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Sweating the SWOT: What makes it a business mode

/ 04:54 AM January 29, 2016

Question:  We hope you’ll welcome a follow-up question to your last Friday’s column on SWOT (Strength-Weakness-Opportunity-Threat). We have our own corporate strategy planning team in our ad agency. In our planning, we also use SWOT analysis for generating the programs and activities to bring the agency closer to its retained and new vision and mission.

But it’s just the third or fourth step in the planning process.  We never referred to it as a “business model” because we never considered it as one.

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Our advertiser-clients follow the same practice.  SWOT is not a business model to them.  It’s simply a traditional method of analysis and not a model of how to do business.

Also, there’s nothing new in SWOT analysis.  It’s very old and used in all the company departments.  There’s marketing SWOT, operations SWOT, financial SWOT, HRD SWOT, etc.

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Please tell us if we’re wrong in regarding and using SWOT analysis this way.  And how can SWOT be a business model?

Answer: That’s the trouble with a term that’s not well-defined because it’s not well understood.

It’s like “beauty”—it’s what’s true to “the eyes of the beholder.”  You don’t know beauty but “you know it when you see it.”  In the confusion, marketers refer to a “business model” as a strategy, a framework, a theory, and even an attitude.

Who invented the concept of business model? The Harvard Business School traced the concept to Peter Drucker’s book, “Theory of Business.”  Drucker never actually used the term “business model,” but said to make money, every company has its own business theory (and therefore, business model) and “when it does, it’s paid for by the market.”

In all the descriptions, the Harvard Business Review found something common.  It said a business model is about “how you plan to make money.”

More specifically, it’s about how you plan to generate revenues from your products or services at the most profit. For the consumer or market side, a business model is about how to deliver value to consumers at the least price.

Since the correct SWOT analysis does these functions, it is therefore a business model.  When SWOT correctly identifies your areas of strength for reinforcing and improving, that’s being revenue-productive. When it correctly points out your weaknesses for you to set right, that leads to waste elimination and so makes for profit increase.

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But to you and your team, a business model should also be new.  If it’s old like SWOT, then it does not qualify as a business model.  There is some confusion here.

What you need is to  distinguish between a business model and business model innovation.  A business model is what the Harvard Business Review has defined it to be and SWOT counts as one under that definition.

Business model innovation is different. It refers to the process of creating or making new business models.

Most of us tend to confine innovating to new products and new services.  But nowadays, a new process of revenue and profit generation and customer value creation has become just as significant and powerful as making new products and services.

Let’s take an example to clarify. Look at the business model that many Internet companies use in first drawing a large segment or segments of viewers, and then selling to advertisers the opportunity to advertise their products to those segments.

This is a business model that can explain and account for the success, for example, of the AlDub phenomenon. There are, of course, one or two other business models that are just as credible for accounting AlDub’s success.  But no one business model is completely right.  Everyone is just half right.

In my annual nationwide Consumer Coping Behavior survey series, I’ve encouraged FMCG (fast moving consumer goods) companies to apply and organize a “Market Management” business model in going after unserved and underserved market segments.  But for retaining and even growing its served market segment, the company’s business model is “Product Management.”

In Market Management, the task is to acquire new users and/or reacquire lapsed users.  In Product Management, it’s about retaining and growing existing customers and users.

The once-popular Blue Ocean Strategy was essentially about these.

The blue ocean market segment is where the non-user unserved or underserved potential customers are. The opposite is the so-called red ocean market space. It’s red because it gets bloody competing there.

But once you succeed in capturing a blue ocean market segment, competition gets in and soon your innovation is copied, matched or even surpassed.

One practical implication of this says that you have to be good in both new or non-user segments and existing markets.  That’s a lesson that applies in the choice between product management versus market management.  It’s not an either-or choice but a both-this-and-that kind of choice.

So this column’s MRx prescriptions for you are as follows: Start with a simple and well-defined understanding of what a business model is.  Then distinguish between a business model and business model innovation.

In your search and quest for more business-growing, accept the reality that business model innovating is a continuous and cyclical process where there are many credible business models to choose from and reinvent. In choosing, follow the choice rule of both-this-and-that rule and not the either-this-or-that style of choosing.

Keep your questions coming.  Send them to me at ned.roberto@gmail.com.

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