A business model describes how you turn customers into profit. The strength and success of your business model rests on five key factors that you must focus on and manage:

  1. A relentless focus on your advantages. Any success is hard-earned and even harder-maintained. You must continue to raise the bar on your own performance, understand how you win as a business and focus on and invest in improving your advantages. This means investing in your organisation’s assets and capabilities that create your success.
  2. Cost management. Even luxury brands produce many of their products in low cost manufacturing centres in order to manage costs effectively. Lean, low cost organisations are typically more agile and quicker to respond to new developments in their markets.
  3. Simplicity. The world is an increasingly complex and chaotic place. Many organisations become consumed by its complexity and create ever-elaborate structures. But complexity comes at a cost, and erring on the side of simplicity adds pace and reduces cost.
  4. Operational excellence. This is your ability to repeatedly deliver your value to your customers at an appropriate cost. Critical to success is the alignment between your sources of advantage and your ability to bring them to life day in, day out.
  5. Pricing for long-term success. There are two broad pricing strategies:
    1. Pricing to gain maximise market share. This is most relevant to high-growth markets where returns are relatively strong, particularly where you have low share and relatively little to lose. Many markets are transformed when a new, low-cost competitor enters the market that is able to charge lower prices.
    2. Pricing to maximise profits. This is likely to be more successful in more stable, lower-growth markets, particularly where you already have relatively high market share and where your competitors would move prices quickly if you lowered them.

How effective is your business model, and where do you need to focus effort and resource to better turn your revenues into healthy returns?

© Stuart Cross 2012. All rights reserved.