Strategy is futuristic business thinking about present business challenges and future opportunities. The strategic technique effective for this is a "model" of how one's company now operates but should change to operate in the future-a "strategic business model." A strategic model of a business of a corporation summarizes the future policies of the business that will prepare it to perform in the future. Six different kinds of generic business models that can be used in strategy are summarized.

A business model is an abstraction of a business identifying how that business profitably makes money. Business models are abstracts about how inputs to an organization are transformed to value-adding outputs. All models of organizations are models of a kind of"open system" (Betz, 1968); one important version of this is the now famous "value-added" model of Michael Porter (1981). As summarized in Exhibit 1, a value-adding open-system model of an organization is described as taking resources from its environment and transforming these to value-added outputs sold back into its market environment. The transformation of input resources into output products/services is performed by the processes and operations of the business. The Porter model is only one of several kinds of business models one can use in strategic planning.

Strategic thinking about how a business now makes money and how it must change to continue making money is the bottomline for strategic management. For example, in thinking about the future capabilities of an organization, Clayton Christensen and Michael Overdorf (2000) emphasized the need to consider resources, processes, and values in an existing organization-- compared to the challenge of needed change. The resources of a business consist of tangible resources (such as its personnel, equipment, facilities, cash flows, location, etc.) and intangible resources (such as design capability, brand names, relationships to customers and suppliers, etc.). The processes of a business consist of the activities and procedures with which a business procures resources, adds value, and produces and sells products and services. Thus, issues about change also require asking questions such as, "What changes in processes and procedures are necessary to produce new kinds of value and/or address the needs of new kinds of customers?" The value dimension of an organization (sometimes called "corporate values") is the standard by which management and other employees set priorities and judge the importance of activities and results. A strategic business model is a systematic list of the policies that will guide the future specification of inputs, outputs, processes, and values of the complete operations of the business of the corporation.

The importance of conceiving a good business model was emphasized by the experience of the many new companies (dot.coms) begun in the Internet growth years of 1996-2000. Hundreds of dot.coms were begun with extensive venture capital funding, and many without having a viable business model. Then in the year 2000, over 125 of these companies folded as they ran out of capital and had not yet become profitable (and found new financing difficult to achieve). The often-repeated moral then was that a good business model is necessary for profitability and survival.

Traditionally, many strategy texts have used a variety of strategy analysis techniques for formulating strategy alternatives (i.e., David, 2001). Some examples of these are: Threats-- Opportunities-Weaknesses-Strengths (TOWS) matrix, Strategic Position andAction Evaluation (SPACE) matrix, Boston Consulting Group (BCG) matrix, Internal-External (IE) matrix, Grand Strategy (GS) matrix. While these techniques are useful for emphasizing different views on strategic choice, they do not provide the bottomline of strategy-a specific model of how the business should operate in the future-the strategic business model. Accordingly, for a modern strategy process, the concept of the strategic business model should be used as the analytical baseline of the strategy process.

Business Models

As shown in Exhibit 2, a generic business model can be constructed with inputs and outputs to the business. There are four major kinds of inputs and outputs useful to construct a business model, and these are resources, sales, profits, and capital. Resources and sales provide the issues for the direct production transformations of a business operation. For example, in manufacturing operations, material resources are manufactured into physical products for sale. In service operations, requests for services are transacted into service sales. Profits and capital measure the value of the business operations. Profit is a measure of business efficiency-the difference between prices and costs of sold products/services. Capital is a measure of the asset value of the business-the difference between equity and liabilities.