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Samenvatting paper 5 from strategy to business models and onto tactics
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Paper 5: From strategy toBusiness Models and onto Tactics
By Casadesus-Masanell & Enric
Ricart
Conceptual framework to separate and relate the concepts of strategy and business model. Business
model = reflection of the firm’s realized strategy. Concepts of strategy and business model differ
when there are important contingencies on which a well-designed strategy must be based.
Framework delivers clear distinction between strategy and tactics, made possible because strategy
and business model are different constructs.
Introduction
Competitive game changing because of globalization, deregulation and technological change. Fastest
growing firms have taken advantage of structural changes to innovate business models to compete
differently. Top management seeks guidance to innovate business models to improve ability to
create and capture value. Two other environmental shifts getting interest: advances in ICT (business
model innovations, firms need to develop novel business models to be effective in specific and
challenging environments) and socially motivated enterprises constitute a second important source
of recent business model innovations.
No agreement on distinctive features of superior business models because of lack of clear distinction
between notions of strategy, business models and tactics.
- Business model = logic of firm, the way it operates and how it creates value for stakeholders.
- Strategy = choice of business model through which the firm will compete in marketplace.
- Tactics = residual choices open to a firm by virtue of the business model it chooses to employ.
Integrating three concepts introducing generic two-stage competitive process framework: object of
strategy is choice of business model which determines the tactics available to the firm to compete
against or cooperate with other firms in marketplace.
Stage 1 = Strategy stage: firm chooses the Business Model through which it intends to compete.
Stage 2 = Tactics stage: Tactical choices made from amongst those available, depending on business
model choice at first stage.
Business models
Adopting definition of Baden-Fuller, MacMillan, Demil and Lecocq as starting point of argument: The
logic of the firm, the way it operates and how it creates value for its stakeholders.
Example different automobile designs have different specific logics of operations and create different
value for the drivers (stakeholders). One needs to understand their component parts and their
relationship. Building of the car is the strategy, the car itself is the business model and the driving of
the car is the available set of tactics.
Question is what are business models made of? 2 different sets of elements: the concrete choices
made by management about how the organization must operate and the consequences of these
choices. There are 3 types of choices: Policies (courses of action that firm adopts for all aspects of its
operation), Assets (decisions about tangible resources) and governance structures (structure of
, contractual arrangements that confer decision rights over policies or assets. Slight differences in
governance of policies and assets can have dramatic effects on value creation and/or value capture.
Causal loop diagram: choices and consequences linked by arrows and based on causality theories for
Ryanair business model representation.
Consequence is flexible when highly sensitive to choices; Consequence is rigid when doesn’t change
rapidly with the choices that generate it.
Business models often generate virtuous cycles which can be crucial elements in their successful
operations. As cycle spins, rigid consequences become more significant and virtuous cycles can
develop valuable resources and capabilities.
Interconnections between business model elements are central to the dynamic RCOV view of
business model developed by Lecocq, Demil and Warier focusing on value creation/capture. 3
interacting components which are permanently interrelated: Resources and Competences (RC),
internal and external Organization (O) which provide volume and structure of costs, and Value
propositions (V) which provides volume and structure of revenues. O and V jointly explain margins.
2main ways to move from the full, true detail to a tractable representation of a business model:
-Aggregation: ‘zooming out’ looking at the model from a distance bunching together detailed choices
and consequences where details blur but the aggregations of those details become clearer. It’s
important to fight the right distance as too close will make you miss the larger picture and too far
means all interesting details get lost.
-Decomposition: Different groups of choices and consequences don’t interact with one another and
can be analyzed in isolation. Representing few parts of business model may be appropriate.
This Approach implies that every organization has a business model (because every organization
makes some choices and these choices have consequences but doesn’t mean that every business
model is satisfactory or viable in the long run). Other authors define business models normatively
implying that it must consider particular aspects.
According to this conceptualization an organization’s business model is an objective (real) entity:
choices are made in every organization, all of which have consequences. The set of choices are the
organization’s business model as they determine the logic of the firm, the way it operates and how it
creates value for its stakeholders.
Tactics
Residual choices open to a firm by virtue of the business model that it employs. For example Metro
price of the newspaper is not part of its set of tactics; impossible for Harvard to personalize Master’s
like Stanford because of amount of students so matching them would mean modifying business
model to make a tactical choice. Different business models make different tactics available for
competition and/or cooperation.
Play crucial role in how much value is created and captured by firm. A firm’s business model
determines range of tactics available and also plays a central role in how much value the firm will be
able to create and capture. Example automobile the way it is built determines action set for tactics,
small compact for narrow streets which is not in action set and so impossible for a SUV.
A firm’s tactical choices also affect the value creation and value capture of other firms with which it
interacts. Tactical interaction is the way organizations affect each other when acting within the bouds
set by own business model and occur when one firm’s business model is in contact with another firm
leading to consequences for both.
A business model employed by a firm determines the tactics available to the firm to compete against
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