What is the Structure of the Business Model Canvas?21. January 2022
Every entrepreneur and every self-employed person has certainly asked himself the questions: What makes companies successful? Which success factors play a role for companies? And what is the secret behind the success of Apple, Tesla, Amazon and others?
Well, as simple as these questions sound, the more difficult they are to answer. Not for nothing, there are now countless books in the field of management literature and business administration that deal with this topic. Nevertheless, we will try to break down the topic “What are the success factors for a company?” to the essential points in this article.
To answer this question, one should first take a step back and look at what criteria one uses to evaluate a company.
It is important to mention at this point: By assessment, we often associate an “external” evaluation or an examination by a third party. In the following, however, we explicitly understand both types of valuation. The company valuation by a third party (for example an investor) and also the “self-assessment” of the own company.
For example, two different approaches have become established for evaluating investments. Fundamental analysis and technical analysis. Probably the best-known proponent of the first method of analysis is Warren Buffet – whereas technical analysis is the classic tool for speculative stock market trading.
Evaluating the qualitative Side of a Company
However, there is also qualitative analysis as a third methodology, which is basically a building block of fundamental analysis. It focuses exclusively on qualitative factors for valuation. These factors are difficult to measure in numbers. They are therefore difficult to measure and quantify.
Because of the difficulties mentioned above, qualitative analysis is not used as often as classical financial analysis with its all-too-familiar ratios – such as equity ratio, return on assets, debt-equity ratio, etc. – which every business administration student has probably heard of.
So how do you proceed if you want to “measure” the business success of your own organization, competitors or potential investments in a reasonably reliable qualitative way?
At this point, it is worth asking the following questions:
- What is the company’s competitive advantage or unique selling proposition?
- How does the management run the company? Do annual reports emphasize primarily short-term or long-term goals?
- How does the company make its money and what is the underlying business model?
The answers to these questions already provide an initial overview of how the company is fundamentally positioned, what the revenue streams look like and how sustainably the company is managed. However, these points are far from providing a complete picture of the success factors that make companies successful in the long term.
Change of Perspective
Without a doubt, the answers to the above questions are already somewhat more difficult to grasp than simply calculating key figures such as the equity ratio. In the next step, however, things get a lot “fuzzier”. Now it is a matter of going even deeper into the research and finding out more beyond annual financial statements and SWOT analyses.
After all, when we decide on products ourselves, we don’t make that decision dependent on how many loans the manufacturer took out last year or what the company’s product strategy is for the next five years.
For us as a customer, it’s all about the here and now. Our only concern is how good the product is and how the company treats me as a customer. It’s about customer satisfaction.
Measuring customer satisfaction can be so difficult because it is very subjective. How satisfied a customer is depends on many different factors. Emotions and perception play a role. Meeting expectations and satisfying needs. Customer satisfaction has a short-term and a long-term facet.
In the short term, the level of satisfaction is usually determined by the first impression, the first contact, the first use of the product. The customer consciously or unconsciously forms an initial judgment.
Beyond the first Impression
In the long term, however, other aspects also influence customer satisfaction. Of course, the product should also satisfy the customer in the long term. In particular, products that promise longevity will have to prove whether they can meet the requirements of long-term use.
In addition, it will be inevitable that individual customers will ask questions about the product they have purchased or the services they have used. It is at this point that the company must make its mark in particular – contact with and interaction with customers will have a lasting impact on consumer perception.
On the one hand, there is the risk that the successes achieved so far can be undone in a single customer interaction. On the other hand, the chance of personal contact with the customer also holds enormous opportunities and can contribute enormously to the company’s success. Customers who are not fully satisfied can still be convinced and won over with outstanding customer service.
Another long-term challenge for companies in terms of high customer satisfaction is the competition that (almost) every company is constantly exposed to. The customer continuously evaluates the possibilities of satisfying his needs through products.
Emotional Relationships as a Competitive Advantage
Companies that have invested a great deal in the past in building an emotional bond with the customer and have been able to record a high level of customer loyalty have a decisive – albeit not infinitely large – advantage at this point. This trust advantage is particularly characteristic of companies with a strong brand image, such as Apple, Adidas, or Amazon.
If we now look at measuring customer satisfaction again in the context of qualitative company evaluation, it becomes clear why this aspect in particular is so enormously important, yet so difficult to quantify.
Fortunately, in addition to your own research, there are still some tools and indicators that anyone can use. There are various research institutes that regularly publish studies and surveys on this topic. For Anglo-American customers, the best known is the American Customer Satisfaction Index.
Company founders in particular often underestimate the influence of supplier satisfaction and upstream players in the value chain on their own long-term business success. In the search for an answer to the question of what makes companies successful, we cannot avoid looking at the importance of supplier satisfaction for a company.
In today’s digital age, most startups and established companies have realized that the balance of power between customer and company has shifted massively in favor of the customer due to comparison and rating portals. While there is an intense focus on customer satisfaction, it can quickly happen that supplier satisfaction is neglected or, at worst, seen as a “necessary evil”.
Typically, the influence of supplier satisfaction increases the more suppliers are involved in the value and supply chain. Or as the renowned business professor Michael Maloni once said “The supply chain is only as strong as its weakest link”. For this reason, it is essential that companies maintain close and appreciative relationships with their suppliers as well as partners.
