Stop Confusing Business Models, Strategy, and Tactics

According to the authors of How to Design a Winning Business Model in this month's Harvard Business Review, the terms business model, strategy, and tactics are widely misunderstood, and too often used interchangeably. If you don't know the difference, you are doomed to make bad decisions.

So listen up. Here's a way to think about them, thanks to Ramon Casadesus-Masanell of Harvard Business School and Joan Ricart of IESE Business School.

• Strategy. The company decides which business it wants to be in and how it will compete, creating a "unique and valuable position involving a distinctive set of activities." It's another way of saying, I think, here is what we can do better than anyone else and how we can defend our position in a competitive marketplace.
• Business Model. I like the authors' description of the business model as the "logic of the company." This is how the firm organizes and operates, how it delivers value to customers, and how it captures value for stakeholders. It must align with company goals.
• Tactics. Tactics are the steps used to compete in the marketplace, and they are defined largely by the business model. If your business model is built around direct sales, your tactics won't involve incentives to retailers, for example.

You'll have to shell out seven bucks to download the article, but it's a timely look into how business models are evolving and how smart managers can use them to gain competitive advantage.

Related Reading

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• The One-Paragraph Startup Plan
• Is Your Business Model Out of Date?