LO 5-6 / Outline how business models put strategy into action.
■ The translation of a firm’s strategy (where and how to compete for competitive advantage) intoaction takes place in the firm’s business model (how to make money).
■ A business model details how the firm conducts its business with its buyers, suppliers, and
partners.
■ How companies do business is as important to gaining and sustaining competitive advantage as
what they do.
■ Some important business models include razor–razor-blade, subscription-based, pay-as-you-go, and freemium.
■ Stock prices can be highly volatile, which makes it difficult to assess firm performance. Overall
macroeconomic factors have a direct bearing on stock prices. Also, stock prices frequently reflect
the psychological mood of the investors, which can at times be irrational.
■ Shareholder value creation is a better measure of competitive advantage over the long term due to
the “noise” introduced by market volatility, external factors, and investor sentiment.