Comparison of Business Strategy Frameworks

Strategic management literature has established multiple popular frameworks which are used by decision makers to develop a roadmap for business strategy. Some of the popular frameworks for business strategy are Porter’s 5 forces model, BCG / GE McKinsey Matrix,  PEST analysis and the Ansoff Matrix. However, all these frameworks focus on factors which are external to the firm. In this article, however, we focus on the frameworks which are a mix of the external view of the macro-environment and the internal view of the strengths and weaknesses existing within the firm, namely the Industry Structure view, the Resource based view and the Relational view of the firm.

The Industrial Structure view is somewhat more macro-industry focused. It postulates that firms operate in an environment of competitive forces of rivalry and forces involving barrier of entry (even exit). In general industry structure refers to the distribution of firms in an industry. The existence of a large number of firms in an industry both reduces and increases opportunities for coordination among firms in the industry. Depending on the degree of consolidation or fragmentation in the industry, the macro-economical dynamics affect the firm’s competency in how it deals with the forces of competition.

In contrast, the Resource based view is somewhat more internal focused. It stresses that the competitive advantage of a firm lies primarily in the application of the bundle of valuable resources at the firm’s disposal. To transform a short-run of competitive advantage for a firm to a sustained competitive advantage is like winning both the battle and the war. It requires creation of resources which are heterogeneous in nature and not perfectly mobile across competing firms. This again translates into the fact that the value of these resources arise from the criticality that they are neither perfectly imitable nor substitutable without great effort.

Similarly, the Relational view is a theory for considering networks and dyads of firms interlinked within the daily intercourse of business transactions, as the unit of analysis to study and frame strategies for sustainable competitive advantage. The relational view argues that idiosyncratic inter-organizational linkages are the sources of competitive advantage, whereby relationships play a major role in development and exploitation of competencies in an industry that is traditionally highly competitive.

In the next diagram, a comparative analysis of these important theories has been presented., which present how these theories are not only different, but also complement each other by taking a different lens to view the competitive landscape for a strategic decision maker.

Do let us know, if you have any query regarding more details on this article. We value the feedback from our readers very highly.

BSC – The Balanced Scorecard

The Balanced Scorecard (BSC) is a framework for strategic management, used to monitor and align performance of an organization or a division of the same. It is a semi-standard yet more or less structured report, supported by some established design methods and tools, that can be used by management executives to keep track of the execution of plans / assignments by the staff within their control and to evaluate the possible consequences arising from the execution of these plans. Introduced by Robert Kaplan (Harvard Business School) and popularized by Bain & Company, the Balanced Scorecard has become one of the most popular frameworks for project monitoring and management and align the same to the vision and mission of the organization, be it an industrial, government, or nonprofit organization.

Ref: Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecard as a Strategic Management System”, 1996, Harvard Business Review, Vol. 76.

There are 4  major process that needs to be balanced in BSC:

1. The Learning & Growth process
2. The Business process
3. The Customer process
4. The Financial process

The learning and growth process involves all the plans and programs an organization or a department is undertaking in terms of training and development related to both individual and corporate self-improvement. It extends the concept that in a knowledge based organization,people or the human resource is the most critical resource to organizational development.  This section posits the use of metrics to evaluate performance, progress and development of the human resources of an organization.

The Business Process takes into consideration to develop metrics to measure the performance of the internal processes of an organization. It helps to map development in process efficiencies with incremental changes in internal processes. Process management metrics and workflow management metrics are used in this process to evaluate performance vis-a-vis improvements. Incremental improvements the the processes in terms of meeting targets (say process efficiencies) are measured and how the implementation of plans to meet such targets were conducted, is scrutinized in this process.

The customer process takes into account the philosophy of customer orientation in an organization. In current times, there has been an increasing realization of the importance of customer focus and customer satisfaction in any business. The focus in this process is predominantly Customer Lifetime Value management and in the next stage, harness the Customer’s network value. Incremental improvements in each objectives in terms of meeting targets is measured and how the implementation to meet such targets were planned, is scrutinized in this process.

