Lecture Four: Outline

1. Lecture Four: Outline • Introduction • Value Creation • Value Migration • Customer Value • Customer Value: Influences and Delivered Value • Consumer Costs • Delivering Desired Outcomes Efficiently: The Creative Key to Competitive Advantage • Generic Value Chain Processes • Competitive Advantage Based on Technology, Relationship and Knowledge Management

2. Introduction • Porter (1996,) cited in Walters (2002) suggests that while ‘delivering greater value allows a company to charge higher average unit prices; greater efficiency results in lower average costs’.

3. Introduction (cont’d) • The areas of concern during this stage are to understand customer perceptions and expectations, ensure that the products produced meet these requirements and ensure that the value proposition is delivered.

4. Introduction (cont’d) • Kotler (2002) colloquially refers to this process as:

5. Introduction (cont’d) • Identify the value.

6. Introduction (cont’d) • Deliver the value.

7. Introduction (cont’d) • Communicate the value.

8. Introduction (cont’d) • Walters (2002) claims that ‘successful value delivery is based upon an understanding of ‘stakeholder interests’ and their management as well as the effective management of ‘operations’ (defined as production, logistics and service).’

9. Value Creation • Walters (2002) suggests that the organisation’s value chain become merged with those of other value chain members. An important feature is the role of information management that provides a coordinating activity

10. Value Creation (cont’d) • The value chain has an expanded role. It becomes an integral component in the strategy process “…the evaluation of the company’s core competence and it’s fit in the overall creation of value”.

11. Value Creation (cont’d) • The questions to be asked are:

12. Value Creation (cont’d) • What is the combination of value drivers required by the target customer group?

13. Value Creation (cont’d) • What are the implications of different decisions?

14. Value Creation (cont’d) • What are the implications for costs: do economies of scale or scope exist?

15. Value Creation (cont’d) • Are there opportunities for trade-offs to occur between the value creation system partners?

16. Value Migration • Walters (2002) suggests value migration occurs as both economic and shareholder value flows away from obsolescent (and obsolete) business models

17. Value Migration (cont’d) • Slywotzky (1996) cited in Walters (2002) argue that new models offer the same benefits to customers but at lower cost by changing the model structure.

18. Customer Value • Shenkman (1992) shows us that the concept of value is central to strategic thinking. It is highly subjective as to what the term means.

19. Customer Value (cont’d) • Shenkman (1992) illustrates the vagaries of the concept of value. Does it mean we get a good price, or a bargain, on a particular item? Is it a term that applies to anything that has a price? Does a price designate a specific value for something? If so, what does this value relate to – the product’s usefulness, its durability, or the brand nameplate it bears? Or is value something that is completely subjective, something that is only determined individually by the one assigning the value to things based on personal requirements, demands or pleasure?

20. Customer Value: Influences and Delivered Value

21. Consumer Costs Source: Walters (2002)

22. Delivering Desired Outcomes Efficiently: The Creative Key to Competitive Advantage • Chatteejee (1998) shows that competitive advantage comes from unique resources that cannot be easily acquired, imitated or substituted by others.

23. Delivering Desired Outcomes Efficiently: The Creative Key to Competitive Advantage (cont’d) • When the manger is planning, he or she needs to ask questions such as:

24. Delivering Desired Outcomes Efficiently: The Creative Key to Competitive Advantage (cont’d) • “What is the basis for the value that comes from the resource?

25. Delivering Desired Outcomes Efficiently: The Creative Key to Competitive Advantage (cont’d) • Is this basis likely to continue in the future?

26. Delivering Desired Outcomes Efficiently: The Creative Key to Competitive Advantage (cont’d) • If the basis remains unchanged in the future, how does one know if the resource is inimitable or unsubstitutable?

27. Generic Value Chain Processes Source: Walters (2002)

28. Competitive Advantage Based on Technology, Relationship and Knowledge Management

29. Discussion Questions • Outline the steps that you would take in designing the most effective interorganisational structure within a value chain to maximise efficiency and effectiveness. Apply these basic principles to an example. • What would you classify as ‘effective value delivery’? How can this be achieved?

30. Discussion Questions (cont’d) • How can competitive advantage be generated through interorganisational structures within a value chain?