Views /Opinion

Of strategy and business model

The convergence of artificial intelligence, cloud computing, Web 3.0, social media, video content, internet of things, and big data promise a further surge in the frequency of change spawning businesses. Companies strive to stay alive in a new turbulent biosphere resembling more than ever a jungle, constantly looking for new ways to communicate with their customers through products and services. For instance, Amazon deploys a code every 11.6 seconds, senses how it changes their customers’ behavior, and immediately responds to any twist—optimizes if positive and amends if otherwise.

In this context, understanding the concept of strategy could not be any more opportune.

It is a concept that sounds familiar to us all. A term that’s commonly used redundantly to emphasize importance.

Here’s a spoiler: the true meaning of strategy is unknown to all.

Strategy has been a semantic issue since it was first mentioned in the Old Testament. Although originally discussed in warfare books to handle surprise attacks like the Trojan horse or Pearl Harbor, management scholars use it as an answer to what source of competitive advantage (resources vs. market positioning) brings the most economic value to firms and how should companies go about creating and capturing this value. Is it through a deliberate plan or an emergent process?

If one could believe in the ability of modern technologies to guarantee sound planning, the skeptical mind would muse on why such a planning prowess had missed the subprime crisis or the Covid 19.

Though different, strategy definitions are complementary. Each one contributes crucial aspects to our comprehension and guides us through this elusive concept. However, this cannot be done unless we further distinguish it from the term ‘Business Model’. This distinction is more than one of semantics, for both concepts carry two separate meanings and portray equivocal nature.

But for the sake of succinctness, I quote Ramon Casadesus-Masanell and Joan Enric Ricart: ‘business model is the logic of the firm, the way it operates and how it creates value for its stakeholders’, whereas ‘strategy is the choice of business model through which the firm will compete in the marketplace’.

As such, strategy is the choice of business model, i.e., a logical value creation and value capture. It is a contingency plan of actions and/or choices of what business model to use. The business model, on the other hand, is a reflection and/or a reaction of the realized strategy.

A business model is not open-ended, though constrained. Its constructs must be combined according to a set of rules, and yet have much room for creativity. It is analogue to a recipe; they both have possibilities for innovation.

‘Strategy’ and ‘business model’ require a holistic approach, as both their elements are certainly not mutually exclusive. But if implemented correctly, both concepts can become a company’s weapon for ensuring sustainable performance, compensating for lack of knowledge, and reducing uncertainty.

For this end, strategy scholars urge companies to secure a ‘fit’ between their value proposition and business model activities as a risk aversion technique. Their argument shows how companies facing new entrants’ competition or incumbents repositioning can deploy this ‘fit’ as a barricade against any potential threat.

The world of business is ripe with stories of market leaders losing their market share, if not their entire businesses to disruptive new tech driven entrants. Recall Tesla in the auto space, salesforce.com in the software world, Amazon’s Redshift in the data storage industry, where analysts are prophesying Cisco Systems to pull the rug out from under IBM and Hewlett Packard, once considered the industry’s traditional players.

Fit continues to be an issue of fundamental debate among scholars. And to date, strategy aficionados are still exploring the approach high-tech companies use to create strategic fit among their complex processes, and the mechanism by which they ensure consistency across their diversified set of activities.

Dr. Yassine Talaoui is the Assistant Professor of Strategic Management at the Center for Entrepreneurship and Organizational Excellence, College of Business and Economics, Qatar University.