Our answer is that strategy models show the strategies of a business while business models show the interactions between strategies and the uncontrollable external factors that the strategies are intended to address, such as customers and suppliers.
This all sounds very straightforward. But things get murky very quickly when you consider the current wisdom on the definitions of both terms.
Definition of Strategy
The lack of consensus on a definition for strategy is problematic for differentiating strategy models from business models and we think has impacted the development of robust business models.
Many academic textbooks don’t even attempt to define the term, preferring instead to offer a half a dozen or more different definitions collected from other sources. The result is that the reader is left with a confusing array of definitions.
The common denominator for all these definitions is that strategy is typically seen as being the way a business organizes itself in order to compete. This is problematic, in our opinion.
This seemingly “broad” definition actually shuts out any ability to construct a strategy model showing the structure of strategy in an organization. For one, it assumes strategy is one overarching “thing”, usually to do with competitive positioning and competitive advantage. It is just not possible to build a strategy model based on a single element and is our argument as to why strategy models are so scarce. See: Strategy Models: Where are They?
The way academics have overcome this issue is to relegate all other activities in a business to being “inputs” in some sort of vague, general “value chain” that then enables strategy to work.
As a result, most models of strategy don’t speak to the structure of strategy at all.
They are simply models of a strategy development process. The most popular of these so-called models typically shows vision at the top of a model which works its way down to a base of strategy and tactics.
Clearly, this is a process model. It tells us nothing about the strategy of an organization.
Definition of Business Model
As was the case with strategy, there is no consensus on a definition for what constitues a business model.
We believe this is largely caused by the unfortunate current popular misconception that strategy is only about the way a business organizes itself for competitive advantage.
As a result, the closest academics can get to defining business models is saying that they are about reflecting a sustainable way of doing business or that it is a platform that connects resources, processes, and services that will deliver profitability of the business.
Compounding the confusion is the use of the word “business” in business models. We have yet to find a definition of the term “business” but we know it is largely assumed to be something that is for-profit in nature.
Experience and common sense tell us that business models are not unique to for-profit organizations. Everyone knows that every organization, be it public sector, nonprofit, or for-profit has a business model.
This brings us back to our definitions that strategy models show the strategies of an organization and business models show how those strategy choices interact with the uncontrollable external factors the strategies were meant to address.
We also think the strategy model and the business model must be dynamic.
At this time, models of strategy and business models are very much static, meaning there is no ability to move individual components around in the model.
One way to achieve both a dynamic model of strategy and business model is define strategy differently and this is how we approached the issue.
In our book, The Alpha Strategies, Understanding Strategy Risk and Values in Any Organization, we define strategy as a choice of action.
We used the thinking of Fayol, Drucker, Mintzberg, and Tregoe & Zimmerman to build a strategy model comprised of the 8 strategies and 3 types of strategy common to every organization, no matter whether it is for-profit, nonprofit, or public sector.
Our model is dynamic in that it can be used to show current strategy and its configuration and to show the impact of strategy decisions that change strategy or their configuration positions. See our online dynamic Drag'n'Drop Strategy Board
Without first understanding strategy and its configuration, it is too easy to lose sight of the role of each of the strategies.
This is why most business models today are centered on 1 or 2 of the eight strategies, usually marketing and finances, without addressing how the remaining 7 or 8 strategies contribute to that business model.
Understanding both the strategies of a business as well as its business model is essential to being able to communicate convincingly how the business works. And if that can't be done, trouble is not far away.