Designing a Competitive Business Model

A business model is an "abstract representation of a business, be it conceptual, textual, and/or graphical, of all
core interrelated architectural, co-operational, and financial arrangements designed and developed by an
organization presently and in the future.

At its most basic, a business model is the story of how a company operates. In slightly more detail, it describes
how a company competes, uses it resources, structures its relationships, interfaces with customers, and
creates and captures value to sustain itself. The key elements in a business model include the following:

 The customer value proposition – how will the company create value, and for whom?
 The profit model – how will the company make money?
 The key resources needed to deliver the customer value proposition.
 The company’s core competences – internal capabilities or skill sets that enable the company to
manage the business in a way that delivers value.

How are you going to explain to anyone what your product does/intends to do and how it is going to add/create
value for customers as well as the company?

A Business Model is a conceptual structure that supports the viability of a product or company and includes the
purpose and goals of the company and how it intends to achieve them. All the business processes and policies
that a company adopts and follows are part of the business model.

Every business model intrinsically has two parts – the first part deals with designing and manufacturing the product while
the second part deals with everything related to selling the product, from finding the right customers to distributing the
product.

Competitive advantage – the combination of factors that sets a small business apart from its competitors and
gives it a unique position in the market that is superior to its rivals.

It is the differentiating factor that makes customers want to buy from your business rather than from your
competitors.

Sinasabe na mas higit na kailangan ang intellectual capital compare to financial capital. Knowledge is no longer a
factor of production. It is the crucial and critical factor of production. Today, the company’s source of competitive
advantage is its intellectual capital NOT the financial capital. The intellectual capital is comprised of:

Intellectual Capital:

 Human – the talents, creativity, skills and abilities of a company’s workforce, shows up in the innovative
strategies, plans and processes that the people in an organization develop and then passionately pursue.
 Structural – the accumulated knowledge and experience that a company possesses, can take many forms
including processes, software, patents, copyrights, and perhaps, most important, the knowledge and experience
of the people in a company.
 Customer – the established customer base, positive reputation, ongoing relationships, and the goodwill that a
company builds up over time with its customers.

Building a Sustainable Competitive Advantage

Key: Core Competencies

 Unique set of capabilities a company develops in key areas, such as superior quality, customer service,
innovation, team -building, flexibility, responsiveness, and others that allow it to vault past competitors.

Lessons learned – these are either learned from school or from past experiences that can also be used to contribute to
the company.

Capabilities – Financial capability, capability to find and manage people, to sell, they are either selling their ideas,
products or services to customers, investors or employees. They work to be there when customers are ready to buy.
Alternately, they know how to let go and move on when they are not.
Skills - There’s a question that haunts every would-be entrepreneur – and many actual entrepreneurs – every day: “How
do I know if I have what it takes?” Yes, the Internet is full of ideas, tips, tricks and even awesome quotes. But do you
actually have the skills? The ability to manage money, to raise money, to weather the ups and downs of any business
since it never goes exactly the way the business plan described it, to focus because there are so many distracting forces
when trying to build a business.

Sustainable competitive advantage – According to a business dictionary, it is a long-term competitive advantage that is
not easy to surpass or duplicate by the competitors. It is the aggregation of factors that sets a company apart from its
competitors and gives it a unique position in the market that is superior to its competition.

Types and Examples of Sustainable Competitive Advantages

1. Low Cost Provider/ Low pricing - can help a company keep competition out by being the low cost provider. In
addition, low pricing done consistently can build brand loyalty be a huge competitive advantage
2. Powerful Brands - A good brand is invaluable because it causes customers to prefer the brand over competitors.
A company that has the ability to increase prices without losing market share is said to have pricing power.
3. Strategic assets - Patents, trademarks, copy rights, domain names, and long term contracts would be examples
of strategic assets that provide sustainable competitive advantages. Companies with excellent research and
development might have valuable strategic assets.
4. Outstanding Management / People – there are sayings that “Employees don't leave Companies, they leave
Managers.

