Value-based Business Strategy

Authors


  • We are grateful to Steve Bradley, David Collis, Jim Cook, Pankaj Ghemawat, Jan Hammond, Oscar Hauptman, Rena Henderson, Jeff Keisler, Elon Kohlberg, Louis Makowski, Anita McGahan, Richard Meyer, Barry Nalebuff, Ben Polak, Michael Porter, John Pratt, Joan Ricart i Costa, Ed Simnett, Dan Spulber, and John Sutton for discussions on the subject of this paper. Financial support from the Harvard Business School Division of Research is gratefully acknowledged.

Abstract

This paper offers an exact definition of the value created by firms together with their suppliers and buyers. The “added value” of a firm is similarly defined, and shown under certain conditions to impose an upper bound on how much value the firm can capture. The key to a firm's achieving a positive added value is the existence of asymmetries between the firm and other firms. The paper identifies four routes (“value-based” strategies) that lead to the creation of such asymmetries. Our analysis reveals the equal importance of a firm's supplier and buyer relations. Cooperative game theory provides the underpinnings of the analysis.

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