Value Net

Academics and consultants have for many years recognised the importance of strategic alliances. Strategic alliances, or networks, are the foundations of the Value Net framework. In 1996 the term Value Net was coined in a theory expounded by Adam Brandenburger and Barry Nalebuff in their book entitled Co-Opetition.

This model shows how it is possible to work with other companies in a market to add value for customers. The model is based on the premise that a company can network and cooperate with different “players” to everyone’s advantage. It does not presume collusion with competitors which would be illegal in most markets.

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The Value Net model puts a company in the centre of its universe and four forces surrounding it. These forces are:

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1. Customers: Every company needs people who buy its products and services.

2. Suppliers: These are the companies that provide materials, equipment and software that enable a business to create products and services.

3. Competitors: These are companies that provide similar or alternative products and services.

4. Complementors: This is where the model becomes interesting and different from others. Complementors are organisations that offer something that makes a business stronger. In the case of restaurants competing in an area of town, there may also be bars that people can drop into before their meal. The bars are complimentary and they strengthen the offer of the restaurants to people dining out. A company that makes computers may load its products with software which enhances the value of its computers. The software is a complimentary product and, together with the computer, makes a more attractive offering.

   
   

In developing their model, Brandenburger and Nalebuff were inspired by game theory. They saw that game theory focuses on the most pressing forces which in turn lead to clearer strategies and decisions. In a situation with a number of interdependent forces, game theory breaks these down into key components and helps explain a proposed strategy. Game theory shows how it is possible to change the direction of a business so that there is no absolute winner and loser in the market. With the right strategy, companies can coexist and there can be more than one winner.

The game is played by moving different levers - components in the Value Net tool. These components are referred to as PARTS, an acronym for players, added value, rules, tactics, and scope.

Players: These are all the different companies that operate within a market. For example, a business could find additional suppliers of raw materials and so reduce its costs. It could look for new companies that could add value to its product. In looking for opportunities amongst new players, questions need to be asked such as “What could this company bring to the party?” “Who would win or lose if they joined?”.

Added value: These are the things that add value. Improved products and services add value and, as a result, are likely to generate increased loyalty. Value can also be added by co-operators. Working with complimentary businesses adds value to both organisations as well as customers. Back in 1986 a few large manufacturers of mud flaps lobbied for legislation that eventually resulted in spray suppression regulations requiring all heavy goods vehicles to have brushes and flaps fitted to each axle. Every manufacturer of mud flaps across Europe benefitted from the efforts of the few who pushed for the legislation.

Rules: All games are played with rules and businesses similarly have rules and regulations that become accepted practices. Rules may be introduced by one player and eventually become accepted by all others. They can range from health and safety rules through to credit control, warranties, service backup and the like.

Tactics: These are the messages communicated within a market that influence the actions of others (assuming that they are legal). A market leader raises its prices and it becomes a signal for others to follow suit. A company sets up an alliance with a co-operator and this encourages other companies to form similar alliances.

Scope: Businesses do not act in isolation. They are linked in numerous ways. Legislation in a completely different market may trigger companies in another market to believe they should pursue something similar. A downturn in a certain industrial sector may force companies to look for business in another sector or region.

Consideration of these PARTS as forces in the market will help a planner develop likely scenarios of change. Each of the components of PARTS is a tool that can transform and change the game. Understanding how these levers work within a market is fundamental to the model because it allows a company to play a game its own way – in a way that benefits the business specifically.

Some things to think about:

• Managing your business in a highly competitive environment doesn’t mean that you have to hit competitors head-on. There may be opportunities for collaboration with different players in the market that will add value to your offer. This requires a deep understanding of what your customers want and need. What would enhance your offer to your customers and how could you achieve this through collaboration with other suppliers in the market?

• Sharing knowledge is a good start to collaboration. Attending conferences and industry seminars and writing papers on the subject would position your company as collaborative.