The growing business handbook : inspiration and advice ... - Sparkler

3
Business models
and competitive
advantage
1.1
High growth depends on how you set yourself up to deliver value into the market.
Colin Mason at the Hunter Centre for Entrepreneurship, University of Strathclyde
and Ross Brown at Scottish Enterprise report on how fast-growth enterprises
design their business models
The commercial landscape is littered with examples of firms with innovative
products or services which failed because they could not achieve profitability –
typically either they could not attract sufficient customers or were based on unsound
economics. A good product or service is therefore no guarantee of success in the
marketplace. Nor is the best technology. A company also needs to have an effective
business model. In essence this describes the way in which companies are ‘designed’.
New business models can have just as disruptive an effect on the competitive landscape
as new technologies. Consider budget airlines. By re-engineering the costs and
revenues of running an airline they have undermined the competitive position of the
so-called legacy airlines. Free newspapers, such as the Metro, have had a similar effect
on the traditional paid-for newspaper industry. Direct Line’s approach to selling
insurance over the telephone transformed the personal insurance market, which until
then had been sold through brokers. The Internet has facilitated new kinds of business
models and the re-invention of older ones (eg auctions). Indeed, as products have
become increasingly commodified and undifferentiated so business models are now a
critical source of competitive advantage precisely by providing a source of
differentiation.
Business models: a definition
At its most basic, a business model is the story of how a company operates. In slightly
more detail, it describes how a company competes, uses its resources, structures its
relationships, interfaces with customers and creates and captures value to sustain
itself. The key elements in a business model include the following: