business model and a business strategy

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Business Model vs. Strategy: What’s the Difference?

How is a Business Model Different from a Strategy?

Military strategy is thousands of years old but the field of business strategy has only been around for about fifty years . Because this field is so new, there’s still a lot of disagreement about how business strategy and business models should be defined—and often among those who write about these topics the most!

Given these challenges, is it even possible to answer the question, “What is the difference between a business model and business strategy?” We believe the answer is “yes,” and we have chosen to stand by definitions of those terms that are similar to the position of professors at Harvard Business School.

This discussion will help you understand the difference between business models and strategies and how founders choose strategies that become the models for their business. Use these ideas to think about how you can approach your own role in the business more strategically.

What Is a Business Strategy?

A foundational business strategy is a carefully chosen response to a business environment. It takes the form of a set of decisions about the direction the business should go.

Think of strategy as the plan you make before you go on a drive. In this analogy, the business environment would be the weather conditions and your strategy would be the decision you need to make between having a night out in the city, going off-roading in the mountains, or going on another type of trip.

Strategy includes all the choices you make about where you’re going, what you’ll do when you get there, what you need to take with you, how you’ll prepare for the conditions you’ll meet along the way, and which vehicle you will take. The choices you make are designed to accomplish certain goals.

Similarly, before a company is started, founders carefully assess the current business environment (the markets, customers, competition, and so on) and try to forecast the future. They choose a mission and goals. Then, they create a plan for how the company will work toward those goals and fulfill that mission.

This process creates the overarching strategy at the core of a company, which defines why the company exists. A business strategy might include the following:

• A focus on customers who are eager for a solution
• A value proposition for those customers
• An inventory of the resources and capabilities needed to deliver that value
• An effective business model that will consistently deliver that value

Another powerful part of an effective business strategy is contingency planning. Contingency plans are “if, then” scenarios and might sound like, “If this competitor does this, we will do that,” “If the market shifts in this direction, we will pursue such and such activity,” and “If our customers don’t respond to this offer, we will focus on that offer instead.”

Contingency plans are important because the founding strategy is much like a hypothesis; the start of the business is a series of experiments, and adjustments must be made as the business learns more and matures over time.

What Is a Business Model?

Let’s go back to the analogy of planning a trip. The strategy includes assessing the weather, choosing and perhaps even modifying a car, and making other preparations.

In that analogy, the business model would be represented by choosing the correct car for the conditions and goals of the trip. It could be a rugged jeep with off-roading options or a luxury sedan with leather seats and a state-of-the-art sound system.

A business model is a system that consists of cycles of activity which fulfill the mission and goals of the company. It is the expression of a high-level strategy. It can be expressed very simply by a term such as

• Subscription
• Pay as you go
• Standardization
• Crowdsourcing
• Product to service

A list of 19 models is available from Harvard Business Review . However, a complete business model might include details such as a company’s

• Strengths and weaknesses
• Customers and customer segments
• Customer relationships
• Competitors
• Supply chain
• Important resources and activities in its value chain
• Revenue streams
• Cost structures
• Cost-control methods
• Employee-payment policies
• Marketing campaigns
• Governance framework
• Vertical-integration practices

Not every car would be appropriate for every type of trip. Similarly, certain business models do a better job of expressing a particular business strategy than others.

Business Model vs Strategy

You may still wonder what the true difference is between a business model and a strategy , and you may also be wondering why we need to define the differences at all. The simple answer is that in a perfect world, we wouldn’t need to. The business model would be a perfect expression of the ideal strategy and the model would continuously make the founders a great profit.

However, in the real world, technology, changing demands, and other factors can make a business model obsolete or ineffective. Founders and managers may need to tweak the business model in order to continue to progress toward their goals. They might even scrap their current model completely and adopt an entirely new one.

Strategic thinking includes choosing between different business models and sometimes switching to a new model to achieve the mission and goals of the strategy, just like a driver might change to snow tires in a storm or even buy a new car when an old one no longer serves the driver’s needs.

Founders must decide which model would most effectively serve their customers based on the products, services, and value they are offering and the resources that are available in the current business environment.

How Do Founders Choose a Strategy?

Thinking about how a high-level strategy is chosen can be useful even if your job is to plan and/or execute annual strategies rather than create core business strategies.

If you understand the core strategy of your company, you can think about how to contribute to it more directly. That might mean focusing more on innovation, competition, or another key concept.

Four ways founders come up with their high-level strategies can be found below. See if one of these approaches seems to describe your company and think about how you might apply the concepts to your own role.

1. Seeking a Blue Ocean

The best-selling book Blue Ocean Strategy uses the analogy of a red ocean to represent a market environment in which companies fiercely compete. In contrast, a “blue ocean” describes a situation in which a company creates a new category of product or service that can be sold without competition.

Cirque du Soleil, for example , stripped away many of the classic elements of a circus and offered a new type of show at a higher price to theater-going audiences instead of offering this style of entertainment at a low price to audiences sitting outdoors in tents.

Blue ocean strategy requires innovation, leadership, and the imagination to sometimes serve customers who don’t yet understand why they need what you are offering.

2. Choosing Between Cost and Differentiation

A lecture at the University at Albany stated that founders can choose between cost and differentiation to arrive at five different types of strategies:

• Cost leadership: Using efficient, low-cost business practices to offer the lowest, most-attractive prices to a mass customer base
• Differentiation: Using great customer service, special features, innovation, and more to offer high-value products or services to a mass market without competing on price
• Focused low cost: Focusing on cost leadership and marketing only to a relatively small group of customers
• Focused differentiation: Competing through differentiation and marketing only to a relatively small customer base
• Integrated low-cost and differentiation: Marketing to a mass audience using both differentiated features and low prices

3. The Chess Master

Some founders approach strategy like a game of chess. They carefully assess the current market situation, all the pieces they have available, and where the competition has placed their pieces on the board. They choose a goal they’re passionate about and then plan many moves ahead, seeking to outmaneuver the competition and anticipate every adverse circumstance.

If founders and managers are able to create plans that are detailed enough and anticipate their business moves well enough, they may have the satisfaction of seeing their ideas work as expected and their company reaching its goals despite competition and difficult circumstances.

4. Strategizing about Strategy

Your Strategy Needs a Strategy advocates using a system to choose between categories of strategies. The first step is to assess the strategic situation by rating the unpredictability of the markets, the changeability of the situation, and the difficulty or ease of current problems.

Then, a founder uses what he or she learns from this assessment to choose between five strategy types :

• Classical: simply analyzing, planning, and executing in a stable environment
• Adaptive: in an unpredictable environment, running a series of experiments and codifying and extending those that perform best
• Visionary: creating new markets and innovations in a predictable yet changeable environment
• Shaping: setting up a platform for other businesses to connect in a changeable, unpredictable environment
• Renewal: revamping a business model because of the imminent failure of a corporation

Continue Learning How to Think Strategically

We hope this discussion helps answer the question, “What is the difference between a business model and a strategy?” and gives you a deeper way of thinking about strategy that can help you in your role.

The more you practice strategic thinking, the more valuable you will be to your company. Good strategy can guide a company through difficult situations and may even contribute to changing a business model for the good of the entire company. To learn more about thinking and leading strategically in your organization, contact CMOE .

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Business Model and Strategy

By: Francine Newth

Business Models and Strategic Management: A New Integration is a seven-chapter book published by the Business Expert Press in 2012 and written by Francine Newth, associate professor of strategy at…

• Length: 22 page(s)
• Publication Date: Dec 15, 2012
• Discipline: Strategy
• Product #: BEP198-PDF-ENG

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Business Models and Strategic Management: A New Integration is a seven-chapter book published by the Business Expert Press in 2012 and written by Francine Newth, associate professor of strategy at the School of Business at Providence College. The author says that an effective strategy derives from a fundamental understanding of how a company operates, which is defined by its business model. She explains the elements of a business model and how to integrate it with strategic decision making, providing what the she calls a more "real-world" guide to effective management. She provides practical insight for managers and conceptual models grounded in research and current business examples. Each chapter includes discussion guides and a practical exercise based on real-world companies. In Chapter 5, Business Model and Strategy (22 pages), the author defines strategy as the action plan to bring the business model to life. She outlines three levels of strategy: corporate, competitive, and operational, and the interrelation between them. Corporate strategies focus on resource allocation, and as such, are the key to supporting a sustainable business model. Competitive strategies mainly focus on revenue streams and cost structure. Operational strategy looks at functions within a company. The chapter includes three discussion guides for Yum Brands, Kellogg, and Amazon, and an exercise on strategy analysis for The Dollar Shave Club.

Learning Objectives

To learn how to integrate a business model in strategic planning.

Dec 15, 2012

Discipline:

Business Expert Press

BEP198-PDF-ENG

To read this content please select one of the options below:

Please note you do not have access to teaching notes, strategy and business models: why winning companies need both.

Journal of Business Strategy

ISSN : 0275-6668

Article publication date: 25 March 2019

Issue publication date: 3 September 2019

This paper aims to highlight the importance of addressing both competitive strategy and business model for the long-term success of a company. The paper builds a prescriptive framework to help managers assess their companies’ positions based on the extent to which they attend to their strategies and business models simultaneously. In doing so, the paper offers four possible outcomes – idling, faceoff, breakdown and traction – providing examples to capture each scenario and managerial prescription.

