MGT665 – Individual Assignment
HOW TO DRIVE VALUE YOUR WAY
Submitted By: Hiten Bachani (129278117)
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MGT665 – Individual Assignment Main theme The paper revolves around the migration of the value within the supply chain as industries and technologies evolve. The basis of which can be traced down to the changes occurring in the patterns of consumer behaviour. But the changes in consumer patterns does not necessarily result in the value being shifted from one stakeholder to other; rather it is purely a function of the type of industry and how it has evolved over the years. Idea in Brief Argument Successful Companies do four things well: Problem Lessons
In turbulent times, profits have a tendency of migrating up or down the value chain, away from the established companies to the upstream or downstream partners. eg: In PC industry, value moved from IBM (manufacturer) to Wintel (suppliers)
The trajectory is not witnessed in the Auto Industry, where the incumbent carmakers have maintained a constant share of the industry’s market capitalization despite dire predictions to the contrary.
1) Controlling the assets least likely to be commoditized 2) Being the guarantor of quality to end customer 3) Staying in close touch with the changing customers needs 4) Balancing the imperatives of growth and strategic control of the value chain
The paper emphasis on four rules to that the companies can practice to influence whether the value migrates – and if so, to where in the chain. Rule 1 : Be the least replaceable player The question of who along the value chain is most replaceable fundamentally affects who can capture surplus value. It has been argued that the system integrators are most difficult to replace in auto industry but it is not so in the PC industry. However, a company seeking to preserve or gain advantage needs not only to reinforce its own irreplaceability but also ensure that none of its suppliers become impossible to replace Rule 2: Become the Guardian of Quality Value in an industry mostly accrues to the player that customers associate most of the quality with the product.
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The quality guardian in the value chain, typically carries a disproportionate share of legal liability. Also the cost of liability differs across the industries, for e.g. it is quite high in auto industry since the life of customers are at risk if car crashes while it is low in PC. Rule 3: Follow the Customer When the end customer changes his needs, value may shift across the value chain. Hence it becomes imperative for the companies to link the customers need to the value proposition they offer. But in the absence of a fundamental shift in the end customer, incumbents will be well positioned to
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MGT665 – Individual Assignment manage even disruptive technology—as long as they retain ownership of distribution and can resist the emergence of open standards. Rule 4: Manage the Growth Story This rule throws light on type of industry such as high growth or low growth and within that how the company changes its market share. It might be the case that a firm has only a small market share in a violently growing sector or a high share in a stable sector. When the high-growth industry in question is relatively small: Incumbents will be less inclined to fight hard to preserve dominance when the absolute profits are limited. The opposite applies, however, when the high-growth market is large. Here, scale often favours stability, because established players are large enough to maintain closed systems of suppliers, eschew open standards, and forestall change. Methodology study The author has tried to look at the problem through the lens of auto industry and PC industry and has found contrasting differences while comparing. It has been observed that the value has hardly shifted along the value chain in case of Auto Industry while in case of PC industry it has drastically shifted from the hands of system integrators to the suppliers.
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The reason lies in the very nature of the product which both the industries sell. The paper also throws light on the methodology of how incumbents and challengers shift value across the value chain; both leveraging their strength depending upon their current capabilities. Also, it talks about the new corporate giants like Facebook and Google who do not compete in a sector but on the other hand shape it. This is because they focussed on the latent needs of the customers and came up with a value proposition leveraging the internet space (platform) at the right time making it difficult for the rivals to imitate because of the viral diffusion of the technology. Does it make sense??? Yes, up to a certain extent it does makes sense and there have been ample examples in the past to prove the hypothesis. Over time the customer needs have changed and successful organizations have reoriented themselves to cater to their needs. Also, they have been cautious to preserve their share of pie by following the rules mentioned in the text. However, the conditions vary from industry to industry due to the different dynamics of the business scenario and the ecosystem in which they operate. It is worth noting that reputation of the player (not factored in the methodology) also plays a major role in some industries viz.
Pharmaceutical industries. This may help the incumbents in the short run and give them a buffer time to rethink their strategies and retaliate so that the value does not move away from them. My opinion The author has done justice to his research by quoting right examples at the right place. One factor which has not been factored is the barrier to entry in the industry for a new player or for an existing player to transit from one stage to another within the value chain. Even in today’s world when the technology has become very sophisticated; suppliers also have a chance to build economies of scale and be a crucial member in the value chain of the industry by supplying to many players. This can be achieved by standardization of components at an initial stage and then employing methodologies like SMED (Single Minute Exchange of Dies) in manufacturing industry(Automobiles) which the author had quoted as difficult in terms of replace-ability as compared to PC industry; however this can be achieved given the upstream or downstream player has sufficient resources to overcome the barriers of entry. 2
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