Strat.

Change 17: 133144 (2008)

Published online in Wiley InterScience
(www.interscience.wiley.com) DOI: 10.1002/jsc.821 Strategic Change

The business model: an integrative

framework for strategy execution
James Richardson
Shidler College of Business, University of Hawaii, Manoa

We have many useful frameworks for formulating business strategy, i.e., devising a
theory of how to compete. Frameworks for strategy execution are comparatively frag-
mented and idiosyncratic.
This paper proposes a business model framework to link the firms theory about how to
compete to its execution. The framework captures previous ideas about business models
in a simple logical structure that reflects current thinking in strategy.
The framework is a useful tool for the strategist, for teaching, and for research on busi-
ness models in strategy.
Copyright 2008 John Wiley & Sons, Ltd.
Introduction strategy have benefited greatly from these
frameworks. Anecdotal evidence can be found
The study of business strategy has yielded many
by simply observing the business landscape.
useful frameworks for understanding how firms
Many observers have remarked that, over the
compete effectively. The five-forces framework
last few decades, the intensity of competition
(Porter, 1980) organizes and gives meaning to
has increased dramatically in many industries.
the numerous measures and characteristics of
Many factors contribute to the increased com-
industries. The generic strategy frame-
petition, including rapid technological change
work (Porter, 1980) reveals the fundamental
and greater foreign competition. But, not only
approaches to gaining competitive advantage.
are more competitors joining in, the competi-
The generic building blocks framework defines
tion is getting more sophisticated. Through
the basic dimensions along which a firm can
business education and trade books, the con-
outperform its competitors (Hill and Jones,
cepts and tools of strategy are now well known
2001). The SWOT analysis framework is widely
in the business world. The understanding of
used to assess strategic situations. The VRIO
what makes effective strategy is widespread,
framework (Barney, 2002) tells us when a firms
and viable strategies are rarely unexploited for
resources can enable it to gain and sustain a
long (Hamel and Valikangas, 2003).
competitive advantage. The value-chain frame-
Strategy can be defined as the firms theory
work (Porter, 1985) allows us to analyze the
of how to compete (Barney, 2002), and many
firms activities and sources of competitive
of the frameworks aim to assist the firm in
advantage. And there are many more.
devising a good theory. By good theory, we
It is widely believed, though perhaps
mean one that will, when executed, lead the
difficult to prove, that students of business
firm to competitive advantage and superior
performance. A good theory will, of course,
* Correspondence to: James Richardson Shidler College need to be based on a sound knowledge of the
of Business, University of Hawaii at Manoa, 2404 Maile
Way, Honolulu, HI 96822, USA. particular industry, competitors, and firm. The
E-mail: jamesr@hawaii.edu. strategy frameworks enable the strategist to

Copyright 2008 John Wiley & Sons, Ltd.

Strategic Change
134
The strategy frameworks
enable the strategist to
apply general principles to
the firms specific situation
and come up with a good
theory of how the firm
should compete. Armed
with a good theory, the
strategist must put it to
the test through
implementation or
execution
apply general principles to the firms specific
situation and come up with a good theory of
how the firm should compete.
Armed with a good theory, the strategist
must put it to the test through implementa-
tion or execution. Some of the frameworks
mentioned above, along with numerous ones
not mentioned, can be useful in execu-
tion in putting the theory into action. In
particular, the value chain and VRIO frame-
works get us thinking about the activities and
resources needed to execute the strategy. But
on the whole, the frameworks are most useful
in the theory (strategy) formulation. As we
move into execution, the frameworks leave
us with a fragmented and incomplete under-
standing of how the firms theory of how to
compete should be translated into action.
Porter has characterized the firms strategy as
the totality of its activities and not just a few
critical or key ones (Porter, 1996). As one
looks over the totality of a firms activities,
how well do they represent the firms theory
of how to compete? If things are not going
well, is it a good theory but poorly executed?
Or is it just a bad theory? Our frameworks
certainly shed some light on such questions,
but this is an area that could benefit from
additional work.
In large part, the difficulty of framing strat-
egy execution is inherent in the phenomena.
Copyright 2008 John Wiley & Sons, Ltd.
James Richardson
The firms theory of how to compete is a sim-
plified abstraction from the complexity of any
real business situation. In each real competi-
tive situation, the firms particular characteris-
tics and history, the circumstances in the
industry, and the details of each competitor,
present unique challenges and opportunities.
The strategy frameworks allow us to abstract
from all of that detail and capture the essential
elements of competition. But as we move
toward execution, the detail becomes more
important. The details of the firms products
and services, its activities and resources, its
people, and nearly everything else about the
firm, are the ingredients of execution. Clearly,
getting the details right is enormously impor-
tant to effective strategy execution. And frame-
works for thinking about this problem, for
helping to get the details right, are enormously
beneficial.
Intermediate between the firms abstract
theory of how to compete, and the myriad of
details in its operations, is a logical structure
that links the theory to action. But this logical
structure does more than just explain activi-
ties in terms of the basic strategy. It helps to
complete the description of the strategy.
The widely used framework of levels of
strategy provides such an intermediate logical
structure. At the most abstract level we have
the overall corporate strategy, e.g., pursue
growth into new markets, and the business
strategy conceived in broad terms, e.g., dif-
ferentiate on superior technology. At the next
level, a step toward operations, we have the
functional strategies, e.g., marketing strategy,
production strategy, and so on. A further inter-
mediate level is sometimes employed in the
framework, where functional strategies are
translated into policies which are used to
guide activities. In this framework, the func-
tional strategies help to link the basic business
strategy to activities, but they also help to
complete the definition of the strategy.
However, the levels of strategy framework
only go part way toward completing the logical
structure that links theory to action. Given a
set of functional strategies we can begin to
assign activities to objectives, e.g., expand
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An integrative framework for strategy execution
production capacity, in a way that is logically
consistent with the overall strategy. But con-
sider the many choices that must be made
about the details in expanding production
capacity How should it be organized? Should
it be outsourced? What sort of control systems
are needed? And so on . . . If we believe that
getting all of these details right is critical to
successful strategy execution, indeed that all
of these details are the strategy, then it would
be helpful to have a consistent logical picture
of the firm to guide these choices and actions.
No doubt, successful strategists have in mind
a consistent logical picture of their firms. What
is proposed here is a specific framework to
create such a consistent logical picture of the
firm a framework that can be systematically
studied and taught to the student of strategy.
However, the levels of
strategy framework only
go part way toward
completing the logical
structure that links theory
to action
This paper proposes that the business model
concept can be developed into a useful inte-
grative framework for strategy formulation
and execution. The proposed business model
framework provides a consistent logical
picture of the firm that helps to guide the
myriad choices and actions involved in execu-
tion. A business model is not a strategy (Porter,
2001). Rather, it is a conceptual framework
that helps to link the firms strategy, or theory
of how to compete, to its activities, or execu-
tion of the strategy. The business model frame-
work can help to think strategically about the
details of the way the firm does business.
The concept of a business model became
part of popular business jargon in connection
with the dot-com era of the 1990s. More
recently, business scholars have taken up the
