Entrepreneurial Strategy - Value Chain Strategy
Summary
TLDRThe transcript discusses the value chain strategy, an execution strategy focusing on enhancing competitive capabilities such as quality or cost. Unlike disruption strategies, it emphasizes collaboration within existing value chains rather than creating new ones. It targets existing customers and integrates old and new technologies. Companies like Drizly and PayPal exemplify this strategy, becoming vital links in their respective value chains by leveraging unique capabilities and forming trusted partnerships, which are key to capturing value and achieving success.
Takeaways
- đ The value chain strategy is an execution strategy that focuses on capabilities for competition, specifically quality or cost.
- đ It is similar to normal strategy but differs by not focusing on barriers to entry or control of strategic resources.
- đ€ Value chain strategy emphasizes collaboration and insertion into existing value chains rather than creating new ones.
- đŻ The strategy is defined by the choice of competition, usually focusing on existing end customers and integrating improvements with current technologies.
- đą The modus operandi of a value chain strategy is to be good at competing in the moment, leveraging core competencies internally and finding the right partners externally.
- đ Value creation hypothesis in this strategy revolves around serving as a unique, vital link in the value chain and capturing value based on importance and irreplaceability.
- đ Drizly is an example of a company that uses a value chain strategy by delivering alcohol directly to homes, leveraging existing distribution networks.
- đŒ Foxconn exemplifies a successful value chain strategy, demonstrating that it can be profitable even though it may seem pedestrian.
- đĄ PayPal's strategy was to simplify and secure online payments, making it an easy and safe option for providers and eventually being acquired by eBay.
- đŒ Sun Microsystems overcame the challenge of being a new entrant in the market by partnering with a major incumbent, demonstrating the importance of trust and reputation in value chain strategies.
Q & A
What is a value chain strategy?
-A value chain strategy is an execution strategy that focuses on capabilities for competition, such as quality or cost, to compete better in the moment. It emphasizes investment in execution and orientation towards collaboration within existing value chains.
How does a value chain strategy differ from a disruption strategy?
-A value chain strategy focuses on improving a specific segment of an existing value chain rather than creating a new one or disrupting the industry. It does not aim to control the entire value chain but to be a vital and irreplaceable link within it.
What are the key elements of a value chain strategy?
-The key elements include a choice of competition, customer set, technology integration, internal focus on core competencies, external focus on partnerships, and the ability to capture value by being a unique and vital link in the value chain.
Why is the value chain strategy effective for startups?
-Value chain strategies can be less resource-intensive for startups as they leverage existing industry partners and infrastructure. This approach allows startups to focus on specific value-adding activities within the chain without the need to build everything from scratch.
Can you provide an example of a company that uses a value chain strategy?
-Drizzly is an example of a company that uses a value chain strategy by delivering alcohol directly to customers' homes using existing distribution networks, thus inserting itself into the existing value chain without building its own.
What is the importance of leverage in a value chain strategy?
-Leveraging unique capabilities and resources is crucial in a value chain strategy as it allows a company to become an irreplaceable supplier, thereby capturing more value within the chain.
How did PayPal implement a value chain strategy?
-PayPal pursued a value chain strategy by making online payments easy and safe for providers, enabling e-commerce and inserting itself as a vital link in the value chain for transactions.
What was Sun Microsystems' approach to establishing a value chain strategy?
-Sun Microsystems offered to send half of its team to help a potential customer, Computer Vision, learn how to produce their workstations, which helped Sun establish a reputation and grow its customer base.
Why is finding the right partners crucial in a value chain strategy?
-The right partners provide access to necessary resources and capabilities, help build a company's reputation, and are essential for capturing value within the value chain.
What challenges might a company face when pursuing a value chain strategy?
-Challenges include building a strong reputation, especially for new companies, finding trustworthy partners, and ensuring that the company's capabilities are unique and valuable enough to be considered irreplaceable within the value chain.
Outlines
đ Value Chain Strategy: Execution and Collaboration
The first paragraph introduces the concept of the value chain strategy as an execution strategy, focusing on enhancing competitive capabilities in quality or cost. Unlike traditional strategies, it emphasizes immediate competition rather than barriers to entry or strategic resource control. Value chain strategy encourages collaboration within existing value chains, aiming to become a vital link rather than disrupting them. The strategy targets existing customers and integrates new technologies with old ones. It is characterized by seeking unique capabilities that make a firm a preferred partner in the value chain, allowing it to capture value. An example given is Drizly, a company that delivers alcohol to homes by leveraging existing distribution networks rather than building its own.
đ ïž Value Chain Strategy in Practice: Examples and Success
Paragraph two delves deeper into the practical application of value chain strategies, highlighting that they can be highly profitable, as exemplified by Foxconn. It discusses how such strategies are particularly attractive to startups due to their lower resource intensity when the right partners are identified. The key to success in a value chain strategy is leverageâhaving unique capabilities that are difficult to substitute, thus becoming an irreplaceable supplier. PayPal is cited as a successful case, where it inserted itself into the internet payment value chain, making transactions easy and secure. Sun Microsystems is another example, where it overcame initial customer acquisition challenges by partnering with a major incumbent, demonstrating the importance of trust and reputation in value chain strategies.
