What is the relationship between business models and strategy? The following categorical answer to this question was produced by Joan Magretta (2002).
Source review Business models and strategy – Magretta (2002: 91)
A business model isn’t the same thing as a strategy, even though many people use the terms interchangeably today. Business models describe as a system how the pieces of a business fit together. But they don’t factor in one critical dimension of performance: competition. Sooner or later – and it is usually sooner – every enterprise runs into competitors. Dealing with that reality is strategy’s job. A competitive strategy explains how you will do better than your rivals. And doing better, by definition, means being different.
However, business model innovation is clearly linked to strategy, so what’s the link? Sparrow et al (2010: 5) argued that ‘whilst strategy concerns the long-term creation of value and the process of making strategic choices, analysis of the business model facilitates clearer analysis, testing and validation of these choices’. They also pointed out that business models ‘can be used to weave together and demonstrate the importance of a range of components to the execution of a strategy’ (ibid: 8).
Teece (2010: 179) explained that: ‘A business model is more generic than a business strategy. Coupling strategy analysis with business model analysis is necessary in order to protect whatever competitive advantage results from the design and implementation of new business models.’ Casedusus-Masanel and Ricart (2010: 196) proposed a closer link when they suggested that strategy ‘refers to the choice of business model through which the firm will compete in the market place’.