Strategic Use of Business Models: Strategic Management

Strategic Use of Business Models: Strategic Management

The term “strategy” is perhaps one of the most misused, and misunderstood concepts in business literature. In this series of blog posts, we refer to strategy as positioning the firm with respect to its environment. We endeavor to answer the questions: how can we (a) improve the process of strategic management through the use of models, and (b) improve the execution/implementation of strategies with Enterprise Architecture Management?

Strategic issues

Strategists often deal with the resolution of strategic issues such as:

• What is our competitive advantage and in which market can we be successful?
• Do we aim for synergies between our businesses, or should we strive to maximize the responsiveness to market needs of each individual business?
• Are synergies between various countries in which we are active relevant?

It is often assumed that dealing with these issues is both rational and deliberate/planned (5 year plans). However, in practice this is often not the case. For many organizations, the process of strategizing is far from planned, and takes on a more creative character. Often, it is only in hindsight that one can discern a pattern in the stream of strategic choices that have been made.

Differing approaches

There are differing opinions on how to solve the different strategic issues. For example, for the issue of competitive advantage, some writers proclaim that an inside-out approach (AKA ‘resource-based view’, referring to dynamic capabilities of organizations) is best: start with what you’re good at, develop products and find appropriate markets. Others claim the exact opposite and adopt an outside-in approach (Blue ocean – seeking uncontested market space, or Red Ocean – trying to improve in existing markets). Find a market where you expect to be successful and develop an appropriate activity system/resource base.
Similarly for the issue of synergies versus responsiveness, some authors claim that the best way to be successful for a multi-business organization is to maximize synergies between businesses:

• Share resources such as knowledge, skills, or equipment
• Organize processes across all businesses to gain economies of scale
• Create an integrated product offering using services from various businesses to offer customers a one stop shop experience

Some would argue the exact opposite and propose a portfolio approach. The central idea of this approach is that by offering maximum freedom, businesses have the biggest chance to be successful. By spreading business risk over several businesses, the long term success of the portfolio is likely to be maximized.

Use of models

In order to improve (a) deliberate/rational strategizing, and (b) communication about all aspects of strategy, several models have been proposed. These models can be used to assist in rational and planned decision-making, but also to document and communicate about strategies that are “discovered” in hindsight using a more creative/incremental approach to strategic management.
Important models to consider in this context are:

• SWOT analysis: used to brainstorm strengths, weaknesses, opportunities, and threats for an organization. The step to strategic choice can be made by elaborating these further using a confrontation matrix.
• Blue Ocean Strategy: covers several models, including the strategy canvas and the ERRC grid as well as a step-by-step approach to discover how organizations can avoid competition in red oceans and be successful in blue oceans of unrivalled potential.
• 5-forces/PEST: two complementary models that help to map out the relation of the organization to its environment using 5 competitive forces, and 4 socio-economic factors.
• Value chain: traditional approach that helps to map out key aspects of an organization’s activity system that enables them to be successful.

In our opinion, the act of strategizing, and answering difficult questions about what the organization strives to be, is what strategic management is all about. Whether models are used to rationalize the strategic options/decision-making process of an organization, or if they are used to “merely” document the outcome of the strategic process in hindsight: we strongly believe that models are an indispensable tool for long term success of the organization: by combining (the results of) different strategic models, strategists broaden their horizon and break free from a single-paradigm view of the world.

In the next post in this series, I will discuss the business model canvas as a tool to (a) give an integrated view on the strategy of an organization, either in an as-is situation or in the future, and (b) show how existing models such as outlined in this post can help to fill in this canvas.