Value Networks and the Impetus to Innovate

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• Chapter 2
• Value Networks and the Impetus to Innovate

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Value Networks

• Firms frequently stumble when confronting
  technology change.
• Focus is on
• managerial, organizational, and cultural
  responses to technological change.
• New theory of why good companies can fail, based
  upon the concept of a value network.

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Value Networks

• The context within which a firm identifies a
  response to customers needs, solves problems,
  procures input, reacts to competitors, and
  strives for profit.
• Each firms competitive strategy, determines its
  perceptions of the economic value of new
  technology.

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Customer Value

• The difference between total customer value and
  total customer cost.
• Total Customer Value is the bundle of benefits
  customers expect from a given product or service.
• Total Customer Cost is the bundle of costs
  customers expect to incur in evaluating,
  obtaining, and using the products or service.

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Determinants of Customer Delivered Value
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Cost

• Adam Smith
• The real price of anything is the toil and
  trouble of acquiring it.
• Includes monetary, time, energy, and psychic
  costs.
• Delivered Value can be either a value or ratio
• Customer Value 20,000
• Customer Cost 16,000
• Delivered Value 4,000
• Ratio 20,000/16,000 1.25

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Satisfaction

• A persons feelings of pleasure or disappointment
  resulting from comparing a products perceived
  performance (or outcome) in relation to his or
  her expectations.
• Function of perceived performance and
  expectations.
• TCS - Total Customer Satisfaction

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Value Chain

• Porter proposed the value chain as a tool for
  identifying ways to create more customer value.
• The value chain identifies 9 strategically
  relevant activities that create value and cost in
  a specific enterprise.
• 5 primary activities
• 4 support activities

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The Generic Value Chain
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5 Primary Activities

• Represent the sequence of bringing material into
  the business, converting them into products,
  shipping them out, marketing them, and servicing
  them.
• Inbound Logistics
• Operations
• Marketing
• Sales
• Service

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4 Support Activities

• Procurement
• Technology Development
• Human Resource Management
• Firm Infrastructure

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Levi Strauss Value-Delivery Network
Sears (Retail)
Competition is between networks, not
companies. The winner is the company with the
better network.
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Value Delivery Network

• Creating Competitive Advantage beyond its own
  operations by integrating with the value chains
  of suppliers, distributors, and customers.

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High Performance Business
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Conventional Technology S-Curve
Third technology
Second technology
Product Performance
First technology
Time or Engineering Effort
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Disruptive technology S-curve
Application (Market) A
Application (Market) B
Technology 2
Performance as in application A
Technology 2
Technology 1
Time or Engineering Effort
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Managerial Decision-making and Disruptive
Technological Change

• Six steps emerged as a result of interviews.
• Step 1 Disruptive technologies were first
  developed within established firms.
• Step 2 Marketing personnel then sought reactions
  from their lead customers.
• Step 3 Established firms step up the pace of
  sustaining technological development.
• Step 4 New companies were formed, and markets
  for the disruptive technologies were found by
  trial and error.
• Step 5 The entrants moved upmarket.
• Step 6 Established firms belatedly jumped on the
  bandwagon to defend their customer base.

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Implications of the Value Network Framework for
Innovation

• Value Networks strongly define and delimit what
  companies within them can and cannot do.
• 5- Propositions about the nature of technological
  change and the problems successful incumbent
  firms encounter.

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Proposition 1

• The context or value network in which a firm
  competes has a profound influence on its ability
  to marshal and focus the necessary resources and
  capabilities to overcome the technological and
  organizational hurdles that impede innovation.

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Proposition 2

• A key determinant of the probability of an
  innovative efforts commercial success is the
  degree to which it addresses the well understood
  needs of known actors within the value network.

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Proposition 3

• Established firms decisions to ignore
  technologies that do not address their customers
  needs become fatal when two distinct trajectories
  interact.
• The performance demanded over time within a given
  value network.
• The performance that technologies are able to
  provide within a given technological paradigm.

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Proposition 4

• Entrant firms have an attackers advantage over
  established firms in those innovations --
  generally new product architectures involving
  little new technology per se -- that disrupt or
  redefine the level, rate, and direction of
  progress for an established technological
  trajectory.

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Proposition 5

• In these instances, although this attackers
  advantage is associated with a disruptive
  technology change, the essence of the attackers
  advantage is the ease with which entrants,
  relative to incumbents, can identify and make
  strategic commitments to attack and develop
  emerging market applications, or value networks.