đ Overcoming Challenges in Value Chain Strategy: Sun Microsystems' Approach
The third paragraph narrates how Sun Microsystems tackled the challenge of establishing a foothold in the market with its workstations. By offering to send half of its staff to help a major customer, Computer Vision, learn how to produce their product, Sun Microsystems provided significant value without immediate financial return. This strategic move allowed Sun Microsystems to build its reputation, gain a secure customer, and eventually become a dominant player in the market. The paragraph underscores the importance of finding trustworthy partners and the challenges of building a reputation when pursuing a value chain strategy.
Mindmap
Keywords
đĄValue Chain Strategy
đĄCapabilities
đĄCollaboration
đĄCompetitive Forces
đĄCore Competency
đĄCustomer Set
đĄTechnology Integration
đĄValue Creation Hypothesis
đĄValue Capture
đĄDisruption Strategy
đĄPartnership
Highlights
Value chain strategy focuses on capabilities for competition, either quality or cost.
It is an execution strategy that does not focus on barriers to entry or control of strategic resources.
Value chain strategy is about competing better in the moment rather than creating a new value chain.
The strategy involves inserting oneself into existing value chains for collaboration.
The strategy is defined by the choice of competition, usually focusing on existing end customers.
Technology choice in value chain strategy is about integrating improvements or combining new and old technologies.
The modus operandi of a value chain strategy is to be good at competing in the moment and focusing on core competency.
External focus is on finding the right partner in the value chain to create value together.
Value creation hypothesis is about serving as a unique vital link in the value chain.
Value capture is about the importance of the firm's capabilities, making it a preferred partner.
Drizzly is an example of a company that uses a value chain strategy by delivering alcohol straight to homes.
Foxconn is highlighted as a company that successfully pursued a value chain strategy, demonstrating its profitability.
Value chain strategies are effective for startup firms as they can be less resource-intensive with the right partners.
PayPal is an example of a company that pursued a value chain strategy, making payments easy and safe on the internet.
Sun Microsystems developed workstations and used a value chain strategy to crack the problem of initial customer acquisition.
Value chain strategy involves leveraging unique capabilities to become an irreplaceable supplier in the chain.
The strategy requires finding partners and having a reputation for treating startups well.
Value chain strategies can be easy to start and ramp up if the right partners are found.
Transcripts
snap I look at value today in strategy
value chain strategy was one of the
execution strategies and why is it an
execution strategy because the focus is
on capabilities for competition and
those capabilities are either quality or
cost from that perspective value chain
strategy is very similar to normal
strategy that you get taught about in
your strategic management courses the
only difference is it doesn't focus on
barriers to entry or control of
strategic resources in other words it
focuses on how you can compete better in
the moment so as we've already mentioned
what value chain is is a investment in
execution but it is also a orientation
towards collaboration that is you're not
seeking to do a new value chain you're
seeking to insert yourself in existing
value chains so from that perspective it
is a little bit different from what
we'll come to call disruption strategy
to be dealt with in another the value
strapping strategy has as with all of
these things it's defined by the choice
of competition it has a customer set of
customer choices that are usually
focused on existing end customers you're
not trying to serve the underserved or
building a new customer class and
because you are cooperating with
incumbent firms in an existing value
chain your choice of technology is on
integrating improvements or new and old
technologies together in other words
you're not throwing out the old
technologies the modus operandi of a
change strategy with regard to identity
is of course being good at competing in
the moment that is focusing on core
competency internally that means getting
scarce talents and capabilities working
for you in terms of your external focus
it is looking for the right partner in
the value chain so that you can create a
lot of value together but at the same
instance you have to think about
competitive forces because you will be
worrying about whether you can create
account to capture any value you've
created in terms of the value creation
hypothesis what you're looking to is to
serve as a unique vital link in the
value chain and in order to capture
value it is all about how important are
you this term a repressor bility is not
meant to say oh there are no other
options to you
instead it's to say that your
capabilities are such that other firms
do not have them and so that makes you a
preferred partner and hence other people
will cede some surplus to you a good
example of a company that has chosen a
value change strategy is drizzly grisly
is available in the US and as you can
see here it's an app and it is in the
mode of the uber book for drinking type
business plan but basically what they
wanted to do obviously wanted to do is
they wanted to deliver alcohol straight
to people's homes now what they did not
do was build out their whole
distribution network for alcohol in
effect all they are doing is taking from
the outlets that exist
since I'm in Canada in Toronto outlets
exist straight to your door
so there what they're doing is they're
coordinating the delivery mechanisms for
that process so it's very similar to the
business model that we saw for instance
with Peapod and the co founders relevant
Robinson said we're not trying to rip
down an industry and build a back up or
we're trying to do is give small
businesses in this case model shops the
tools to be more profitable at the end
of the day so it's just another way of
doing that so that is a quintessential
inserting in the value chain you'll
notice that it is not focused on control
because what they're doing is trying to
do this particular segment of the value
chain better than what other people can
do they're not controlling it they're
