different service providers are working together effectively.
Trigger Questions
- What is your core competency and what will be your key activities?
- How can you both become more flexible and reduce total costs by outsourcing activities?
- In what areas do we possess unique strengths?
- What activities are of lesser significance to our overall value proposition?
- Could these tasks be entrusted to external firms?
- Would outsourcing specific activities result in a reduction of total costs?
- How might outsourcing affect our level of operational flexibility?
- Are we capable of effectively coordinating with multiple partners simultaneously?
Examples
Uber
Facilitating activity coordination in a network of drivers and passengers who interact and share in the value creation.
Tripadvisor
The rating and review platform helps users share reviews on travel destinations, but also provides links to good deals.
Airtel
By focusing on its core competencies of marketing, sales, and finance while outsourcing other parts of its value chain, such as IT support to companies like Ericsson, Nokia, Siemens, and IBM, the telco positioned itself as an Orchestrator with 260 million customers. By doing so, Airtel negotiated contracts that allowed it to incur only variable costs based on capacity used, enabling the company to offer its services at very low rates. As a result, its Orchestrator role increased revenues by up to 120% and annual net profits by 280% between 2003 and 2010. Li
Li & Fung
The Chinese company acts as a conduit for production and development orders from major customers such as Toys R Us, Abercrombie & Fitch, or Wal-Mart, for a wide range of goods, from toys to fashion accessories to apparel. Instead of producing the goods itself, Li & Fung manages a global network of over 10,000 suppliers who complete the tasks. As such, the company’s core competence is connecting individual value chain partners and processes, without owning a single factory. And yet, it earns multi-billion dollar revenues every year.
Related plays
- Business Model Navigator by Karolin Frankenberger and Oliver Gassmann
- Business Model Innovation, Ecosystems, Orchestrators and Platforms by Enrique de la Puerta González-Quevedo