Designing a Competitive

Business Model &

Building a Solid Str ate gic
Plan
With permission of
Dr. Shellyanne Wilson
Andrea Kanneh

Business Models & Strategic Management September 2008

 Business Models & Strategic
Management

Overview:
– Introduction to ‘The Business Model’

– Introduction to Strategy

– Overview of Strategic Management and

Competitive Advantage

– The Strategic Management Process

– Balanced Scorecard

Business Models & Strategic Management September 2008

 The Business Model
A ‘business model’ answers the following
questions:
– HOW DO WE MAKE MONEY IN THIS
BUSINESS?
• Who is the customer?
• What does the customer value?
• How can we deliver value to the customer at an
appropriate cost?

(Magretta, 2002)

Business Models & Strategic Management September 2008

 The Business Model

Definition:
– Business Model: A summation of the core business
decisions and tradeoffs employed by a company to
earn a profit.
(Richard Hammermesh and Paul Marshall of Harvard Business School)

Points to note:
– Income Drivers
– Cost Drivers
– Critical Success Factors to manage income drivers and cost
drivers

Business Models & Strategic Management September 2008

 The Business Model
The Basic ‘Business Model’:
PART 1 PART 2
‘Making’ the product / ‘Selling’ the product /
service: service:
•Designing •Marketing
•Building •Actual selling
•Testing •Distributing
•Etc…… •Etc……
Examples of Business Models:
• Selling a product
• Selling a service
• Selling a product, with a service
• Selling a product, with consumables
Business Models & Strategic Management September 2008
 Introduction to Strategy

Discussion Questions:
1. What is ‘STRATEGY’?

2. Why is ‘STRATEGY’ important?

Exercise

Business Models & Strategic Management September 2008

 Introduction to Strategy
What is ‘Strategy’?
– Various perspectives:
• Henry Mintzberg (1994) – 5P’s

Perspective: direction or vision

Position: stance taken, in relation to environment

Plan: the ‘how’ to achieve goals

Pattern: a consistent or characteristic form

Ploy: a manoeuvre to gain competitive advantage

• Michael Porter (1996) – Differentiation
Strategy: Performing different activities from rivals OR
Performing similar activities in different ways

Business Models & Strategic Management September 2008

 Introduction to Strategy

What is ‘Strategy’?

DEFINITION:
"Strategy is the direction and scope of an organisation
over the long-term: which achieves advantage for the
organisation through its configuration of resources
within a challenging environment, to meet the needs of
markets and to fulfill stakeholder expectations".

Johnson and Scholes (Exploring Corporate Strategy,1989)

Business Models & Strategic Management September 2008

 Introduction to Strategy

Why is ‘Strategy’ important?

– Strategy contributes to successful performances

– Strategy is the link between the firm and the firm’s
environment:

THE FIRM: ENVIRONME

NT:
•Goals
STRATE •Competitor
•Resources GY s
•Structure •Customers
•Suppliers

Business Models & Strategic Management September 2008

 Overview of Strategic Management

What is Strategic Management?

– The process by which a firm manages the
formulation and implementation of its strategy.

Why is Strategic Management important?

– It is crucial in the creation of a ‘sustainable
competitive advantage’

Scarborough, Zimmerer and Wilson,

2008
Business Models & Strategic Management September 2008
 Overview of Strategic Management

Competitive Advantage:
The aggregation of factors that differentiates a
company from its competitors, and creates a
unique market position that is superior to the
company’s competitors.
(Scarborough, Zimmerer and Wilson, 2008)
Sustainable Competitive Advantage:
To be a source of sustainable competitive
advantage, RESOURCES must be:
•Rare
•Valuable
•Durable
•Inimitable
(J. Barney (1991) ‘Firm Resources and Sustained
Competitive Advantage’)
Business Models & Strategic Management September 2008
 Competitive Advantage

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.

Business Models & Strategic Management September 2008

 W hat is your str ate g y?

Business Models & Strategic Management September 2008

 Overview of Strategic Management
Building a Sustainable Competitive Advantage

Capabilities

Sustainable
Lessons Core Superior value
competitive
learned competencies for customers
advantage

Skills

Scarborough, Zimmerer and Wilson,

2008
Business Models & Strategic Management September 2008
 The Strategic Management Process
STRATEGY FORMULATION
Step 1. Develop a vision and translate it into a mission statement.
Step 2. Assess strengths and weaknesses.
Step 3. Scan environment for opportunities and threats.
Step 4. Identify key success factors.
Step 5. Analyze competition.
Step 6. Create goals and objectives.
STRATEGY IMPLEMENTATION
Step 7. Formulate strategies.
Step 8. Translate plans into actions.
STRATEGY EVALUATION
Step 9. Establish accurate controls.