not locking people in they haven't got
any real blocking patents or anything
like that
here of course is our usual slide that
that is talking in a bit more detail
about the value train strategy including
some of the companies that have pursued
it one that you would have heard of is
Foxconn and Foxconn is one that should
stand out because value chain strategy
often sounds very pedestrian and
certainly hasn't got the greatest title
and we have discussed that about Foxconn
demonstrated that it can be a very
profitable strategy indeed for companies
pursuing it so you shouldn't equate the
pedestrian nature of what appears to be
a value chain strategy and the
possibilities of a success because
success really is there and can be
produced if that's the right strategy
for the idea you're pursuing value chain
strategies will also turn out to be
quite effective attractive startup firms
because they can be less resource
intensive if you already know the right
partners you want to talk to so the key
value capture hypothesis is this notion
of leverage do you have enough leverage
and so do you have you know human
resources that you can ration along the
value chain do you have these unique
capabilities that allow you to serve
supply chain value chain partners and
it's very easy for them to find the same
quality of substitutes available and can
you move that all the way up to becoming
an irreplaceable supplier in in the
chain of values such as Foxconn of
manage to do one company that did manage
to pursue this value chain strategy
it was PayPal PayPal is an extraordinary
company mainly because it's for some
reason managed to accumulate people in
it who would
driving it who ended up driving
literally in some cases the world
thereafter so many famous entrepreneurs
went on from PayPal to do other things
including Peter tuile Elon Musk Reid
Hoffman people who founded YouTube and I
could go on it's just incredible what
they were able to do that's why it's
called the PayPal mafia but what they
were pursuing was in fact a value chain
strategy with PayPal which was to make
payments easy on the internet for all
manner of providers both easy and safe
actually and what that was able to do
was you know enable things where they
weren't safe such as eBay who eventually
bought PayPal to generate ecommerce and
PayPal is of course still around doing
that to that same function today
inserting itself in the value chain even
though there are competitors now of
course another great value chain
strategy comes from the case of Sun
Microsystems some Microsystems in the
1980s developed what word - what were
called workstations these were very very
powerful pcs that could be networked to
one another to perform very high
intensive tasks and they were extremely
expensive as well but Sun initially
didn't have any customers now this is a
problem when you've got a value change
strategy because someone who's going to
rely on your product to service their
own customers wants to know that you can
deliver that they can trust you and so
you if you're coming in and saying even
if you're saying well I'm cheaper than
these other guys there's going to be a
whole lot of problems associated with
building up your brand and reputation so
very transparent ease can be quite
difficult to that record
how did sun microsystems crack the
problem well what they did is they went
to computer vision which was the largest
downstream incumbent at the time and
they liked the product but they had a
deal of another manufacturer for Apollo
a competitor and we liked your
workstation but the deal with Apollo was
really done I don't see how you could
change our mind and we've decided and
that's the you know that's it
why you're a 40-person company you have
an incomplete product we love the
technology there's no way you can supply
it
Apollo is standards well financed well
managed etc so the valour of Sun
Microsystems a guy called Vinod Khosla
said look I'm gonna make you an offer
you can't refuse
we'll send half our company over to help
you learn how to do it put it into
production and go with it
there were you know this was important
because there are a lot of people in
computer vision who you know wanted to
develop some capabilities inside so that
was going to make those people very
happy and you'll save yourself millions
and have millions of dollars in gross
margin was your produce using this you
don't have to develop your own
technology you get the latest technology
which you like more than your current
one the president of computer vision
then say well in return for what we have
to do this and you know it says in
return for nothing what they did was
they supplied all this essentially you
know for free or at a very low cost but
that gave them the leg they needed in
order to build up the reputation built
computer division as a secure customer
and move on to others as well and
conquer the value chain strategy so they
persuaded computer vision to reconsider
the option they started there were an
OEM for the Sun workstation and the
contract allowed computer vision free
access to the technology and a bit
ability to tweak things
but ultimately they tended to rely on
sun for the day-to-day technical
expertise and so those capabilities
ended up being what son was able to sell
they establish themselves as legitimate
company and and and grew enormous lead
to a very successful state in terms of
choosing your competition this is of
course what defines it you've got to
find these partners and have a
reputation for treating startups well
this is actually the same issue that you
had in IP strategy of course as well you
know that you're gonna find partners you
can trust in fact that's a hypothesis if
you can't find those partners you can
trust this is not gonna end up being a
good stretch for you okay and so we
already talked about Cisco as being then
and some go down the line of having
alliances and some actually sell them
well okay so this is you know an
important way of pursuing important set
of important strategy collection a value
change strategy they have their
challenges but they can often be easy to
start and ramp up if you find the right
partners to it and so there's not much
more to say than just that you can apply
your normal tools of strategy and
competitive advantage in the moment to
understand what is going on here but you
alternately there a key value creation
and value capture hypothesis that can
actually be tested relatively easy so
long as you put a time frame on it
5.0 / 5 (0 votes)