The financial process is another crucial dimension in the BSC. Although managers using the BSC do not have to rely solely on short-term financial measures as the most important indicators of the division’s performance, financial measures are none the less, extremely relevant and are often recognized as the most critical process by many practitioners. Measures such as financial ratios, total revenue from sales, total cost, cost structure improvements, and indirect sources of revenue are scrutinized against their targets, in this process.

These processes are mapped against each other to check how the organizational vision and mission are being adhered to within a division while implementing ploys and strategies. These help in providing a way to construct a concrete step-by-step path of development for the executives of a division or of an organization.

However, the limitation of the Balanced Scorecard is that it has been severely criticized by scholars  for its inability to link a company’s long-term strategy with its short-term ploy. It has become overused in many organizations, sometime not in the most desirable way, as it was conceived when developed.

 

industry, government, and nonprofit organizations

PEST Analysis

PEST analysis stands for “Political, Economic, Social, and Technological analysis“. It is a framework for Strategic analysis of markets to evaluate macro-environmental factors used in the environmental scanning component. Some analysts add the Legal factors to the analysis.

Thus when the PEST analysis is expanded to incorporate legal and environmental factors; this is called a PESTLE analysis or a PESTEL analysis.

• Political factors pertain to how the government intervenes in the economic functioning of the country (market) and more specifically how it affects the firm strategic decision making. Political factors such as tariffs, tax policy, labor laws, trade restrictions,environmental law, and political stability. Political stability is a major factor which affect the firm’s strategic decision making and overall legal framework.
• Economic factors consists of interest rates, government bond rates, risk free rate of interest, economic growth, inflation rate (adjusted) and exchange rates.  These factors have major impacts on how a firm can operate in a market. Inflation rate and potential GDP affect the demand and prices of goods.
• Social factors include the cultural dimensions of the population in which the firm will operate and include gender consciousness, gender based product/service bias, population growth rate, age spread, health consciousness, career attitudes and risk appetite of the target segment.
• Technological factors consists of factors such as research and development focus in general industries, intellectual property protection laws, technology adoption rates, change assimilation culture, automation and the rate of technological change. They affect entry barriers, technology enabled products and service assimilation,  product prices, quality, and innovation.
• Environmental factors consists of factors like ecological and environmental aspects such as forestry  and  climatic conditions which may especially affect industries such as tourism, farming, and insurance.
• Legal factors focus on discrimination laws, intellectual property protection laws, labor laws, consumer laws, antitrust laws, employment laws, health laws, safety laws and social security laws which can affect how a firm operates, its bottom-line (cost structure) and the demand and distribution for its products and services.

The PEST framework has been recognized as an extremely popular framework for market analysis. It is a part of the external analysis conducted while demonstrating an in-depth strategic analysis during new market entry or doing market research for a new product launch or even sometimes during a product extension, and gives an overview of the different macroenvironmental factors that the company has to take into consideration. It is a useful theoretical tool for estimating market growth or decline, business position, potential and direction for operations.

It is an important complementary extension of the Marketing Mix strategies and often it is used as an alternative analytical tool for Porter’s 5 forces model (although not appropriate for the same).

 

Services marketing strategy

Typically marketing of services is done following the services marketing mix using the 7 Ps framework unlike the marketing of products for which the marketing mix involves the 4 Ps framework. Today, marketing has evolved over time into a discipline of its own. Over time marketing managers have realized the sustainability of pull marketing than the traditional approach of push marketing strategies.

The initial movement in marketing strategies was from a direct marketing scenario to brand marketing. In direct marketing, the marketing managers typically had a role of sales managers and the most important strategic focus was to ensure a incentive structure for the sales force, both internal salesmen and external salesforce (dealers, retailers, distributors) such that the one-to-one marketing could be done at the point of sales. However, it was realized that if a fraction of the sales force deviated or moved to another firm, the entire customer segment was lost to the business. The face of the product or service was essentially the sales force. Now as services gained in importance, it was realized that the differentiation of services was even more difficult based on tangible features like that of a product. This was when brand marketing started getting its due importance, where a pull strategy was implemented so as to “pull” the customer to the product or service based on his perception of the quality of the same.

