STRUCTURE CONDUCT PERFORMANCE MODEL
YOUR BUSINESS AND SUCCESS
When running your business your success will obviously depend on what edge you have against your competitors. This is what is referred to as competitive advantage
But how do you position your business to achieve such?
The primary determinant of your business performance, according to market based view theory of competitive advantage, depends on industry you are in and external market orientation
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STRUCTURE CONDUCT PERFORMANCE or simply put SCP model is one such model that can help you orient yourself to get the best out of the market you are in
In other words your business financial PERFORMANCE is caused by the competitive conduct of players in the industry. The conduct itself is in turn caused by the industry structure.
The first question you have to ask yourself is: WHAT MARKET STRUCTURE DO I EXIST IN?
Is it perfect competition, monopolistic competition, oligopoly or monopoly?
If you are looking at this and regretting skipping economics classes well here is a simpler way to look at it
Market structure will depend on
- Number of firms in that market
Don’t just say there are 100 business because that’s not really the point here. Analyse them by the market share
The strategy for you is to look for a small market and take over it completely as opposed to trying to find a percentage of a big market coz as appealing as that is the reality is competing like crazy!
- Freedom of entry
The second thing when analyzing the structure of your market so as to see how it is helping with your business performance is how easy it is to GET IN OR OUT OF THAT MARKET
In short BARRIERS TO ENTRY OR EXIT
Entry barriers can occur in two ways:
- Real barriers
These are barriers like capital required, imagine if you want to start a petrol station, a shipping industry or an aviation firm the capital needed will be intensive
- Artificial barriers
The entry barriers here are things like, legislation, patents, copy right issues.
For instance you could be having a lovely product idea only to find out that another company owns the patents to the design or even manufacturing rights are controlled by the government
Either way look at the entry barriers because if the market is hard to get into…it also means that once you are there then you in a way safe as opposed to the kind of markets that are easy to get into like restaurant businesses…not that it’s a bad market but competition is definitely going to be high since any one can get into it.
As for EXIT BARRIERS well you just have to ask yourself how easy will it be for you to leave that market if it starts crushing. This often depends on how invested you are in that market.
- The 3rd structure that will affect your business performance is NATURE OF PRODUCT
Do other businesses produce similar products or not?
You have to think of what will make people buy your products which really isn’t a problem if you are monopolizing the market…hence the need to find a relative market and take it over
Is it easy to copy your products? Is it easy to copy what your product does?
These are questions you are going to have to answer
CONDUCT
So now you know your market structure…but REMEMBER the structure will affect your business CONDUCT…think of how people buy from you or check your website etc
The point is things like Price, Services are all part of behavior that are dependent upon the structure
You can also Look at what other business are doing. Which strategies are they using? Are they just copying each other?
Next asses your PERFORMANCE
Things like ROCE, ROI, which are reflection of your business performance, depend on your business conduct
IN CONCLUSION
Your business’ strategic position is defined by how it performs similar activities to other firms but in very different ways
Let me know what you think
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