Entrepreneurial Strategy - Value Chain Strategy

Summary

The 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

• 🔍 The value chain strategy is an execution strategy that focuses on capabilities for competition, specifically quality or cost.
• 🔗 It is similar to normal strategy but differs by not focusing on barriers to entry or control of strategic resources.
• 🤝 Value chain strategy emphasizes collaboration and insertion into existing value chains rather than creating new ones.
• 🎯 The strategy is defined by the choice of competition, usually focusing on existing end customers and integrating improvements with current technologies.
• 🏢 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.
• 📈 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.
• 🛒 Drizly is an example of a company that uses a value chain strategy by delivering alcohol directly to homes, leveraging existing distribution networks.
• 💼 Foxconn exemplifies a successful value chain strategy, demonstrating that it can be profitable even though it may seem pedestrian.
• 💡 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.
• 💼 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

00:00

🔗 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.

05:01

🛠️ 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 leverage—having 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.

10:01

🚀 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.

Keywords

💡Value Chain Strategy

Value Chain Strategy refers to a business approach that focuses on enhancing a company's competitive capabilities through the optimization of its internal activities and external collaborations within an existing value chain. In the video, it is described as an execution strategy that emphasizes immediate competitiveness rather than creating new value chains or controlling strategic resources. An example given is Drizly, an app that delivers alcohol by leveraging existing distribution networks, thus improving a specific segment of the value chain without controlling the entire process.

💡Capabilities

Capabilities in the context of the video pertain to the specific skills, resources, or assets that a company possesses, which enable it to compete effectively in the market. These can be related to quality or cost leadership. The video emphasizes that a value chain strategy is heavily dependent on a company's unique capabilities that make it a preferred partner within an existing value chain.

💡Collaboration

Collaboration is a key aspect of the value chain strategy, where a company seeks to integrate itself into existing value chains by partnering with other firms. The video discusses how this orientation towards collaboration is distinct from disruption strategies, where a company might aim to create an entirely new value chain. Collaboration is illustrated through the example of Drizly, which partners with existing alcohol outlets for home delivery.

💡Competitive Forces

Competitive forces are the various external factors in an industry that impact a company's ability to compete, such as rivalry among existing competitors, threat of new entrants, and bargaining power of suppliers and buyers. The video mentions that even when focusing on collaboration, a company must consider competitive forces to ensure it can capture value from its position in the value chain.

💡Core Competency

Core competency refers to the critical skills and knowledge that a company has, which are central to its business and provide a competitive advantage. The video suggests that a value chain strategy involves focusing on core competencies to excel in the current market, which may involve securing scarce talents and capabilities.

💡Customer Set

The term 'customer set' in the video denotes the group of customers a company targets with its value chain strategy. It is mentioned that this set is usually focused on existing end customers, rather than trying to serve the underserved or building a new customer class. This approach is about enhancing service or product offerings for current customers within an established market.

💡Technology Integration

Technology integration within the value chain strategy involves the combination of new and existing technologies to improve a company's offerings. The video contrasts this with the approach of some strategies that might discard older technologies. It suggests that integrating technologies is a way to innovate while leveraging the strengths of established systems.

💡Value Creation Hypothesis

The value creation hypothesis in the context of the video is the idea that a company must serve as a unique and vital link in the value chain to create value. It is about understanding how a company can contribute in a way that is significant and difficult to replicate by others, thus enhancing its position within the chain.

💡Value Capture

Value capture refers to the ability of a company to secure a portion of the value it helps create within the value chain. The video explains that this is not about having no options but about possessing capabilities that are so unique and valuable that other firms in the chain prefer to work with them, leading to a sharing of surplus.

💡Disruption Strategy

A disruption strategy, as mentioned in the video, is different from a value chain strategy. It involves creating new markets or value chains rather than improving existing ones. The video contrasts this with the value chain strategy, which is more about enhancing one's position within the current structure of an industry.

💡Partnership

Partnership is crucial in a value chain strategy as it involves finding the right partners within the value chain to collaborate with. The video discusses how this is essential for creating value together and for establishing a company as a trusted and irreplaceable link in the chain, as exemplified by the story of Sun Microsystems partnering with Computer Vision.

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