However, with services gaining prominence over time, it was realized that the very definition of services was evolving as more and more services were being focused on internet or info-tech based services where direct interaction with the customer was lost. While branding definitely ensured that the customers develop a brand association with the service, sometimes the nature of the service is such that the essence of the service is a transactional one. So brand marketing focus gradually started to shift towards customer engagement and the benefits of social networks started getting conceptualized. This paved the way for the next generation of marketing, namely marketing using social media.

Since services cannot be differentiated purely based on features on offer, the major differentiation to create a brand association and thus customer engagement, is through tapping the social networks. In the internet economy, social networks are getting increasingly dominated by social media and thus marketing managers of even larger traditional “brick and sell” firms have started recognizing this fact and focusing their efforts on social media marketing.

The 7 S framework for digital marketing started gaining in prominence for services marketing strategists. While the dynamics of a pure internet marketing strategy is slightly different, the essence of the same has been captured in more comprehensive frameworks on digital marketing, which have been derived purely through the theories based on economic rationality.

Over time, it was realized that social media is perhaps the biggest tool today to lead a brand marketing strategy for many of the services and product categories, since in both cases, the target segment often uses the internet as a source of information (through websites or though the personal social network) while deciding on a service vendor. It is at the point of information search that social media marketing can create the largest impact and thus builds its reputation for having a high impact on “brand recall” at the “point of purchase”.

Do let us know if you have any feedback regarding this article.

Customer Lifetime Value management

Today “customer is the king” is the mantra for success for all marketing managers. But for actual decision making, the marketers (especially the relationship managers) are often poised with a simple challenge. They cannot meet the needs of of all the customers equally and satisfy them all.  So how should they prioritize how to satisfy the needs of the customer and by what means to select such customers?

The answer lies in the estimation of the customer’s lifetime value. Customer lifetime value ( CLV or CLTV ), or lifetime value (LTV), or lifetime customer value (LCV) is the net present value of the economic benefits (monetary returns in terms of cash flows) attributed to the relationship with a customer throughout his relationship with the company. The focus on customer lifetime value as a marketing metric is for placing a much greater emphasis on relationship marketing for improving customer service and long-term customer satisfaction, rather than on maximizing short-term sales.

So then, comes the big question, how do one estimate the Customer Lifetime value? The answer is presented to you diagrammatically below, in a simplified manner.

So what should be done to maximize the value from CLTV management? Let us discuss the same in this article step-wise.

1. First estimate your customer lifetime value for your entire customer base. This would enable you to make an estimate of the total revenue that the customer is likely to provide you if he/she stays with you throughout the estimated life-cycle of the product.
2. For each customer, estimate the possible churn probability at each stage and discount the CLTV value for each customer.
3. Segment the customers based on the discounted CLTV value into high net-worth individual (HNI) customers, medium net-worth individual (MNI) customers and Low net-worth individual (LNI) customers
4. Now, allocate your budget for marketing and relationship management likewise for each customer segment, to maximize the retentivity of every customer in the segment. Do remember that normally, every new customer acquisition is 5 times costlier than retaining an old customer, as had been found out through research. However, if the cost of retention of a singular customer (based on a case-to-case analysis) is more than the discounted CLTV, incentivising his churn is often a good strategy to optimize the negative effects of his network value and negative word of mouth viral effects.
5. Always try to ensure a greater deal of attention for maximizing customer satisfaction. A fully satisfied customer is likely to provide 5 times more economic value to the firm than a customer with a mid-level satisfaction level. It is also important to remember that it is better to let a customer with low satisfaction level churn rather than attempting to retain him, since such a customer has a negative return to the firm, from the customer’s network ( remember Customer Network Value? )

These are few of the necessary steps to ensure customer lifetime value maximization and optimal management of the same, through better resource allocation. Do let us know if you have any queries, we would be happy to resolve your problems.

Ansoff Matrix

The Ansoff Growth matrix is a tool that helps firms decide their product and market growth strategy based on objective analysis of industry structure and product type. It is one of the more popular tools for strategic management analysis, in the scenario of deciding the case for a related diversification of businesses and firms, which itself is a highly risky strategic decision.

The Ansoff Matrix was modeled by Igor Ansoff.  Ansoff was primarily a mathematician and an economist par excellence and is one of the earliest strategic management guru.