Design/methodology/approach

The framework of this study is based on academic research in strategy and business model design, the authors’ scholarly work on innovation and their combined experiences and observations in the industry. The framework uses examples of well-known companies to make the case for why managers need to pay heed to both business models and strategies simultaneously to achieve long-term competitive profitability.

This study’s framework suggests that the delicate balance between strategy and business model design determines the long-term competitive advantage and profitability of a company. Focusing on strategy without paying heed to the business model can cause companies to lose sight of changing customer behaviors. Alternatively, managerial attention to business models at the exclusion of its strategy leaves the company vulnerable to competition. The framework points at the delicate strategy–business model balance required to manage winning companies.

Originality/value

Business models and strategies represent two separate yet inextricably linked domains under the purview of management. However, companies can be weakened because of an overemphasis on one at the expense of the other. This paper’s framework offers a simple yet effective guide to assist managers in assessing their organizations’ current positions while also providing direction toward addressing any shortcomings.

• Profitability
• Competitive advantage
• Business models
• Corporate turnaround

Braun, M. , Latham, S. and Cannatelli, B. (2019), "Strategy and business models: why winning companies need both", Journal of Business Strategy , Vol. 40 No. 5, pp. 39-45. https://doi.org/10.1108/JBS-01-2019-0005

Emerald Publishing Limited

Copyright © 2019, Emerald Publishing Limited

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What Is a Business Model?

Understanding business models, evaluating successful business models, how to create a business model.

• Business Model FAQs

The Bottom Line

Learn to understand a company's profit-making plan

Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.

Investopedia / Laura Porter

The term business model refers to a company's plan for making a profit . It identifies the products or services the business plans to sell, its identified target market , and any anticipated expenses . Business models are important for both new and established businesses. They help new, developing companies attract investment, recruit talent, and motivate management and staff.

Established businesses should regularly update their business model or they'll fail to anticipate trends and challenges ahead. Business models also help investors evaluate companies that interest them and employees understand the future of a company they may aspire to join.

Key Takeaways

• A business model is a company's core strategy for profitably doing business.
• Models generally include information like products or services the business plans to sell, target markets, and any anticipated expenses.
• There are dozens of types of business models including retailers, manufacturers, fee-for-service, or freemium providers.
• The two levers of a business model are pricing and costs.
• When evaluating a business model as an investor, consider whether the product being offer matches a true need in the market.

A business model is a high-level plan for profitably operating a business in a specific marketplace. A primary component of the business model is the value proposition . This is a description of the goods or services that a company offers and why they are desirable to customers or clients, ideally stated in a way that differentiates the product or service from its competitors.

A new enterprise's business model should also cover projected startup costs and financing sources, the target customer base for the business, marketing strategy , a review of the competition, and projections of revenues and expenses. The plan may also define opportunities in which the business can partner with other established companies. For example, the business model for an advertising business may identify benefits from an arrangement for referrals to and from a printing company.

Successful businesses have business models that allow them to fulfill client needs at a competitive price and a sustainable cost. Over time, many businesses revise their business models from time to time to reflect changing business environments and market demands .

When evaluating a company as a possible investment, the investor should find out exactly how it makes its money. This means looking through the company's business model. Admittedly, the business model may not tell you everything about a company's prospects. But the investor who understands the business model can make better sense of the financial data.

A common mistake many companies make when they create their business models is to underestimate the costs of funding the business until it becomes profitable. Counting costs to the introduction of a product is not enough. A company has to keep the business running until its revenues exceed its expenses.

One way analysts and investors evaluate the success of a business model is by looking at the company's gross profit . Gross profit is a company's total revenue minus the cost of goods sold (COGS). Comparing a company's gross profit to that of its main competitor or its industry sheds light on the efficiency and effectiveness of its business model. Gross profit alone can be misleading, however. Analysts also want to see cash flow or net income . That is gross profit minus operating expenses and is an indication of just how much real profit the business is generating.

The two primary levers of a company's business model are pricing and costs. A company can raise prices, and it can find inventory at reduced costs. Both actions increase gross profit. Many analysts consider gross profit to be more important in evaluating a business plan. A good gross profit suggests a sound business plan. If expenses are out of control, the management team could be at fault, and the problems are correctable. As this suggests, many analysts believe that companies that run on the best business models can run themselves.

When evaluating a company as a possible investment, find out exactly how it makes its money (not just what it sells but how it sells it). That's the company's business model.

Types of Business Models

There are as many types of business models as there are types of business. For instance, direct sales, franchising , advertising-based, and brick-and-mortar stores are all examples of traditional business models. There are hybrid models as well, such as businesses that combine internet retail with brick-and-mortar stores or with sporting organizations like the NBA .

Below are some common types of business models; note that the examples given may fall into multiple categories.

One of the more common business models most people interact with regularly is the retailer model. A retailer is the last entity along a supply chain. They often buy finished goods from manufacturers or distributors and interface directly with customers.

Example: Costco Wholesale

Manufacturer

A manufacturer is responsible for sourcing raw materials and producing finished products by leveraging internal labor, machinery, and equipment. A manufacturer may make custom goods or highly replicated, mass produced products. A manufacturer can also sell goods to distributors, retailers, or directly to customers.

Example: Ford Motor Company

Fee-for-Service

Instead of selling products, fee-for-service business models are centered around labor and providing services. A fee-for-service business model may charge by an hourly rate or a fixed cost for a specific agreement. Fee-for-service companies are often specialized, offering insight that may not be common knowledge or may require specific training.

Example: DLA Piper LLP

Subscription

Subscription-based business models strive to attract clients in the hopes of luring them into long-time, loyal patrons. This is done by offering a product that requires ongoing payment, usually in return for a fixed duration of benefit. Though largely offered by digital companies for access to software, subscription business models are also popular for physical goods such as monthly reoccurring agriculture/produce subscription box deliveries.

Example: Spotify

Freemium business models attract customers by introducing them to basic, limited-scope products. Then, with the client using their service, the company attempts to convert them to a more premium, advance product that requires payment. Although a customer may theoretically stay on freemium forever, a company tries to show the benefit of what becoming an upgraded member can hold.

Example: LinkedIn/LinkedIn Premium

Some companies can reside within multiple business model types at the same time for the same product. For example, Spotify (a subscription-based model) also offers free version and a premium version.

If a company is concerned about the cost of attracting a single customer, it may attempt to bundle products to sell multiple goods to a single client. Bundling capitalizes on existing customers by attempting to sell them different products. This can be incentivized by offering pricing discounts for buying multiple products.

Example: AT&T

Marketplace

Marketplaces are somewhat straight-forward: in exchange for hosting a platform for business to be conducted, the marketplace receives compensation. Although transactions could occur without a marketplace, this business models attempts to make transacting easier, safer, and faster.

Example: eBay

Affiliate business models are based on marketing and the broad reach of a specific entity or person's platform. Companies pay an entity to promote a good, and that entity often receives compensation in exchange for their promotion. That compensation may be a fixed payment, a percentage of sales derived from their promotion, or both.

Example: social media influencers such as Lele Pons, Zach King, or Chiara Ferragni.

Razor Blade

Aptly named after the product that invented the model, this business model aims to sell a durable product below cost to then generate high-margin sales of a disposable component of that product. Also referred to as the "razor and blade model", razor blade companies may give away expensive blade handles with the premise that consumers need to continually buy razor blades in the long run.

Example: HP (printers and ink)

"Tying" is an illegal razor blade model strategy that requires the purchase of an unrelated good prior to being able to buy a different (and often required) good. For example, imagine Gillette released a line of lotion and required all customers to buy three bottles before they were allowed to purchase disposable razor blades.

Reverse Razor Blade

Instead of relying on high-margin companion products, a reverse razor blade business model tries to sell a high-margin product upfront. Then, to use the product, low or free companion products are provided. This model aims to promote that upfront sale, as further use of the product is not highly profitable.

Example: Apple (iPhones + applications)

The franchise business model leverages existing business plans to expand and reproduce a company at a different location. Often food, hardware, or fitness companies, franchisers work with incoming franchisees to finance the business, promote the new location, and oversee operations. In return, the franchisor receives a percentage of earnings from the franchisee.

Example: Domino's Pizza

Pay-As-You-Go

Instead of charging a fixed fee, some companies may implement a pay-as-you-go business model where the amount charged depends on how much of the product or service was used. The company may charge a fixed fee for offering the service in addition to an amount that changes each month based on what was consumed.

Example: Utility companies

A brokerage business model connects buyers and sellers without directly selling a good themselves. Brokerage companies often receive a percentage of the amount paid when a deal is finalized. Most common in real estate, brokers are also prominent in construction/development or freight.

