Value Net Model: Coopetition instead of Competition

The Value Net identifies four types of players that every company faces and could directly influence your company: Customers, Suppliers, ... Skiptocontent IndustryAnalysis  March30,2018February9,2020 LarsdeBruin 0Comments Brandenburger,Co-opetition,Competition,Competitors,Complementors,Coopetition,Customers,GameTheory,IndustryAnalysis,Nalebuff,PARTS,Porter,Porter'sFiveForces,StrategicAlliance,Strategy,Suppliers,ValueNetIntheirbook‘Co-Opetition:ARevolutionMindsetthatCombinesCompetitionandCooperation‘,AdamM.BrandenburgerandBarryJ.Nalebuffdiscussanewnotionofcompetition.BycombiningbusinessstrategyandGameTheory,theseauthorsarguethatitisbetterforcompetitorstoworktogetherratherthangoupagainsteachotherincontest.Co-opetition(orcoopetition)combinestheadvantagesofbothcompetitionandcooperationintoanewdynamicmodelcalledthe ValueNetModel,whichislargelyanelaborationofPorter’sFiveForcesModel.Intheireyes,Porter’sFiveForcesfocusedalmostentirelyoncompetitionandfailedtoincludethecollaborativepotentialinanindustry.Whencompaniesworktogether,theycancreateamuchlargerandmorevaluablemarketthantheyevercouldbyworkingindividually.Industryplayersshouldthereforefocusmoreon‘growingthepie’than‘splittingupthepie’.Afterall,it’sbettertoown20percentmarketshareofa$10billionmarketthantoowna75percentshareofa$2billionmarket.Reallong-termbusinesssuccesscomesnotsolelyfromcompetingsuccessfullywithinyourcurrentindustry(playingthegame),butalsofrombeinganactiveparticipantinshapingtheindustry’sfuture(changingthegametoyourownadvantage).ThisarticlewillexplaintheValueNetModelinmoredetailandhowtouseityourself.Figure1:ValueNetModelTheValueNetidentifiesfourtypesofplayersthateverycompanyfacesandcoulddirectlyinfluenceyourcompany:Customers,Suppliers,CompetitorsandComplementors.Eachofthesetypesofplayersofferopportunitiesforcooperationwithyourcompany,eventheCompetitors.Notethatanygivenplayercantakeonmultipleroles(e.g.acompanycanactasbothaSupplierandaCompetitor).CustomersandSuppliersarealreadylargelycoveredinourarticleonPorter’sFiveForces.Thesetwotypeswillthereforeonlybeexplainedbrieflyhere.ThefocusofthisarticlewillbeontheCompetitorsandtheaddedcomponentofthisframework:theComplementors.CoopetitionbyAdamM.Brandenburger&BarryJ.NalebuffCustomersCustomersarethepeopleorpartiesthatbuyyourproductorservice.Inreturn,moneygoesfromthecustomertothefocalcompany.Withoutcustomersacompanyhasnotmuchreasontoexist.Morecustomersmeansmorerevenue,whichinturnleadstoalargermarketshare.Customerscanbeend-consumersorothercompaniesthatwilleventuallytaketheproductstotheconsumermarket.InPorter’sFiveForcesthiscategoryislabeledas‘Buyers’.SuppliersSuppliersarethepartiesthatprovideyourcompanywiththeresourcesneededtoproduceorsellyourfinalproducts.Theyareimportantexternalfactorstotakeintoaccountsincesuppliershavethepotentialtoraisepricesand/orreducethequalityofthepurchasedinputs.Itisthereforekeytokeepgoodtieswithsuppliersorspreadriskbyhavingmultiplesupplierstochoosefrom.CompetitorsCompetitorsarethepartiesthatfightoverthesamepiecesofmarketshareasyourcompanybytargetingsimilarcustomerswithsimilarproductsorservices.However,companiesoftenviewcompetitionwaytoonarrowlytherebyfailingtoforeseeupcomingthreats.Mostpeoplewouldagreethattwoairlinecompanieswiththesamedestinationsareconsideredcompetitors.Railroadcompanieswithinternationalhigh-speedtrains,ontheotherhand,areoftennotincludedinthecompetitoranalysiseventhoughtheyfulfillthesamecustomerneed:traveling.“Aplayerisyourcompetitorifcustomersvalueyourproductlesswhentheyhavetheotherplayer’sproduct thanwhentheyhaveyourproductalone.”“Aplayerisyourcompetitorifit’slessattractiveforasuppliertoprovideresourcestoyouwhenit’salsosupplyingtheotherplayerthanwhenit’ssupplyingyoualone.”Althoughcompetitorsareoftenseenaspartiestofightovermarketsharewith,itisactuallyperfectlypossibletocollaboratewithaswell.Onthesupplierside,competitorscouldcombineforceswhenpurchasingsimilarrawmaterials.Bybulkpurchasingaltogether,youareabletonegotiatediscountsandlowerthecostperunit.Evenonthecustomersideinforexampletheautomotiveindustryweseecooperation:in1999RenaultandNissanstartedastrategicallianceinordertobenefitfromeachothers’complementarycapabilities.Bothcompanieshadstrongpositionsindifferentgeographicalmarketswhichwouldhelpwithinternationalexpansion.Moreover,RenaultcouldbenefitfromNissan’sexcellentmanufacturingcapabilities,whileNissancouldrelyonRenault’sstrongfinancialresources.Bycombiningforcestheywerebetterabletoofferhigh-qualityvehiclestotheircustomersforcompetitiveprices.TheCompetitorcategoryoftheValueNetcombinesthe‘ExistingRivalry,NewEntrantsandSubstituteProducts’fromPorter’sFiveForcesintooneforce.ComplementorsThisisacategoryoftheValueNetthatmanybusinessownersandmanagersfailtoconsider.Ratherthancompetitors,thiscategoryincludesorganizationsthatoffer(complementary)productsorservicesthatcouldworkwelltogetherwithyourownproductstomaketheendresultmoreattractivetoconsumers.Thinkaboutsoftwareandhardwarecompaniesworkingtogethertoenhancetheuserexperienceasmuchaspossible.