Superior value for customers – we should never ignore the importance of customer satisfaction. There are dozens of
factors contributing to the success (or failure) of a business, customer satisfaction is one of them. It’s important to track
this factor and work on improving it in order to make your customers more loyal and eventually turn them into brand
ambassadors. So once the core competencies have been build it will create a sustainable competitive advantage and will
result to superior value for customers.

Designing a Competitive Business Model Process

1. Develop a vision and translate it into a mission statement.

2. Assess strengths and weaknesses.
3. Scan environment for opportunities and threats.
4. Identify key success factors.
5. Analyze competition.
6. Create goals & objectives.
7. Formulate strategies.
8. Translate plans into actions.
9. Establish accurate controls.

Step 1: Develop a Vision and Create a Mission Statement

 Vision – the result of an entrepreneur’s dream of something that does not exist yet and the ability to paint a
compelling picture of that dream for everyone to see.
 A clearly defined vision:
 Provides direction
 Determines decisions
 Motivates people
 Allows for perseverance in the face of adversity
 Elements of a mission statement:
 Purpose of the company: What are we in business to accomplish?
 Business we are in: How are we going to accomplish that purpose?
 Values of the company: What principles and beliefs form the foundation of the way we do business?

Step 2: Assess Company Strengths and Weaknesses

 Strengths - Positive internal factors a company can draw on to accomplish its mission, goals, and objectives.

Strengths are those features of the business which allow you to operate more effectively than your competitors. For
example, strength could be your specialist technical knowledge. You need to consider your strengths from your own point
of view and from that of your customers' and clients'. You must be realistic and honest.

 Try answering the following questions:

 What is it that you do well?
 What advantages do you have over your competitors?
 What makes you different from your competitors?

 Weaknesses - Negative internal factors that inhibit a company’s ability to accomplish its mission, goals, and
objectives.

Weaknesses are areas capable of improvement. Are you lacking skills or new products? Do you have a higher cost base
or lower productivity than your competitors? You must face any unpleasant truths about your business and be realistic.
  Can you do anything better?
 Do you do anything badly?
 What should be avoided?
 What causes problems or complaints?

Step 3: Scan for Opportunities and Threats

After assessing the strengths and weaknesses of your business for your business plan, look for external forces, like
opportunities and threats that may have an effect on its destiny. These changes include

 Opportunities - Positive external factors the company can exploit to accomplish its mission, goals, and
objectives.
External opportunities provide an organization with a means to improve its performance and competitive
advantage in a market environment. Some opportunities can be foreseen, such as being able to expand a
franchise into a new city, while some may fall into your lap, such as another country opening up its market to
foreign business.

If you can think far enough ahead, you may even be able to create some opportunities, like a chess master being
able to calculate the checkmate of his opponent in five moves just by looking at the board. For example, you may
be able to see the potential of new products that can be developed from emerging technology. Prime examples of
this type of foresight are the social media giants Facebook and Twitter.

 Threats - Negative external factors that inhibit the firm's ability to accomplish its mission, goals, and objectives.

External threats are anything from your organizations outside environment that can adversely affect its
performance or achievement of its goals.

 The appearance of new or stronger competitors

 The emergence of unique technologies
 Shifts in the size or demographic composition of your market area
 Changes in the economy that affect customer buying habits
 Changes in customer preferences that affect buying habits
 Changes that alter the way customers access your business
 Changes in politics, policies, and regulations
 Fads and fashion crazes

Step 4: Identify Key Success Factors

 Key success factors: controllable variables that determine the relative success of market participants. The keys
to unlocking the secrets of competing successfully in a particular market segment.

Those functions, activities, or business practices, defined by the market not the company, and as viewed by
customers that are critical to the company/customer relationship.

Key Success Factors (KSF) is generally three to five areas that a company may focus on, to attain its vision. KSF may
also be major flaws that need to be addressed before other goals can be completed or strengths that must be
preserved.

