A business strategy framework is a unique way of approaching strategic management. A good framework helps a company maximise its potential and generate its best performance. Many different frameworks can be applied to various aspects of a business, and it's important to choose the right one for your needs.
The best financial leaders in India will agree that a robust business strategy framework separates successful businessmen from others. A good business strategy framework determines how to get the right outcomes in different scenarios.
Understanding today's business environment and the major trends is also important. A business strategy framework can be developed over time, and the leader needs to get his organisation used to it.
With a good business strategy framework, the leader will be able to prepare for upcoming challenges and changes in the market. For instance, Sanjiv Bajaj, one of the Top businessmen in India, successfully brought supply chain management strategy into the Bajaj Auto division by keeping General Motors in reference.
With experience from his studies at Harvard Business School, he modernised the business strategy framework and made it more flexible. And that benefited Bajaj to grow, crossing boundaries exponentially.
Let's look at the top 5 strategy frameworks every business strategist must know and implement:
- GE-McKinsey Nine-Box Matrix
In the GE-McKinsey Nine-Box Matrix, a high-performing company is expected to have strong governance practices and specific gaps in areas such as vision and strategy. A company with a simple governance system and unclear gaps can be categorised as having a low performance.
The GE-McKinsey Nine-Box Matrix is a framework that helps companies determine where they stand as a company. While analysing the content and gaps in the company's governance system, it will be easier to identify the areas that need development.
The GE-McKinsey Nine-Box Matrix has shown to be useful in identifying aspects of governance and performance in companies. The matrix comprises nine boxes: Strategic Direction, Innovation, Customers, Processes and ICT, Front office/Back office Integration, and Quality.
- The BCG Growth-Share Matrix
The BCG Growth-Share Matrix assists managers in assessing and organising their business units to assess and evaluate the most profitable segments of a company. The matrix is particularly popular with service-focused companies that need to maximise market share and generate more revenue.
The BCG Growth-Share Matrix can be broken down into four quadrants: A, B, C, and D (or Quadrants I, II, III, IV). Quadrant I contains the most profitable segments of the organisation. These segments typically carry the highest margins and generate significant profit.
The BCG Growth-Share Matrix refers to this segment as "stars." In Quadrant II, businesses have some market share but low margins and poor profitability. Some customers are also satisfied with this group's products, but others are not.
The BCG Growth-Share Matrix calls these groups "survivors." In Quadrant III, the resources needed to operate at a profit are lower than in Quadrant II. However, the group has enough market share, and profitability is sufficient to sustain the business.
The BCG Growth-Share Matrix refers to these groups as "movers" because they are growing while they move into this quadrant.
The groups in Quadrant IV have low profitability but enough market share to sustain the organisation. These groups are referred to as "cash cows."
The BCG Growth-Share Matrix was designed around a clear objective. That maximises the growth of the company's investments. Corporate management aims to find strong growth and allocate resources to them. This is done by increasing market share by improving products, creating new markets, and/or acquiring other companies to increase revenue.
- Porter's Five Forces
Porter's Five Forces is a framework that looks at how five forces impact a specific industry. It suggests a few actions that have to be taken to improve the situation, but it does not suggest specific outcomes be expected. It is based on 5 competitive forces. These five forces are also identified as:
a. Competition in the industry
Competition in the industry is determined by the availability of substitutes and the potential number of competitors. For example, industries in which innovations are easy to create are subject to a higher degree of competition. An increase in substitute products would also affect industry competition as it devalues the firm's product.
b. Potential of new entrants into the industry
The competitive environment can change over time due to the entry of new players or a decrease in the demand for the industry's products. Porter's Five Forces model considers the probability that new entrants will enter an industry and how fast they can do so.
c. Power of suppliers
Suppliers are important because they can affect the cost of production and the prices that consumers pay for the product. The power of suppliers is measured by the degree to which suppliers can reduce their prices to alter the market price.
d. Power of customers
Some industries depend on a few big customers, who can hinder the industry's performance. The power of customers is measured by how much a firm can reduce its prices to gain new customers.
e. The threat of substitute products
Substitute products can affect the industry's total revenue, depending on how much they are substituting for the main product. The threat of substitute products is determined by how effective and easily available these substitutes are.
- Core Competencies
Core Competencies pertain to how a company can excel above the other. This can be done through specific skills, resources, and abilities. If a company has a strong core competency that offers differentiation from competitors, it will have an advantage in the market.
For example, Sanjiv Bajaj's Bajaj Finserv is known for its risk management technology, which it uses to win over its competitors. The company continues investing in talent, processes, and emerging technologies to build advanced risk management capabilities.
- Balanced Scorecard
A Balanced Scorecard (BSC) is a vision of how the business should be run. It also serves as a tool to see the progress in achieving that vision. The business uses BSC to evaluate itself and its objectives, strategies, and goals.
It is a combination of internal and external factors. The internal factors are linked to the company's resources, capabilities, and processes, whereas the external factors include customers, suppliers, shareholders, and competitors.
Conclusion
A business strategy framework is crucial for all firms that want to survive in the competition. The business strategy frameworks mentioned above will help you determine your focus and how to get the right outcomes and prepare for upcoming changes. Choose the one that you find most suitable for your business. That is how Sanjiv Bajaj, a top Financial Business Leader, built his business empire by modernising the business framework.
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