Last updated on July 5, 2017
I started thinking this question today when reading my students’ exam answers. The questions was “Define business logic and give an example of it”, and many answers actually defined strategy. At that point, I realized it’s not so easy to see a difference between these two concepts.
So, what would I see as the main difference between strategy and business logic?
What is business strategy?
First, strategy in my opinion involves competition – it’s firm-related decision-making in which we try to gain a competitive advantage, i.e. apply a strategy that helps us win; or, more particularly, to achieve a goal, such as grabbing market share, become profitable, grow, etc. Hence, strategy is closely associated with reaching a pre-defined goal – in company terms, we usually set a vision of where we want to take the company in a certain time-frame (say five years from now), and then create an overall strategy that should take us towards that ideal state. When the firm’s vision is based on some shared principles or values, this is called mission.
As a concept, strategy is much older than business logic and has its roots in military thinking (hence the competitive dimension). For example, Ceaser, Napoleon and Clausewitz are seen as classics of strategy.
What is business logic?
Business logic, then again, would be a description of “why” — why are customers paying us money? It’s much more focused on value / benefit / utility than strategy. I would say business logic is an explanation as to why an organization can remain viable – e.g., it can transform some form of resources (raw material) into output (products). Or, it can be based on exploiting people’s vice (such as the Finnish liquor monopoly Alko) or market inefficiencies, or it can create markets for other players (e.g. Google AdWords).
It seems the two concept involve some overlap – the description of business logic approach strategy when we think how the firm combines resources to produce something customers perceive attractive enough to buy. I’d also say both are applicable to many organizations, not just firms – consider a university, for example. The strategy of a university revolves around ways of attracting the best students and teachers (it’s like a two-sided market), but its business logic is to transform education resources into courses and monetize that either through tuition fees (e.g. US) or state money (e.g. Finland).
As I said to my students, it’s an eye-opening experience when you start seeing either of these concepts “bare” — at that point you truly understand the core of particular choices firms make, and why things are the way they are.
In sum, I’d say strategy is a barebone description of how to compete in a market, whereas business logic is a barebone description of how to make money. If both were games, strategy would be Risk and business logic Monopoly.
What do you think? Please share your thoughts on the topic!
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