term and worked to define and refine the
concept both for electronic commerce (e.g.,
Copyright 2008 John Wiley & Sons, Ltd.
135
The proposed business
model framework
provides a consistent
logical picture of the firm
that helps to guide the
myriad choices and
actions involved in
execution
Afuah and Tucci, 2001) and more generally
(e.g., Chesbrough and Rosenbloom, 2000).
The basic idea is that a firms business model
describes the way it delivers its products and
services to customers and the way it makes
money. Several authors have suggested using
the business model as an integrative tool for
strategy (Yip, 2004; Hedman and Kalling;
2003, Amit and Zott, 2001). The proposed
framework builds on these ideas and organizes
them into a simple and meaningful structure
grounded in current theories. Using the frame-
work to describe the elements of a firms busi-
ness model gives a clearer understanding of
how the firms strategy is embodied in its
activities. The framework is useful as a teach-
ing device as well as a practical tool for the
strategist. It should also prove useful in future
research on business models in strategy.
The paper first discusses the business model
concept and how it has been used in both the
popular business press and scholarly publica-
tions. Next, the business model framework for
strategy is described and explained. An applica-
tion of the framework helps to clarify the ideas
and show the frameworks usefulness. The
paper closes with a discussion of the usefulness
of the framework for education as well as prac-
tice, and some directions for future work.
The business model concept in
the literature
A keyword search for business model in the
business literature reveals thousands of entries.
The concept of a business model has found
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136
wide acceptance in the popular business press
and has received considerable attention in the
academic literature as well. The concept was
first popularized in connection with the dot-
coms or e-commerce, where a start-ups busi-
ness model was a key point of interest for
investors. The internet enabled firms to pursue
new business models and raised the possibility
that a better business model might confer a
competitive advantage.
There is general agreement on the basic
definition of a business model. It is simply a
description of how a firm does business. It is
not a complete description of the complex
social system of a business that would include
all of the actors, relationships, and processes.
Rather, it is a description of the logic that lies
behind the actual processes (Peterovic et al.,
2001). The business model can be seen as the
conceptual and architectural implementation
of a business strategy and as the foundation for
the implementation of business processes
(Osterwalder and Pigneur, 2002).
The business model can be
seen as the conceptual
and architectural
implementation of a
business strategy and as
the foundation for the
implementation of
business processes
Morris et al. (2002) and Peterovic et al.
(2001) have provided good summaries of the
existing business model literature. Earlier
authors tended to emphasize one or two com-
ponents when they talked about a business
model. Some focused on the sources of
revenue, some focused on the means of deliv-
ering products and services, and some focused
on the central business idea or value proposi-
tion of the firm. Later authors, in both the
popular business press and the academic
Copyright 2008 John Wiley & Sons, Ltd.
James Richardson
literature, have defined the concept more
broadly to include all of these components
(and more).
In our effort to develop a comprehensive
yet concise framework, it is useful to review
the components of a business model as pre-
sented by various authors. Table 1 presents a
synopsis of business model components com-
piled by Morris et al. (2002). Some of the
perspectives are e-commerce specific, while
others are generally applicable to any
company.
There are a number of common themes, but
there is also a great deal of variation in these
models. The number of components varies
from four to eight. They found a total of 24
different items mentioned as components of a
business model, with 15 of these receiving
multiple mentions. Of these, the most fre-
quently included are the firms value offering
or value proposition (11 mentions), profit/
revenue/economic model (including revenue
sources) (10 mentions), customer interface/
relationship (8 mentions), partner network
and roles (7 mentions), internal infrastructure/
connected activities (6 mentions), and target
markets/segments (5 mentions). Some of these
items probably overlap, such as customer rela-
tionships and target markets. Still, the poten-
tial complexity and the number of choices
about what to put in the business model clearly
deserve some attention.
Some of these authors were focused on e-
business, but a number of them have provided
useful general business model frameworks.
Osterwalder and Pigneur (2002) have argued
that the various components fall into three
general categories revenue/product as-
pects, business actor and network aspects,
and marketing-specific aspects. Hamel (2000)
defines a business model as simply a business
concept that has been put into practice. He
identifies four main business model compo-
nents core strategy, strategic resources, the
value network, and the customer interface.
The business model framework by Peterovic
et al. (2001) is divided into seven sub-
models the Value Model, the Resource
Model, the Production Model, the Customer
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An integrative framework for strategy execution 137