Example: ReMax

There is no "one size fits all" when making a business model. Different professionals may suggest taking different steps when creating a business and planning your business model. Here are some broad steps one can take to create their plan:

• Identify your audience. Most business model plans will start with either defining the problem or identifying your audience and target market . A strong business model will understand who you are trying to target so you can craft your product, messaging, and approach to connecting with that audience.
• Define the problem. In addition to understanding your audience, you must know what problem you are trying to solve. A hardware company sells products for home repairs. A restaurant feeds the community. Without a problem or a need, your business may struggle to find its footing if there isn't a demand for your services or products.
• Understand your offerings. With your audience and problem in mind, consider what you are able to offer. What products are you interested in selling, and how does your expertise match that product? In this stage of the business model, the product is tweaked to adapt to what the market needs and what you're able to provide.
• Document your needs. With your product selected, consider the hurdles your company will face. This includes product-specific challenges as well as operational difficulties. Make sure to document each of these needs to assess whether you are ready to launch in the future.
• Find key partners. Most businesses will leverage other partners in driving company success. For example, a wedding planner may forge relationships with venues, caterers, florists, and tailors to enhance their offering. For manufacturers, consider who will provide your materials and how critical your relationship with that provider will be.
• Set monetization solutions. Until now, we haven't talked about how your company will make money. A business model isn't complete until it identifies how it will make money. This includes selecting the strategy or strategies above in determining your business model type. This might have been a type you had in mind but after reviewing your clients needs, a different type might now make more sense.
• Test your model. When your full plan is in place, perform test surveys or soft launches. Ask how people would feel paying your prices for your services. Offer discounts to new customers in exchange for reviews and feedback. You can always adjust your business model, but you should always consider leveraging direct feedback from the market when doing so.

Instead of reinventing the wheel, consider what competing companies are doing and how you can position yourself in the market. You may be able to easily spot gaps in the business model of others.

Criticism of Business Models

Joan Magretta, the former editor of the Harvard Business Review, suggests there are two critical factors in sizing up business models. When business models don't work, she states, it's because the story doesn't make sense and/or the numbers just don't add up to profits. The airline industry is a good place to look to find a business model that stopped making sense. It includes companies that have suffered heavy losses and even bankruptcy .

For years, major carriers such as American Airlines, Delta, and Continental built their businesses around a hub-and-spoke structure , in which all flights were routed through a handful of major airports. By ensuring that most seats were filled most of the time, the business model produced big profits.

However, a competing business model arose that made the strength of the major carriers a burden. Carriers like Southwest and JetBlue shuttled planes between smaller airports at a lower cost. They avoided some of the operational inefficiencies of the hub-and-spoke model while forcing labor costs down. That allowed them to cut prices, increasing demand for short flights between cities.

As these newer competitors drew more customers away, the old carriers were left to support their large, extended networks with fewer passengers. The problem became even worse when traffic fell sharply following the September 11 terrorist attacks in 2001 . To fill seats, these airlines had to offer more discounts at even deeper levels. The hub-and-spoke business model no longer made sense.

Example of Business Models

Consider the vast portfolio of Microsoft. Over the past several decades, the company has expanded its product line across digital services, software, gaming, and more. Various business models, all within Microsoft, include but are not limited to:

• Productivity and Business Processes: Microsoft offers subscriptions to Office products and LinkedIn. These subscriptions may be based off product usage (i.e. the amount of data being uploaded to SharePoint).
• Intelligent Cloud: Microsoft offers server products and cloud services for a subscription. This also provide services and consulting.
• More Personal Computing: Microsoft sells physically manufactured products such as Surface, PC components, and Xbox hardware. Residual Xbox sales include content, services, subscriptions, royalties, and advertising revenue.

A business model is a strategic plan of how a company will make money. The model describes the way a business will take its product, offer it to the market, and drive sales. A business model determines what products make sense for a company to sell, how it wants to promote its products, what type of people it should try to cater to, and what revenue streams it may expect.

What Is an Example of a Business Model?

Best Buy, Target, and Walmart are some of the largest examples of retail companies. These companies acquire goods from manufacturers or distributors to sell directly to the public. Retailers interface with their clients and sell goods, though retails may or may not make the actual goods they sell.

What Are the Main Types of Business Models?

Retailers and manufacturers are among the primary types of business models. Manufacturers product their own goods and may or may not sell them directly to the public. Meanwhile, retails buy goods to later resell to the public.

How Do I Build a Business Model?

There are many steps to building a business model, and there is no single consistent process among business experts. In general, a business model should identify your customers, understand the problem you are trying to solve, select a business model type to determine how your clients will buy your product, and determine the ways your company will make money. It is also important to periodically review your business model; once you've launched, feel free to evaluate your plan and adjust your target audience, product line, or pricing as needed.

A company isn't just an entity that sells goods. It's an ecosystem that must have a plan in plan on who to sell to, what to sell, what to charge, and what value it is creating. A business model describes what an organization does to systematically create long-term value for its customers. After building a business model, a company should have stronger direction on how it wants to operate and what its financial future appears to be.

Harvard Business Review. " Why Business Models Matter ."

Bureau of Transportation Statistics. " Airline Travel Since 9/11 ."

Microsoft. " Annual Report 2021 ."

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What Is Business Strategy & Why Is It Important?

• 20 Oct 2022

Every business leader wants their organization to succeed. Turning a profit and satisfying stakeholders are worthy objectives but aren’t feasible without an effective business strategy.

To attain success, leaders must hone their skills and set clear business goals by crafting a strategy that creates value for the firm, customers, suppliers, and employees. Here's an overview of business strategy and why it's essential to your company’s success.

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What’s a Business Strategy?

Business strategy is the strategic initiatives a company pursues to create value for the organization and its stakeholders and gain a competitive advantage in the market. This strategy is crucial to a company's success and is needed before any goods or services are produced or delivered.

According to Harvard Business School Online's Business Strategy course, an effective strategy is built around three key questions:

• How can my business create value for customers?
• How can my business create value for employees?
• How can my business create value by collaborating with suppliers?

Many promising business initiatives don’t come to fruition because the company failed to build its strategy around value creation. Creativity is important in business , but a company won't last without prioritizing value.

The Importance of Business Strategy

A business strategy is foundational to a company's success. It helps leaders set organizational goals and gives companies a competitive edge. It determines various business factors, including:

• Price: How to price goods and services based on customer satisfaction and cost of raw materials
• Suppliers: Whether to source materials sustainably and from which suppliers
• Employee recruitment: How to attract and maintain talent
• Resource allocation: How to allocate resources effectively

Without a clear business strategy, a company can't create value and is unlikely to succeed.

Creating Value

To craft a successful business strategy, it's necessary to obtain a thorough understanding of value creation. In the online course Business Strategy , Harvard Business School Professor Felix Oberholzer-Gee explains that, at its core, value represents a difference. For example, the difference between a customer's willingness to pay for a good or service and its price represents the value the business has created for the customer. This difference can be visualized with a tool known as the value stick.

The value stick has four components, representing the value a strategy can bring different stakeholders.

• Willingness to pay (WTP) : The maximum amount a customer is willing to pay for a company's goods or services
• Price : The actual price of the goods or services
• Cost : The cost of the raw materials required to produce the goods or services
• Willingness to sell (WTS) : The lowest amount suppliers are willing to receive for raw materials, or the minimum employees are willing to earn for their work

The difference between each component represents the value created for each stakeholder. A business strategy seeks to widen these gaps, increasing the value created by the firm’s endeavors.

Increasing Customer Delight

The difference between a customer's WTP and the price is known as customer delight . An effective business strategy creates value for customers by raising their WTP or decreasing the price of the company’s goods or services. The larger the difference between the two, the more value is created for customers.

A company might focus on increasing WTP with its marketing strategy. Effective market research can help a company set its pricing strategy by determining target customers' WTP and finding ways to increase it. For example, a business might differentiate itself and increase customer loyalty by incorporating sustainability into its business strategy. By aligning its values with its target audiences', an organization can effectively raise consumers' WTP.

Increasing Firm Margin

The value created for the firm is the difference between the price of an item and its cost to produce. This difference is known as the firm’s margin and represents the strategy's financial success. One metric used to quantify this margin is return on invested capital (ROIC) . This metric compares a business's operating income with the capital necessary to generate it. The formula for ROIC is:

Return on Invested Capital = Net Operating Cost After Tax (NOCAT) / Invested Capital (IC)

ROIC tells investors how successful a company is at turning its investments into profit. By raising WTP, a company can risk increasing prices, thereby increasing firm margin. Business leaders can also increase this metric by decreasing their costs. For example, sustainability initiatives—in addition to raising WTP—can lower production costs by using fewer or more sustainable resources. By focusing on the triple bottom line , a firm can simultaneously increase customer delight and margin.

Increasing Supplier Surplus & Employee Satisfaction

By decreasing suppliers' WTS, or increasing costs, a company can create value for suppliers—or supplier surplus . Since increasing costs isn't sustainable, an effective business strategy seeks to create value for suppliers by decreasing WTS. How a company accomplishes this varies. For example, a brick-and-mortar company might partner with vendors to showcase its products in exchange for a discount. Suppliers may also be willing to offer a discount in exchange for a long-term contract.

In addition to supplier WTS, companies are also responsible for creating value for another key stakeholder: its employees. The difference between employee compensation and the minimum they're willing to receive is employee satisfaction . There are several ways companies can increase this difference, including:

• Increasing compensation: While most companies hesitate to raise salaries, some have found success in doing so. For example, Dan Price, CEO of Gravity Payments, increased his company's minimum wage to $80,000 per year and enjoyed substantial growth and publicity as a result.
• Increasing benefits: Companies can also decrease WTS by making working conditions more desirable to prospective employees. Some offer remote or hybrid working opportunities to give employees more flexibility. Several have also started offering four-day work weeks , often experiencing increased productivity as a result.

There are several ways to increase supplier surplus and employee satisfaction without hurting the company's bottom line. Unfortunately, most managers only devote seven percent of their time to developing employees and engaging stakeholders. Yet, a successful strategy creates value for every stakeholder—both internal and external.

