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.
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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.
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.
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Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
