55 Business Model Patterns. #24. Layer Player

 

Layer Player

24#

A layer player is a specialized company limited to the provision of one value-adding step for different value chains. This step is typically offered within a variety of independent markets and industries. The company benefits from economies of scale and often produces more efficiently. Further, the established special expertise can result in a higher quality process.

Archetype

How: Specialize in and limit business to serving one or only a few value-adding activities that integrate well into a variety of value chains in different markets and industries.

Why: Benefit from economies of scale, efficient production, and building up special expertise, with higher quality as a result.

A company employing the Layer Player business model typically concentrates on one or just a few activities within a value chain. It serves multiple market segments across various industries and its typical customer is an Orchestrator, who outsources the majority of value chain activities to specialized service providers. As a Layer Player, the company benefits from its ability to specialize in terms of efficiency gains and multiplying know-how and intellectual property rights. It may also be able to influence and develop standards within its specific field to its own advantage.

The Layer Player business model focuses on a specific step in the industry value chain, exploiting economies of scale and the benefits of superior expertise and capabilities. The company is often able to expand into other fields. For example, Amazon began by selling books and later diversified into other areas such as CDs, DVDs, and a wide variety of other products.

Where did the Layer Player business model pattern originate from?

During the 1970s, efficiency and cost advantages became increasingly important for companies in many industries. This led to a general trend towards streamlining value chains. Labour was organized in new ways that were conducive to the Layer Player business model.

One direct result of these developments was the establishment of dedicated IT service providers in India, such as Wipro Technologies. Specializing in IT outsourcing and related consulting services, Wipro Technologies is now the third largest IT company in India. It places a strong emphasis on customer-facing processes to deliver bespoke IT solutions for industry customers.

Applying the Layer Player business model

As a Layer Player, you can maximize the potential inherent in specializing and becoming a leader in your particular area of expertise. As a Layer Player, you are also able to serve several industries and readily apply skills learned in one setting to another.

If you operate in a particularly competitive environment, specialization may be the right choice for you, allowing you to focus firmly on a core area of expertise and nurture and build your strengths.

Typical targets for new Layer Players are mature industries with highly vertically integrated companies. New Layer Players are expected to emerge in the financial industry, where few standards have been developed and the division of labor is still relatively limited.

Pros and Cons of implementing the Layer Player business model

Advantages

• Specialization. By focusing on one or just a few activities within a value chain, a company can exploit economies of scale and the benefits of superior expertise and capabilities. This allows them to become a leader in their specific area of expertise.
• Efficiency and cost advantages. By streamlining the value chain, a company can increase efficiency and cost advantages. This is particularly beneficial in mature industries with highly vertically integrated companies.
• Multiple market segments. As a Layer Player, a company can serve multiple market segments across various industries, providing them with a diverse customer base.
• Intellectual property rights. By specializing, a company can multiply know-how and intellectual property rights.
• Influence and develop standards. A company can influence and develop standards within its specific field to its own advantage.

Challenges

• Limited diversification. By focusing on one or just a few activities within a value chain, a company may have limited diversification. This can make it difficult for them to expand into other fields or industries.
• Dependence on customers. As a Layer Player, a company may be dependent on customers who outsource the majority of value chain activities to specialized service providers. This can make them vulnerable to changes in customer needs or preferences.
• Limited control over value chain. A company may have limited control over the entire value chain, which can make it difficult to coordinate activities with other companies and partners.
• Risk of becoming commoditized. By specializing in a particular area, a company may become commoditized, making it difficult to differentiate themselves from competitors and maintain their competitive edge.
• Risk of losing focus. A company may be at risk of losing focus on their core area of expertise if they try to expand into other fields or industries too quickly.

Choosing your role in the value chain

Where the Layer player specializing in a specific area of the value chain, the Integrator connects several layers together into one service. The Orchestrator takes on a more coordinating role orchestrating activities of multiple specialized service providers. Depending on a company’s strategy, target market and competitive landscape, one of these models may be more appropriate than the others.

• The Layer Player business model is appropriate when a company wants to specialize in one or just a few activities within a value chain. By focusing on a specific step in the industry value chain, a company can exploit economies of scale and the benefits of superior expertise and capabilities. It is often able to expand into other fields and serves multiple market segments across various industries. A good example of a Layer player is Wipro Technologies that specializes in IT outsourcing and related consulting services.
• The Integrator business model is appropriate when a company wants to bring together different components or services from multiple suppliers to create a complete solution for customers. An Integrator typically has a broad range of capabilities and can provide a wide range of services to customers. A good example of an Integrator is Accenture that offers a wide range of services to its customers including consulting, technology, and outsourcing services.
• The Orchestrator business model is appropriate when a company wants to coordinate the activities of multiple specialized service providers to create a complete solution for customers. An Orchestrator typically acts as a intermediary between service providers and customers, bringing them together and managing the relationship. An Orchestrator also manages the delivery of services to customers and coordinates the activities of multiple service providers. A good example of an Orchestrator is Alibaba that provides an online marketplace for customers to buy and sell goods and services.

Trigger Questions

• Will your stellar operational platform or tech benefit from using a partner for distribution to push products?
• How will specializing in only one step of the value chain enable you to outperform competitors?
• How can we leverage economies of scale and superior expertise and capabilities?
• How can we take advantage of the potential in mature industries with highly vertically integrated companies?

Examples

Amazon Web Services

As a building block of the Amazon web store, the successful cloud computing platform was extracted to be sold separately.

Intel

With its entire focus on semiconductor chips, it is a market leading supplier for phone and computer manufacturers.

TRUSTe

TRUSTe operates a privacy seal program to certify customers’ websites and increase their credibility in the public eye. It also offers related services in the fields of reputation management, supplier rating, and representation in data privacy disputes. Its services are used by successful companies such as Facebook, Microsoft, Apple, IBM, and eBay.

Dennemeyer

Providing complete coverage within the domain of intellectual property (IP) management and protection, Dennemeyer’s services include legal advice, software solutions, consulting services, and portfolio management. Major companies often outsource these related services entirely to Dennemeyer. It serves thousands of customers worldwide from all industries.

PayPal

An exceptionally successful Layer Player that focuses on online payment and offers various services in this domain. Its services are widely used in e-commerce and a variety of industries. It is estimated that half of eBay’s revenues are generated through PayPal.

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