Strategy Implementation

Crafting a business strategy is just the first step in the process. Implementation takes a strategy from formulation to execution . Successful implementation includes the following steps :

• Establish clear goals and key performance indicators (KPIs)
• Set expectations and ensure employees are aware of their roles and responsibilities
• Delegate work and allocate resources effectively
• Put the plan into action and continuously monitor its progress
• Adjust your plan as necessary
• Ensure your team has what they need to succeed and agrees on the desired outcome
• Evaluate the results of the plan

Throughout the process, it's important to remember to adjust your plan throughout its execution but to avoid second-guessing your decisions. Striking this balance is challenging, but crucial to a business strategy's success.

Learn More About Creating a Successful Business Strategy

Business strategy constantly evolves with changing consumer expectations and market conditions. For this reason, business leaders should continuously educate themselves on creating and executing an effective strategy.

One of the best ways to stay up-to-date on best practices is to take an online course, such as HBS Online's Business Strategy program. The course will provide guidance on creating a value-driven strategy for your business.

Do you want to learn how to craft an effective business strategy and create value for your company's stakeholders? Explore our online course Business Strategy , or other strategy courses , to develop your strategic planning skills. To determine which strategy course is right for you, download our free flowchart .

About the Author

• Conceptual/Theoretical Paper
• Published: 24 April 2017

Business models as service strategy

• Heiko Wieland 1 ,
• Nathaniel N. Hartmann 2 &
• Stephen L. Vargo 3  

Journal of the Academy of Marketing Science volume  45 ,  pages 925–943 ( 2017 ) Cite this article

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It is widely recognized that business models can serve as important strategic tools in innovation and market formation processes. Consequently, business models should have a prominent position in the marketing literature. However, marketing scholars have, so far, paid little attention to the business model concept, perhaps because it lacks an established definition and clear theoretical foundation. This article offers a definition for the business model concept that, using a fractal approach, connects business models to technological and market innovation. Furthermore, the article questions several cornerstone strategic concepts by reconceptualizing business model development from a firm-centric activity that promotes owning key resources and altering sets of decision variables to one that highlights the facilitation of broad institutional change processes. As such, it takes the potentially controversial position of advocating a service-strategy-based understanding of business models for all of marketing strategy.

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Wieland, H., Hartmann, N.N. & Vargo, S.L. Business models as service strategy. J. of the Acad. Mark. Sci. 45 , 925–943 (2017). https://doi.org/10.1007/s11747-017-0531-z

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Received : 03 June 2016

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DOI : https://doi.org/10.1007/s11747-017-0531-z

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What Is The Difference Between A Business Model And A Business Strategy?

A business strategy is a deliberate vision to get toward a desired long-term goal. A business model is a great tool to execute a business strategy .

Yet while achieving a long-term goal a business strategy set a vision, mission , and value proposition that can be executed through several possible business models .

When one of the drafted business models encounters the favor of the market that is when a business strategy becomes successful!

Table of Contents

A background story of how I got to business modeling and business strategy

For years I’ve been studying businesses with different emphasis and perspectives.

When I was around seventeen, I got interested in the stock market, so I wanted to understand how companies worked.

Thus, I did what seemed most logical to me. I looked at their stock prices and how they moved over time.

Analysts would call this technical analysis. While the technical analysis does have some usefulness for investing, you might use it without knowing much about the business and look at the price patterns that form over time.

In the years that followed I learned how to look at other aspects of a business, from its organizational structure to its products and how the company invested its money.

Later on, during my MBA I started to have a more strategic understanding of businesses by looking at the way they structured their operations, developed their product or service, and what kind of monetization they used.

However, when I later worked as a financial analyst, my focus went primarily on the company’s balance sheets. I followed the money, how it moved from one account to the other and what logic is followed. I realized I could “extract” a company’s strategy by looking at its financials.

There was still a piece missing though.

While numbers are great to have an understanding of how the company moved and what motivated it in the short-term it was hard to have a long-term vision.

Thus, I looked for other frameworks I could use, and I could integrate them to have a complete theory of firms. That is where business modeling came in handy.

I could look at a few key elements to have a current picture of a business. Business model theories and frameworks are primarily rooted in the digital transformation era.

When companies realized the importance of the web not just as a new channel, but as a business world for its own sake.

I studied several tools, and theories, from the academic to the tools put together by practitioners. Integrating financial analysis with business modeling gave me a better framework to formulate and gain a better understanding of any company. That is how I moved from financial analysis to business strategy .

Today, I built a new discipline, which I like to call Business Engineering , but it has little to do with the way it’s usually conceived. 

Business Engineering , combines business modeling , design thinking, and scaling but it brings them to a new level, to be able to map the business context in which you are operating. 

Business strategy vs. business modeling

Put shortly; a business model allows you to capture the present picture of an organization . Or it helps you design how you want a company to look in the future .

Thus, to find an analogy a business model is more like a picture or a painting.

A picture in the case of a company that has an existing business model  which turned out successfully in the marketplace.

And more like a painting in the case of a company for which you’re designing a whole new  business model .

A business strategy is a way to get there .

You know where you want to be, you have a mission and a vision, and you crafted a unique value proposition , and a deliberate plan to get where you want to be.

For that matter, a business model is a great tool to apply a business strategy . In this case, the business strategy sets up the value proposition , which is the foundation of any business model .

A value proposition can change over time as it needs to adapt to the market and meet the real value for your potential customers.

Thus, where a business model is the painting, the business strategy is the hand that draws that painting.

As an HBR working paper entitled “From Strategy to Business Models and to Tactics” pointed out:

Put succinctly, business model refers to the logic of the firm, the way it operates and how it creates value for its stakeholders. Strategy refers to the choice of business model through which the firm will compete in the marketplace. Tactics refers to the residual choices open to a firm by virtue of the business model that it employs.

Business strategy to reduce noise and set a clear direction

Understanding a company’s framework and how it “behaved” in the marketplace has become critical. I want to remark that companies are not people.

Companies are made of many moving parts. And even though I’m referring to companies as “behaving” in a certain way, I’m not conveying this is a scientific methodology.

I see business strategy more as an art than a science. And it’s not even a technological issue.

Progress in machine learning or artificial intelligence probably won’t do any good to business strategy . Indeed, while machine learning is pretty good in detecting patterns in the real, physical world.

When it comes to the more fluid business world, things get messy.

So messy indeed, that the level of noise might be higher than the actual signal. In that respect what we call instinct or gut feelings might be more suited than a machine learning tool for understanding the future.

That is why I seek straightforward thinking tools to analyze the business world.

It’s important not to get bogged down in too complex analyses, but be very wary of the kind of data or metrics we use to track our business success.

For that matter a useful business strategy thinking tool has to have three main features, I believe:

• No frills : for instance, instead of adding complexity it reduced it. Thus, instead of having to have complicated infrastructure anything that you can hold on top of your mind is a great business thinking tool
• Profound yet straightforward : in many cases, one page is all we need to make significant decisions
• Short but exhaustive : the result of a useful business thinking tool has to come up with a concise insight that can be fitted in maximum of two lines of text summarizing the current scenario

Summary and conclusions

Where a business model is a possible way to get to a desired strategic long-term outcome. A business strategy is what sets things in motion and what keeps a long-term focus.

A good business strategy – in my opinion – has to be straightforward, it has to reduce the noise, and even though a bit simplified it needs to be exhaustive and profound!

Business Engineering is a way to look at the business world, to understand how the context changes and how business playbooks need to adapt to newly formed business contexts. 

Related Innovation Frameworks

Business Model Innovation

Innovation Theory

Types of Innovation

Continuous Innovation

Disruptive Innovation

Business Competition

Technological Modeling

Diffusion of Innovation

Frugal Innovation

Constructive Disruption

Growth Matrix

Innovation Funnel

Idea Generation

Design Thinking

FourWeekMBA Business Toolbox

Business Engineering

Tech Business Model Template

Web3 Business Model Template

Asymmetric Business Models

Transitional Business Models

Minimum Viable Audience

Business Scaling

Market Expansion Theory

Speed-Reversibility

Asymmetric Betting

Revenue Streams Matrix

Revenue Modeling

Pricing Strategies

Other resources and business thinking tools: 

• Business Strategy: Definition, Examples, And Case Studies
• Successful Types of Business Models You Need to Know
• What Is a Business Model Canvas? Business Model Canvas Explained
• Blitzscaling Business Model Innovation Canvas In A Nutshell
• What Is a Value Proposition? Value Proposition Canvas Explained
• What Is a Lean Startup Canvas? Lean Startup Canvas Explained
• How to Write a One-Page Business Plan
• The Rise of the Subscription Economy
• How to Build a Great Business Plan According to Peter Thiel
• What Is The Most Profitable Business Model?
• The Era Of Paywalls: How To Build A Subscription Business For Your Media Outlet
• How To Create A Business Model
• What Is Business Model Innovation And Why It Matters
• What Is Blitzscaling And Why It Matters
• Business Model Vs Business Plan: When And How To Use Them
• The Five Key Factors That Lead To Successful Tech Startups
• Business Model Tools for Small Businesses and Startups
• How To Use A Freemium Business Model To Scale Up Your Business

More Resources

About The Author

Gennaro Cuofano

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• Business Models
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What is a business model? (Plus, how to define yours)

Business models distill the potential of a business down to its essence. Companies across every industry and at all stages of maturity need business models. Some rely on lengthy processes to build complicated models, while others move quickly to articulate the basics and take action. Either way, having the discipline to work through this planning tool forces internal alignment.

