Key Business Models

Why This Matters

Strategic frameworks aren't just abstract theories—they're the decision-making tools that real businesses use every day to analyze competition, allocate resources, and plan for growth. On your exam, you'll be expected to do more than define these models; you'll need to know when to apply each one, what questions each framework answers, and how they complement each other in building a complete strategic picture.

Think of these models as lenses for viewing business problems. Some focus on external forces like competitors and market trends, while others zoom in on internal operations and resource allocation. The strongest exam responses demonstrate understanding of which tool fits which situation—so don't just memorize acronyms. Know what concept each framework illustrates and when a business leader would reach for it.

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External Environment Analysis

These frameworks help businesses scan the world outside their walls—identifying threats, opportunities, and macro-level forces that shape entire industries.

Porter's Five Forces

• Analyzes industry attractiveness through five competitive pressures—threat of new entrants, supplier power, buyer power, substitutes, and existing rivalry
• Determines profitability potential by revealing how much power a business has versus external forces trying to capture value
• Guides market entry decisions—industries with weak forces offer better profit potential than those with intense competition

PESTEL Analysis

• Scans six macro-environmental factors—Political, Economic, Social, Technological, Environmental, and Legal forces affecting all businesses in a market
• Identifies emerging trends before they disrupt operations, from regulatory changes to demographic shifts
• Complements industry analysis by examining forces that affect multiple industries simultaneously, not just direct competitors

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Internal Assessment Tools

These frameworks turn the lens inward, helping businesses understand their own capabilities, resources, and operational efficiency.

SWOT Analysis

• Maps internal Strengths and Weaknesses against external Opportunities and Threats—creating a four-quadrant snapshot of strategic position
• Bridges internal and external analysis by forcing managers to consider how company capabilities match market conditions
• Generates strategic options by pairing strengths with opportunities (offensive strategies) or addressing weaknesses that expose the company to threats

Value Chain Analysis

• Decomposes business activities into primary and support functions—from inbound logistics through marketing to after-sales service
• Identifies competitive advantage sources by revealing where the company creates value versus where it just incurs costs
• Pinpoints efficiency opportunities—activities that don't contribute to differentiation or cost leadership become targets for improvement or outsourcing

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Growth and Portfolio Strategy

These models help businesses decide where to invest and how to expand—critical for resource allocation and long-term planning.

BCG Matrix

• Categorizes products into four quadrants based on market share and market growth—Stars, Cash Cows, Question Marks, and Dogs
• Guides investment decisions—invest in Stars, harvest Cash Cows, evaluate Question Marks carefully, and divest Dogs
• Balances portfolio risk by ensuring the company isn't over-reliant on declining products or under-investing in growth opportunities

Ansoff Matrix

• Outlines four growth strategies with increasing risk levels—Market Penetration (lowest risk), Market Development, Product Development, and Diversification (highest risk)
• Clarifies growth options by distinguishing between existing vs. new products and existing vs. new markets
• Quantifies strategic risk—diversification into new products for new markets carries the highest uncertainty

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Innovation and Market Creation

These frameworks push beyond competing in existing markets toward creating entirely new value propositions.

Blue Ocean Strategy

• Advocates creating uncontested market space rather than fighting competitors in crowded "red oceans"
• Emphasizes value innovation—simultaneously pursuing differentiation and low cost to make competition irrelevant
• Challenges industry assumptions by asking which factors can be eliminated, reduced, raised, or created

Lean Startup Model

• Prioritizes validated learning through rapid experimentation—build a minimum viable product, measure results, learn, and iterate
• Minimizes waste by testing assumptions before committing major resources to unproven ideas
• Embraces uncertainty as normal for new ventures, using customer feedback to pivot or persevere

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Performance Management and Communication

These frameworks translate strategy into action by providing structure for implementation and measurement.

Business Model Canvas

• Visualizes nine building blocks of a business model—including value proposition, customer segments, channels, revenue streams, and cost structure
• Facilitates strategic communication by putting an entire business model on a single page
• Enables rapid iteration during planning sessions, making it easy to test different configurations

Balanced Scorecard

• Measures performance across four perspectives—Financial, Customer, Internal Processes, and Learning & Growth
• Prevents over-reliance on financial metrics by ensuring operational and developmental factors receive attention
• Aligns daily activities with strategy by cascading organizational objectives into departmental and individual goals

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Quick Reference Table

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Self-Check Questions

1. A company wants to understand why profit margins in their industry are shrinking despite growing sales. Which framework—Porter's Five Forces or PESTEL—would best diagnose this problem, and why?

2. Compare and contrast the BCG Matrix and Ansoff Matrix. How might a company use both frameworks together when planning its product portfolio strategy?

3. A startup founder has an innovative product idea but limited resources. Which two frameworks would you recommend they use first, and in what order?

4. Your company's SWOT analysis reveals strong R&D capabilities but weak distribution channels. Which Value Chain activities would you examine more closely to address this gap?

5. An established retailer wants to escape intense price competition. Explain how Blue Ocean Strategy differs from simply pursuing differentiation, and identify one other framework that could help implement this shift.