Slide 8.1 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 Strategies for e - Business CONCEPTS and CASES Creating Value through Electronic and Mobile Commerce Chapter 8: Creating and capturing value through e-business strategies: the value-process framework (VPF)

Slide 8.2 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited The value-process framework for e-business strategies Chapter at a glance 8.3 Sony BMG (Germany): an actual application of the VPF The business context Value creation Value capturing Findings 8.2 Integrating strategic management analyses through the VPF The value chain analysis and the VPF The five forces analysis and the VPF Creating value Capturing value

Slide 8.3 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 After this session you should be able to:  Identify the main drivers for value creation and capturing  Understand how the value-process framework (VPF) integrates the value chain and the five forces analyses  Apply the VPF to conduct an overarching strategy analysis. Learning outcomes

Slide 8.4 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 Value creation Value created € Costs Perceived use value Exhibit 8.1 Value is created if the perceived use value exceeds costs 8.1 The value-process framework for e-business strategies

Slide 8.5 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 Value captured (producer surplus) Price Consumer surplus Value capturing Value creation Costs Value created € Perceived use value Exhibit 8.2 The price indicates how the value created is distributed between the producer and the consumer 8.1 The value-process framework for e-business strategies

Slide 8.6 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 Value capturing Value creation Value created € Producer surplus Value created Price = Willingness to pay Costs Perceived use value = Exhibit 8.3 Producers completely capture the value created in a (quasi-) monopolistic environment 8.1 The value-process framework for e-business strategies

Slide 8.7 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited Value capturing Value creation CostsValue created € Perceived use value Company A Strongest competitor (Company B) Price = 19 Consumer surplus 1 Value capturing Value creation CostsValue created € Perceived use value Competitive discount 7 Maximum value to be captured 20 Profit Exhibit 8.4 The competitive discount is equal to the consumer surplus provided by the strongest competitor 8.1 The value-process framework for e-business strategies

Slide 8.8 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 Value capturing Value creation Value created € Competitive discount Profit Value created Costs Perceived use value Price Producer surplus 12 3 Consumer surplus Exhibit 8.5 The VPF - To achieve profitability, companies must be able to create and capture value 8.1 The value-process framework for e-business strategies

Slide 8.9 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 Five forces Value chain Exhibit 8.6 The VPF integrates different strategy analyses 8.2 Integrating strategic management analyses through the VPF

Slide 8.10 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 Marketing & sales Production SourcingR&D Service Exhibit 8.7 Value is created by the individual business activities of the value chain 8.2 Integrating strategic management analyses through the VPF

Slide 8.11 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 Entrants Substitutes Suppliers Customers Rivalry Exhibit 8.8 Porter’s five forces influence the cost lever and competitive discount 8.2 Integrating strategic management analyses through the VPF

Slide 8.12 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 Value drivers Cost drivers Entrants Rivalry Customer power Substitutes Supplier power Exhibit 8.9 Porter’s strategy models can be used to analyse the levers of the VPF 8.2 Integrating strategic management analyses through the VPF

Slide 8.13 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 Handset purchasing MNO services Content, product design Marketing, branding Sales, distribution MVNE services UMTS multimedia handset UMTS technology Concept design, artist roster, applications, features Concept image, concept brand Content distribution over the air / Wholesale costs MNO service fees Advertising costs MVNE service fees Retail margins Value drivers Cost drivers Royalties Exhibit 8.10 A value chain analysis of the MVNO project reveals numerous value and cost drivers 8.3 Sony BMG (Germany): an actual application of the VPF

Slide 8.14 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008  Artist roster, content, applications, multimedia handset  UMTS technology, handset  Applications, community  Applications, features  Image (brand)  UMTS technology, handset Quality Brand Speed Entertainment & fun 24/7 access Interaction Individualisation Emotional benefit Individualisation 24/7 access Fast downloads Value Value drivers (step 1) Perceived use value (step 2) Exhibit 8.11 Multiple value drivers create perceived use value mainly in three dimensions 8.3 Sony BMG (Germany): an actual application of the VPF

Slide 8.15 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008  Handsets costs  MNO service fees  Royalties  Advertising costs  Retail commissions  MVNE service fees  Quality Value creation  Speed  Brand € Supplier power 1 2 Exhibit 8.12 Perceived use value and costs for the Sony BMG MVNO would both have been high 8.3 Sony BMG (Germany): an actual application of the VPF

Slide 8.16 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 Sony BMG’s major valuable resources 8.3 Sony BMG (Germany): an actual application of the VPF  Concept design  Artist roster  Marketing expertise

Slide 8.17 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 Exhibit 8.13 The German wireless telecommunications industry is of relatively low attractiveness Industry rivalry (moderate to high) Telco market is close to saturation Player concentration depending on market definition Low exit barriers for non MNOs Product differentiation only via premium content Bargaining power of suppliers (moderate to high) No input differentiation in terms of air traffic (this argument applies only to resellers and MVNOs) Moderate input differentiation in terms of handsets Strong supplier concentration (only E-Plus in Germany) Threat of new entrants (moderate to high) Low technical barriers, high barriers for brand and access to attractive content Low switching costs for prepaid customers Low exit barriers, only sunk costs for advertisement Easy access to distribution channels Threat of substitutes (relatively low) No devices in sight that could adequately fulfil the product’s major functions Bargaining power of customers (relatively high) No considerable switching costs Huge amount of prepaid offerings  low differentiation parameters Willingness to pay important for premium content providers High market transparency 8.3 Sony BMG (Germany): an actual application of the VPF

Slide 8.18 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 € Value capturing New entrants Substitutes Customer power Rivalry 3 Exhibit 8.14 The five forces analysis indicates a high competitive discount 8.3 Sony BMG (Germany): an actual application of the VPF

Slide 8.19 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 Value capturing Value creation Value drivers  Handset  UMTS  Concept design, artist roster  Brand  Over-the-air distribution 1 Cost drivers  Wholesale costs  Increased MNO service fees (due to high supplier power)  Royalties  Advertising costs  Retail margins  MVNE fees 2  Industry forces (low entry barriers, relatively high rivalry, high customer power, low substitute threat)  Short-term uniqueness of resources (especially concept design), but imitable in the long run 3 Effects on competitive discount Exhibit 8.15 Perceived use value has to be extremely high to achieve profitability 8.3 Sony BMG (Germany): an actual application of the VPF

Slide 8.20 Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2 nd edition, © Pearson Education Limited 2008 Summary ■In this chapter, we presented the value-process framework (VPF), which is a conceptually unifying analysis tool that addresses the main levers of sustainable competitive advantage. This framework stipulates that, in order to succeed, companies need to create and capture value.