While the application has been explained in details in the previous diagram, it is crucial to understand that the Ansoff Matrix is completely a framework for Market Entry Strategy. The framework attempts to minimize the risk associated with businesses attempting to enter new markets.

A major limitation of this framework is that it does not take into consideration the factor of what stage in the life cycle (PLC Curve) the “Product” is currently as, while objectively trying to analyze the best strategy for market entry.

By the way, did you read out article on the frameworks for market entry strategies

Also do you know how the internet affects Porter’s generic strategy models

Michael Porter’s 5 forces model

Porter’s 5 forces model is one of the most recognized framework for the analysis of business strategy. Porter, the guru of modern day business strategy, used theoretical frameworks derived from Industrial Organization (IO) economics to derive five forces which determine the competitive intensity and therefore attractiveness of a market. This theoretical framework, based on 5 forces, describes the attributes of an attractive industry and thus suggests when opportunities will be greater, and threats less, in these of industries.

Attractiveness in this context refers to the overall industry profitability and also reflects upon the profitability of the firm under analysis. An “unattractive” industry is one where the combination of forces acts to drive down overall profitability. A very unattractive industry would be one approaching “pure competition”, from the perspective of pure industrial economics theory.

Despite its limitations in the technology enabled business era, Porter’s 5 forces model is still the leading framework for the analysis of industry attractiveness. The limitations of the Porter’s 5 forces model induced the introduction of the 6th Force, namely the Complementors.

This model comprises of an analysis dependent on 4 entities external to the firm and the fifth force: the Industry structure. These forces are defined as follows:

1. The threat of the entry of new competitors
2. The intensity of competitive rivalry
3. The threat of substitute products or services
4. The bargaining power of customers
5. The bargaining power of suppliers

A detailed explanation of what these forces comprise of is provided in the diagrammatic representation of these 5 forces next.

The 5 forces model has been developed as a response to the SWOT analysis of competitiveness of firms, and has continued to remain the most popular framework in business strategy.

The individual dimensions of the 5 forces has been described in details in the diagrammatic representation of the five forces model. The individual scores on theses dimensions may be mapped to a 7 point Likert Scale. Likert scale basically is an ordered, one-dimensional scale from which respondents choose one option that best aligns with their view.The linguistic values for the same would be Very Strongly agree, Strongly agree, Tend to agree, Neither agree nor disagree, Tend to disagree, Strongly disagree and Very strongly disagree.

These responses on the Likert Scale can then mapped quantitatively to -3 to +3 on the extreme points. The mean of the score can be reconverted in the linguistic variables on the Likert Scale and then expressed as whether the particular force is Very Strong, Strong, Slightly strong, Neither strong nor weak,  Slightly weak, Weak, Very Weak.

Although the Porter’s Five forces model is very popular in terms of usage, one must be aware of the limitations of this framework. No framework can be comprehensively understood unless its limitations are understood as well.

By the way do you know what framework you should consider while deciding on a market entry strategy?

Marketing Plan – Blueprint for Marketing Strategy

Today when so much investments are dependent on the outcome of a marketing plan, the same needs to be scrutinized very deeply so as to minimize the risks of non-performance. One such way is to ensure the proper implementation using a marketing strategy plan or a blue-print of implementation for your strategy. So what is a marketing strategy plan?

Basically, it encompasses all the activities in details that needs to be done to ensure that a campaign is successful.

• For a marketing plan to be successful, the primary importance is understanding whether its adherence to the main marketing mix (4 Ps) is done in a well planned manner. If your objective is to deliver a service, then the 7Ps of Services Marketing needs to be checked out for planned adherence.
• If you are focusing on extensive usage of technology, are you having ample focus on how you are leveraging the usage of technology vis-a-vis the competencies within your team? Did you take care of the Basics of Digital Marketing Strategy?
• Have you given the implementation a thought? Is there a structured sequential blueprint to your Marketing Plan which you are planning to operationalize?
• What is the targeted returns you are expecting from your campaign? Do a cost vis-a-vis outcome-benefit break up for the entire blue-print stage wise. Does each stage commensurate the Expected Returns on Investments (ROI) figures?
• Last, not the least, does it go hand in hand with the internal competencies of the team that will be implementing your strategy? A great strategy may fall flat without due importance given to the implementation and the competencies of the team.

