Thinking about the relationship between strategy and business models #124

Does strategy come first, or does the business model?

In management design, there are things that must be organized first.

That is, not to discuss strategy and business models on the same layer.

This is because it is not a matter of order, but a matter of hierarchy.

Unless this difference in hierarchy is clarified, the discussion will go astray.

My organization

First, let's establish a premise.

Strategy is the "design philosophy for competitive advantage"
Business model is the "mechanism for generating revenue"

So, which comes first?
My answer is this.

In other words, the hierarchies are different.

However, reality is cyclical

Theoretically speaking,

This flow is natural.

However, practical work is not that simple.
In fact, in many cases, it is the opposite.

Case ①: The model exists first

Many startups and founding companies

It starts with this kind of "business model discovery."

After that,

The strategy of "where we will win as a company" becomes clear.

In other words,

is the order.

Case 2: Strategic shifts force model changes

On the other hand, for large companies and existing businesses, the reverse is often true.

A strategy like this is set first,

and as a result,

a change in the business model occurs.

This is

in that order.

So, what is the conclusion?

This is what I think.

It is not the order, but the "misalignment" that is the problem.

This is the essence of failure.

If we think about it in terms of an insurance company

For example, if you set "maximizing customer lifetime value" as your strategy, it will not be consistent unless you change to a stock-based revenue model.

Conversely, if you adopt a direct revenue model, the strategy must be redesigned based on price competition.

Strategy and model are not two wheels of a car, but

.

Rather than which comes first, if they do not mesh, you will not get results.

To abstract it one step further

Strategy is "intent"
Business model is "structure"

Structure without intent becomes a mere trick.
Intent without structure ends as a philosophy.

Therefore, the question becomes this.

In other words, management can be said to be

.

The three-layer structure of strategy → business model → organizational design

Realizing a consistent strategy and business model requires an organizational design that fits them.

Here, I would like to consider how strategy, business models, and organizational design should be connected.

If you are serious about designing management, you need to think in at least three layers.

First Layer: Strategy (The Layer of Intent)

To reiterate, strategy is a bundle of decision-making regarding:

a bundle of decision-making.

At this stage, we do not yet design the acquisition of revenue in detail.

It is strictly a

it becomes.

Second Layer: Business Model (The Layer of Structure)

Again, to reiterate, a business model is a business design that includes a revenue structure, such as:

a business design that includes a revenue structure.

If strategy is a highly abstract 'direction,' then a business model is a highly concrete 'mechanism.'

Third Layer: Organizational Design (The Layer of Implementation)

This is the layer that tends to be most neglected.

Organizational design refers to:

things.

If a business model is subscription-based but sales performance is evaluated solely on the flow of new contract numbers, the organization will inevitably revert to the old model—that is, the previous business model type.

In short,

.

What happens when the three layers are misaligned?

When strategy changes,

change as well.

However,

With this, nothing will change.

On the other hand, when a business model changes,

but,

then,

the meaning is not shared within the organization, and friction arises.

Also, when you tinker with the organization,

and other such movements occur.

However,

then,

the expected change will not occur here either.

This is the most common failure.

Applying this to an insurance company,

for example,

Strategy: "Maximize Customer Lifetime Value"

↓

Business model:
・Lifecycle-based product design
・Stock-based revenue model
・Making accident response the core of deepening relationships

↓

Organizational design:
・Shift evaluation metrics to LTV-based
・Make renewal and retention rates KPIs
・Upgrade the accident response department to a profit-generating department

Only when there is consistency up to this point does a strategy become reality.

Finally,

Strategy → Business Model → Organizational Design

This is not a discussion about sequence.

It is a discussion about a hierarchical structure.

I believe companies where these three layers are aligned are strong.

Companies where these three layers are misaligned will not achieve stable results, no matter how talented they are.

However, in reality, there are by no means many people who can oversee these three layers and design the entire management while understanding their mutual relationships.

That is precisely why what will be demanded in the coming era is
not just the ability to talk about strategy, but the ability to design structures and fully execute them within an organization.

Whether or not one can execute this will determine the sustainability of a company.

I believe that management design is truly a matter of that level of resolve.