In fast-changing industries like communications, having the right strategy is critical to success. Didier Bonnet and George Yip explain why business models and strategic planning must converge into strategic formulation.
Business academics and consultants have been writing about formulating strategies in fast-moving technology-based industries for many years. Yet there is still great confusion today as to how strategy formulation really happens in industries experiencing high business and technological change.
The Internet era introduced a new term, business model, which, according to one author, provided not just a strategy but a “Web-based business model that promised wild profits in some distant future”. Today, with renewed hype around Web 2.0, both strategy and business model are again used indiscriminately, and this is not helpful for executives attempting to chart a course for their organization in increasingly complex environments. We believe the two terms are separate but complementary business concepts that can go a long way to putting some order in the process of strategy formulation. Our view is that strategy can be formulated both within an existing business model and when a company has to make a shift from one business model to another.
The communication industries – broadly defined as encompassing telecoms, media, entertainment and devices – present a very fertile ground to help clarify the relationship between strategy and business model. In recent years, these industries have experienced radical shifts in their structures leading to the introduction of new and disruptive business models. The nature of competition and the pace of technological innovation in the communication industries (together with the irreversible process of industry convergence, which is fast blurring historical boundaries and market definitions) offer one of the most complex environments for strategy formulation.
Strategy vs. business model
Today, strategy and business model are widely used terms, but there are still no single compelling definitions. Strategy is a long-term plan of actions aimed at achieving a particular objective or set of objectives. In his Harvard Business Review article “What is strategy?” (November-December, 1996), Michael Porter defined strategic positioning as having six elements: the right goal, a value proposition, a distinctive value chain, trade-offs, fit among strategy elements and continuity of direction.
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