The Value Net and Co-opetition

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Value Net - CoopetitionWhat is The Value Net, Co-opetition? Description

Successful business strategy means actively shaping the game you play, not just shaping the game you find. Managers can benefit by using the insights from game theory to design a game that is right for their companies. The rewards that can come from changing a game may be far greater than those from maintaining the status quo. Sometimes the best way to succeed is to let others be successful. Including your competitors. To encourage thinking about both cooperative and competitive ways to change the game, Adam Brandenburger and Barry Nalebuff suggest the term Co-opetition. Co-opetition is the mix of competition and cooperation. It means looking for win-win as well as win-lose opportunities. Keeping both possibilities in mind is important. Win-lose strategies often have negative effects. The game of business is to create and to capture value. The Value Net is a schematic map designed to represent all the players in the game and the interdependencies among them. Interactions take place along two dimensions. Along the vertical dimension are the company's customers and suppliers. Along the horizontal dimension are the players with whom the company interacts but does not transact. They are its substitutors and complementors.

Substitutors are alternative players from whom customers may purchase products. Or to whom suppliers may sell their resources.

Complementors are players from whom customers buy complementary products. Or to whom suppliers sell complementary resources.

The Value Net model from Adam Brandenburger and Barry Nalebuff recognizes there are four main groups that influence the course of any firm:

  1. Customers
  2. Suppliers
  3. Competitors
  4. Complementors

The Value Net is an alternative to the Five Forces model by Porter and recognizes the importance of complementary as well as competitor products. The model focuses on the four main groups that influence a company's marketing environment: Customers, Suppliers, Competitors and Complements.

Customers, Suppliers and Competitors are described in similar terms to Porter's model. Competitors is a catchall term which includes Existing Rivals, New Entrants and Substitutes.

A Complement is any other product or service which increases the attractiveness of the subject product. It is often characterized in terms of the IT industry (although the relationship can be seen in lots of industries). Software manufacturers rely on there being hardware manufacturers with no direct interest in producing competitor software. They are mutually dependent and rely on each other to establish a need for the other's product.

In addition to analyzing the competitive market, this model focuses the analyst on looking at the players and forces in adjacent and related markets that must be monitored because the company relies on their product being available.

Origin of The Value Net. History

The model is clearly inspired by Porter's Five Forces model. Brandenburger and Nalebuff argue that both cooperation and competition are necessary and desirable aspects of a business enterprise. An exclusive focus on competition largely ignores the potential for changing the nature of business relationships, and thus the potential for expanding the market or creating new profitable forms of enterprise. A 'Coopetition' mindset actively looks for ways to change and expand the business, as well as newer and better ways to compete.

Calculation of The Value Net. Formula

A key related theory is that of Added Value (i.e. the size of the market when your firm is in the market, minus the size of the market when it is not).

Usage of The Value Net. Applications

  • Corporate Strategy
  • Marketing Strategy

Steps in using the Value Net. The PARTS Model

  1. The Value Net describes the various roles of the players. It is possible for the same player to occupy more than one role simultaneously. Designing the Value Net for your business is the first step toward changing the game.
  2. The second step is identifying all the elements of the game. There are five according to Brandenburger and Nalebuff: the PARTS model
    1. Players Questions
      • Have you written out the Value Net for your organization, taking care to make the list of players as complete as possible?
      • What are the opportunities for cooperation and competition in your relationships with customers and suppliers, competitors and complementors?
      • Would you like to change the group of players? In particular, what new players would you like to bring into the game?
      • Who stands to gain if you become a player in a game? Who stands to lose?
    2. Added Values Questions
      • What is your added value?
      • How can you increase your added value? In particular, can you create loyal customers and suppliers?
      • What are the added values of the other players in the game?
      • Can you benefit from limiting their added values?
    3. Rules Questions
      • Which rules are helping you? Which are hurting you?
      • What new rules would you like to have? In particular, what contracts do you want to write with your customers and suppliers?
      • Do you have the power to make these rules? Does someone else have the power to overturn them?
    4. Tactics Questions
      • How do other players perceive the game? How do these perceptions affect the play of the game?
      • Which perceptions would you like to preserve? Which perceptions would you like to change?
      • Do you want the game to be transparent or opaque?
    5. Scope Questions
      • What is the current scope of the game? Do you want to change it?
      • Do you want to link the game to other games?
      • Do you want to change the link from the game with other games?

Strengths of The Value Net, Co-opetition. Benefits

  • Useful when considering complex markets involving integrated players and non-integrated players.
  • Recognizing that sometimes the best way to succeed is: to let others be successful. Including your competitors.

Book: Brandenburger, Adam J. and Nalebuff, Barry J. : Co-opetition (1996)

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Compare with The Value Net: Strategic Alliance  |  Five Forces Porter  |  Game Theory  |  Porter Diamond Model  |  3C's  |  Delta Model  |  Vertical Integration  |  Horizontal Integration

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