They pursue complements as a rich source of value creation.
00:07Value-based organizations are good at spotting complements, or products and services that enhance the value of their core offering. Complements are a familiar feature of the strategy landscape—think printers and cartridges, coffee machines and capsules, tablets and e-books. But at the outset, they can be difficult to identify. When I ask students what would complement a movie theater’s offering, they think of popcorn and Coke, advance ticket sales, and more-comfortable seats. They rarely suggest childcare services—but that’s what Harkins Theatres, an Arizona-based chain of movie theaters, offers its patrons. It staffs its play centers with trained professionals who look after children while their parents watch a movie, pager in hand to inform them if problems arise. As this example illustrates, complements often seem unrelated to the core business. Identifying them requires you to think creatively about customer journeys.
01:11Even if a new offering is quite obviously a complement to an existing business, keeping a close eye on the customer’s journey can uncover new ways to use it to create customer value. Amazon beat Sony on e-readers even though it was late to the market, had no technology advantage, and was working with a more limited marketing budget. How? Wireless access. The Kindle’s free 3G internet access made books an impulse purchase and turned out to be of huge value to customers—and thus to Amazon.
01:46Complements raise customers’ willingness to pay for the core product, whereas substitutes have the opposite effect—so you might think that it’s easy to distinguish between the two. But this is true only in hindsight. Personal computers were supposed to be a substitute for paper. (Remember the paperless office?) They turned out to be a complement: As personal computers became ubiquitous, the demand for paper exploded. ATMs were thought to eliminate bank teller positions. They didn’t. Digital music formats proved to be a substitute for CDs—but a complement for live concerts. Across many examples and industries, business history reveals a clear pattern: Companies often mistake complements for substitutes. Value-focused organizations are better at spotting the true relationship between new technologies and legacy products because they are keenly aware of how customers benefit from technological changes. By contrast, companies that focus on sales growth and monetization see most advances as threats to their business models. They habitually take a defensive stance, missing important opportunities to create value in novel ways.
They shift profit pools to capture value over time.
03:16Traditionally strategists have differentiated between value creation (the topic of this article for the most part) and value capture (how to make money from the value you’ve created). Value-focused businesses concentrate on the former, but they tend to be flexible about the latter. Because they take a broad view of customer needs, they frequently offer solutions that go beyond their core products. These product-and-service bundles enhance value capture opportunities because they allow businesses to shift their profit pools from one offering to another as the life cycle of the product—or the market overall—changes.
04:01Apple’s mobile devices are a good example. Early in its history, the iPhone was clearly differentiated from competing products and provided substantial value for its customers. Apple later created services like iTunes, but it barely monetized them. Keeping the price of complements low, the company understood, further increased the appeal of Apple hardware. More recently, however, it is harder to argue that customer WTP for Apple’s devices is far higher than the WTP for competing phones. How did Apple respond to the increased competition? It shifted the profit pool from hardware to services (or apps), the segment where its competitive standing is barely contested.
04:51Shifts in profit pools are not unique to Apple. Amazon subsidizes the Kindle to boost the WTP for e-books. Microsoft shifts profits from its game console to the games. The Indian ride-sharing company Ola created an entire suite of payment options (including Hospicash, an innovative offering that covers travel to hospitals and postdischarge expenditures) that contribute to Ola’s strategic flexibility. Two patterns are noteworthy. First, businesses tend to shift profit pools away from hotly contested markets to segments where it is easier to defend high margins. Second, the financial consequences of these shifts are particularly favorable if the products are complements: As the price of one product declines, WTP (and value capture opportunities) for the complement increases.
Getting Started
05:53WTP and WTS sit at the core of value-based strategy, but because the concepts are quite abstract, it can be challenging to see how to bring them to life in your organization. At Harvard Business School, we often use a visualization tool called the value map to help executives identify strategic opportunities. It’s proven helpful for anything from a half-day examination of a particular business to a full-bore strategy overhaul, and it’s useful for testing the tenets of value-based strategy against whatever’s happening in your company.
06:34You begin by selecting a group of customers: your most profitable segment, perhaps. Next you compile a list of criteria that are important to those customers when they make a purchase. These criteria are called value drivers. Think of them as the product and service attributes that determine WTP. You then rank the value drivers from most to least important from the customers’ point of view. In a final step, you determine for each driver how good your company is at meeting customers’ expectations and do the same for your major competitors.
