Business models became popular as a result of the internet boom that made many companies to begin relying on web-based models. Companies shifted from the traditional methods that were based on strategy and competence in an attempt to embrace the new trend. The new models came with a promise of substantial profits and efficiency. All the entrepreneurs who bought into the new idea ended up suffering huge loses because they did not implement the models in the right way. The concept of business models therefore did not perform well in the initial stages because many people did not actually understand the concept. The failure of these business models came as a result of misuse and distortion. Many entrepreneurs wasted their capital by investing in flawed models without careful consideration. The new concept of doing business using models is still very applicable in different types of business ventures. A business model should Continue reading
Strategic Management Concepts
Strategic Business Plan
Either in the start up process or when re-inventing one’s business development, the design of a strategic business plan is an indispensable step towards a successful and viable business. Strategic planning involves setting up a sound and multifaceted plan or strategy to follow over a defined time period. It can involve all aspects of the business, or just a small part of it i.e. a selected department such as the marketing department. However, this does not mean that strategic business planning is only for large scale businesses since it can also benefit the small business, especially at start up, when the business sets its first goals and establishes itself in the business landscape. Writing up a business plan is an important step of a starting business, since most lending bodies will not authorize loans in absence of a detailed business plan. Why is it important? Imagine sailing off for a Continue reading
Concept of Core Competence
Core Competence is the term coined by C K Prahalad and Gary Hamel, in their 1990 article entitled, “The Core Competence of the Corporation“, to explain how some Japanese corporations, such as Sony and Canon, became world market leaders after acquiring several technological capabilities, which allowed these firms to create and lead new markets, since innovative product functionalities and customer interfaces were offered. A core competence is a bundle of skills and technologies that enable a company to provide superior value to customers. A core competence is effectively a company’s specialized capability to create unique customer value. This capability is largely embodied in the collective knowledge of its people and the organizational procedures that shape the way employees interact. Over time, investments made in facilities, people and knowledge that strengthen core competencies, create sustainable sources of competitive advantage. “Core competencies are the collective learning in the organisation, especially how to Continue reading
Why is Strategic Planning Important to Small Organizations?
When the future life and well being of a business organisation is pre-planned at the present time using proper projections, strategic planning comes into play. Hence, strategic planning entails some of the steps and procedures which can be put in place in an organisation so that it can experience face lifting in the near or distant future. Each division within a company ought to craft its own strategic plan which will focus on growth and performance. This is necessary because the impressive growth of a business organisation is entirely dependent on laid out plans. Nevertheless, whether in a small or big company, a strategic plan should be in a simplified version which is easy to understand, interpret and implement. Complicated elements in a strategic plan document may not be helpful at all especially when the same is to be implemented. As already mentioned, strategic plan should be in form of Continue reading
Reasons for the Increased Diversification by Business Firms
Growth through mergers and diversification represents a very good alternative to be taken into account in business planning. The external growth contributes to opportunities for effective alignment to the firm’s changing environments. The primary reason for acquiring or merging with another business is to produce improved cash flow or to reduce the risk faster or at a lower cost than achieving the same goal internally. Thus, the goal of any acquisition is to create a strategic advantage by paying a price for the target that is lower than the total resources required for internal development of a similar strategic position. Another reason is the expectation on the part of the diversifying or acquiring firm that it has or will have excess capacity of general managerial capabilities in relation to its existing product market activities. Moreover, there is an expectation that in the process of interacting with the generic management activities, Continue reading
Durability of Competitive Advantage
Durability of competitive advantage determines how long the competitive advantage can be sustained and is considered in terms of the ability of competitors to imitate through gaining access to the resources on which the competitive advantage is built. The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors. —Warren Buffett (1999) The durability of competitive advantage of a company is a function of three factors: the height of barriers to imitation, the capability of competitors, and the general dynamism of the industry environment. 1. Barriers to Imitation Barriers to imitation are factors that make it difficult for a competitor to copy Continue reading