"Business model" was one of the great buzzwords of the Internet boom. A company didn't need a strategy, a special competence, or even any customers--all it needed was a web-based business model that promised wild profits in some distant, ill-defined future. Many people--investors, entrepreneurs, and executives alike--fell for the fantasy and got burned. And as the inevitable counterreaction played out, the concept of the business model fell out of fashion nearly as quickly as the .com appendage itself. That's a shame. As Joan Magretta explains, a good business model remains essential to every successful organization, whether it's a new venture or an established player. To help managers apply the concept successfully, she defines what a business model is and how it complements a smart competitive strategy. Business models are, at heart, stories that explain how enterprises work. Like a good story, a robust business model contains precisely delineated characters, plausible motivations, and a plot that turns on an insight about value. It answers certain questions: Who is the customer? How do we make money? What underlying economic logic explains how we can deliver value to customers at an appropriate cost? Every viable organization is built on a sound business model, but a business model isn't a strategy, even though many people use the terms interchangeably. Business models describe, as a system, how the pieces of a business fit together. But they don't factor in one critical dimension of performance: competition. That's the job of strategy. Illustrated with examples from companies like American Express, EuroDisney, Wal-Mart, and Dell Computer, this article clarifies the concepts of business models and strategy, which are fundamental to every company's performance.

In this interview, Li & Fung Chairman Victor Fung explains both the philosophy behind supply-chain management and the specific practices that Li & Fung has developed to reduce costs and lead times, allowing its customers to buy "closer to the market." Li & Fung, Hong Kong's largest export trading company, has been an innovator in supply-chain management--a topic of increasing importance to many senior executives. Li & Fung has also been a pioneer in "dispersed manufacturing." It performs the higher-value-added tasks such as design and quality control in Hong Kong, and outsources the lower-value-added tasks to the best possible locations around the world. The result is something new: a truly global product. To produce a garment, for example, the company might purchase yarn from Korea that will be woven and dyed in Taiwan, then shipped to Thailand for final assembly, where it will be matched with zippers from a Japanese company. For every order, the goal is to customize the value chain to meet the customer's specific needs. To be run effectively, Victor Fung maintains, trading companies have to be small and entrepreneurial. He describes the organizational approaches that keep the company that way despite its growing size and geographic scope: its organization around small, customer-focused units; its incentives and compensation structure; and its use of venture capital as a vehicle for business development. As Asia's economic crisis continues, chairman Fung sees a new model of companies emerging--companies that are, like Li & Fung, narrowly focused and professionally managed.

This interview offers a deeper look inside Dell's highly publicized success and offers managers a model of how traditional relationships in a value chain can be reconceived in the Information Age. The individual pieces of Dell Computer's strategy--customer focus, supplier partnerships, mass customization, just-in-time manufacturing--may all be familiar. But Michael Dell's business insight about how to combine them is highly innovative: Technology is enabling coordination across company boundaries to achieve new levels of efficiency and productivity, as well as extraordinary returns to investors. In this HBR interview, Michael Dell describes to HBR editor-at-large, Joan Magretta, how his company is achieving "virtual integration" with its customers and suppliers. Direct relationships with customers create valuable information, which in turn allows the company to coordinate its entire value chain back through manufacturing to product design. Dell describes how his company has come to achieve this tight coordination without the "drag effect" of ownership.

The CEO of one of Europe's pre-eminent family-owned companies discusses how he lead the Ahlstrom Corp. as well as his own family through a major transformation. In order to reposition the company for global competition, Krister Ahlstrom discovered that he had to lead the owning family (of 200 people) to a new understanding of its relationship to the company. In this interview with HBR editor-at-large Joan Magretta, Krister Ahlstrom describes the changes that now allow the family to interact effectively with the company as enlightened--not passive--owners. And the family developed several governance and communication mechanisms to support that role: a Family Council, a Family Assembly, formal training for the family's next generation, and a written document of values and policies that functions like a constitution.

Susan Carter, a partner at a prestigious strategy consulting firm, is caught in a dilemma she never expected: her firm's most important client has made an unwanted sexual advance toward her. As a friend of Susan's observes afterward, "The easy part was saying no. The hard part will be picking up the pieces." Susan is a savvy, successful professional who has spent the 12 years since business school climbing the corporate ladder. But this event throws her off balance, forcing her to confront some of the most subtle issues of power and inclusion at the highest levels of her organization. Her story takes us beyond the legal issue of sexual harassment to explore how gender can influence who is--and isn't--welcome at the top. In 97208 and 97208Z, commentators Gillian Derbyshire, Anthony P. D'Andrea, J. William Codinha, and Freada Klein offer advice on this fictional case study.

Susan Carter, a partner at a prestigious strategy consulting firm, is caught in a dilemma she never expected: her firm's most important client has made an unwanted sexual advance toward her. As a friend of Susan's observes afterward, "The easy part was saying no. The hard part will be picking up the pieces." Susan is a savvy, successful professional who has spent the 12 years since business school climbing the corporate ladder. But this event throws her off balance, forcing her to confront some of the most subtle issues of power and inclusion at the highest levels of her organization. Her story takes us beyond the legal issue of sexual harassment to explore how gender can influence who is--and isn't--welcome at the top. In 97208 and 97208Z, commentators Gillian Derbyshire, Anthony P. D'Andrea, J. William Codinha, and Freada Klein offer advice on this fictional case study.

Susan Carter, a partner at a prestigious strategy consulting firm, is caught in a dilemma she never expected: her firm's most important client has made an unwanted sexual advance toward her. As a friend of Susan's observes afterward, "The easy part was saying no. The hard part will be picking up the pieces." Susan is a savvy, successful professional who has spent the 12 years since business school climbing the corporate ladder. But this event throws her off balance, forcing her to confront some of the most subtle issues of power and inclusion at the highest levels of her organization. Her story takes us beyond the legal issue of sexual harassment to explore how gender can influence who is--and isn't--welcome at the top. In 97208 and 97208Z, commentators Gillian Derbyshire, Anthony P. D'Andrea, J. WilliaM Codinha, and Freada Klein offer advice on this fictional case study.

How do we face the prospect that creating a profitable, growing company might require intolerable abuse of the natural world? Monsanto--with its history in the chemicals industry--is an unlikely candidate to be creating cutting-edge environmental solutions, but that is precisely what it is doing. The need for sustainability is transforming the company's thinking about growth. Changes in global environmental conditions will soon create an unprecedented economic discontinuity. To invent new businesses around the concept of environmental sustainability, Robert Shapiro begins with a simple law of physics: A closed system like the earth's cannot support an unlimited increase of material things. It can, however, withstand exponential growth in information. So Monsanto is exploring ways to substitute information for "stuff" and services for products. For example, the company is genetically coding plants to repel or destroy harmful insects. Putting the right information in the plant makes pesticides unnecessary. Information replaces stuff; productivity increases and waste is reduced.

Can an organization with a four-decade track record of growth avoid becoming the victim of its own success? Since the Nature Conservancy was founded in 1951, it has worked to save threatened habitats and species by buying and setting aside land. Year by year, the number of acres under its protection has increased, membership has risen, and donations have grown. The leader of any nonprofit company might justifiably envy the Conservancy's performance, but its president and CEO, John Sawhill, isn't satisfied. Since taking the job in 1990, Sawhill has led a major shift in strategy with far-reaching implications for the day-to-day activities of the organization's 2,000 employees. He believes that the Conservancy must change now to achieve its mission over the long term. In this interview, he discusses the challenges inherent in refocusing a large, successful, mission-driven organization.