Table 1. Alternative components of business models

Source No. of Specific components E-commerce/general

components

Afuah and Tucci (2001) Eight Customer value, scope, price, E

revenue, connected activities,
implementation, capabilities, and
sustainability
Dubosson-Torbay et al. Four Products and services, relationship E
(2001) with customers, infrastructure and
network of partners, financial aspects
Timmers (1998) Five Architecture for product/service/ E
information flows, business actors and
their roles, potential benefits of the
actors, sources of revenue, marketing
strategy
Rayport and Jaworski Four Value cluster, market space offering, E
(2001) resource system, financial model
Donath (1999) Five Understanding the customer, E
marketing tactics, corporate governance,
intranet, and extranet capabilities
Gordijn et al. (2000) Eight Actors, market segment, value E
offering, value activity, stakeholder
network, value interfaces, value ports,
value exchanges
Hamel (2000) Four Core strategy, strategic resources, G
value network, customer interface
Peterovic et al. (2001) Seven Value model, resource model, E
production model, customer relations
model, revenue model, capital model,
market model
Chesbrough and Six Value proposition, target markets, G
Rosenbaum (2000) internal value chain structure, cost
structure and profit model, value
network, competitive strategy
Amit and Zott (2001) Three Transaction content, transaction G
structure, transaction governance

Source: Adapted from Morris et al. (2002).

Relations Model, the Revenue Model, the
Capital Model, and the Market Model. They
present their framework as a description of
the logic of a business system for creating
value that lies behind the actual processes.
Rayport and Jaworski (2001) divide an e-
business model into four main compo-
nents the value cluster, the marketspace
offering, the resource system and the financial
model. Chesbrough and Rosenbloom (2000)
identify six functions of a business mod-
el the value proposition, the target market
segment and revenue sources, the value chain
and complementary assets, the cost structure
and profit potential, the position of the firm in
the value network, and the competitive strat-
egy of the firm. Morris et al. (2002) list six
components with three levels. The six compo-
nents are the offering, market factors, internal
capabilities, competitive strategy, economic
factors, and personal/investor factors. The
three levels foundation, proprietary, and
rules allow for the representation of increas-
ingly firm-specific and detailed aspects of the
components of the business model.
As we develop a business model framework
for strategy we want to capture the common
themes and many of the elements listed above.
The goal is to provide a comprehensive picture
of the way the firm does business. At the same

