What is the difference between Business model and strategy?

So when I help companies to adapt their business models to the current environment, as when I teach the subject of creating a Strategic Plan for the Internet, I realize that my interlocutors confuse these two terms: Business Model and Strategy. Also they confuse strategy with tactics ... but clarify these last two terms in another article. In this we are going to focus on What is the difference between business model and strategy? With these two clear concepts in mind, we can advance the conversion of our existing business more easily.

To go straight to the point and if you do not want to read the whole article, succinctly, "Business Model" refers to the logic of a company, how it operates and how it creates value for its shareholders. Instead, "Strategy" is the choice of business model with which the company will compete in their market. That is, the business model you use depends on the strategy you wish to make.

We will now develop a little more two concepts to fit you clearer:

What is a business model?

The origin of the term "business model" is found in Peter Druker in the 80s, but the term has evolved a lot the last 20 years with the emergence of internet and the need to adapt to this new business environment. An updated definition is:

"Business Model is the representation of architecture value of a business that shows how a company or organization can offer a value proposition to certain market segments, how to define the structure of the value chain is needed to provide this proposal and how it defines mechanisms capture the value that the company or organization will use to generate revenue. "

For if you do not clear:

The functions of a business model are:

  • Articulate the value proposition of the company. So, define what makes you unique offer.
  • Identify market segments that the company wants to attack.
  • Define the structure of the internal value chain that will need to deliver the value proposition and estimate the cost of maintaining the structure. That is, and with plain words, you need to deliver your value proposition and how much it will cost.
  • Define the architecture capture value and estimate the benefits you get when you capture the value. So, how do you get income and what will be.
  • What is your position on competition.

From my point of view, the best way to represent a business model is a Canvas (foot attached and link to the article picture). Although part of the competition is a little lame on Canvas and better treat a part (link at the bottom of the article on how to analyze competitors).

Business model

What is a strategy?

It is creating a plan that will take you to achieve your goals. It is not the plan, it is the decisions you will have to make to create the plan. These decisions also include a contingency plan, that is, what you will do in case your competition does something or something changes. The business model is part of that plan. In other words, first you decide what your strategy will be and then you choose the business model that suits you best. What happens is that many times it is easier to decide what your strategy will be when you put down the different business models that you can choose, hence the confusion. It also happens that sometimes, small companies have a business model, but they don't follow any strategy (this is bad, obviously ... but that's the reality).

I hope I've been helpful and you now have clearer What is the difference between Business Model and Strategy.

You will find more information on these links:

  • Evolution of Business Model definitions and components that form in this article Zott, Amit and Massa: What is a business model
  • My model of how to analyze competitors on the Internet: How to analyze competitors
  • On business models and how to use them to beat your competition in this article Ramon Casadesus and Joan Ricard: business models to compete
  • Link you will find a video explaining how to use a Business Model Canvas and a form for you to download it for free the official version of the model: Business Model Canvas

If you need personalized help to adapt your business model to strategy you decide, do not hesitate to contact me.

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A hug.