• Ozzie Paez

Perspectives on Strategy and Business Models


The terms Strategy and Business Model are used so frequently in business writing that they suggest widespread definitional agreement. The opposite is true[1],[2]. The focus and structure of strategy have changed since the 1960s, when Bruce Henderson’s Experience Curve positioned companies based on costs relative to competitors. Business Models have also changed in scope and structure since their heyday in the 1990s. The rise of the personal computer, networks, databases and the Internet revolutionized business processes and, by extension, business models.

The revolution continues, driven by waves of disruptive technologies such as the Internet-of-Things, Artificial Intelligence and machine learning. Our definitions of strategy and business models align with the common scope and context of our work in engineering, operations, digital strategies and decision-making. They are intended to be practical in their application, while remaining anchored to tradition and scholarship[3].

This post focuses on Business Strategy as opposed to Corporate Strategy, which is covered in a different post: Corporate Strategy vs. Business Strategy.

Definitions

A Business Strategy is the blueprint that the organization will follow to seek competitive advantage and position itself in its target markets. When embraced by the organization and made operational through its business models, strategy will generate a desired pattern of activities and decision-making in the pursuit of shared objectives[4]. It will guide the organization to make decisions, carry out activities and allocate resources to deliver compelling value to its customers and returns to its owner(s).

A good strategy establishes a clear roadmap, consisting of a set of guiding rules that define the actions people in the business should take (and not take), the activities that should be prioritized (and deprioritized) and the functions that should be resourced (and not resourced)[4]. It is also flexible in promoting awareness and agility in response to changing customer expectations and technological disruptions.

Business Models define how organizational culture, resources, processes, information, partnerships, customer relationships and revenue streams capture and deliver value to customers and owners. Business models make business strategy operational. They prioritize how resources are leveraged, allocated and used in the pursuit of operational and competitive objectives.

Implications

When business strategy and business models collide, business models usually prevail. Culture, history and habit anchor organizational decisions and behaviors, which will not change unless strategy, business models and leadership are mutually supportive. Changing corporate strategy frequently requires changing and sometimes reengineering business models. Similarly, when business models change in response to external factors like technological innovations, strategy must be reassessed and potentially updated.

Strategy and Business Models reflect the reality of economic systems. They help organizations allocate and use limited resources that have alternative uses[5]. If a company had unlimited resources and enjoyed unlimited revenues, then it wouldn’t need a strategy or business models. Unfortunately, as with all economies, organizations have more wants and needs, than they have resources to satisfy them. In this context, a business without a strategy and business models to prioritize and focus limited resources in the pursuit of shared objectives is no more an organization than a mob is a social institution.

Further Reading

There are countless books and articles about Business Strategy and Business Models. I cited articles from the Harvard Business Review that offer a good starting point for further reading and research.

References

[1] Andrea Ovans, What is strategy, again?, May 12, 2015, Harvard Business Review, https://hbr.org/2015/05/what-is-strategy-again

[2] Andrea Ovans, What is a business model?, January 23, 2015, Harvard Business Review, https://hbr.org/2015/01/what-is-a-business-model

[3] Alexander Osterwalder, A better way to think about your business model, May 6, 2013, Harvard Business Review, https://hbr.org/2013/05/a-better-way-to-think-about-yo

[4] Michael D. Watkins, Demystifying strategy: The what, who, how, and why, September 10, 2017, Harvard Business Review, https://hbr.org/2007/09/demystifying-strategy-the-what?referral=03759&cm_vc=rr_item_page.bottom

[5] Thomas Sowell, Basic Economics - A common sense guide to the economy, 5th Edition, 2015, Basic Books.

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