Editor's Note: Take a look at our featured best practice, Organization Design Toolkit (103-slide PowerPoint presentation). Recent McKinsey research surveyed a large set of global executives and suggests that many companies, these days, are in a nearly permanent state of organizational flux. A rise in efforts in Organizational Design is attributed to the accelerating pace of structural change generated by market [read more]
A Guide to Business Strategy Frameworks
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Business strategy is the process by which a business defines its goals and sets itself apart from the competition. It can be used to identify opportunities, develop new products or services, or just improve productivity. Like any other task you complete at work, you must take the time to understand what makes a good strategy before starting one.
One of the best ways to learn about these frameworks is through an Online DBA. Here they teach you the business theories and strategy frameworks that can help modern businesses make decisions. They also teach you seminal management theories that help the sustainability of a business. However, not everyone is lucky enough to receive a formal education in business. So today, we’re going to talk about some of these frameworks in detail and help you decide which one might be best for your own company.
The Customer Value Framework
The customer value framework is a way of understanding the value that a company provides its customers. It helps you understand how your customers see and value your product or service, and it helps you understand how to create more value for your customers.
The Customer Value Framework has six components:
- Customer Segments – Who are the people who will buy from us? What are their needs? How can we reach them?
- Value Proposition – What products and services do we offer? Why should someone choose them over other offerings in our industry or category? How does our offering provide unique benefits compared to what’s already out there on the market?
- Channels – What distribution channels can we use to reach our target market(s) effectively with our product or service offering(s)? Which channels will work best with which target markets so that overall return on investment is maximized while costs are minimized?
- Key Activities (KAs) – Which of these activities must happen for each channel strategy outlined above to work its magic? i.e., how do those activities affect customer perceptions regarding the business’s overall level of quality control?
The Porter’s Five Forces Framework
The Porter’s Five Forces Framework can help you analyze the attractiveness of an industry, determine the profitability of an industry, and also understand where your business fits into its competitive environment. The framework was developed by Michael Porter in 1979 as a tool to help companies assess their position over competitors.
It considers five forces that determine the competitive intensity and, therefore, the attractiveness of a market.
The five forces are:
- The threat of new entrants
- The bargaining power of buyers
- The bargaining power of suppliers
- The threat of substitute products or services
- Rivalry among existing competitors
Using this framework will allow you to:
Identify the attractiveness of an industry based on the bargaining power of buyers or suppliers, threat from new entrants, rivalry among existing players, and threat from substitutes (i.e., products that fulfill similar needs).
Determine whether a specific market is profitable for your firm.
Evaluate how much competition there is within an industry so that you can make informed decisions about product pricing and marketing strategy
The McKinsey 7-S Framework
The McKinsey 7-S Framework is a framework for defining the organization’s strategy. It was developed in the 1960s by McKinsey & Company, a global management consulting firm. This organization has More than 30,000 employees. They are present in 133 cities in 67 countries, speak more than 130 languages, and hold more than 130 citizenships.
The 7-S Framework helps companies identify their strengths and weaknesses and then develop strategies to improve on them.
The seven components of this framework are:
- Strategy (or purpose) – what your company aims to accomplish
- Structure – how you organize your business
- Systems – how you operate your business processes (like HR or finance)
- Skills – what type of talent is needed within your organization
- Style – how leaders lead (example: democratic vs autocratic leadership styles)
- Shared values – what culture do employees adhere to? Do they have common beliefs? How does this affect their work ethic?
The BCG Matrix
The BCG Matrix is a tool for analyzing the market position of a business. It can be used to determine whether a business should focus on existing products, new products, or both.
BCG was founded in 1963 by Bruce Henderson. The private firm has over 25,000 employees and is present in 50 countries with a turnover of US$11 billion in 2021. The BCG Matrix was created by Bruce Henderson and Henry B. Lewis in the 1970s at Boston Consulting Group (BCG).
The matrix uses two factors: relative market share and growth rate, to plot four groups of companies (also called quadrants):
- Stars = High market share and high growth rate. These are companies that have killer products that people love so much they’re willing to pay more for them.
- Cash Cows = High market share and low growth rate. These are established businesses that aren’t growing as fast but still bring in plenty of money for their owners.
- Question Marks = Low market share and high growth rate. These are up-and-coming businesses with huge potential but no track record yet.
- Dogs = Low market share and Low growth. Dogs are those that aren’t doing well in either area, so you should get rid of them now.
The Ansoff Growth Matrix
The Ansoff Growth Matrix is a framework that helps you analyze your business strategy and decide which of the four different options (market penetration, market development, diversification, and horizontal integration) is right for you.
Igor Ansoff developed the Ansoff Growth Matrix in 1959 as a way to help companies choose the best course of action for growth. The matrix consists of four quadrants:
- Market Penetration – This is when you sell more products or services to existing customers (for example, by increasing production).
- Market Development – This is when you sell additional products or services to new customers. For example, by expanding into countries where no one has heard about your brand.
- Diversification – This is when you enter a new industry or sector, for example, by producing clothing instead of just furniture. This is a successful strategy for not just large corporations but family businesses as well. 50% of the family businesses in the US expect to increase diversification in their family and business holdings within five years.
- Horizontal Integration – This happens when two companies with complementary activities merge into one company that offers both products/services under one brand name, for example, PepsiCo’s acquisition of Tropicana.
The SWOT Analysis
A SWOT analysis helps managers understand how they are positioned compared to competitors. This helps them make strategic decisions such as product development or marketing campaigns that will be most effective in increasing sales and profits.
The SWOT analysis framework is one of the most commonly used tools for business strategy. It helps you to identify your strengths, weaknesses, opportunities, and threats.
SWOT stands for:
- Strengths – What your business does well or has available that other businesses do not have.
- Weaknesses – What your business does poorly or lacks compared to its competitors.
- Opportunities – What could happen that would make things better for your company or industry?
- Threats – Events (internal or external) that could harm the success of your organization.
Understanding business strategy frameworks can help you choose the right one for you and your company. Business strategy frameworks help choose the right one for your company. They can help you understand your company’s strengths, weaknesses, opportunities, and threats (SWOT). Companies use a SWOT analysis to identify their current position in the market, analyze external factors which may impact them, and develop strategies to improve their performance.
Remember that the frameworks we’ve covered here are only a few of the many strategic tools available to you. Think about which one works best for you and your company, and use it to guide your decision-making process. The most important thing is to ensure you’re always using a framework. It’s an invaluable way to keep yourself on track when making decisions about what to do next.
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About Shane AvronShane Avron is a freelance writer, specializing in business, general management, enterprise software, and digital technologies. In addition to Flevy, Shane's articles have appeared in Huffington Post, Forbes Magazine, among other business journals.
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