Copyright 2008 John Wiley & Sons, Ltd. Strategic Change

DOI: 10.1002/jsc
138
time we want to orient the framework to strat-
egy and provide a simplified logical structure.
A key idea is that the business model repre-
sents the logic that lies behind the detailed
business processes (Peterovic et al., 2001).
For our purpose, the logic is the execution of
strategy to gain competitive advantage.
The business model framework
From the discussion above we can see that in
both the popular business press and the aca-
demic literature, the business model has
evolved into a comprehensive and generally
useful concept for thinking about how a firm
does business (Magretta, 2002). The objective
here is to show how, with a little develop-
ment, the business model framework can be
used in the strategy process to design or check
on how the firm is executing its strategy. We
have organized and defined the components
of the business model framework to reflect
current thinking about strategy. We have also
attempted to simplify and clarify the frame-
We have organized the
business model framework
around the concept of
value. The three major
components of the
framework the value
proposition, the value
creation and delivery
system, and value
capture reflect the logic
of strategic thinking about
value. The essence of
strategy is to create
superior value for
customers and capture a
greater amount of that
value than competitors
Copyright 2008 John Wiley & Sons, Ltd.
James Richardson
work while still capturing the essential com-
ponents from the works cited.
A recurring theme in discussions of both
business models and strategy is value. We have
organized the business model framework
around the concept of value. The three major
components of the framework the value
proposition, the value creation and delivery
system, and value capture reflect the logic
of strategic thinking about value. The essence
of strategy is to create superior value for cus-
tomers and capture a greater amount of that
value than competitors.
The Business Model Framework
The value proposition what the firm will
deliver to its customers, why they will be
willing to pay for it, and the firms basic
approach to competitive advantage.
The offering.
The target customer.
The basic strategy to win customers and
gain competitive advantage.
The value creation and delivery system
how the firm will create and deliver that
value to its customers and the source of its
competitive advantage.
Resources and capabilities.
Organization: the value chain, activity
system, and business processes.
Position in the value network: links to sup-
pliers, partners, and customers.
Value capture how the firm generates
revenue and profit.
Revenue sources.
The economics of the business.
Within the simplified framework we have
incorporated most of the components of the
more comprehensive and generalized business
model frameworks cited above. Below, we
discuss each of the three components to
show how the framework can be used to
think strategically about the way a firm does
business.
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An integrative framework for strategy execution
The value proposition
Like the business model, the value proposition
has become part of popular business jargon.
However, it has not been used as much in
scholarly writings, at least outside the e-
business and entrepreneurship literature. Still,
the strategy literature has a central role for
value creation (Porter, 1985) and it is but a
small step to include the value proposition.
The value proposition generally refers to
the reasons a customer will value a firms
(proposed) offering. Here, the elements of the
value proposition are somewhat broader in
concept. It includes the offering, or what the
firm sells, as usual. It also explicitly includes
the intended customer or target market. It
seems imprudent to talk about the value of an
offering without talking about to whom, so we
fold these components together into the value
proposition.
The strength of the firms
value proposition rests on
its strategic positioning. A
firm that plans to offer the
same product to the same
target market that is well
served by many existing
firms does not have a
strong value proposition
The third element of the value proposition
is perhaps more unusual and not so obvious.
It raises the question of the firms reason for
existence. Beyond what the firm will offer and
to whom, it is important to ask why the market
is not already well served by other firms. How
is the firm going to do something better? Will
it be able to attract customers? How is it going
to compete? These are the basic questions
answered by a firms generic strategy its
basic approach to winning customers and
gaining competitive advantage.
The strength of the firms value proposition
rests on its strategic positioning. A firm that
Copyright 2008 John Wiley & Sons, Ltd.
139
plans to offer the same product to the same
target market that is well served by many exist-
ing firms does not have a strong value proposi-
tion. Conversely, a firm that offers its target
customers a greater value than its competitors
has a strong value proposition. The value
proposition represents the value the firm
will offer to a customer relative to the
competition.
Without all three of these elements, a firm
will not have a solid value proposition upon
which to build a firm. At a minimum, the firm
will need an offering that identifiable custom-
ers will be willing to pay enough for in a
competitive market to allow the firm to be
viable. Preferably, the firm will have a value
proposition that includes potential for com-
petitive advantage such as a superior, or
differentiated offering, or perhaps lower costs