You must build something that real people with real needs will find value in and pay for — otherwise you do not have a lasting business. Brian de Haaff Aha! co-founder and CEO

For established enterprises, a business model is often a living document that is reviewed and adapted over the years. For companies launching products and services or entering new markets, a business model helps ensure that decisions are tied back to the overall business strategy . And for early-stage startups, a simple one-page business model enables founders to explore the mechanics of a business and how you anticipate it will be successful.

Defining and documenting a business model is an essential exercise. Whether you are starting a new venture, expanding into a new market, or shifting your go-to-market strategy , you can use a business model to capture fundamental assumptions about the opportunity ahead and tactics to addressing challenges.

Unfortunately, many companies fail to integrate their business model into all aspects of the organization — from recruiting talent to motivating employees. Part of the issue is accessibility. That is why forward-thinking companies choose tools that make it possible to quickly build and share your business model. The Aha! business model canvas, for example, gives you a collaborative space to explore concepts and connect your model to everyday work.

Build a business model in Aha! Notebooks. Sign up for a free trial .

Start using this template now

You can access the business model template shown above using Aha! Notebooks . You can also try a similar template that is built into the product strategy section of Aha! Roadmaps . Or you can download these free Excel and PowerPoint business model templates .

This guide covers the basics of business models, from core concepts to best practices. Jump ahead to any section:

Definition of a business model

Business model components

Business model vs. business plan.

Different types of business models

Pros and cons of different models

Analyzing competitor business models

Business model templates

How to build a business model

What is the definition of a business model?

A business model defines how a company will create, deliver, and capture value.

A business model answers questions that are crucial for strategic decision-making and business operations. Creating a business model for your startup or product means identifying the problem you are going to solve, the market that you will serve, the level of investment required, what products you will offer, and how you will generate revenue. Pricing and costs are the two levers that affect profitability within a given business model.

A business model is part of your overall business strategy. Some business models extend beyond economic context and include value exchange in social or cultural terms — such as the intangible impact the company will have on a community or industry. The process of constructing and changing a business model is often referred to as “business model innovation.”

15 elements of a brilliant business strategy

This is why innovation programs fail

There are three main areas of focus in a business model: value proposition, value delivery, and value capture. The proposition outlines who your customers are and what you will offer. The delivery details how you will organize the business to deliver on the proposition. And the capture is a hypothesis for how the proposition and delivery will align to return value back to the business.

Below are some components to include when you create a business model:

Vision and mission : Overview of what you want to achieve and how you will do it.

Objectives: High-level goals that will support your vision and mission, along with how you will measure success.

Customer targets and challenges: Description of target customers (written as archetypes or personas ) and their pain points.

Solution: How your offering will solve customer pain points.

Differentiators: Characteristics that differentiate your product or service.

Pricing: What your solution will cost and how it will be sold.

Positioning and messaging: How you will communicate the value of your offering to customers.

Go-to-market: Proposed approach for launching new offerings and services.

Investment: Resources required to introduce your offering.

Growth opportunity: Ways that you will grow the business over time.

Positioning vs. messaging

• What is value-based product development?
• What is a go-to-market roadmap?

Business models and business plans are both elements of your overall business strategy. But there are key differences between a business model and a business plan.

A business model is seen as foundational and will not usually be reworked in reaction to shorter-term shifts — whereas a business plan is more likely to be updated based on changes in the economy or market.

Related: Business plan templates

What is the benefit of building a business model?

Innovation is about more than the products or technologies that you build. The way that you operate your business is a critical factor in how you stand apart in a crowded marketplace. The benefit of building a business model is that you can use the exercise to expose and exploit what makes your company unique — why choosing your offering is better for customers than any alternatives and how you will grow the business over time.

Many people associate business models with lengthy documents that describe a company’s problem, opportunity, and solution in the context of a two-to-five-year forecast. But business models do not need to be a long treatise.

A one-pager is just as effective for distilling and communicating the most important elements of your business strategy. The concise format is useful for sharing with broader teams so that everyone understands the high-level approach. Done right, a business model can become a touchstone for the team by outlining core differentiators to promote and defend in the market.

Related: A more comprehensive business model builder

What are the different types of business models?

There are many different types of business models. Below are some of the most common business models with example companies for reference (take note of the companies that appear in several categories):

Did you keep track of the companies that appeared in several of the business model examples? Good. You now have a grasp of how complex enterprises with vast portfolios of products and services often employ many business models within the same organization.

Consider a company like Apple, which manufactures and sells hardware products as well as offering cloud-storage, streaming subscriptions, and a marketplace for other applications. Amazon, whose offerings range from retail (with the acquisition of Whole Foods) to marketplace (Amazon.com) to subscription services (Amazon Prime and Amazon Music) to affiliate, also features in different categories. Each division or vertical will have a distinct business model that reflects the nuances of how it operates while also supporting the corporate business model.

Related: The product manager vs. the portfolio product manager

Pros and cons of different business models

Some types of business models work better for certain industries than others. For example, software-as-a-service (SaaS) companies often rely on freemium business models. This makes it easy for potential users to experience the value of the product and incentivizes paid conversions via access to additional features.

Many social media platforms make money through advertising. By providing full access to the platform for free, these companies attract more users. In turn, this creates a more valuable audience for advertisers and increases revenue for the business.

How do you analyze a competitor’s business model?

Business analysts and investors will often evaluate a company’s business model as part of due diligence for funding or market research . You can apply the same tactics to analyze a competitor’s business model — with a few caveats.

Public companies are subject to reporting requirements. This means that the business must regularly disclose financial and performance data to the public — these disclosures occur quarterly and annually. The data includes everything from gross revenue, operating costs and losses, cash flow and reserves, and leadership discussions of business results. Designed to protect and inform investors, these reports can provide you with the information you need to understand the basics of the company’s business model and how well it is performing against the model.

Private companies are not required to reveal business data publicly. Investors or partners may be privy to certain aspects of the company’s performance, but it can be difficult to understand exactly what is happening from the outside. Some analysts or business websites will attempt to “size” a business or market by looking at a variety of factors — including the number of employees, volume of search terms related to the core offering, estimated customer base, pricing structure, partnerships, advertising spend, and media coverage.

Once you have identified relevant alternatives to your offering and gathered all of the information that you can find, a good way to analyze a competitor’s business model is to conduct a competitive analysis.

Related: Competitor analysis templates

You do not want to spend too much time thinking about other companies when you could be focused on your own. A simple SWOT analysis is a helpful way to map out strengths, weaknesses, opportunities, and threats that were revealed during your research.

Below are three types of business model example layouts you can use to succinctly and objectively assess what is possible and what challenges could arise for your business.

Aha! Notebooks business model template

Articulate the foundation of your product or service in a flexible whiteboard-style format with the Aha! Notebooks business model template.

The focus is on capturing key elements like why the solution is worth buying (messaging), pain points of the buyers (customer challenges), and ways you will grow the business (growth opportunities).

Aha! Roadmaps business model canvas

The Aha! Roadmaps business model is the most complete template in this guide — based on our team's decades of experience building breakthrough products and software companies.

You can drag and drop each component within a custom layout. And once you have completed your business model, it is easy to share with your team via a live webpage or exported PDF. This business model builder is included with the free 30-day trial of Aha! Roadmaps.

Aha! Roadmaps lean canvas

Similar to the business model canvas, this model in Aha! Roadmaps takes a problem-focused approach to create an actionable business plan. It is most commonly used by startups and entrepreneurs to document business assumptions. The focus is on quickly creating a concise and effective single-page business model. It documents nine elements, including customer segments, channels used to reach customers, and the ways you plan to make money.

How to build a business model in 10 steps

Crafting a business model is part of establishing a meaningful business strategy. But a business model is essentially a hypothesis — you need to test yours to prove that it will actually provide value. Many startup founders especially underestimate the costs and timeline for reaching profitability.

1. Identify your target market Who will benefit from your offering? What characteristics do prospective customers share?

2. Define the problem you will solve What is the problem that you are solving? What are the pain points of your potential customers?

3. Detail your unique selling proposition (USP) What will you build and how will you support it?

4. Create a pricing strategy How much will you charge for your offering? What factors will go into choosing your price point?

5. Develop a marketing approach How will you market your product and reach target customers? What channels will you choose for go-to-market?

6. Establish operational practices How will you streamline processes and procedures to reduce overhead and fixed costs?

7. Capture path to profitability How will your business generate revenue? What level of investment will be required and what fixed costs exist?

8. Anticipate challenges Who are your competitors? What opportunities and threats exist for your business?

9. Validate your business model Was your hypothesis correct? Does your business model solve a problem the way you thought it would?

10. Update to reflect learnings What can you do differently in the future to ensure greater success?

Your business model will ultimately guide your organization and influence your product roadmap. Give it the deep thought it deserves — questioning your core assumptions about how you will generate value and how your team will work towards achieving shared goals.

Deliver more with Aha! — try it free for 30 days .

