Key Strategic Models That You Need To Use
A well-crafted business strategy is crucial to the success of any organization. It lays out a clear plan of action for achieving the company’s objectives and goals, and it helps ensure that all efforts and resources are directed towards those goals. An effective business strategy must be tailored to the specific needs and challenges of the organization, as well as the market and industry in which it operates. There are various models and approaches to business strategy creation that companies can choose from, depending on their unique circumstances. These key strategic models provide frameworks and guidelines that businesses can use to develop a comprehensive and actionable strategy.
In this article, we’ll explore five of the most popular key strategic models for business strategy creation outlining how you can use them and providing practical examples of their use.
SWOT analysis is a popular model for creating a business strategy because it provides a simple and effective framework for evaluating a company’s position in the market. It can be considered one of the cornerstones of any strategic plan due to its simplicity in construction and its ease to understand. The acronym SWOT stands for Strengths, Weaknesses, Opportunities, and Threats, and each of these elements represents a different aspect of the business environment that needs to be considered.
Strengths are the internal factors that give the business a competitive advantage over its rivals. These could be things like a strong brand reputation, proprietary technology, skilled employees, or efficient processes. Identifying strengths is important because it allows a business to build on its existing advantages and differentiate itself from its competitors.
Weaknesses, on the other hand, are internal factors that put the business at a disadvantage. These could be things like poor management, outdated technology, limited resources, or ineffective marketing. Identifying weaknesses is important because it allows a business to address areas where it needs to improve and become more competitive.
Opportunities are external factors that the business can take advantage of to grow and expand. These could be things like emerging markets, changing consumer preferences, new technologies, or changes in regulations. Identifying opportunities is important because it allows a business to capitalize on trends and stay ahead of the competition.
Finally, threats are external factors that could potentially harm the business. These could be things like new competitors, economic downturns, changing regulations, or natural disasters. Identifying threats is important because it allows a business to prepare for potential risks and mitigate their impact.
By conducting a SWOT analysis, a business can gain a better understanding of its strengths and weaknesses and identify areas where it can improve. It can also identify opportunities for growth and prepare for potential threats. This information can then be used to develop a strategy that leverages the business’s strengths, addresses its weaknesses, takes advantage of opportunities, and mitigates potential threats.
Porter’s Five Forces
Porter’s Five Forces model is a widely used framework for analysing the competitive dynamics of an industry or market. The model was developed by Michael Porter in 1979 and has become a key business strategic model.
The five forces identified by Porter are:
- The threat of new entrants: This refers to the degree of difficulty faced by a new company trying to enter the market. Factors that influence this threat include the existence of barriers to entry, such as high capital requirements, strict regulations, or proprietary technology.
- The bargaining power of suppliers: This refers to the degree to which suppliers can influence the price and quality of goods and services provided to the company. Factors that influence this bargaining power include the number of suppliers, the uniqueness of their products or services, and their ability to switch suppliers.
- The bargaining power of buyers: This refers to the degree to which buyers can influence the price and quality of goods and services they purchase. Factors that influence this bargaining power include the number of buyers, the importance of the product or service to the buyer, and the ease of switching to a competitor.
- The threat of substitute products or services: This refers to the degree to which customers can switch to alternative products or services. Factors that influence this threat include the availability of substitute products, their cost, and their quality.
- The intensity of competitive rivalry: This refers to the degree of competition among existing companies in the market. Factors that influence this intensity include the number and size of competitors, the rate of industry growth, and the level of product differentiation.
By analysing these five forces, a company can gain a deeper understanding of its competitive environment and the key drivers of profitability in the industry. The analysis can help identify the company’s strengths and weaknesses and highlight areas where it can improve its competitive position. Companies can use this analysis to develop strategies to defend against competitive threats and to seize opportunities for growth. Overall, Porter’s Five Forces model provides a valuable framework for companies to create a robust business strategy. It’s no surprise then that this model is considered one of the key strategic models that businesses need to utilise.
The Balanced Scorecard
The Balanced Scorecard is a popular framework developed by Robert Kaplan and David Norton in the early 1990s for creating a comprehensive business strategy. It is a tool that helps businesses align their activities with their vision and strategy and track their progress towards achieving their objectives. The Balanced Scorecard takes a holistic approach to measuring a company’s performance by evaluating four key areas, namely i) financial, ii) customer, iii) internal business processes, and iv) learning and growth.
- The financial perspective measures the company’s financial performance, including revenue growth, profitability, and return on investment. This perspective evaluates the company’s ability to generate financial value and ensure its long-term sustainability.
