In the Learning Activity “Business Models, Business Strategy, and the Business Environment” you learned about three companies that differentiated themselves through their business strategies. List the...

In the Learning Activity “Business Models, Business Strategy, and the Business Environment” you learned about three companies that differentiated themselves through their business strategies. List the three companies mentioned in the text and what each unique strategy was. Then, conduct your own research and find out which of these companies is currently the most profitable. Do you think the profitability is affected by their strategy? Why or why not? Now, find an example of two companies who have differentiated themselves through their business strategies. Comment on at least one similarity and one difference between the companies you found and the ones listed in the text.

Business Models, Business Strategy, and the Business Environment Introduction What is the difference between a business model and a business strategy? After reading this section, describe how internal and external pressures in a business environment affect a company’s strategic planning. Record your response in your Learning Journal. © Minerva Studio/iStock/Thinkstock Model Versus Strategy A company’s business plan, a detailed outline of all aspects of the business, including how a company will meet its goals, includes both a business model and a business strategy. A business model explains the company’s structure and guidelines for doing business: what product or service is provided, the proposed target market, and how the company will provide value to customers, all while making a profit. A business strategy outlines how the goals of the business model will be met and how the firm will deal with competition, customers, and the marketplace. Many companies have similar business models, but the differing strategies they use to attempt to meet their goals often distinguish between a thriving company and a failing one. The most successful companies have both superior models and strategies. Figure 1.1 Business Model and Strategy Business Model A firm’s business model explains how it conducts business and makes a profit. The model identifies the target market and customer and how the business delivers value with a product or service that can resolve a problem, save the customer money or meet a specific demand. The product features and price, resulting in the desired profit level, are set in the model. An effective business model helps management decide how company departments can work together for the desired end result. It is important to note that the business model does not address competition or market forces. Business Strategy Making the most of a business model involves developing an innovative and effective business strategy to deal with the competition and market forces. It makes use of any competitive advantages in order to meet the firm’s goals. An in-depth knowledge of the market, including consumer spending trends and competitor strengths and weaknesses is necessary. The strategy spells out procedures and processes as well a course of action in the case of business threats. It should reflect current industry conditions and demands as well as those expected in the future. In his article, “How Competitive Forces Shape Strategy,” Michael E. Porter describes five important areas addressed by a business strategy: Table 1.1 How Competitive Forces Shape Strategy 1 Existing competitors, and their market positions, prices and advertising tactics 2 New competitors, and the difficulty they have in overcoming any barriers in entering the industry, such as cash requirements, product differentiation, government policy, and distribution channels 3 Substitute products or services, which can lower prices and industry growth 4 Supplier buying power, which can hurt profitability by raising prices or decreasing quality of goods sold to the firm 5 Customer buying power, which can send prices down, quality up, or even pit competitors against each other After market forces are assessed, strategies used may include positioning of the company within the market, innovative marketing, or even changes addressing product or industry life-cycle stages. Business Environment The environment, both internal and external, in which a business operates, can seriously affect a company’s strategic planning and success. External pressures may involve competitors changing strategies, leaving the market, or the entry of new competition in the market. Changes in the population can have a positive or negative effect as can the overall economy. Because the external environment is constantly changing, firms must be aware of these outside forces and adjust their strategic business planning accordingly. Internal pressures include changes in the workforce, such as a key employee resigning or a new employee with special skills starting up a new department. Updated technology employees are not familiar with may be installed. The strategic planning team itself, in a company with a formal planning process, may undergo membership changes. Similar to external changes, internal changes must be addressed by the firm’s strategic plan. Strategic planning is not a one-shot effort; it is an ongoing process in any firm looking for lasting success. Figure 1.2 External and Internal Pressure  ​  Wal-Mart Versus K-Mart © Smithore/iStock/Thinkstock A well-known example illustrates the difference between business models and strategies, within a given business environment. In the 1980s and 90s, K-Mart, Wal-Mart, and Target seemed interchangeable. All three followed the same basic business model: big stores, deep discounts, and row upon row of products, better known today as the “Big Box” retailer model. However, the three eventually differentiated themselves through their business strategies: Target sold higher quality products while K-Mart focused on selling in urban areas, and Wal-Mart dominated with continual low prices in suburban areas, making it one of the largest and most successful retailers in the U.S. Wal-Mart’s strategy gained success with the growing suburban population and decreased costs through low overhead, thereby increasing profits. Same business model, very different results.
Mar 12, 2022

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