in serving the target market.
By our definition, the value proposition is a
basic statement of the firms theory about how
to compete. It states that the firm will offer
such and such to so and so in a way that offers
superior value compared to competitors. The
various frameworks and tools of strategy can
be applied to devising a good theory about
how to compete. The resulting theory
can then be summarized in the firms value
proposition.
The value creation and delivery system
The second component of the business model
further details the firms theory of how to
compete by describing how that theory is put
into action. It begins to flesh out the organiza-
tion and architecture of the firm. It also
specifies and describes the firms sources of
competitive advantage, i.e., its resources and
capabilities. It shows the logic of the firms
structure and how the organization is consis-
tent with the firms basic strategy.
Under value creation and delivery, we
include the numerous activities that a firm
undertakes to create, produce, sell, and deliver
their offering to customers. The value chain
(Porter, 1985) and the surrounding value
network (Gulati et al., 2000) provide a basic
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sketch of the firms value creation and delivery
system. More detailed activity networks
(Porter, 1996) can further elucidate the
strategy and organization.
The value chain, activity system, and value
network present activities as structural
elements, i.e., a name in a box on a diagram.
Activities and links are identified in a static
structural model of the firm. It is possible to
go beyond a structural model and include
process descriptions, e.g., flow charts. Indeed,
certain processes may be an important part of
the strategy, e.g., an innovative process taking
and fulfilling customer orders. In that case, a
description of the processes is an important
part of the business model. A process may cor-
respond to an activity, encompass multiple
activities, or be part of activity. For example,
the process of inventory management could
encompass sales activities, purchasing activi-
ties, inbound logistics activities, and ware-
housing and delivery activities. While the
process of taking an order would usually be
part of the sales activities. Process descrip-
tions would provide a richly detailed picture
of the firms operations and strategy
execution.
In the larger value creation network of
which the firm is a part, activities will be
divided among suppliers, the firm, perhaps
partners or complementors, and distributors.
The resources and capabilities of the various
actors and the division of activities among
them should match the value proposition.
That is, they should be able to create and
deliver the value proposition. At a practical
level, the allocation of activities can be done
to simply ensure effective delivery of the value
proposition. But strategic considerations
should dictate the choices made within the
business model framework.
The design of the firm should both reflect
the firms theory of how to compete and
confer the intended competitive advantage.
If the firm proposes to compete on low cost,
the activities should be divided up and con-
ducted accordingly. Similarly, a differentia-
tion strategy should be reflected by activities
that create and deliver that differentiation.
Copyright 2008 John Wiley & Sons, Ltd.
James Richardson
But to confer competitive advantage, the
design of the firm will require more than a
sensible allocation of activities consistent
with the value proposition. Careful consider-
ation must be given to the ability of the
firm to sustain a competitive advantage. For
example, buying cheap inputs from a low-
cost supplier cannot sustain an advantage if
that option is available to competitors. The
VRIO framework (Barney, 2002) is helpful in
understanding the bases for sustained com-
petitive advantage. Applying the VRIO test to
the various resources and capabilities in
the value network, the firm can identify its
sources of sustainable competitive advantage.
The design of the firm (the allocation of
activities) should give it some measure of
control, if not ownership of these resources
and capabilities.
Value capture
Because a firm devises a strong value proposi-
tion and successfully creates and delivers that
value does not mean it will earn superior
returns, or even be viable. It must also have a
model that produces revenue and provides for
a profit margin over its costs. This component
of the business model includes what is often
called the revenue model as well as the eco-
nomic model. The revenue model describes
the sources of revenue or different ways that
the firm receives money in exchange for its
services. The economic model covers the
costs, margins, and various financial aspects of
the firm.
Many discussions of business models, par-
ticularly the earlier ones circa the mid-1990s,
focused on the revenue model. Lists of types
of revenue models were produced (Rappa,
2001), including subscription models versus
sales models, advertising models, and so on.
The idea is to consider alternative means of
exchange that customers will find attractive.
The economic model of the firm is a concept
generally used in the entrepreneurship litera-
ture. It refers to the revenues, costs, and
expenses that go into the profit equation. It
also includes the timing of exchanges. The
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An integrative framework for strategy execution
The economic model of
the firm is a concept
generally used in the
entrepreneurship
literature. It refers to the
revenues, costs, and
expenses that go into the
profit equation. It also
includes the timing of
exchanges
