During a recent doctoral workshop at Zeppelin University on business model innovation (BMI) we had a discussion on the difference between a business model and a strategy.
Business model innovation can be seen as one outcome of strategic innovation. (Have a look at my definition for other outcomes.) On the strategy level a company makes choices about what game to play, what competitive position to conquer. The business model outlines the details of these choices, the activities to be carried out, how they fit together, etc. The business model is the detailed description of how to play the game. It describes how you will create, capture and deliver value to your customer segments.
It could well be that two companies make the same strategic choice of being, let’s say a low-cost airline, but develop a different business model. If you compare RyanAir to FlyNiki for example the differences become clear. Both define themselves as low-cost carriers, both operate on the point-to-point logic. The strategy is about offering low cost transportation services within Europe (although FlyNiki recently started flying to the US). But their business models differ in a lot of areas:
- the activities they perform: FlyNiki does offer meals. And even of a high quality. You can even order special meals up to 24 hours prior to departure)
- the network they work with: FlyNiki collaborates with AirBerlin. They have code share agreements, use the same booking system and frequent flyer programme.
- revenue streams: for FlyNiki it’s additional revenue through meals, for RyanAir it’s if you want to bring luggage.
- customer relationships: RyanAir is known for not carrying about the customer (and it’s proud of this). FlyNiki is all about customer service.
Looking at the discussion of strategy and structure, one could also argue that a third intermediate level is the business model.
The difference between
Strategy <–> Structure, becomes
Strategy <–> Business Model <–> Structure & Processes.