Do let us know if you need any clarification. Hope you enjoyed reading our articles. By the way, do check out PrintmeIt.com, they create wonderful flyers and brochures which you can you for your advertising campaigns.

Did you read these related articles? They have drawn a lot of attention from readers of similar articles as this one and had been shared extensively in professional networks like LinkedIn.

• The Evolution of Marketing Management – The History & Future
• The 7S for Digital Marketing

Digital Marketing – Theories, Strategies and Frameworks

Digital Marketing is basically promotion of brands using all forms of digital advertising mediums to reach the target segment. This now includes Radio, mobile, Internet, Television, social media marketing and other less popular forms of digital media.

While the talk of the day is internet marketing, the latter is only a subset of digital marketing. While digital marketing does involve many of the strategies involved in Internet Marketing, it extends beyond this by including other channels with which to reach people that do not require the use of the Internet. As a result of this decreased reliance on the web based media, the field of digital marketing expands to include media such as cellular media(sms/mms/phone calls), digital signage (digital banner ads and digital outdoor signboards), and other media like television and radio,  it is thus a much more comprehensive methodology to reach out and engage your target audience, and with a higher conversion rate for most product categories.

Previously seen as a stand-alone marketing strategy because of its extension on mediums which it covers, it is currently visualized more as a marketing effort that covers most, if not all, of the more traditional marketing areas such as direct marketing by providing the same method of communicating with an audience but in a manner using the development of science and technology and thus optimizing resources. The spectrum of digital marketing is now being expanded to support the “servicing” and “engagement” of customers, and thus cover not only customer acquisition but also customer retention.

So how should firms go about planning their marketing strategies for a successful digital marketing program? While there is no such common strategy which fits the requirement of all firms like a glove, there are few generic strategic and economic issues that firms need to keep in mind while designing their marketing program.

The first grid has three elements of your proposed strategy. Does your strategy match with the vision and mission of your firm? Does the strategy assembling platform match with the knowledge that is within your marketing team? Is that knowledge formally managed using any platform? Then comes the question of how you are delivering the value transfer from the production of value, to the assembly of value to the end value consumption in a value chain. Is your firm geared to take charge of such a business model?

As in the second half of the architecture, the business model dimensions need to be evaluated based on the digital marketing capabilities. Most important dimension for serious consideration is whether your organization structure is geared to handle the marketing methodologies you are planning to implement.  The dynamics of knowledge distribution also needs to be looked into based on this framework.

Hope this helps your company to chalk out a successful digital marketing program. Do let us know what you think of the article, with your valuable comments.

Have you read our article on the 4 P’s on Social Marketing?

Also did you read our article on the The 4 P’s of Marketing – The Marketing Mix strategies?

These articles are highly popular posts in our educative blog.

A business that makes nothing but money is a poor business

Henry Ford never said something more meaningful. A business has more implications on the society and environment in which it functions. Its not only the philanthropic activities which matter but activities like “Go Green” paves the way for a sustainable development and a better future for generations to come.

Understanding what an organizations Corporate Social Responsibility may be, may turn out not just an attempt for brand building in the long run, but a survival strategy, in the changing era of government intervention and policing.

CSR policies today, more than ever function as a built-in, self-regulating mechanism whereby organizations would monitor and ensure its support to law, ethical standards and even international norms or expectations. Consequently, today organizations are embracing responsibility for the impact of its activities on the environment, consumers, employees, communities, stakeholders and all other members of the public sphere, just to ensure a humanitarian face towards the ecology within which they thrive. Furthermore, CSR-focused businesses would proactively promote the public interest  by encouraging community growth and development, and voluntarily eliminating practices that harm the public sphere, regardless of legality. Essentially, CSR is the deliberate inclusion of public interest into corporate decision-making, and the honoring of a triple bottom line: people, planet, profit.

Today, CSR is not just a thing that companies may choose to do, but it is gradually turning out to be strategic inclination of major MNCs getting positioned for a better future. Today it has become a key component while evaluating a brand value and its recall value. Considering this take by the MNCs, can even the smaller and medium sized enterprises neglect whatever CSR is possible, in their disposition?