- The customer perspective measures how the company is meeting its customers’ needs and expectations. It assesses customer satisfaction, loyalty, and retention, as well as the company’s ability to attract new customers and expand its market share.
- The internal business processes perspective evaluates the company’s efficiency and effectiveness in its internal operations. It measures how well the company is performing its core activities, such as product development, supply chain management, and production processes. This perspective aims to identify opportunities to improve processes and increase productivity.
- The learning and growth perspective assesses the company’s ability to innovate and learn. It measures the company’s investment in employee training and development, technology, and other resources that promote innovation and creativity.
By measuring their performance in these four areas, a business can identify areas where they need to improve and take steps to address them. For example, if a company is experiencing declining customer satisfaction, it may need to review its customer service processes or improve the quality of its products or services. If the company’s financial performance is lagging, it may need to evaluate its pricing strategy or explore new revenue streams. Ultimately, the Balanced Scorecard provides a framework for businesses to develop a well-rounded strategy that considers all aspects of their operations and positions them for long-term success.
Blue Ocean Strategy
The Blue Ocean Strategy is another key strategic model developed by W. Chan Kim and Renee Mauborgne that encourages businesses to focus on creating new market spaces rather than competing in existing ones. The Blue Ocean Strategy is based on the concept of “red oceans” and “blue oceans.” Red oceans represent existing markets where competition is fierce, profits are low, and differentiation is challenging. Blue oceans represent untapped market spaces where there is no competition, and businesses can create new demand by offering unique value propositions.
To pursue a Blue Ocean Strategy, businesses must first identify untapped market spaces. This involves looking beyond the existing industry boundaries and identifying areas where there is an opportunity to create new demand. Businesses must then create new value propositions that address the needs and desires of customers in these untapped market spaces. This requires thinking creatively and innovatively about product and service offerings.
Once a business has created a new value proposition, they must then make the competition irrelevant. This involves creating a unique and differentiated offering that cannot be replicated by competitors. It may involve creating a new business model, leveraging technology, or rethinking the value chain to deliver a more efficient and effective offering.
By pursuing a Blue Ocean Strategy, businesses can differentiate themselves from their competitors and create a sustainable competitive advantage. This can lead to higher profits, increased market share, and long-term success. However, business utilising this model need to be prepared to embrace risk and change more readily and to be more innovative in their strategic approach.
The Blue Ocean Strategy has been used by a variety of businesses, from start-ups to established companies, to create new markets and transform existing industries. Overall, the Blue Ocean Strategy is a powerful tool for businesses looking to differentiate themselves in a crowded and competitive marketplace.
The Lean Startup model is a methodology designed to help startups develop products or services quickly and efficiently by emphasizing continuous learning and iteration. The approach is based on the idea that startups should create a minimum viable product (MVP) – a simplified version of their product or service – and test it with real customers to gain feedback and refine the offering.
The Lean Startup model involves three main stages: i) Build, ii) Measure, and iii) Learn.
- Build – In the “Build” phase, a startup creates an MVP based on its assumptions about what customers want. The product or service is designed to be simple and cost-effective, allowing the company to test the market without investing too much time or money.
- Measure – Once the MVP is ready, the startup moves to the “Measure” phase, where it collects data on how customers are using the product or service. This data can include feedback, metrics such as usage and conversion rates, and other indicators of customer engagement. The goal of this stage is to gain insights into how the product or service is being used and how it can be improved.
- Learn – In the “Learn” phase, the startup takes the data collected in the previous stage and uses it to make informed decisions about how to improve the product or service. This may involve making changes to the MVP or pivoting the business model altogether based on customer feedback.
By following a Lean Startup approach, a business can reduce the risk of failure and create a product or service that meets the needs of their target market. This is because the methodology prioritizes customer feedback and data over assumptions, allowing startups to make informed decisions about product development and avoid investing in features or services that customers may not value.
In addition to reducing the risk of failure, the Lean Startup model can also help startups save time and money by avoiding costly mistakes and developing a product or service that is more likely to succeed in the market. Overall, the Lean Startup approach is a powerful tool for startups looking to launch new products or services and build a successful business
We have outlined what we consider to be 5 of the most critical and useful strategic models that a business can use to shape its strategic approach. Businesses need to be prepared to be more innovative in their approach and mind-set, to embrace risks that may result from a change of strategic direction and to accept change if they are to explore new markets and opportunities for their business.
Each of the models outlined in this article emphasizes different aspects of a business’s operations, and by combining them, businesses can create a comprehensive and effective strategy. By taking the time to carefully analyse their situation and choose the right model, businesses can set themselves up for success in a highly competitive market.