What is the difference between Business Model and Strategy?

Whether I'm helping companies adapt their business models to the current environment or teaching the subject of creating a Strategic Plan for the Internet, I find that my interlocutors confuse these two terms: Business Model and Strategy. They also confuse Strategy with Tactics... but we'll clarify these last two terms in another article. In this one, we'll focus on What is the difference between Business Model and Strategy? With these two concepts clear in mind, we can move forward with the reconversion of our current business more easily.

To get straight to the point and in case you don't want to read the whole article, succinctly, “Business Model” refers to a company’s logic, 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 its market. That is, the business model you use depends on the strategy you want to implement.

Let's now develop both concepts a little further so that they are clearer to you:

What is a Business Model?

The origin of the term "business model" dates back to Peter Drucker in the 1980s, but the term has evolved significantly over the past 20 years with the emergence of the internet and the need for companies to adapt to this new environment. An updated definition is:

“A business model is a representation of a business's value architecture. It shows how a company or organization can offer a value proposition to specific market segments, how it defines the value chain structure required to offer that proposition, and how it defines the value capture mechanisms the company or organization will use to generate revenue.”

In case it's not clear to you:

The functions of a business model are:

• Articulate your company's value proposition. In other words, define what you offer that makes you unique.
• Identify the market segments the company wants to attack.
• Define the internal value chain structure you'll need to deliver your value proposition and estimate the cost of maintaining the structure. In other words, simply put, what you need to deliver your value proposition and how much it will cost.
• Define the value capture architecture and estimate the benefits you'll gain from capturing value. That is, how you'll generate revenue and what it will be.
• What will be your position with respect to the competition.

From my point of view, the best way to represent a Business Model is with a Canvas (image attached and link at the bottom of the article). However, the competition aspect is a bit lacking in a Canvas and is better addressed separately (link at the bottom of the article on how to do a competitor analysis).

What is a Strategy?

It is the creation of a plan that will lead you to achieve your goalsIt's not the plan itself; it's the decisions you'll need to make to create it. These decisions also include a contingency plan, that is, what you'll do if your competition does something or something changes. The business model is part of that plan. In other words, you first decide what your strategy will be, and then you choose the business model that best suits you. The problem is that it's often easier to decide what your strategy will be when you put the different business models you can choose from on paper, hence the confusion. It also happens that sometimes small businesses have a business model, but they don't follow any strategy (this is bad, obviously... but that's the reality).

I hope I have been useful to you and that you now have a clearer idea. What is the difference between Business Model and Strategy?.

You'll find more information at these links:

• Evolution of Business Model definitions and their components in this article by Zott, Amit, and Massa: What is a Business Model
• My model for how to do an online competitor analysis: How to do a competitor analysis
• About Business Models and how to use them to beat your competition in this article by Ramón Casadesús and Joan Ricard: business models to compete
• Here's a link to a video explaining how to use a Business Model Canvas and a form to download the official version of the model for free: Business Model Canvas

If you need personalized help adapting your business model to the strategy you've chosen, don't hesitate to contact me.

We talked to each other.