Final Business Models and Strategy

Business Models and Strategy

The term ‘business model’ has become increasingly popular in the business world as many various business executives, consultants and planners use this term for organizational planning. However, few executives actually understanding what it means and can identify the components of a business model. Moreover, the definition of ‘business model’ is often confused with that of strategy. The main reason for this is that both strategy and business model are closely linked to each other which has created a confusion about its components. Business model is the basis or the foundation upon which the strategy of a business is built (Aspara et. al., 2011). A business model aims at understanding the purpose of an organization’s existence, how it plans to operate, the resources needed, the activities to be performed and how it plans to generate profits for the owners. On the other hand, strategy aims at understanding how the organization can take advantage of the opportunities in the external business environment and minimize the threats in order to achieve their goals (Chesbrough 2007). The main focus of strategy is to get ahead of the competitors in the industry by focusing on specific goals such as increasing market share, turnover, profit margins or earnings per share. Nevertheless it should be realized that, even though strategies are formulated after the creation of a business model the former is important for the success of the latter. Therefore, the formulation of strategies is pivotal to business models as they help in making the organizations vision a reality; shaping the competitive advantage of organizations; bringing about change according external environmental conditions; and providing increased value for shareholders.

Strategy is important for the success of a business model as it enables an organization to turn its vision into reality. The establishment of a business starts with the designing or selection of a business model. The...