The Relationship between Business Model and Strategy

This section of the chapter will now clarify the differences between the business model as a concept and strategy. The business model concept has only emerged as a unit of analysis in recent years following the rapid development of ICT and the Internet (Afuah and Tucci 2001). Although there is a wide and diverse range of definitions, there are also some emerging themes and common ground. Hamel (2000) defined the business model as a firm’s entire system for creating and providing consistent value to target customers and earning benefits for its stakeholders.

However, the two concepts of business model and strategy are highly complementary although not exactly the same. When a firm develops a business model it needs to develop a strategy to determine how to compete with that business model (Afuah & Tucci 2001). Therefore, strategic reasoning should influence and inform business model design and the business model itself becomes the point of differentiation. Although the business model design has important implications for value capture, it is really more about value creation: how the firm creates value with partners, suppliers and customers (Chesbrough and Rosenbloom 2002). Building business models in environments that are characterised by high complexity and ambiguity is closely aligned with Weick’s (2001) concept of sense-making (discussed in Chapter 2) and contextual rationality.

There are also important and significant relationships between a business model and strategy when analysing business corporations (Afua & Tucci 2001). These corporations invariably consist of different strategic business units (SBUs) that compete in different industries. This also applies to integrated platform companies such as the ‘Gang of Four’ and BAT which compete and disrupt a broad range of markets. Microsoft is a good example of this with broad interests in consumer software, hardware and enterprise cloud systems etc. Therefore, the corporation should not have a single business model but multiple business models to enable them to achieve both sustainable and disruptive value innovations to emerge and flourish. For example, the corporation should have a poised strategy that involves multiple business models for each of the industries it is active in with some new business models leading into new industries or causing new industries to be established in due course (Davenport et al. 2006).

Google is a good example of a corporation that conforms to this approach. Google’s ‘traditional’ business has poised strategies and different business models for seven established products that generate over a billion users each including search, maps, Gmail, YouTube, Google Play store, the Android operating system and the Chrome browser. Moreover, its Alphabet division of ‘moonshot’ products aimed at the future also include Calico, Google Ventures, Google Capital, Google X, Google Fibre and Nest Labs (The Economist 2016).

Each business model (either traditional or new) should also have a strategy i.e. an implementation thrust for the business model that differentiates itself from existing potential competitors (Davenport et al. 2006: 183). Earlier in the chapter Brown and Eisenhardt (1998: 7) said that ‘competing on the edge’ was about combining two parts of strategy simultaneously: ‘where does the organisation want to go and how does it get there’. In this respect, it could be said that business model innovation and strategy in successful firms are also similarly integrated. For example, the question of ‘where does the organisation want to go’ is represented by the business model i.e. what is the ‘business concept’. The ‘way of doing things’ (Hamel 2000) in terms of the type of value that is going to be created and the ‘how do we get there’ is the strategy and implementation thrust for the business model. These two processes may appear inseparable particularly where the new value is embedded in the form of radical, disruptive technology. For example, Google’s original business model and value proposition was communicated in its vision statement: ‘To organize the world’s information and make it universally accessible and useful’. The strategy that emanated from this was a range of information based products that were designed to gather, disseminate and analyse information.

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