Distinction Between E Business Strategy and E Business Model and a Discussion of Their Key Components

Question 1a and b

Distinction between e business strategy and e business model and a discussion of their key components.

Introduction

In recent years we have seen a rise in the number of E business models emerging such as, eBay, Amazon, GROUPON and Spotify just to name a few. One might argue their success has been due to a clear business model as well as adopting a competitive strategy. Magretta (Magretta, 2002) suggests that a good business model and a competitive strategy are the keys to being better than your rivals whilst writers such as Osterwalder and Pignuer (A Osterwalder, 2002) suggest that using the concept of business models can help 'companies understand, communicate and share, change, measure, simulate and learn more about the different aspects of e-business in their firm'. However, is this really the case? What are the differences between the two? What are the key components of e business models and e business strategies?

Distinction between E business model and E business strategy

Although Magretta (Magretta, 2002) suggests that a good business model and strategy work hand in hand, the two are in fact very separate concepts. According to Yip 'The distinction between "business model" and "strategy" is more than one of semantics. They are two different concepts' (Yip, 2004) E business modelling has been described as the 'managerial equivalent of the scientific method' - you start with a hypothesis, which you then test in action and revise when necessary (Magretta, 2002). The e business model also plays the part of a planning tool by focusing managements on how all the elements and activities of the business work together as a whole. In essence an e business model could be a diagram outlining how the business generates revenue, how cash flows through the business and how the product flows through the business (Streetdirectory, 2011). Strategy on the other hand is defined as "a particular long-term plan for success" (collins english dictionary, 1999) so unlike the e business model, strategy focuses more on the steps a company will take In order to ensure long term success. As stated before Magretta suggests that 'a competitive strategy explains how you will do better than your rivals, doing better means being different' (Magretta, 2002)which leads us to a clear distinction between a business model and strategy; Strategy is not possible without a clearly defined business model, and once you have a good model you must think of a good strategy to make yourself stand out. As Osterwalder put it a business model is just a step in the architecture that leads to the formation of strategy (A Osterwalder, 2002). A good example of the difference between strategy and model is that of Wal- Mart and K-Mart, both these businesses had the same model of charging a low price however it is a difference in strategy that has made Wal-Mart what it is today. Sam Walton did things differently by choosing to focus on small towns as opposed to large cities and that was the key to Wal- marts success (Magretta, 2002). So although they both had the same model, it was their strategic options that defined their success

Key components of E business model and E business strategy.

In their study on the role of the business model, Chesbrough and Rosenbloom (Rosenbloom) outlined six basic components of an e business model which are:

1. Articulate the value proposition - the value created to users by using the product

2. Identify the market segment - to whom and for what purpose is the product useful; specify how revenue is generated by the firm.

3. Define the value chain - the sequence of activities and information required to allow a company to design, produce, market, deliver and support its product or service.

4. Estimate the cost structure and profit potential - using the value chain and value proposition identified.

5. Describe the position of the firm with the value network - link suppliers, customers, complements and competitors.

6. Formulate the competitive strategy - how will you gain and hold your competitive advantage over competitors or potential new entrants.

(Yip, 2004)

A good illustration of the key components of an e business model was given by Yip (Yip, 2004), using the example of Easy Jet: easy jet has a clear value proposition. The "easy" concept is to bring cheap and efficient services to the mass market. It also has very simple inputs; it operates only one type of aircraft (Boeing 737); it also has a common, pervasive technology, the Internet; additionally it has Simple outputs, all EasyGroup companies offer no-frills stripped-down services; they also have a geographic scope they beat many established players with overpriced operations around the world; they have a common type of customer; most EasyGroup customers are young, urban and hip. Having