Not only does it make cooperation with suppliers generally more pleasant, but much more, one can usually also benefit in the long term from advances of trust up to and including preferential treatment. Especially in times of crisis, such a relationship of trust and cooperation between buyer and supplier can be decisive for the future of one’s own company.
Increasing supplier satisfaction involves not only appreciative personal interaction, but also effective and efficient management of the supply chain. Opportunities should be identified for mutual support and advancement. These can be product and service innovations, for example, in which the supplier is given the opportunity to contribute.
Measuring Supplier Satisfaction in 3 Dimensions
But how do we measure supplier satisfaction? It should be said at the outset that, due to the confidentiality of such information, it is almost impossible, at least from an external perspective, to evaluate the relationship between a company and its supplier.
However, if we want to evaluate the supplier relationship in our company, we have more options. The simplest and probably most widespread method is the recurring survey by means of a feedback sheet. It is important that this is done at regular intervals in order to take the wind out of the sails of any emerging “dissatisfaction” or even conflicts at an early stage.
According to Cyril Fernandez, it is advisable to measure satisfaction within three different dimensions:
· At the operational level.
· At the strategic level.
· At the personnel level.
The evaluation from the point of view of the aforementioned perspectives is the basis for a clear inventory of how pronounced the current relationship with the company’s own suppliers is. In addition to this insight, the results provide another building block for the qualitative assessment of a company.
Employees as Factor for Success
Since history lessons in school, we all know the images of workers during the industrial revolution and how they toiled under almost inhumane conditions. At the same time, they hardly received any of the wealth generated.
Fortunately, some time has passed since the 19th century and the working conditions of most people have changed dramatically for the better.
We now know that satisfied employees are more productive and show more commitment. This has been proven time and again in the past by representative studies. If this is coupled with the greatest possible freedom of action, employees at every level can contribute enormously to the company’s success. Employees at the operational level in particular are much closer to the day-to-day business, so that innovations can emerge “bottom-up”.
Creativity needs Freedom
Particularly in creative jobs, a massive increase in the performance of satisfied employees can be seen. According to Netflix founder Reed Hastings, motivated employees with a high degree of decision-making freedom often achieve 10 times the work output of a dissatisfied employee who has little freedom to make decisions.
Companies looking for ways to reduce their employee turnover and thus their personnel costs are equally well advised to start by determining employee satisfaction.
But before attempting to determine employee satisfaction as such, other indirect metrics should be determined in order to take a holistic inventory. In addition to employee turnover, these include: absenteeism, churn rates, and sick leave.
Once this as-is analysis has been carried out, employee satisfaction itself is determined. Direct feedback from employees is essential at this point. An established tool is the online survey.
The decision as to whether the survey should be conducted anonymously or by name should depend on the as-is analysis and the corporate culture. If a very open communication and corporate culture is already practiced in the organization, the named variant should generally be selected. This conveys commitment, ensures appreciative, constructive feedback, and also makes it possible to ask questions.
However, if the maturity of the culture in the company is still considered too low for such an open feedback process, the anonymous variant should be chosen. The fear of consequences in the case of open feedback could strongly distort the results.
If we want to evaluate the satisfaction of employees in a company from an external perspective, we again have to use certain portals. Here, the larger the company and the larger the base of reviews, the more realistic the picture we can form.
The Pillars of Success
As we can see, the answer to the question “What makes companies successful in the long term?” is quite complex. However, we can now say that there are several success factors for companies:
The economic foundation is formed by a solid financing structure. This is the dimension of a company that can be clearly measured quantitatively. The qualitative side is essentially divided into corporate management and the business model as such, customer satisfaction, supplier satisfaction and, last but not least, employee satisfaction.
Each of these success factors should be surveyed at regular intervals in the company, for example as part of a self-assessment. There is no “one success factor” that has made all the industry leaders known today what they are today.
However, there are very clear tendencies as to which success factors are indispensable for becoming a successful company. If you look at successful companies like Apple or Amazon, it is particularly characteristic that they have built up their outstanding position through exceptionally strong interpersonal relationships in one of the qualitative dimensions mentioned. These two companies in particular stand out for their first-class customer service. Moreover, it is no secret that Apple also maintains an exceptionally good relationship with its employees.
Companies should work on these factors step by step in order not only to secure their corporate success in the long term, but also to expand it. During this continuous improvement process, it is extremely important that the foundation for open and honest feedback processes is laid, consolidated and expanded.
After all, if the diagnosis is wrong, the treatment will also be wrong.
Exceptional Performance for exceptional Business Success
Every entrepreneur who wants to ensure the long-term success and continued existence of his own company should regularly carry out qualitative evaluations. Even if – or precisely because – this type of evaluation is still greatly underestimated by most companies and applied far too little.
It is understandably easier to put existing business figures into perspective and to derive measures from the “best practice handbook”. By contrast, evaluating competitive advantages, analyzing the competition, formulating long-term strategic goals, or attempting to quantify customer satisfaction can be far more abstract and tedious.
But it’s the same in business as in all other areas of life: If you do what everyone else does, you will get what everyone else gets.
Or to put it positively – if we want above-average results, we have to deliver above-average performance. In the business world as well as in our private lives.