Business Models & Strategic Management September 2008

 The Strategic Management Process

Strategy Formulation
– Where are we now?
– Where do we want to go?
Strategy Implementation
– How do we get there?
Strategy Evaluation
– How can we be sure that we have achieved our
goal?

Business Models & Strategic Management September 2008

 The Strategic Management Process

Strategy Formulation
– Analysis of current situation (SWOT Analysis)
• Internal analysis of strengths and weaknesses
• Analysis of external environment (PEST, Porter’s 5
Forces)
– Setting of Objectives
• Vision and Mission Statements
• Setting of quantitative goals (e.g.: Market Share,
Turnover, Profit, EBIT,…)

Business Models & Strategic Management September 2008

 Strategic Management Tools

Strategy Formulation
– SWOT
– PEST
– Porter’s 5 Forces

Business Models & Strategic Management September 2008

 Strategic Management Tools

SWOT Analysis
Strengths Resources
INTERNAL
Weaknesses Capabilities

Opportunities Market
EXTERNAL
Threats Environment

Business Models & Strategic Management September 2008

 Strategic Management Tools

External Environmental
Political (and Economic
Analysis
legal) factors factors

THE GENERAL Social (and

ENVIRONMENT cultural) factors

PEST
The physical or Technological
environment
and ecology STEEP factors

Rational Business Strategy Analysis Source: ACCA Passcards BPP Publishing

Business Models & Strategic Management September 2008

 Strategic Management Tools
Potential
Entrants

Threat of new
entrants

Bargaining Industry Bargaining

Power of Competitors Power of
Suppliers Buyers
Suppliers Buyers
Rivalry among
existing firms

Threat of Substitute
products or services

Substitutes

Porter’s Model of Industrial Competitiveness

Business Models & Strategic Management September 2008
 Deliberate vs. Emergent

Deliberate
– Focus on control to ensure that management’s
intentions are realised

Emergent
– Emphasises learning – understanding by taking
actions what management’s intensions should be
– A single action can be taken, feedback received and
the process continued until a pattern emerges which
becomes the strategy

Business Models & Strategic Management September 2008

 Deliberate and Emergent
Strategies

Business Models & Strategic Management September 2008

 Case Example - Honda
One of the leading manufacturers of motorbikes
When it entered the US market the planned strategy was to sell
large bikes but could not compete with larger European and US
models

The company had smaller bikes for staff which were sold just to
raise money but became very popular.

The company adopted a new target market – emergent strategy

Business Models & Strategic Management September 2008

 The Strategic Management Process

Strategy Implementation

– Porter’s three generic types of strategy

• Cost Leadership
• Differentiation
• Focus

Business Models & Strategic Management September 2008

 The Strategic Management Process

Strategy Evaluation
– Does the plan still meet our needs?

– Are we on target to meet the goals in our plan?

Business Models & Strategic Management September 2008

 What you measure,
you manage.

Business Models & Strategic Management September 2008

 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.

Business Models & Strategic Management September 2008

 Balanced Scorecard

Balance refers to the evenness

between
– long term and short term goals
– financial and non - financial (or
operational) goals
– outcomes measures (results from past
events) and measures that drive future
performance

Business Models & Strategic Management September 2008

 
•  BSC

Business Models & Strategic Management September 2008

 The Strategic Management Process

Example of tool used in Strategy Evaluation

The Balanced Scorecard
(Created by Robert Kaplan and David Norton)

– 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.

Business Models & Strategic Management September 2008

 The Strategic Management Process

The Balanced Scorecard:

Four Perspectives:
– Customer: How do customers see us?
– Internal Business: At what must we excel?
– Innovation and Learning: Can we continue to
improve and create value?
– Financial: How do we look to shareholders?

Business Models & Strategic Management September 2008

 Business Models & Strategic
Management

Session Overview:
– Understand the role of the business model
– Understand the importance of strategy and
identify different types of strategy
– Understand the meaning of ‘sustainable
competitive advantage’
– Understand the basics of strategic
management and use of strategic management
tools

Business Models & Strategic Management September 2008

 The Balanced Scorecard Links Performance Measures

Financial Perspective How do we look

Goals Measures to shareholders?

How do customers At what must we

see us? excel?

Customer Perspective Internal Business Perspective

Goals Measures Goals Measures

Innovation and Learning Perspective

Goals Measures

Can we continue to
improve and create
Business Models & Strategic Management
value?
September 2008