Performance, Strategy

The Biggest Piece of the Value Pie: Value Creation vs. Value Capture

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Our superhero of  business stories often is the lonely innovator who against all odds builds a great product or service and lives monetary ever after. In reality this is often not the case. The value created often migrates to “the others”.

Michael Jacobides is a professor in the field of strategic management and is well-known for his research on industry architectures. Over time you can see within industries value migrating from original innovators to – for example – suppliers. This is true for the PC industry where most value  shifted from manufacturers to upstream suppliers (Microsoft and Intel). This value shifting phenomenon quickly became the business template, but Jacobides and his colleague argue this does not have to be the case. From all their solid research efforts they deducted 4 simple rules – and we like simple rules, don’t we?:-)

  1. Be the least replaceable player by controlling those assets least likely to be commoditised – prevent others from taking the system integrator role and avoid open standards;
  2. Become the guardian of quality because value in an industry almost always migrates to those players – assume responsibility for the final product;
  3. Follow the customer because when customers shift their needs value follows along – anticipate changes in the identity of the end customer;
  4. Manage the growth story because growth makes companies do things which shifts values away from them – pursue growth, but not at the cost of strategic control.

What are you doing to make sure value is not moving away from your company?

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