An upcoming article in the June issue of Harvard Business Review titled: “The New Dynamics of Competition” focusses on the so-called Value Capture Model.
This model dates back to 1996 and is (re-)presented in this article as strategy’s missing link…. So, that peaks our interest! The short of it is that all strategic management theories until this Value Capture Model were limited to “informal reasoning” and lack “sophisticated theory.”
Not so with the Value Capture Model. It’s theory-base is compared to the Capital-Asset-Pricing Model and the Black-Scholes-Merton option-pricing model of economics… That is Nobel Price level.
The researchers conclude: “The field of strategy is now on the cusp of a productive interplay between theory and data, just as we have seen in finance, with all the value-creating possibilities that such progress portends.”
I am skeptical – partly because of the somewhat arrogant tone of the article but mostly because “robust” theories like the Capital-Asset-Pricing Model have many assumptions, a lot of limitations and are even (partly) credited for having lead us into the current economic crisis. I am a firm believer in mathematical theories and game theory is really helpful for the strategy field. It is particularly helpful for researchers as they no longer need to do the time-consuming and difficult work of getting data from companies, managers, etc. through interview and (participative) observation. Although something does get lost in this process – real life understanding. It would be much more helpful, though, if we take a more down-to-earth approach and carefully study and use outcomes of models like these.
Talking about outcomes. In the interesting narrated infographic of the theory, Dr. Ryall presents the model using Amazon and Barnes and Noble as illustrations. It explains why one of these companies is very much struggling. Can you guess which one is struggling according to the Value Capture Model? Right, Amazon – because Barnes and Noble customers have no reason to go to Amazon but Amazon customers do have a reason to go to Barnes and Noble. Reality tells us that Borders went into receivership and Barnes and Nobles will be closing 200 shops over the next decade. Amazon is struggling to raise its profits alright, but there still some plenty of ground to cover for the Value Capture Model before a Nobel price is due. This seems like a case of over-promise and under-deliver.