Additional strategy resources

Using Aha! software

Aha! Roadmaps — Strategy overview

Aha! Roadmaps — Strategic models

Strategic blogs and guides

• How to price your product
• How to position your product

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Business model vs business strategy – what’s the difference?

While building a successful business idea, it is essential for entrepreneurs, business owners, and professionals to grasp the nuances between a business model and a business strategy. This article will delve into the key distinctions between these two vital concepts, shedding light on their unique roles and how they work together to create a successful and sustainable business.

As you continue reading, you will gain a deeper understanding of the definitions and elements of both business models and business strategies. Moreover, you will uncover the importance of aligning these concepts to ensure long-term success. 

What is a business model and its key components?

A business model is a conceptual framework that defines how a company creates, delivers, and captures value for its customers and stakeholders. It serves as a blueprint for the organization’s operations and outlines the methods employed to generate revenue, minimize costs, and achieve a competitive advantage in the market. Understanding and refining a business model is crucial to the success of any business, as it lays the foundation for all its strategic decisions and growth initiatives.

The key components of a business model include:

• Value Proposition: The unique combination of products or services that a company offers to its customers, aiming to solve their problems or meet their needs more effectively than competitors.
• Customer Segments: The specific groups of customers the company targets, based on their unique characteristics, needs, and preferences.
• Channels: The various means through which the company reaches its customers, including physical locations, online platforms, and distribution networks.
• Customer Relationships: The approach and strategies employed to establish and maintain relationships with customers, ensuring their satisfaction and loyalty.
• Revenue Streams: The different sources of income generated by the company, stemming from the sale of products or services, subscriptions, fees, or other revenue-generating activities.
• Key Resources: The essential assets, whether tangible or intangible, required for the company to deliver its value proposition and sustain its operations.
• Key Activities: The critical tasks and processes a company must undertake to create value, maintain a competitive advantage, and achieve its objectives.
• Key Partnerships: The network of suppliers, partners, and other external entities that support the company’s operations and contribute to its success.
• Cost Structure: The various costs associated with running the business, including fixed and variable expenses, capital investments, and operating costs.

In summary, a business model represents the way a company operates to create and deliver value to its customers while ensuring profitability and sustainability. By carefully designing and continually refining their business model, organizations can adapt to changing market conditions, seize new opportunities, and ultimately achieve long-term success.

What is a business strategy and its elements?

A business strategy is a long-term, forward-looking plan that outlines how a company will achieve its objectives, such as increasing market share, maximizing profits, or enhancing customer satisfaction. It involves identifying the organization’s unique strengths and leveraging them to gain a competitive edge in the market. A well-defined business strategy guides decision-making and resource allocation, ensuring that the company remains focused on its goals and adapts effectively to the ever-changing business environment.

The key elements of a business strategy include:

• Vision and Mission: The company’s overarching purpose and long-term aspirations, which guide its strategic direction and shape its culture.
• Goals and Objectives: The specific, measurable, achievable, relevant, and time-bound (SMART) targets that the company aims to reach within a given timeframe.
• Competitive Advantage: The unique factors that set the company apart from its competitors, such as superior products, cost leadership, or exceptional customer service.
• Market Positioning: The way the company seeks to be perceived by its target customers in relation to its competitors, based on attributes such as price, quality, or brand image.
• Core Competencies: The unique capabilities, skills, or expertise that the company possesses, enabling it to outperform its competitors and create value for its customers.
• Strategic Planning: The process of defining the company’s direction, making decisions on resource allocation, and establishing priorities to achieve its goals.
• Implementation and Execution: The translation of the business strategy into actionable plans, policies, and initiatives that drive the company’s day-to-day operations and ensure the achievement of its objectives.
• Monitoring and Evaluation: The ongoing assessment of the company’s progress toward its strategic goals, enabling it to refine its approach, address challenges, and capitalize on emerging opportunities.

In essence, a business strategy is a comprehensive roadmap that directs a company’s efforts and resources toward achieving its long-term goals. By developing and implementing a robust business strategy, organizations can navigate the complexities of the competitive landscape, seize opportunities for growth, and maintain a sustainable advantage in their respective markets.

So why is the business model different from strategy?

While both a business model and a business strategy are crucial to a company’s success, they serve different purposes and have distinct characteristics. Understanding the differences between these two concepts is essential for effective decision-making and resource allocation. Here are the main differences between a business model and a business strategy:

• Purpose: A business model focuses on how a company creates, delivers, and captures value, serving as a blueprint for its operations. In contrast, a business strategy is a long-term plan that outlines how the company will achieve its goals and objectives, guiding its direction and resource allocation.
• Scope: A business model encompasses the various components of a company’s operations, including its value proposition, customer segments, revenue streams, and cost structure. On the other hand, a business strategy addresses broader aspects such as competitive advantage, market positioning, and strategic planning.
• Time Horizon: A business model is generally more static, with adjustments made as needed to respond to changing market conditions or new opportunities. A business strategy, however, is forward-looking, outlining the company’s direction and objectives over the long term.
• Flexibility: A business model tends to be more rigid, as it defines the fundamental structure of the company’s operations. A business strategy is more flexible, allowing the organization to adapt its approach based on market conditions, competitive forces, and emerging opportunities.
• Relationship: While both concepts are distinct, they are also interconnected. A successful business strategy must be built on a solid business model that effectively creates, delivers, and captures value. Conversely, changes in the business model may necessitate adjustments to the business strategy to maintain alignment and ensure the achievement of the company’s goals.

Why your company needs both business model and business strategy

Alignment between a business model and strategy plays a critical role in driving growth, fostering innovation, and enabling companies to adapt to market changes. It ensures consistency and focus in operations, resource allocation and decision-making processes.It also enables the company to leverage its unique strengths and capabilities to create a competitive advantage that attracts customers, builds loyalty and outperforms the competition.

A company that aligns its business model with its strategy is better able to respond to market changes, new trends and competitive forces. Aligning the business model with the business strategy also fosters an environment conducive to innovation and growth. This alignment helps the company identify new opportunities, develop new products or services, and enter new markets, which promotes long-term success. In addition, a well-aligned company can meet the expectations of its stakeholders, including customers, employees, shareholders and suppliers, leading to stronger relationships, higher loyalty and a more positive brand image.

In summary, aligning a company’s business model and business strategy is a critical component to long-term success. When these two concepts are aligned, companies can maintain their competitive advantage, adapt to market changes and achieve sustainable growth. Regular assessments and refinements of this alignment are key to staying ahead in the ever-evolving business landscape.

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Any company can have challenges with the performance of its business model. If you see that your business model is not effective, a thorough analysis is an action that can help you! Make an appointment for a free consultation , where we can talk about the needs of your business and suitability of your business model.

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Business Model Vs. Strategy

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• The Differences Between a Business Plan & Business Model
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Your business strategy is a plan for how your company will make money. Business models, ​ Harvard Business Review ​ says, have also been described as plans for making money, but models and strategy are not the same thing. One way to explain business model vs. strategy is that your model explains how you business earns money; strategy explains how you earn more than your competition.

Choosing a business model is like choosing between an all-terrain vehicle and a luxury limo — which is best suited for the situation you're driving into? A strategy is figuring out how you're going to get to your destination, when you should stop for gas, and what you need to pack.

So What's a Business Model?

Strategy is a concept most people are familiar with from games and sports. A business model is a more recent concept, credited to a 1994 article by management consultant Peter Drucker. Though the article doesn't use the term "model," it does talk about how companies orient themselves around a set of assumptions. These assumptions define who their customers are, what the company does and what its strengths and weaknesses are.

Drucker uses IBM as an example. For a long time, IBM's assumptions were that it sold or leased business machines; in the computer era, it sold computer hardware. This business model worked well for decades. Eventually, however, software became king, and IBM didn't adapt. It kept focusing on hardware and lost ground to newer, more flexible companies until it changed its assumptions.

The Corporate Finance Institute gives several examples of business models. A manufacturing model involves taking raw materials and turning them into finished products. A franchise company assumes it can make money by providing uniform services in store after store. Stores such as Target or Publix bring together a variety of products and offer them for sale.

For a long time, models had to be developed after the fact. Disney's business model didn't include theme parks until after Walt Disney came up with the idea for the company's first, Disneyland. With personal computers, spreadsheets and marketing research it's now possible to design a model from the ground up, then build your business to fit. You can test out multiple assumptions, see which ones are most likely to work, and incorporate them into your model.

Business Model vs. Strategy

A basic difference between business strategy and business model is that modeling assumptions describe how the business works and what it does. Business strategy is a set of assumptions about how your company can outperform the competition. First you set your goals, and then you come up with a strategy to achieve them. A given company's strategy can be built around reducing risk, running lean or trying radical, unconventional approaches, for example.

Suppose you're an established restaurant built on a business model of providing quality food in an attractive setting. If other restaurants open using the same model, you need a strategy to compete. This could involve a loyalty program, lower costs, acquiring a liquor license or upgrading your marketing game.

When you're drawing up plans for your business, you can play with both strategy and modeling. Your strategy for competing with established companies could be "develop a superior model." Alternatively, you could take an established model and move it into a new industry. Amazon started by selling books. During the pandemic, it redefined itself as a company that delivers groceries to those who were social distancing. Changing its model proved an effective strategy.

Another difference between business strategy and business model is that models don't change as rapidly. They're a more fundamental set of assumptions about how your business is run. The risk for any business owner is that at some point the model stops working. Then you have to make the strategic decision to change the model. If customers are leaving and your model doesn't offer a solution, the model needs to change.

