The modus operandi for companies in these changing times differs from what we were accustomed to. The level of competition has increased, companies are adjusting to technology advancements, and brands are modifying how they engage with consumers. How can a company survive these rapid changes while still providing value to customers? How can it generate income while adding value? The business model and competitive strategies which a company employs hold the key to providing answers to these concerns.
What is a business model?
A business model is a description of how a company intends to provide value and generate income. It shouldn't be mistaken with a business plan, which details a company's strategic plans, goals, and objectives, as well as its projected finances. A business plan's core is its business model. To provide an example, let's say that the business plan is the structure of a company, and the business model is the foundation.
Both new and existing companies must have a business model. A business model for a new company can assist in determining the goods or services the company expects to offer, the target market, the initial costs associated with delivering that value, and the expected level of profit. A business model for an established company includes the strategies for entering a new market, luring investors, or increasing operational efficiency.
Types of business models
There are a multitude of business models, and each one may be used in a different way based on the sector the company is in. For example, a manufacturing company's business model could be different from a service industry's. However, it's noteworthy to point out that several business models may be used within the same industry or sectors. Therefore, choosing the model which will work for your company requires having a solid grasp of the major business models.
We have classified the various models into three categories:
Traditional business model – This model refers to businesses built of brick and mortar, where customers are required to travel to the physical address of a store or company in order to purchase items or transact business. It is typical of company in supply chain activities.
Modern business model – This is used to describe businesses that offer beneficial business-to-business (B2B) or business-to-consumer (B2C) software solutions that are essential for their users' or customers' ability to carry out their functions. The modern business model is mostly adopted by players in the service industry.
Hybrid business model – This is an integration of both traditional and modern business models. Today, many businesses who initially used the former are merging their procedures to support modern business models.
What are competitive strategies?
According to Economist and Business Strategist Michael Porter, there are three main strategies in which an organisation can choose to develop its competitive advantage. These include:
Cost leadership strategy – A company is considered as a cost leader when it chooses to offer goods or services at a lower price than its rivals in the market.
Differentiation strategy – A company is considered to have a differentiator when it chooses to market or provide distinctive goods and services that its target customer base finds valuable.
Focus strategy – When a company chooses to concentrate on a certain or limited market niche or sector and provides goods and services that cater to that market, it is said to have adopted a focus strategy.
What is a mission statement?
A company’s mission statement simply defines what a company is all about, namely, its reason for existing, i.e. its purpose and direction, its goals, its objectives, and the strategies which will be used to achieve those objectives. It is not to be interchanged with a vision statement which basically refers to the future of the firm.
A solid mission statement should be straightforward and concise, promote the culture of the company; its beliefs, values, and strategies, and clearly describe the purpose of the company to both internal and external stakeholders.
In summary, irrespective of the strategy and business model a company chooses, it is critical that they should align with the company’s mission statement. However, there is not one fits all template that works. While mapping the strategy and business model, key decision makers need to dig deep to address all matters relating to their operations. The strategy and business model which a company chooses should be clearly understood by all executives and employees to ensure efficient execution in order to achieve a sustainable competitive advantage which will conform with its mission statement.
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