Business Frameworks are useful tools that help you analyze business issues and structure your thinking. Strategy consultants and business analysts often use these frameworks in order to clearly communicate their recommendations to their clients. There have been thousands of scientific articles trying to come up with innovative and useful frameworks in business, management and strategy. This article will cover the five most used and most helpful frameworks in today’s business world according to strategy consultants.
Porter’s Five Forces Model
Michael Porter’s Five Forces model is probably the best-known strategy framework out there. It is especially used when analysing industries. The Five Forces model helps determining how competitive an industry is based on five different factors: the rivalry among existing competitors, the threat of new entrants (potential competitors), the threat of substitute products (alternatives), the bargaining power of suppliers, and the bargaining power of buyers. If these forces are strong, competition can be considered high. In that case, a company might want to think twice before entering that specific industry. According to this framework, industries with little competition allow for greater margins and are therefore more attractive to enter. For more information and examples on using Porter’s Five Forces, click here.
Figure 1: Five Forces Model
Hambrick and Fredrickson’s Strategy Diamond
Unfortunately, Hambrick and Fredrickson’s Strategy Diamond hasn’t received the attention it deserves. The Strategy Diamond is an attempt to explain what strategy truly means and is a great framework to distinguish the different elements that make up a good strategy. According to this model, a strategy consist of five essential parts that together should form a unified whole: Arenas, Vehicles, Differentiators, Staging and Economic Logic. For each element concrete and deliberate choices have to be made on what to do and more importantly what NOT to do. In addition, choices made within one element should reinforce and match choices made in the other four elements. Only that way companies can achieve a sound and sustainable strategy. More information and examples on using the Strategy Diamond can be found here.
Figure 2: Strategy Diamond
Treacy and Wiersema’s Value Disciplines
The Value Disciplines framework builds upon the key message of Porter’s Generic Strategies (i.e. companies should have a clear focus in what they want to be known for and what they want to excel in). If a comany tries to excel in multiple (often contradicting) disciplines, it is likely to end up stuck somewhere in the middle. Treacy and Wiersema propose three value disciplines from which companies can choose from in order to become a market leader: Product Leadership (the best and most innovative product offering), Operational Excellence (the cheapest products through a cost-efficient production process), and Customer Intimacy (amazing customer service and customer relationship management). Choosing each one of the disciplines has tremendous consequences on how the company should be operating in terms of structure, processes and culture. More information on the Value Disciplines can be found here.
Figure 3: Value Disciplines
There are different ways of growing a business. Igor Ansoff identified four strategies for growth and summarized them in the so called Ansoff Matrix. The Ansoff Matrix (also known as the Product/Market Expansion Grid) allows managers to quickly summarize these potential growth strategies and compare them to the risk associated with each one. The four growth strategies are Market Penetration (offering more of the existing products to existing markets), Market Development (offering the existing products to new markets), Product Development (offering new products to existing markets) and Diversification (launching new products in new markets). The idea is that each time you move into a new quadrant (horizontally or vertically), risk increases. More information on the Ansoff Matrix can be found here.
Figure 4: Ansoff Matrix
BCG Growth-Share Matrix
The Boston Consulting Group’s product portfolio matrix (also known as BCG Growth-Share Matrix) is designed to help companies consider growth opportunities by reviewing its portfolio of products or business units in order to decide where to invest and where to divest. The matrix is divided into four quadrants based on two factors: market growth and relative market share. The four types of business units (or products) are Dogs, Question Marks, Cash Cows and Stars. Most business units start off as Question Marks with a relatively small market share in a high growth market. Depending on how well the unit and the industry is doing, it might end up as a Star or Dog. Eventually when industry growth is flattening, the unit becomes a Cash Cow that can be ‘milked’ in order to invest in more promising businesses. The BCG Matrix is therefore a great tool for portfolio analysis and corporate strategy purposes. More information and examples on using the BCG Matrix can be found here.
Figure 5: BCG Matrix
Together these five frameworks cover a wide variety of purposes in strategic management consulting. For a more extended list of business frameworks, check out this page. Let us know what your favorite business framework is in the comment section below and perhaps we will cover your framework next time as well!