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Introduction
Business model innovation is currently a popular topic in managerial circles. From technology start-ups such as Uber and Airbnb attempting to monetize an existing user base to mature companies such as General Electric and J.C. Penney seeking to stem organizational decline, business models are increasingly taking center stage in boardrooms across the economic landscape. At the core of management's focus is the need to make sure their company's entire system of operations is structured to efficiently and effectively deliver customer value. The common thinking is that a robust business model addressing both present and future buyer needs will safeguard the company from any competitive pressures. Indeed, with managers hastening to button down the most fitting business model, what is increasingly apparent is their lack of attention to the company’s strategy and how it distinguishes itself from its rivals. This priority to emphasize a company’s business model over its competitive footing is already exposing failings across multiple industries as both early-stage ventures and established firms fall victim to the oversight.
To address this oversight, we turn our attention to redirecting the swing of the pendulum in efforts to give a firm’s management of its strategy equal stature with business model design. Based on our extensive academic research on organizational decline and innovation, as well as our professional experiences working with companies at all stages of the organizational life cycle, we have come to view these two managerial endeavors as inextricably linked to a company achieving what we call “competitive profitability.” To help managers understand both the distinction and the interdependence between strategy and business models, we begin by defining these two domains, which, until just a decade ago, were treated interchangeably. We then use current examples of well-known companies to develop and provide a simple yet useful guiding framework to show how imbalances in managing business models and strategy can place an organization on an unintended and often undesirable path. In doing so, we make the case that firms emphasizing business model design at the expense of strategy run the risk of quickly inviting imitators, eventually leading to the firms’ competitive disadvantage. On the other hand, managers prioritizing their competitive footing over their business model are prone to becoming insulated and overlooking evolving and shifting...