value-net-model

What Is The Value Net Model And Why It Matters In Business

The Value Net Model argues that co-operation and competition between organizations are not only desirable but also necessary when doing business. This is in stark contrast to traditional thinking, which argues that such competition impedes business success and profits.

Understanding the Value Net Model

The Value Net Model was first introduced by authors Adam Brandenburger and Barry Nalebuff in their 1996 book Co-opetition.

Co-opetition is a portmanteau word describing a business strategy that is part competition and part cooperation.

Brandenburger and Nalebuff suggest that in modern, dynamic business environments, organizations can achieve far more by working together than they can by working alone.

In the Value Net Model, four key industry players are crucial to operational success: customers, suppliers, competitors, and complementors. 

The first three players are self-explanatory, but it is complementors that deserve further clarification.

They are described as an organization that offers something which makes another business stronger.

For example, the opening of a new restaurant may increase revenue at the bar down the street since people like to have a drink before their evening meal.

In the context of this model, it’s important to note that organizations work together to provide more value to consumers.

They are not engaged in collusion, which is illegal in most countries.

Businesses can also work with suppliers and complementors to the advantage of all other parties.

Using the Value Net Model framework

Given that co-opetition is linked to Game Theory, Brandenburger and Nalebuff suggest that strategy formation be treated as a game.

To create the framework, it’s helpful to consider the five components of players, added value, rules, tactics, and scope – often represented by the acronym PARTS.

Players

In the first step, the business should determine the players in the “game” or relevant industry that which it operates.

The players encompass customers, suppliers, competitors, and complementors.

The business must assess each player and determine the potential for a future strategic alliance.

External players who are not part of the industry should also be identified, particularly if they bring value to the table.

Added value

Added value describes what each player in their respective role can offer a potential alliance.

The business conducting the Value Net Model framework should also consider the value it offers through a USP or competitive advantage.

The added value should also be considered in the context of two players joining forces to create value for customers or suppliers.

Rules

Each industry has its own rules and regulations, and some of these hinder growth.

A business should identify the players in their industry who can remove some of these obstacles through partnerships and collaboration.

Tactics

A competitive business is a complicated, dynamic, and uncertain game. Businesses themselves often use tactics to influence the way other players in the game perceive them – primarily in an attempt to modify their behavior. 

When Netscape tried to compete against Microsoft with their new browser, they entered into a price war which they would ultimately lose.

However, if Netscape had informed Microsoft of its tactics to occupy a very small and niche segment of the browser market, there is a possibility that both browsers could have co-existed harmoniously.

Scope

By their very nature, games are not static entities. Since they are constantly evolving over time, it is important to set clear boundaries from the outset.

Business managers should always be prepared for the possibility that the scope expands or shrinks according to fluctuating market conditions.

Key takeaways

  • The Value Net Model is an analytical strategy tool that describes the behavior of multiple businesses (competitors) in a given industry and its strategic alliances with industry players.
  • The creators of the Value Net Model suggest that businesses achieve more by working with others than they can by working alone.
  • The Value Net Model is based on Game Theory and its five constituent parts: players, added value, rules, tactics, and scope.

Key Highlights

  • Co-opetition: The Value Net Model combines competition and cooperation as a strategy for businesses to achieve greater success by collaborating with industry players.
  • Players: Four key players in the model: customers, suppliers, competitors, and complementors. Complementors offer products/services that enhance another business’s value.
  • Added Value: Each player contributes a unique value proposition. Businesses should identify their value and how it complements others.
  • Rules: Recognize industry rules that hinder growth. Collaborate with players to overcome obstacles.
  • Tactics: Businesses use tactics to influence competitors’ behavior. Open communication can lead to effective coexistence.
  • Scope: Business interactions evolve over time due to market changes. Be adaptable to changing circumstances.
  • PARTS Framework: Follow the PARTS framework for applying the model: Players, Added Value, Rules, Tactics, and Scope.
  • Strategic Alliances: The model emphasizes forming strategic alliances that benefit all players and provide more value to customers and suppliers.
  • Value Creation: Collaboration with complementors enhances value creation by offering products/services that strengthen other businesses.
  • Competitive Dynamics: Understanding competitors’ tactics and behaviors helps in shaping effective strategies for co-opetition.
  • Adaptability: Businesses should be prepared for changing market conditions and adjust their strategies accordingly.
  • Behavior Modification: Open communication about tactics and intentions can lead to more harmonious interactions among players.
  • Mutual Benefit: The model encourages finding ways for all players to benefit, rather than focusing solely on individual competition.
  • Industry Evolution: Industries are dynamic and ever-changing, requiring businesses to remain flexible and responsive.
  • Market Collaboration: Collaboration with competitors, suppliers, and complementors enhances overall market success.
  • Innovation: Co-opetition can foster innovation as players collaborate to create novel solutions.
  • Long-term Success: The model aims for sustained success by focusing on alliances and value creation rather than short-term competition.
  • Distinctive Approach: The Value Net Model presents a distinctive approach to business strategy, challenging traditional competition-centered thinking.
  • Analytical Tool: The model serves as an analytical tool for understanding and navigating complex business dynamics.
  • Game Theory Influence: The Value Net Model is influenced by Game Theory principles, guiding strategic decision-making.

Connected Analysis Frameworks

Failure Mode And Effects Analysis

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A failure mode and effects analysis (FMEA) is a structured approach to identifying design failures in a product or process. Developed in the 1950s, the failure mode and effects analysis is one the earliest methodologies of its kind. It enables organizations to anticipate a range of potential failures during the design stage.