Example:

1. Strategic Focus (Leadership, Management, Planning)

2. People (Personnel, Staff, Learning, Development)
3. Operations (Processes, Work)
4. Marketing (Customer Relations, Sales, Responsiveness)
5. Finances (Assets, Facilities, Equipment)

Step 5: Analyze Competitors

The purpose of the competitive analysis is to determine the strengths and weaknesses of the competitors within your
market, strategies that will provide you with a distinct advantage, the barriers that can be developed in order to prevent
competition from entering your market, and any weaknesses that can be exploited within the product development cycle.
Competitor Analysis

 Direct competitors
 Offer the same products and services
 Customers often compare prices, features and deals among these competitors when they shop
 Significant competitors
 Offer some of the same or similar products or services
 Product or service lines overlap but not completely
 Indirect competitors
 Offer same or similar products in only a small number of areas

The first step in a competitor analysis is to identify the current and potential competition. As mentioned in the "Market
Strategies" chapter, there are essentially two ways you can identify competitors.

 The first is to look at the market from the customer's viewpoint and group all your competitors by the degree to
which they contend for the buyer's dollar.
 The second method is to group competitors according to their various competitive strategies so you understand
what motivates them.

One common and useful technique is constructing a competitor array. The steps include:

 Define the industry – scope and nature of the industry.

 Determine who the competitors are.
 Determine who the customers are and what benefits they expect.
 Determine the key strengths – for example price, service, convenience, inventory, etc.
 Rank the key success factors by giving each one a weighting – The sum of all the weightings must add up to one.
 Rate each competitor on each of the key success factors.

Step 6: Create Company Goals and Objectives

 Goals - broad, long-range attributes to be accomplished.

 “BHAGs” Big Hairy, Audacious Goals to inspire and focus a company on important actions that is consistent
with the overall mission.
 Objectives - more detailed, specific targets of performance that are S.M.A.R.T.
 Specific
 Measurable
 Assignable
 Realistic (yet challenging)
 Timely

Step 7: Formulate Strategies

Strategy - a road map of the actions an entrepreneur draws up to achieve a company’s mission, goals, and objectives. It
is the company’s game plan for gaining a competitive advantage.

Cost Leadership

 Goal: to be the low-cost producer in the industry (or market segment).

 Low-cost leaders have advantages:
 Reaching buyers who buy on the basis of price
 The power to set the industry’s price floor.
 Cost Leadership works well when:
 Buyers are sensitive to price changes.
 Competing firms sell the same commodity products.
 A company can benefit from economies of scale..

Differentiation
  Company seeks to build customer loyalty by positioning its goods or services in a unique or different fashion.
 Idea is to be special at something customers value.
 Key: Build basis for differentiation on a distinctive competence, something that the small company is uniquely
good at doing in comparison to its competitors.

Focus

 Company selects one or more customer segments in a market, identifies customer’s special needs, wants, or
interests, and then targets them with a product or service designed specifically for them.
 Strategy builds on the differences among market segments.
 Rather than try to serve the total market, the company focuses on serving a niche (or several niches) within that
market.

Step 8: Translate Strategies into Action Plans

 Survey of senior executives: Companies achieved only 63% of the results in their strategic plans.
 Create projects by defining:
 Purpose
 Scope
 Contribution
 Resource requirements
 Timing

Step 9: Establish Accurate Controls

 Plan establishes the standards against which actual performance is measured.

 Entrepreneur must:
 Identify and track key performance indicators.
 Take corrective action.

Balanced Scorecards

 A set of measurements unique to a company that includes both financial and operational measures
 Gives managers a quick, yet comprehensive, picture of a company’s overall performance.
Five Perspectives:
1. Customer: How do customers see us?
2. Internal Business: At what must we excel?
3. Innovation and Learning: Can we continue to improve and create value?
4. Financial: How do we look to shareholders?
5. Corporate Citizenship: Do we meet our responsibility to society as a whole, the environment, the community, and
other external stakeholders?