Why is it important to define your business model? More importantly, when it comes to strategic planning, how does defining your business model help with decision making, reducing costs and with identifying business opportunities? In order to answer these questions, think of the decisions your company makes with respect to how it manages its inventory, the types sales & marketing strategies it adopts, how it manages customer expectations and ultimately, how its operations must make these business functions work. This is why defining your business model is one of the most important steps within strategic planning.
A number of enterprises are somewhat intimidated with the concept of strategic planning. However, the ultimate purpose is to define the company’s business model. Now, by no means am I trying to simplify the process, or the steps within strategic business planning. That is simply not the intention. What I am implying is that defining your business model is vital to controlling costs, making better business decisions and ensuring that your management team and employees are clear on the company’s goals and objectives.
In order to get a greater appreciation of the importance of defining your business model, we’ll review each of those aforementioned business functions.
1. Inventory & Supply Chain Management: One of the biggest mistakes I see my customers make is in managing their supply chain. Most choose an inventory management & supply chain strategy that is contrary to their business model, their market and the needs of their customer base. They rely solely upon what they’ve read or seen work for other businesses in other industries, never taking the time to ask if the approach is right for them or their customers. For instance, a company with cyclical and seasonal customer demand patterns should simplify their supply chain with Min/Max. This ensures they are able to capture opportunistic sales by maintaining safety stock of their most common parts. Their focus should be on mitigating the costs of lost sales due to low inventory counts.
In contrast, companies that have linear & consistent customer demand, strong purchasing power and huge economies of scale spread across a small and robust product line, may be more ideally suited to run JIT (Just in Time) or Dell’s “Push-Pull”. The impetus must be on matching the company’s inventory & supply chain strategy to its business model. Define the company’s market and its customers’ needs and order patterns. Next, choose an inventory strategy matched to those customer needs.
To read more about matching your supply chain to your business model, please read: Choose the Right Supply Chain Strategy: Make it an Easy Choice
2. Sales & Marketing Strategies: A company’s sales & marketing are interlinked. Marketing’s purpose is to provide sales with qualified leads, provide a message to market that explains the company and its product or service offering and provide the impetus needed to grow market share. Sales purpose is to convert as many leads into sales, retain existing business and capture market share. Without a clear definition of the company’s business model, neither of these functions work, or more importantly, work properly.
Marketing must be able to decipher between qualified & unqualified sales leads. If your business model isn’t clearly defined, then how can marketing identify the best opportunities, and consequently, how can sales close business without high quality leads to work on?
To learn more about the marketing strategies described above, please go to: 5 Simple Approaches to Maximize Small Marketing Budgets
3. Managing Customer Expectations: Managing customer expectations is the single most important step in developing new customer relationships. However, there is a difference between managing B2B (business to business) customers versus B2C (business to consumers) customers. In B2B sales, the expectations must be managed according to the specific industry norms and the company's operational capabilities. Mistakes are made when companies either try to exceed these capabilities or try and adopt B2C customer management practices that don’t apply to their market.
Again, the problem is only exacerbated due to companies relying upon what they’ve read works for other companies and other industries. Instead, the company’s approach to customer service must be matched to their business model. Once that model is defined, the company can then move forward with properly managing customer relationships.
The above video explains the importance behind managing your customer's expectations.
4. Operations Management: What is the ultimate purpose of operations? To answer this question, think of how a company’s internal processes and work procedures impact customers. Convoluted and time-consuming work procedures do nothing more than increase the time it takes to service customers. Therefore, the ultimate purpose of streamlining operations is to better service customers.
Reducing time-consuming work tasks and procedures allows the company to reduce turn times between internal departments and employees. More importantly, defining the company’s business model empowers it to structure its operations around improving its supply chain, how it markets and sells to customers and ultimately, how it services those customers.
To learn more about defining your company's value assertion, please go here.
Defining your business model is an essential part of your company’s overall approach to strategic planning. It provides the direction needed to structure your enterprise around the ideal approaches to managing internal business processes and work functions. More importantly, it makes decision making concerning those work functions a much easier process.
When your company clearly defines its business model, it is in a much better position to chart its future. Ultimately, it means you've focused your efforts on your customers' order patterns and your market's business cycles. To read more about strategic business planning and how it can help grow your business, please read: How Can Strategic Planning Help Your Business Grow?
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