Value net

The value net replaces a purely adversarial view of competition with a map of interdependence. Rivals can compete for the same customer and still make the market more attractive together: neighbouring car dealers create a destination with greater choice, while a cluster of restaurants can draw more diners to an area. Adam Brandenburger and Barry Nalebuff place the company among customers, suppliers, competitors and complementors to show where cooperation can enlarge value before participants compete to capture it.

When to use it

• Identify collaboration that can strengthen the offer or expand the market.
• Analyse how customers, suppliers, competitors and complementors shape one another’s value.

Origins

Strategic alliances and business networks predate the model, but Brandenburger and Nalebuff gave the value net its name and systematic form in Co-opetition in 1996. They applied game theory to business and drew particularly on the economic tradition established by John von Neumann and Oskar Morgenstern in Theory

of Games and Economic Behavior.

What it is

The net contains four roles:

• Customers: the people or organisations that buy and use the offer.

• Suppliers: the organisations and individuals providing materials, labour, equipment, software, capital or knowledge.

• Competitors: alternatives whose presence makes customers value your offer less or whose claims conflict with yours.

• Complementors: participants whose offer makes yours more valuable, and vice versa. Software can increase the usefulness of a computer; nearby bars may make a restaurant district a more attractive destination.

The same organisation can occupy more than one role. A supplier may also compete, and two rivals may complement each other in standards, infrastructure or market development.

Brandenburger and Nalebuff use PARTS to identify ways of changing the game:

• Players: Who participates, who could enter and how would entry change each party’s position? Adding a supplier might reduce dependency; adding a complementor might increase demand.

• Added value: What would disappear if each participant left the game? Product improvement, coordination and complementary offers can enlarge the total value available. In 1986, manufacturers that advocated spray-suppression rules helped create demand that benefited the wider mud-flap industry.

• Rules: Which formal regulations, contracts and accepted conventions govern the interaction? Rules around safety, credit, warranties or service can sometimes be redesigned.

• Tactics: How do signals and perceptions influence other participants’ choices? Pricing announcements and alliance moves can change expectations, subject to law and ethical constraints.

• Scope: Which games are connected across markets, regions or time? A change in legislation or a downturn elsewhere may alter the players and opportunities in this market.

PARTS shifts strategy from accepting the existing game to examining how participation, value, rules, information and boundaries could be changed. The goal is not necessarily one winner and many losers; carefully designed cooperation can increase the total value before negotiation determines its distribution.

Developments of the model

Later work on ecosystems and platforms has amplified the model’s emphasis on information sharing, technology and final-customer value. Unlike Porter’s sequential value chain, a value net is non-linear: value emerges from reciprocal connections among multiple participants.

The approach complements rather than replaces competitive analysis. Collaboration creates dependencies and bargaining questions, while competitors may cooperate in one domain and oppose one another in another.

How to use it

Anni-Kaisa Kähkönen’s British Food Journal article (2012) applied the value-net lens to Finland’s food industry. A formerly fragmented system of farmers, processors and retailers had become concentrated around large retailers, processors and farming groups, with smaller firms often following their lead.

• Customers: Retailers distinguish segments seeking low prices, new food experiences or higher service and transmit that demand through the network.

• Competitors: The three largest Finnish grocery retailers held nearly 90 per cent of the market, giving them substantial influence.

• Suppliers: A modern, technology-intensive food industry combined a few large participants with many smaller and medium-sized firms.

• Complementors: Retailers, processors, technology providers and suppliers shared information about taste, packaging and health needs. Joint development allowed participants to respond more quickly and create an offer none could deliver alone. Some relationships had lasted more than 20 years.

The case shows how customer information and co-development can add value across a network. The value net resembles five-forces analysis in mapping market participants, but draws attention to cooperation and complementarity as well as rivalry and bargaining power.

Some things to think about

• What addition would make your offer more useful to customers, and which competitor, supplier or complementor could help provide it? How would value and risk be shared?

• What knowledge can be shared safely through industry forums, standards or joint research, and what information must remain protected?

Top practical tip

Map roles before naming organisations: customer, supplier, competitor and complementor. Then identify one change that increases total customer value and write down how each participant would benefit enough to cooperate.

Top pitfall

Co-opetition does not remove conflicts of interest. Protect sensitive information, define governance and exit terms, test dependence and comply with competition law. A larger joint opportunity can still be divided on unfavourable terms.

Further reading

• Brandenburger, A.M. and Nalebuff, B.J. (nineteen ninety-six). Co-opetition. Currency/Doubleday.
• Brandenburger, A.M. and Stuart, H.W. (nineteen ninety-six). “Value-Based Business Strategy.” Journal of Economics & Management Strategy.