economic model of the firm is reflected in
the operating cash flow statement. Note that
the ability of the firm to gain a competitive
advantage and generate superior profit margins
is reflected in its economic model.
These two elements, the revenue model and
the economic model, combine to explain how
the firm will make money. They describe the
various revenue streams, the cash flow, and
the margins. A creative and thoughtful
approach to value capture is an essential com-
ponent of building a successful business
model. The firms value creation and delivery
system must be designed with both the value
proposition and value capture in mind.
How the business model articulates
the strategy
A well-designed business model defines and
organizes the activities of the firm to execute
the strategy. The activities are chosen and
organized to create and deliver the value prop-
osition, i.e., to implement the firms theory of
how to compete. The allocation of activities
and the boundaries of the firm are chosen to
deliver the value proposition as well as to
provide the intended competitive advantage
to the firm and assure that it captures the
intended share of the value.
The allocation of activities between the firm
and others in the network should be done to
effectively deliver the value proposition. But
Copyright 2008 John Wiley & Sons, Ltd.
141
satisfied customers are not sufficient for suc-
cessful strategy. The firm will need to consider
its activities and its position in the value
network with value capture in mind. Various
revenue sources and the economics of alterna-
tive models can be compared to find better
ways to both deliver value to customers and
capture it for the firm. Value for the customers
versus value for the firm is not a zero-sum
game. A better business model could increase
value for both the customers and the firm. But
there will be tradeoffs to be made to ensure
value capture for the firm.
The allocation of activities
between the firm and
others in the network
should be done to
effectively deliver the
value proposition. But
satisfied customers are not
sufficient for successful
strategy
The value network should be able to produce
the low costs or differentiation intended in the
firms strategy. But competitive advantage to
the firm must be based on activities using
resources that are VRIO. The design of the
firm (the allocation of activities) should give it
some measure of control, if not ownership of
these resources and capabilities. For example,
outsourcing an activity central to a firms com-
petitive advantage may be appropriate if the
key resources can be controlled. If they cannot,
then keeping the activity in-house may be the
best course, even if the costs are greater.
Again, there will be tradeoffs to be made to
ensure competitive advantage for the firm.
A well-designed business model creates an
overall picture of the firm and its operations
with a consistent logical structure for execut-
ing the strategy. It helps the strategist to orga-
nize the firm and think about the details of its
activities with both the value proposition and
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value capture in mind. It helps the strategist
to choose among alternative designs with
competitive advantage in mind.
Application of the business
model framework
A description of Walmarts business model
using the framework will illustrate how the
framework provides an overall picture of the
firm that shows how the basic strategy is
executed.
Walmart
Walmarts value proposition is to provide a
wide variety of brand name or recognized
quality merchandise at a lower price than
competitors. Additional features of their value
proposition are consistently having items in
stock and providing a satisfactory level of cus-
tomer service. Though they targeted small
towns and rural customers in their early years,
they are now very broadly positioned in sub-
urban and urban markets as well. Their basic
strategy is to maintain the lowest costs in the
discount retailing industry in order to offer
the lowest prices and be comparatively
profitable.
Walmarts value creation and delivery
system has been widely studied and emu-
lated. For this illustration, we discuss only a
few of the activities in their value chain. As a
retailer, Walmart is positioned at the end of
the value network selling goods produced by
other firms to the final customer. Walmarts
value chain is straightforward they pur-
chase and bring in goods from suppliers and
offer them for sale at their stores. Though
most of the goods are purchased from suppli-
ers with brand names, Walmart does have
some store brands, primarily in soft goods that
are produced for Walmart by contract manu-
facturers. Efficiency and low cost of course
drive the design and management of their
store network and distribution system, but
maintaining stock is of paramount importance.
Walmart has developed their inbound logistics
to the point where it gives them a competitive
Copyright 2008 John Wiley & Sons, Ltd.
James Richardson
advantage, i.e., it is VRIO. In their early years,
before they had the purchasing volume to
sway major manufacturers, Walmart was com-
pelled to warehouse and deliver to their stores
in order to achieve the simultaneous low
inventory levels and high stock maintenance
they sought. The internal warehousing and
delivery system they devised turned out to be
better than manufacturers could have pro-
vided, and Walmart continues to use it even
though they have tremendous purchasing
power today. Though it evolved out of neces-
sity, the design of the inbound logistics
activities and the choice about which
activities Walmart would do versus suppliers
have served to deliver their value proposi-