Modeling and Strategizing

The Center for Management Organization & Effectiveness (CMOE) says that ideally, your business model and your strategy would be identical. Part of strategy would be developing an effective business model; the model you choose would incorporate business strategies among its core assumptions. In a world where you're constantly competing with other companies, even if you achieved that ideal, you might have to change it as conditions changed.

​ Entrepreneur ​ says one of the first steps in creating your business model is to define your target market. A grocery could target consumers willing to pay for quality organic food, who want spices and ingredients for ethnic cuisines or who want large quantities of food cheap. Your assumptions about your market will shape your strategy to reach them. Other modeling elements include your branding, your resources and your business activities.

You can think of your model as a matter of making choices. Policy choices include where you locate your plants or stores, whether you use union workers, and whether you try to go carbon-neutral. Asset choices involves your equipment and technology. Governance choices are about who can make policy and asset decisions. Do you want a centralized model where you make all decisions or should your management team have flexibility to make some of those calls?

Strategizing and Modeling

Modeling may also include initial ideas for your business strategies. In the real world, it's rarely a conflict of business model vs. strategy; they work together, and some elements overlap. There's a good chance you'll develop both at the same time. Strategic thinking often involves thinking about your model.

One example of overlap is what's called the blue ocean strategy. The typical marketplace is a red ocean, filled with fierce competition; in a blue ocean, you sail alone. You get there by offering a new kind of product or service or shifting your old business model to a new environment. Netflix, for example, found success with a model offering a familiar service – DVD rentals – online.

A common approach to strategy is to balance quality vs. cost. You can offer cheap services or goods to a wide customer base, offer more expensive goods by providing a great customer experience, or prioritize expensive quality and service to a smaller group of customers. The strategy then influences your business model. Another approach to strategy is to look at what the competition is doing and calculate, precisely, how to counter and defeat them.

Both business strategy and business modeling are based on assumptions, projections and sometimes guesswork. It's important to leave room for innovation down the road. Your model may not work. Your competitors may neutralize your strategy. Review your original model and strategy regularly and see if they're still working. If not, make changes before the problem becomes critical.

• Harvard Business Review: What Is a Business Model?
• Corporate Finance Institute: Business Strategy vs Business Model
• Center for Management & Organization Effectiveness: Business Model vs. Strategy: What’s the Difference?
• Entrepreneur: The 7 Elements of a Strong Business Model

Fraser Sherman has written about every aspect of business: how to start one, how to keep one in the black, the best business structure, the details of financial statements. He's also run a couple of small businesses of his own. He lives in Durham NC with his awesome wife and two wonderful dogs.

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Differences Between a Business Model & a Business Strategy

by Neil Kokemuller

Published on 26 Sep 2017

A business model and a business strategy both answer key questions in operating a company. A business model is the systematic method used to generate revenue in a profitable company. A business strategy is a method used to achieve a core company objective..

Timing of Development

A business model typically is conceived prior to the start of operations. One or more founders frame the systems for earning profit, including locations, products, services, workers, organizational structure and potential customer markets. While companies sometimes revamp elements of the model, the initial construct usually remains. Founders establish business strategies when a company starts as well, but they put new strategies in place perpetually. Company leaders meet over time to review current plans for achieving goals and decide whether to maintain, revise or change strategies. A company might shift from aggressive product development to more marketing investment as it progresses, for instance.

Scope of Influence

A business model is a bigger umbrella than a business strategy. The model covers the entire scope of how the company makes revenue and controls costs to gain a profit. It encompasses every aspect of business direction, goals and strategies. A strategy is integral in achieving a goal and success. Leaders develop one or more strategies as a plan for reaching each business objective. Though significant, the scope of a strategy isn't quite as vast.

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Become obsessed with outcomes: Perspectives from PwC leaders

Go beyond the data: How analytics can help improve business outcomes and drive transformation

• 5 Minutes Read
• September 25, 2023

Helene Kubon Skulstad

Customer Data & Analytics Transformation, Partner, PwC US

Pricing & Sales Transformation, Partner, PwC US

Brian Gilbert

Operations Transformation, Partner, PwC US

Jared Schreff

Finance Transformation, Partner, PwC US

Like the steam engine, electricity and the internet, analytics is accelerating innovation and reshaping businesses and industries. But while many companies are investing heavily and have high expectations, it’s far too easy to neglect the foundational elements necessary to scale analytics.

Technology can help achieve lasting business outcomes. But to scale such goals as increased operational efficiency, revenue growth, improved customer experiences, and better decision-making and agility, the foundations of business alignment, execution ability and accountability, and culture are equally if not more important.

Align analytics initiatives with business objectives to help realize maximum viable value

Start with identifying specific pain points and opportunities and designing applicable analytics solutions that have a customer-centric design approach and deliver tangible value. Instead of burning millions of dollars with the hope that analytics will magically produce ROI, it’s critical to first identify, spotlight and pilot high-impact use cases that are enablers of business value.

Taking a pilot-led approach can yield the most potential for increasing value and reducing sunk cost, but you should identify and use maximum viable value (MVV) as a key metric for determining which pilots to prioritize. Thoroughly analyze potential cost savings, revenue generation, customer experience enhancement and process improvement opportunities. Smaller-scale initiatives can enable organizations to assess feasibility, effectiveness and business value in a controlled environment. Pilots can provide deeper insights, help refine solutions and inform decisions about additional investments. Taking an incremental approach with smaller iterations reduces risks and enables continuous learning, feedback incorporation and course correction.

For example, a global insurance company wanted to modernize its data capabilities — a multi-year process — and stakeholders knew they had to realize business benefits long before full implementation. To demonstrate value early, they first identified a broad set of analytics initiatives and then concentrated on the low-hanging fruit. They started with enhanced underwriting analytics before reworking the underwriting technical infrastructure. And before scaling up any initiatives, they undertook a rigorous evaluation of the value each provided — MVV score — and then started with pilots to justify the investments.

To measure success and make data-driven decisions, establish clear KPIs tied to specific business outcomes. Continuous monitoring, enhancement, collaboration and integration further improves the long-term value of analytics.

Invest in modern data infrastructure

In another case, a global benefits broker had spent millions creating sophisticated and complex analytics for clients. However, when the CEO asked three different groups for figures for the same set of products, all three came back with different answers. The underlying issue wasn’t a lack of analytics solutions but rather the dependency on the archaic and siloed data infrastructure across the organization. A modern data infrastructure — one that encompasses storage, processes and accesses vast data sets, and confirms that AI algorithms have a steady supply of high-quality information — is the backbone of analytics value creation, especially as the volume and complexity of data grow.

You also should leverage cloud-based platforms and data governance frameworks; use advanced analytics solutions to collect, store and process high-quality data; acquire new and enriched existing data; and invest in scalable and efficient data storage and processing infrastructure. These components will often lead to more accurate and thorough algorithms.

Effective cybersecurity measures, encryption techniques and access controls are also crucial for data security and privacy in analytics applications. Compliance with data protection regulations such as GDPR or CCPA maintains trust and ethical practices. Investing in collaborative platforms and partnerships facilitates data sharing and coordination with external stakeholders. This enables access to additional data sets and expertise, and it enhances analytics capabilities through collective intelligence.

Set up the right operation and governance model for your organization

As you establish the appropriate operational model for analytics, it’s critical to define clear objectives, assemble cross-functional teams, and implement governance and ethical frameworks. Responsible analytics and AI should be a fundamental part of your organization’s strategy. Key areas include setting risk-based priorities; revamping cyber, data and privacy protections; addressing the opacity risk and equipping stakeholders with the right solutions for oversight. You should also monitor third parties, keep a watch on regulatory landscape, and maintain human-led and automated oversight.

Don’t put the operating and governance models last. That can lead to confusion, project delays and accountability issues. Even in industries that follow product or agile delivery models, bigger strategic and technical programs have more complexities than most of us are used to. Develop a governance framework to ensure responsible and ethical use of these technologies, addressing data privacy, bias mitigation, transparency and accountability.

In addition, compliance with regulations and industry standards maintains trust and ethical practices. Effective data management and security practices — including access controls, encryption and data protection measures — help safeguard sensitive data. You also should create cross-functional teams with specialists in data science, machine learning and domain knowledge to help facilitate holistic problem solving and effective collaboration.

Drive a culture of continuous experimentation and learning

Embrace a culture of swift, continuous experimentation — not so much “failing fast” as “winning quickly.” Consider how to provide a safe environment for trying new ideas that tie back to the overall value-based vision. For example, a multinational hospitality company that wanted to transform its customer data and analytics capabilities and improve customer experiences created an innovation hub to focus on use cases that typically wouldn’t have been considered. Rather than a prioritized “backlog” approach, the hub encouraged creative experimentation in parallel to core development. This helped foster a growth mindset, promote knowledge sharing and organize collaborative projects that cultivated curiosity.

Continue to push an agile approach with both development and ideas. Projects that are broken into smaller, manageable initiatives encourage early feedback and necessary course corrections. This iterative approach enables rapid experimentation, faster progress and improved outcomes. Regular communication, collaboration and feedback loops with key stakeholders, domain specialists and users also confirm that all input is incorporated and stakeholders are on board from the beginning.

