Core Business Strategy: Models, Advantage, and Frameworks
Business Model Fundamentals
Characteristics of a Good Business Model
Three characteristics contribute to a business model’s competitive advantage:
- Alignment with company goals
- Self-reinforcing nature
- Robustness
Definitions: Strategy, Tactics, Business Model
Strategy: A plan to create a unique and valuable position involving a distinctive set of activities.
Tactics: The residual choices open to a company by virtue of the business model it employs.
Business Model: Refers to the logic of the company—how it operates and creates and captures value for stakeholders in a competitive marketplace.
Business Model Canvas Building Blocks
- Key Partners
- Key Resources
- Key Activities
- Customer Relations
- Market Segment
- Distribution Channel
- Value Proposition
Competitive Advantage
Sources of Advantage
First-Mover Advantages
- Economies of scale
- Learning curve
- Network effect
Strategies for Above-Average Performance
Three strategies to perform above average:
- Low cost
- Focus
- Differentiation
Threats to Competitive Advantage
Four threats to competitive advantage:
- Hold-up: When suppliers mitigate the value of a firm by building bargaining power.
- Slack: An internal threat that is a management issue (e.g., when managers’ and shareholders’ values are not aligned).
- Imitation: Competitors copying the business model; trade-offs can deter imitation.
- Substitution: Alternate products or services that can fulfill customers’ needs.
Innovation Concepts
Innovation Cycle Example
Disruptive innovation → Sustaining innovation → Efficiency in innovation → More capital available in the market → New market creation
Four Actions Framework for Value Curve Change
This framework aims to change the value curve by considering four actions:
- Eliminate
- Reduce (Simplify)
- Raise
- Create
Valuation and Frameworks
Valuation Methods
- Intrinsic
- Relative
- Contingent Plan (Real Options)
7S Strategy Model
This model includes hard and soft elements:
- Hard Strategy Elements: Strategy, Structure, Systems.
- Soft Strategy Elements: Staff, Skills, Styles, and Shared Values.
Porter’s Five Forces Analysis
Analysis of competitive forces:
- Threat of entry
- Threat of substitutes
- Bargaining power of suppliers
- Bargaining power of customers (buyers)
- Intensity of rivalry among existing competitors
Expansion and Diversification
International Market Entry Tests
Is it profitable to enter the international market?
Better-Off Test
Does the presence of the corporation in a given geographic market improve the total competitive advantage of business units over and above what they could achieve on their own?
Ownership Test
Does ownership of the business unit in a geographic market produce a greater competitive advantage than an alternative arrangement (e.g., licensing, joint venture) would produce?
External Resources
Three types of external resources:
- Physical
- Intangible
- Organizational Capability
Value Creation, Strategic Fit, and Diversification
Value creation and strategic fit must reflect a concept of how to create real economic value for shareholders. Key aspects include:
- Financial characteristics of a portfolio
- Generic functional skills (e.g., consumer marketing abilities)
- Complementary strategic assets
- Shared strategic logics
- Compatible management styles
Diversification into related product markets can enable a company to reduce systematic risks.
Ways to Gain Returns from Diversification
Four ways to get returns on diversification:
- Applying skills from one company to opportunities in another company.
- Reducing long-run average cost (e.g., by adding related product lines).
- Reaching a specific company size or scale.
- Reducing systematic risk.
Strategies for Diversified Companies
Five strategic considerations for diversified companies (often centered around a corporate goal):
- Concept of fit
- Concept of assembly (portfolio composition)
- Management of business units
- Functional policies
- Corporate goal (central element)
Globalization Trends
New Rules and Considerations
Recent trends influencing globalization strategy:
- Increased risk in opening industries to foreign companies due to potential blocking by local firms.
- Many countries have built large foreign exchange reserves and boosted exports, reducing reliance on foreign investment.
- Growing importance of national security considerations in international business and investment decisions.