tion as well as confer competitive advantage
on the firm. In other areas, human resource
management activities have kept costs low
but also motivated employees to maintain sat-
isfactory service levels. Marketing activities
are also minimized and designed to keep
costs low e.g., simple message, everyday
low prices.
A thorough treatment of Walmarts value
creation and delivery system would include
discussion of their entire value chain, perhaps
an activity system map, and possibly some key
process descriptions, like stock replenish-
ment. Resources and capabilities that are VRIO
would be identified for each activity or
process.
Value capture seems to offer little room for
design in discount retailing. But Walmart has
done better than competitors here as well.
The revenue model is straightforward they
receive payment for goods purchased by cus-
tomers at their stores. The economic model is
also straightforward keeping costs low is
key to realizing margins at discount prices,
and Walmart works hard to keep costs of oper-
ations low. They also focus on another key
cost driver volume. Volume reduces the
impact of fixed costs and gives them purchas-
ing power with suppliers. In addition to low
prices, Walmart uses market saturation, good
locations, adequate sizing of stores, and excel-
lent merchandising and stock maintenance to
increase volume. Since its early days, Walmart
Strategic Change
DOI: 10.1002/jsc
An integrative framework for strategy execution
has led the discount retailing industry in
volume of sales per square foot.
But Walmart has done
better than competitors
here as well. The revenue
model is straightforward
they receive payment
for goods purchased by
customers at their stores.
The economic model is
also straightforward
keeping costs low is key
to realizing margins at
discount prices, and
Walmart works hard to
keep costs of operations
low. They also focus on
another key cost
driver volume
By looking at Walmarts business model,
we can see how their various activities and
their position in the value network work to
implement their strategy. We can see how
their value creation and delivery system both
delivers the value proposition and confers
competitive advantage on the firm. And we
can see how they work to capture value for
the firm. The business model helps to clarify
how the myriad details of how Walmart does
business serve to execute the strategy and lead
to superior performance.
Discussion
The business model framework provides a
simple and logical structure for the strategist
to think about how the many activities of the
firm work to execute the strategy. The busi-
ness model provides an intermediate logical
structure between the firms theory of how to
Copyright 2008 John Wiley & Sons, Ltd.
143
compete and its activities. A well-thought-out
business model does more than link the
strategy, or theory of how to compete, with
activities. It serves to complete the description
of the strategy. If the strategy is the many
activities of the firm (Porter, 1996), then the
business model framework helps to create a
consistent logical picture of how all of the
firms activities form a strategy.
The business model framework also pro-
vides a simple logical structure for the student
of strategy to see how strategy formulation
and implementation are linked. Presently, stra-
tegic management textbooks typically flow
from a conceptually well-developed presenta-
tion of strategy formulation to a more
fragmented and idiosyncratic discussion of
implementation. The business model frame-
work could help to organize the discussion of
implementation and link it back to strategy
formulation. In principle, designing the imple-
mentation of a strategy is not a separate process
from formulating the strategy. Rather, it is the
process of completing the description of
the strategy by thinking through how all of the
firms activities should be organized and con-
ducted. The business model framework helps
the student to see this, and to do the necessary
thinking. Also, the business model framework
makes decisions about which activities should
be within the firm (vertical integration, out-
sourcing, partnering, etc.); part of business
strategy, as they should be (Barney, 2002).
This is in contrast to many textbooks that treat
such decisions separately from business
strategy and as part of corporate strategy.
The business model framework might be
useful in strategy research. For example, it
could facilitate study of how alternative busi-
ness models affect performance. Two firms
with similar strategies and business models
could be more systematically compared. For
example, what are the key differences between
Walmarts and Kmarts similar strategies and
business models and do they help account
for the very different performance of these
firms?
The business model framework presented
here does not represent a theory about which
Strategic Change
DOI: 10.1002/jsc
144
model will lead to competitive advantage and
superior performance. It can incorporate
theories like VRIO to help design the firm.
This is an area for future work to incorpo-
rate additional theories about the organization
and conduct of activities that will help guide
the strategist in designing better business
models.
Biographical note
Jim Richardson is Associate Professor of Man-
agement at the Shidler College of Business of
the University of Hawaii at Manoa, where he
teaches entrepreneurship and strategy. His
current research interests include entrepre-
neurship and economic development in Asia,
venture capital in Asia, and business models.
He is an entrepreneur with a new interna-
tional venture in the surfing industry.
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