A mediocre technology exploited via a great business model is much more valuable than a great technology with a mediocre business model. A number of superior products failed to capitalize the market opportunity in lack of best-fit business models….. So what’s a business model…
Management gurus say – A business model describes the rationale of how an organization creates, delivers and captures value. It is a framework for making money. It is the set of activities which a firm performs, how it performs them, and when it performs them so as to offer its customers benefits they want and to earn a profit.
However a business model is always confused with strategy (most loosely used term in management). Porter, the most acclaimed management guru, defines strategy as “how all the elements of what a company does fit together”; and, it seems to be parallel to that of business models, as “a system, how the pieces of a business fit together”.
Articles by some management scholars (Casadesus-Masanell, DaSilva, Magretta, Ricart, and Trkman) have helped me clearly differentiate strategy from business model. And, it says
- Business models are reflections of the realized strategy and strategy shapes the development of capabilities to alter current business models in the future.
- Strategy (a long-term perspective) sets up dynamic capabilities (a medium-term perspective) which then constrain possible business models (present or short-term perspective) to face either upcoming or existing contingencies. Thus, strategy entails devising dynamic capabilities able to respond to contingencies through the organization’s business model. Business models are then bounded by the firm’s dynamic capabilities.
- Every organization has some business model, but not every organization has a strategy. Strategy reflects what a company aims to become, while business models describe what a company really is at a given time.