Outside of key stakeholder groups, promote knowledge sharing through workshops, seminars and internal conferences and encourage cross-functional collaboration to leverage diverse perspectives, skills and experience. Provide learning resources and development opportunities — such as training programs and certifications — to keep teams updated with the latest advancements and most effective practices.

The bottom line

Analytics hold immense promise to reshape industries, generate innovative solutions and augment human capabilities. It’s essential, however, to go beyond the hype and build the foundational elements necessary for success. By investing in modern data capabilities, fostering a culture of experimentation, establishing the right operational model and ensuring business value alignment, organizations can unlock the true potential of analytics and reap their transformative benefits.

Mohammad Misbah, Director, Customer Transformation, PwC US, contributed to this article.

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Web3 Could Change the Business Model of Creative Work

• Alex Tapscott

It offers creators new ways to build real wealth from their work.

Web3 — the read-write-own web — could offer a new model for creative work. By offering new tools to earn and own assets, build wealth, and wrestle back control from powerful platforms and intermediaries, it has the potential to simplify how creators fund their ventures and new ways to earn a living, not just on the first sale of a work of art but in perpetuity thanks to programmatic royalty streams paid via smart contracts, self-executing code that can move and store money. If Web1 and Web2 democratized access to information and made it easier to collaborate online, Web3 equips creators with a new toolkit to build real wealth from their work, on a globally level playing field.

For most of the industrial age, technology has acted as a tailwind for creators, powering an age of mass culture that supported a professional class of working artists. However, more recently, the rise of digital technology — specifically, the internet and AI — has become a source of economic dislocation.

Web1, the so-called “read web,” was a digital printing press that democratized access to information, but it also commoditized art and music and undermined creators’ rights as their IP got laundered in the web’s swirling washing machine of content.

Web2, the “read-write web,” made it easier to publish content, share ideas and access a broader audience (i.e., “write” to the internet) but it also confined creators to tightly run platforms they did not trust or control and where they lacked transparency into the economic impact of their work. Either that or risk the wilderness of the web where their creations could be copied without recourse. Digital artists had no easy way to monetize their creations and could not benefit when works were resold.

The platforms that control content distribution have grown richer and more powerful, with precious little of that windfall trickling down to creators. Consider the strikes of the Writers Guild of America (WGA) and the Screen Actors Guild–American Federation of Television and Radio Artists (SAG–AFTRA). Streaming has already shortened television seasons, shrunk writers’ rooms, and eroded artists’ traditional residual revenues; and generative AI and 3D modeling give companies more tools for further minimizing their use of writers and actors.

By contrast, Web3 — the read-write-own web — offers new tools to earn and own assets, build wealth, and wrestle back control from powerful platforms and intermediaries. Web3 could simplify how creators fund their ventures by crowdsourcing new titles directly from their fans. It could offer new ways to earn a living, not just on the first sale of a work of art but in perpetuity thanks to programmatic royalty streams paid via smart contracts, self-executing code that can move and store money. In other words, it might offer a new model for creative work.

AI: Risk or Opportunity?

Now, new technologies — namely, generative AI — pose new challenges for composers, screenwriters, visual artists, and other creative workers. It is too early to say whether AI will be all bad for all of them; it may expand the ranks of professional artists or grow the market for culture, creating opportunities for humans to co-create or collaborate with AI on an equal footing. But it could also starkly devalue the work of copywriters, composers, and artists, and relegate these workers to supporting roles, such as polishing scripts or adding some depth of feeling to digitally rendered art. Cezanne said, “A work of art which did not begin in emotion is not art,” but plenty of studio executives see AI as a way to cut costs .

By analyzing hundreds of thousands of scripts against their viewership patterns over time, AI will get better at mimicking the stickiest and most bingeworthy of screenwriters’ styles, characters, and plots, not just to extend the arcs of existing stories but to synthesize all-new series and recommend the optimal cast or mix of character types. Ditto on the virtual replication of actors, with tools like FaceSwap already in use to de-age stars like Harrison Ford for his latest portrayal of Indiana Jones. But such big names likely consent to such innovations on their own terms. As Vox put it , “If people don’t lock down control of their digital twins, then nothing else matters.”

Oscar winning director Stephen Soderbergh told the Hollywood Reporter that, more than AI or visual effects, what keeps him up at night is the opacity of streaming data: He speculates that the studios are doing really well and don’t want to share the wealth, or else really poorly and don’t want their stocks to tank.

Artists hoped that the internet would help to disintermediate gatekeepers and middlemen, and change power dynamics in creative industries, but instead it added new intermediaries like streamers and platforms that distanced artists from their fans and obfuscated their economic impact. We need something different.

Culture Needs a New Business Model

If technology is upending the longstanding business model of creative industries, it’s also offering opportunities to establish a new one that can work better for creative workers.

Web3 technologies can simplify how creators track the usage of their IP and to monetize it, ensuring they get paid promptly and fairly for their work. For instance, Web3 technologies could allow artists to grow and perhaps even thrive along with AI, rather than suffer at its expense. For example, smart contracts can create avenues for artists to be compensated when their work is used to train AI like a large language model.

Web3 adds an economic layer and a rights layer to the Internet stack, where users can not only track the provenance of information and intellectual property but also protect, manage, and monetize these digital assets themselves with transparency peer to peer. These innovations can also change how creative ventures are funded, removing industry gatekeepers and amplifying underrepresented voices. In the Philippines, independent game studios are selling NFTs of in-game assets to gamers directly to fund new titles, disintermediating big studios and traditional financial backers.

For Jules Urbach, CEO of cloud graphics company OTOY, Web3 is fit for this purpose. OTOY’s flagship product, OctaneRender, is what’s known as an “unbiased, spatially correct graphics processing unit (GPU) render engine,” which is the industry’s way of describing powerful software that can render more lifelike images and video than what came before. Marvel Studios used OctaneRender in the opening of Ant-Man and the Wasp , according to Urbach.

Using the cloud, OTOY is able to harness dozens — and sometimes hundreds — of GPUs at a time in its network to break down projects into smaller parts.

By breaking up tasks, OTOY helps democratize the compute-intensive process of rendering, allowing artists to render in a couple of minutes what used to take hours on expensive hardware setups. Most important, anything created in the render network creates a hash on a blockchain, for the verifiable provenance essential to managing artists’ IP rights and moving digital goods from platform to platform. With such capabilities, artist guilds could create a set of smart contract templates for their members to use in managing such life-like renderings of themselves — their digital twins — and collect privatized data on industry usage that would give them bargaining power in future negotiations. The contracts could represent the artist guilds’ negotiated terms, plus whatever the individual artists or their agents have negotiated.

From Hollywood to Everywhere

This technology also offers artists ways to flip the traditional top-down model where studios and streamers try to control everything from IP to distribution. Hollywood screenwriter Jessie Nickson-Lopez has brought some of modern TV’s most indelible characters to life. As a founding member of the writing team on Stranger Things , she developed the story line for the character Eleven. Recently, as cofounder of Web3 startup MV3 , she launched a collection of 6,500 non-fungible tokens (NFTs) of different characters, the building blocks for what will be a richly rendered narrative “universe,” originally created by Nickson-Lopez and her team. Set in the “dystopian cyberpunk society” of 2081, after the “climate has gone to hell,” MV3 focuses on “a ragtag group of idealistic” rebels struggling to “take power from the corporation that owns the city.” NFT owners will participate in the IP, have a say in their character’s arc, and even co-create the story with the MV3 team. These different character assets could ultimately appear in film, TV, and other storytelling media. They could be playable characters in videogames or avatars in the metaverse.

Knowing that fans will support a project is key for firing up the Hollywood machine to spend $100 million or more on a film or TV show. Nickson-Lopez said, “So we reverse-engineered it, and I created the world of Eluna City and the characters that reside in it.” Though Nickson-Lopez architected this world and crafted story lines for main characters, MV3 will not decide the direction of the story. “For me, what’s been most exciting is seeing how much creativity we’re inspiring in people who have never created before but are consumers of dystopian worlds and of fiction. There’s this hunger to play. Our fans are our community and our co-creators. Because they’re invested in the world and in the characters, they’re really excited to build it up with us.”

MV3 inverts the Hollywood model. “As my lawyers say, ‘It’s like you’re ripping off pieces of value and just giving it to people.’ And we’re like, ‘Exactly! That’s exactly what we’re doing.’” Recently, the founders handed control day-to-day control of the MV3 universe to the community.

Ultimately, projects like OctaneRender and MV3 will work because they engage their communities not only in the economic upside but also in the governance. Handing over control and economics to fans is antithetical to the Hollywood model, and Nickson-Lopez recognizes that. Engaging people in the creative process, for love of the experience and not just for money, is what clearly drives these creators and gives their projects purpose and meaning.

Technology tools and human capital are more distributed than ever. If Web1 and Web2 democratized access to information and made it easier to collaborate online, Web3 equips creators with a new toolkit to build real wealth from their work, on a globally level playing field. As the saying goes, the future is not to be predicted; it is to be achieved. For cultural industries and much else, Web3 can help us do it.

• Alex Tapscott is an entrepreneur,  busines s  author ,  and seasoned capital markets professional focused on  the impact of  emerging technologies  on  busines s , government ,  and society.   His latest book,  Web3: Charting the Internet’s Next Economic and Cultural Frontier   (Harper Collins ) was published on  September  19 th , 2023.

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