“Aplayerisyourcomplementorifcustomersvalueyourproductmorewhentheyhavetheotherplayer’sproduct thanwhentheyhaveyourproductalone.”“Aplayerisyourcomplementorifit’smoreattractiveforasuppliertoprovideresourcestoyouwhenit’salsosupplyingtheotherplayerthanwhenit’ssupplyingyoualone.”Anotherexampleofcomplementarycompaniescomesfromtheairlineandtourismindustry. Whenconsumersheadtoatouristdestination,theyoftengetthereonanairplane.Similarly,wheneverconsumerstravelonanairplane,theyarelikelyvistingadestinationwhichisapartofthetourismindustry,suchasahotel,campingorarentalcaragency.Thesetwoindustriesareprovedcomplementaryanditthereforemakessenseforcompaniesintheseindustriestopartnerupandofferamorecompletevaluepropositiontotheircustomers.TUIisforexampledoingthisinEurope.Companieswouldbewisetoalsokeepthesekindofplayersintoaccountwhenanalysingtheindustry.SincetheValueNet’sComplementorscomponentisnotincludedinPorter’sFiveForcesbutyethighlyrelevant,itisoftenindicatedas‘TheSixthForce‘.PARTSApproachSinceCoopetitionflowsfromGameTheory,BrandenburgerandNalebuffsuggesttoviewyourcompany’sstrategyformulationprocessasagame.DrawingtheValueNetisjustthefirststeptowardschangingthegame.Thenextstepistoidentifyalltheelementsofthegamewhichconsistsoffivecomponents,usingtheacronymPARTS:Players,Addedvalue,Rules,TacticsandScope.PARTSwilldescribethebasicquestionsyouwillneedtoaskyourself:Players:AskyourselfwhotheplayersareinthegameanddividethemintoCustomers,Suppliers,CompetitorsandComplementors.Whataretheopportunitiesforcooperationandcompetitionwitheachofthevariousplayers?Arethereanypartiesyoucouldpotentiallyformastrategicalliancewith?Whoelsecouldorshouldjointheindustry?Andwhostandstogainorloseiftheydojoin?Addedvalue: Addedvaluemeasureswhateachplayer,ineachrole,bringstothetable.Inaddition,thinkaboutyourowncompany’ssourcesofvalue(competitiveadvantageorUSP).TheVRIOFrameworkoraValueChainAnalysiscouldhelpwiththis.ArethereanywaysinwhichyoucouldcombineforcesinordertoaddvalueforSuppliersortoCustomers?Rules:Eachindustryandmarkethasrulesandregulations.Somearewrittenandenforcedbylaw,someunwrittenbutgenerallyacceptedpractices.Whichrulesarehelpingyourcompany?Whicharehurtingyourcompany?Whohasthepowertocreate,enforceandoverturnrules?Perhapstherearecertainrulesofthegamethatcanbechangedinyourfavorbycollaboratingwiththerightparties.Tactics: Whatactionscanoneplayertaketoshapethestrategies,actionsandperceptionsofotherplayersinthemarket?Howcanyoudeliberatelysendsignalsandmessagesthatinfluencetheperceptionofotherplayers,whichinturnmayinfluencetheiractions?Spendingmoreonadvertsingforexamplemightsignalthatyouhavemoreconfidenceinyourproductorserviceandthatyourbusinessisgoingwell.Thereisanelementhereoffiguringouttowhatextentitisinyourcompany’sbestinteresttohavethemarketrulesbeverytransparentorratheropaque.Scope:Industriesareoftennotisolated,butlinkedtootherindustriesinstead.Plentyofrecentexampleshaveshownthatthesoftware,hardware,media,e-commerce,advertisingandtelecommunicationsindustriesareeithercloselyinterlinked,orthatplayersinsomeindustrieshavetakendeliberatestrategicmovestopro-activelylinkthem.Theykeyistoaskwhatindustriescouldpotentiallybelinked,howyourcompanycouldcreateaddedvaluefromlinkingyourproductsandservicestothatindustry,andhowthatmayaffecttheperceptionsandactionsofotherplayers.TheValueNetInSumCoopetitionoffersacompletelynewwayoflookingattheindustry.Insteadoffiercecompetitionbetweenotherplayersintheindustry(e.g.suppliersandcompetitors),itisperfectlypossibletocollaborateandcomeupwithsolutionsthatwouldbenefitallplayersinthegame.Itallowsashiftfromazero-sumgametoawin-winsituation.TheValueNetandthePARTSapproachmayhelptoidentifypossibleindustryplayerstocooperatewith.Moreover,theValueNetisaniceextensiontoPorter’sFiveForcessinceitincludestheComplementorscomponent.Especiallysinceitisgettingmoreandmoreimportanttoremainflexibleandinnovativeasacompany,strategicpartnershipswithothercompanies(includingcompetitors)soundlikeagreatwaytosustaincompetitiveadvantage.FurtherReading:Brandenburger,A.M.&Nalebuff,B.J.(1996). Co-Opetition:ARevolutionMindsetthatCombinesCompetitionandCooperation. CrownPublishingGroup. 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