Business strategy and business model
Unveiling the key differences between the two
Often times, the words “strategy” and “model” are used interchangeably. But while these two concepts may seem synonymous, they actually mean different things, especially in business. In this article, we analyze the main differences between business strategy and business model, and discuss how the two notions relate to each other.
Business strategy and business model explained
“Business strategy” usually relates to the strategic positioning of a company in a given market or industry. Put simply, a strategy outlines how a business intends to compete in a particular competitive environment, thanks its products/services. It also describes the firm’s vision, its long-term objectives, as well as the set of plans/actions that it should implement. In other words, it doesn’t just sets the direction an organization should go after, but also the choices to make to try to get there.
And what about “business models“? According to Alex Osterwalder, a business model (BM) is “the rationale of how an organization creates, delivers, and captures value“. Basically, it makes explicit the target served by the company (“WHO?”), the value proposition provided (“WHAT?”), the set of activities and resources needed to deliver it (“HOW?”) and, finally, how the firm generates revenues (“WHAT’S IN IT?”). So, it is a structural model, explaining the fundamental mechanisms through which the company wants to operate.
Trying to use a metaphor: strategy mostly looks outwards, as a direction to take (i.e. strategic positioning in the market), while BM is the most suitable “vehicle” to get the company there.
Differences and implications for social enterprises
Strategies and models are closely connected, since they both belong to the field of strategic planning. Yet, scholars shared different views about the kind of relationship existing between the two.
In our opinion, strategy is a slightly wider concept with respect to BM. As a matter of fact, a BM is one of the core components of a company’s overall strategy. Among the different strategic choices a firm can make, choosing the right business model is indeed a crucial one. If a BM gets (tested and) validated, strategies can be further carried out and fully deployed/implemented. Instead, if validation doesn’t occur, the company should redefine its strategy accordingly, eventually selecting alternative BMs.
The same logic applies to social entrepreneurship too. At Social Business Design, we help aspiring changemakers get more familiar with business models for social enterprises. However, choosing the right BM is only possible with a proper strategy in mind.
Because of that, we strongly suggest to come up with a solid business strategy first. How to do it? Few things to include might be defining a vision and a social impact mission, understanding the competitive landscape, designing an innovative value proposition. Only at that point, choosing the right “vehicle” (namely, the business model) to drive your social entrepreneurial idea towards success can get easier.
In this article, we have seen the main differences between business strategy and business model.
In summary, a business strategy usually sets the firm’s vision, the positioning in the market and the long-term goals to achieve. Among the different choices to take, companies also choose what business model to test, validate and implement in order to execute that strategy. See it this way: a strategy explains what a company wants to do, whereas a business model describes how it’s going to make it happen. Therefore, effective BMs are reflections of a firm’s realized strategy (Casadesus-Masanell & Ricart, 2010), and not the other way around.
We know that setting up a social enterprise is a tough, complex process, and that this article surely doesn’t cover all the steps you need to come up with a solid strategy and a killer BM. But hey, there’s some good news for you. Next time you hear someone asking if business strategy is the same as business model, you will know what to answer!
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