Agile Business Analysis

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Business Valuation

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Business valuations involve a formal analysis of the key operational aspects of a business. A business valuation is an analysis used to determine the economic value of a business or company unit. It’s important to note that valuations are one part science and one part art. Analysts use professional judgment to consider the financial performance of a business with respect to local, national, or global economic conditions. They will also consider the total value of assets and liabilities, in addition to patented or proprietary technology.

Paired Comparison Analysis

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A paired comparison analysis is used to rate or rank options where evaluation criteria are subjective by nature. The analysis is particularly useful when there is a lack of clear priorities or objective data to base decisions on. A paired comparison analysis evaluates a range of options by comparing them against each other.

Monte Carlo Analysis

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The Monte Carlo analysis is a quantitative risk management technique. The Monte Carlo analysis was developed by nuclear scientist Stanislaw Ulam in 1940 as work progressed on the atom bomb. The analysis first considers the impact of certain risks on project management such as time or budgetary constraints. Then, a computerized mathematical output gives businesses a range of possible outcomes and their probability of occurrence.

Cost-Benefit Analysis

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A cost-benefit analysis is a process a business can use to analyze decisions according to the costs associated with making that decision. For a cost analysis to be effective it’s important to articulate the project in the simplest terms possible, identify the costs, determine the benefits of project implementation, assess the alternatives.

CATWOE Analysis

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VTDF Framework

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It’s possible to identify the key players that overlap with a company’s business model with a competitor analysis. This overlapping can be analyzed in terms of key customers, technologies, distribution, and financial models. When all those elements are analyzed, it is possible to map all the facets of competition for a tech business model to understand better where a business stands in the marketplace and its possible future developments.

Pareto Analysis

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The Pareto Analysis is a statistical analysis used in business decision making that identifies a certain number of input factors that have the greatest impact on income. It is based on the similarly named Pareto Principle, which states that 80% of the effect of something can be attributed to just 20% of the drivers.

Comparable Analysis

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A comparable company analysis is a process that enables the identification of similar organizations to be used as a comparison to understand the business and financial performance of the target company. To find comparables you can look at two key profiles: the business and financial profile. From the comparable company analysis it is possible to understand the competitive landscape of the target organization.

SWOT Analysis

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A SWOT Analysis is a framework used for evaluating the business’s Strengths, Weaknesses, Opportunities, and Threats. It can aid in identifying the problematic areas of your business so that you can maximize your opportunities. It will also alert you to the challenges your organization might face in the future.

PESTEL Analysis

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Business Analysis

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Financial Structure

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Financial Modeling

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Financial modeling involves the analysis of accounting, finance, and business data to predict future financial performance. Financial modeling is often used in valuation, which consists of estimating the value in dollar terms of a company based on several parameters. Some of the most common financial models comprise discounted cash flows, the M&A model, and the CCA model.

Value Investing

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Buffet Indicator

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Financial Analysis

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Post-Mortem Analysis

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Retrospective Analysis

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Root Cause Analysis

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Blindspot Analysis

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Break-even Analysis

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Decision Analysis

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Stanford University Professor Ronald A. Howard first defined decision analysis as a profession in 1964. Over the ensuing decades, Howard has supervised many doctoral theses on the subject across topics including nuclear waste disposal, investment planning, hurricane seeding, and research strategy. Decision analysis (DA) is a systematic, visual, and quantitative decision-making approach where all aspects of a decision are evaluated before making an optimal choice.

DESTEP Analysis

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A DESTEP analysis is a framework used by businesses to understand their external environment and the issues which may impact them. The DESTEP analysis is an extension of the popular PEST analysis created by Harvard Business School professor Francis J. Aguilar. The DESTEP analysis groups external factors into six categories: demographic, economic, socio-cultural, technological, ecological, and political.

STEEP Analysis

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The STEEP analysis is a tool used to map the external factors that impact an organization. STEEP stands for the five key areas on which the analysis focuses: socio-cultural, technological, economic, environmental/ecological, and political. Usually, the STEEP analysis is complementary or alternative to other methods such as SWOT or PESTEL analyses.

STEEPLE Analysis

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The STEEPLE analysis is a variation of the STEEP analysis. Where the step analysis comprises socio-cultural, technological, economic, environmental/ecological, and political factors as the base of the analysis. The STEEPLE analysis adds other two factors such as Legal and Ethical.

Activity-Based Management

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PMESII-PT Analysis

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SPACE Analysis

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Lotus Diagram

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Functional Decomposition

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Multi-Criteria Analysis

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Stakeholder Analysis

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Strategic Analysis

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Strategic analysis is a process to understand the organization’s environment and competitive landscape to formulate informed business decisions, to plan for the organizational structure and long-term direction. Strategic planning is also useful to experiment with business model design and assess the fit with the long-term vision of the business.

Related Strategy Concepts: Go-To-Market StrategyMarketing StrategyBusiness ModelsTech Business ModelsJobs-To-Be DoneDesign ThinkingLean Startup CanvasValue ChainValue Proposition CanvasBalanced ScorecardBusiness Model CanvasSWOT AnalysisGrowth HackingBundlingUnbundlingBootstrappingVenture CapitalPorter’s Five ForcesPorter’s Generic StrategiesPorter’s Five ForcesPESTEL AnalysisSWOTPorter’s Diamond ModelAnsoffTechnology Adoption CurveTOWSSOARBalanced ScorecardOKRAgile MethodologyValue PropositionVTDF FrameworkBCG MatrixGE McKinsey MatrixKotter’s 8-Step Change Model.

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