07:13It’s important not to make assumptions about what your customers value most and how well you deliver. If you’re going to reformulate your strategy on the basis of your value map, you need good data to assist you in building it. When I see companies undertake a serious value-map analysis, there is almost always a surprise—a driver that turns out to be less critical than commonly thought or an unexpected level of performance on another dimension. These surprises aside, I find that most companies have a fairly accurate sense about their own performance but tend to know far less about how their customers view the performance of their competitors. That too requires research and data gathering.
08:02Consider the two value maps for Tatra banka, Slovakia’s first postcommunist private bank. Founded in 1990, Tatra quickly led European banking in the adoption of digital technology. It first offered mobile banking in 2009 and introduced voice biometrics in 2013 and facial recognition in 2018, earning more than 100 awards for its innovative services. As I worked with Tatra to develop its strategy, the bank collected data from customers through surveys and interviews and used it to create value maps for premium and mass-market customers. Looking at the maps, it is evident why Tatra had particular success with the former segment: Excellent mobile technology is what premium customers value most, and the bank led its competitors on that measure. Mass-market customers, by contrast, were most concerned with whether the bank kept its promises, one of the areas where Tatra did not stand out.
09:10Value drivers can serve as innovation engines because they live midway between the rather abstract notion of WTP and WTS and the very specific attributes that describe your current product or service. This has two advantages. First, value drivers are useful for analyzing the existing business. It’s a straightforward task to link a given value driver to operating models and KPIs and to compare performance with that of competitors. Second, they can be helpful in thinking about opportunities, because they don’t specify in any detail how you will meet a particular customer need. They help you explore new ways to satisfy customers, employees, and suppliers. Focusing on value drivers, rather than patterns of past success or industry trends, you are less likely to equate business success with selling more of what you already offer.
10:08Once you’ve created the map, it’s time to identify the drivers that offer the most potential for future value creation and to think through strategic initiatives that will support them. That work is too nuanced and company-specific to do justice to here (a fuller description is available in my book Better, Simpler Strategy), but keep these three principles in mind.
Invest in a small number of related value drivers.
10:40Choosing how to improve your company’s value proposition is ultimately a question of forecasting the return on various investment opportunities. How much does it cost to move a particular value driver, and what increase in WTP can you expect in return? Many companies find it beneficial to identify a cluster of related value drivers that add up to a bigger theme. This helps them stand out in the minds of their customers (“Tatra is the technology leader in banking”), and it is operationally efficient because closely related drivers are often supported by similar activities. For instance, building digital capabilities allowed Tatra to improve on several important value drivers.
Resist the temptation to play catch-up.
11:34When executives first study their value maps, many concentrate on drivers where their company lags, and they quickly identify initiatives that would allow them to catch up with the competition. This is a mistake. The ability to capture value depends on differences in value creation. When a customer is choosing between two companies with nearly identical value maps, her attention will go to price. The greater the similarity between two companies’ value maps, the greater the pressure to compete on price. The goal is to increase differentiation, not to close gaps.
Insist on making trade-offs.
12:19 When I work on value maps with executives, they understand in the abstract that all companies need to choose where to focus their energy and resources. But when they examine their own value maps, they want to bring every value driver up to the maximum rating. I see this so often that I know it’s a powerful impulse—but it needs to be quashed, because a strong strategy always involves trade-offs. No company can be good at everything.
. . .
12:49Creating value for customers, employees, and suppliers sits at the very heart of strategies that result in stellar performance. In the best companies, this orientation toward value creation is reflected in every decision made by employees at all levels of the organization. The focus on creating value shows up in big strategic plans and in small everyday choices.
13:18A few years ago, I had an interaction with a salesperson at a flower shop that illustrates how a focus on value creation can permeate an entire organization, even in the briefest of customer interactions. I had meant to send flowers to a friend for her birthday, but her day came and went and somehow I forgot. A few days later, I remembered and called the shop to place an order. It was late afternoon, and the salesperson asked whether I wanted to have the flowers delivered that day or the next. I confessed to being late for my friend’s birthday and urged the salesperson to send them as quickly as possible. Her response caught me by surprise. “Shall we take the blame for the late delivery?” she asked.
14:06I didn’t want her to lie for me, of course, so I didn’t take her up on the offer. But even in that brief conversation, I recognized that this salesperson didn’t see her job as simply selling flowers. Rather, she was focused on creating value for her customers by increasing their WTP—which she did. The following year, I received an email from the flower shop a few days before my friend’s birthday, reminding me it was time to place an order. I did so, at what seemed to me an inflated price. But I was willing to pay it as a fair trade for the shop’s solving my problem—a win for the flower shop’s strategy.
用户评论