From Value Chain to Value Constellation: Designing Interactive Strategy (1993) By: Richard Normann and RadaelRamírez Summarized by: Group 4A
26/01/2011 Abstract of article from HBR hompage; “Strategy is the art of creating value. It provides the intellectual frameworks, conceptual models, and governing ideas that allow a company’s managers to identify opportunities for bringing value to customers and for delivering that value at a profit. In this respect, strategy is the way a company defines its business and links together the only two resources that really matter in today’s economy: knowledge and relationships or an organization’s competencies and customers. But in a fast-changing competitive environment, the fundamental logic of value creation is also changing and in a way that makes clear strategic thinking simultaneously more important and more difficult. Our traditional thinking about value is grounded in the assumptions and the models of an industrial economy. According to this view, every company occupies a position on a value chain. Upstream, suppliers provide inputs. The company then adds value to these inputs, before passing them downstream to the next actor in the chain, the customer (whether another business or the final consumer). Seen from this perspective, strategy is primarily the art of positioning a company in the right place on the value chain—the right business, the right products and market segments, the right value-adding activities….
26/01/2011 ….Today, however, this understanding of value is as outmoded as the old assembly line that it resembles and so is the view of strategy that goes with it. Global competition, changing markets, and new technologies are opening up qualitatively new ways of creating value. The options available to companies, customers, and suppliers are proliferating in ways Henry Ford never dreamed of. Of course, more opportunities also mean more uncertainty and greater risk. Forecasts based on projections from the past become unreliable. Factors that have always seemed peripheral turn out to be key drivers of change in a company’s key markets. Invaders from previously unrelated sectors change the rules of the game overnight. In so volatile a competitive environment, strategy is no longer a matter of positioning a fixed set of activities along a value chain. Increasingly, successful companies do not just add value, they reinvent it. Their focus of strategic analysis is not the company or even the industry but the value-creating system itself, within which different economic actors—suppliers, business partners, allies, customers—work together to co-produce value. Their key strategic task is the reconfiguration of roles and relationships among this constellation of actors in order to mobilize the creation of value in new forms and by new players. And their underlying strategic goal is to create an ever-improving fit between competencies and customers. To put it another way, successful companies conceive of strategy as systematic social innovation: the continuous design and redesign of complex business systems. “ http://hbr.org/1993/07/designing-interactive-strategy/ar/1
Background Traditional thinking value is grounded in the assumptions and models of industrial economy. Normann&Ramirez every company occupies a distinct role in the value chain with its relationships and competencies. Strategy - positioning the right way on the value chain. Successful companies reinvent value instead of adding it. They conceive of strategy as systematic social innovation: continuous design of complex business systems.
Key concepts of Value constellation Any product or service is a result of a complicated set of activities: economic transactions and institutional arrangements among suppliers and customers, employees, managers, teams of technical specialists. Offering - a way to call all products and services to emphasize the way they are grounded in activity. Blurred boundaries of products/services (which is a change in the entire value-creating system). The strategy is the way the company defines its business and how it is connected two the assets that really matters; knowledge (i.e. a company’s capabilities) and relationships (i.e. customers) To reinvent and create value the strategic task is to reconfigure the roles and relationships to achieve higher value and/or new form of value. It is a continuous process and improvements needs to be developed to achieve more value Co-creation is key – involve customers in value creation process 26/01/2011
Managerial Implications Strategic implications of the new logic of value: Make the customers create value for themselves instead of making/doing something of value to the customer Offering more complex = more complex relationships to produce it. Company's strategic task is to reconfigure its relationships and business systems Value is in co-producing offerings that mobilize customers. Source of competitive advantage is the ability to conceive the entire value creating system and make it work. There must be a dialogue between competencies and customers.
CASE: IKEA - the new logic of value Redefined Roles Relationships organizational practices Result integrated business system invents value by matching various capabilities of participants more efficiently (low costs, low prices) Customer's role is not to consume value, but create it. 26/01/2011
CASE: Peace TrainReconfiguring business systems and Rethinking business alliance The reconfiguration of business systems and the rethinking of business alliances can be illustrated by Peace Train. They have changed they view of what a charity should be and open up to new opportunities and alliances in the virtual world that would not be possible before. To have close contact with small organizations all over the world and make micro-donations would not have been possible without a vision of creating a new type of business/charity system and creating world-wide alliances to make it all possible. 26/01/2011
Sources; Normann, R. & Ramirez, R., “From Value Chain to Value Constellation: Designing Interactive Strategy”, HBR, 1996. http://hbr.org/1993/07/designing-interactive-strategy/ar/1 Lecture with SteveMahaley 25th of January 2010 Founder of Peace Train 26/01/2011