Slide 8.1
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)
Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2nd edition, © Pearson Education Limited 2008
Slide 8.2
Chapter at a glance
8.1 The value-process framework for e-business strategies
8.1.1 Creating value
8.1.2 Capturing value
8.2 Integrating strategic management analyses through the VPF
8.2.1 The value chain analysis and the VPF
8.2.2 The five forces analysis and the VPF
8.3 Sony BMG (Germany): an actual application of the VPF
8.3.1 The business context
8.3.2 Value creation
8.3.3 Value capturing
8.3.4 Findings
Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2nd edition, © Pearson Education Limited 2008
Slide 8.3
Learning outcomes
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.
Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2nd edition, © Pearson Education Limited 2008
Slide 8.4
8.1 The value-process framework for e-business strategies
Exhibit 8.1 Value is created if the perceived use value exceeds costs
Value creation
€
Perceived
use value
Value
created
Costs
Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2nd edition, © Pearson Education Limited 2008
Slide 8.5
8.1 The value-process framework for e-business strategies
Exhibit 8.2 The price indicates how the value created is distributed
between the producer and the consumer
Value creation
€
Value capturing
Consumer
surplus
Price
Value
captured
(producer
surplus)
Perceived
use value
Value
created
Costs
Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2nd edition, © Pearson Education Limited 2008
Slide 8.6
8.1 The value-process framework for e-business strategies
Exhibit 8.3 Producers completely capture the value created in a
(quasi-) monopolistic environment
Value capturing
Value creation
€
Price = Willingness to pay
Perceived
use value
Value
created
Costs
Value
created
=
Producer
surplus
Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2nd edition, © Pearson Education Limited 2008
Slide 8.7
8.1 The value-process framework for e-business strategies
Exhibit 8.4 The competitive discount is equal to the consumer surplus
provided by the strongest competitor
€
4
3
Consumer
surplus
€
Price = 19
1
1
5
4
8
7
20
20
15
12
Perceived
use value
Costs Competitive Maximum
discount value to be
captured
Value
created
Value creation
1
Company A
Value capturing
Profit
Value
capturing
Costs
Value Perceived
created use value
Value creation
2
Strongest competitor
(Company B)
Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2nd edition, © Pearson Education Limited 2008
Slide 8.8
8.1 The value-process framework for e-business strategies
Exhibit 8.5 The VPF - To achieve profitability, companies must be able
to create and capture value
Value creation
Value capturing
€
Consumer
surplus
3
Price
Producer
surplus
1
Perceived Value
use value created
2
Costs
Value Competitive
created
discount
Profit
Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2nd edition, © Pearson Education Limited 2008
Slide 8.9
8.2 Integrating strategic management analyses through the VPF
Exhibit 8.6 The VPF integrates different strategy analyses
3
1
Value chain
2
Five forces
Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2nd edition, © Pearson Education Limited 2008
Slide 8.10
8.2 Integrating strategic management analyses through the VPF
Exhibit 8.7 Value is created by the individual business activities of the
value chain
R&D
1
Sourcing
1
2
1
Production
2
1
2
Marketing &
sales
1
2
Service
1
2
2
Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2nd edition, © Pearson Education Limited 2008
Slide 8.11
8.2 Integrating strategic management analyses through the VPF
Exhibit 8.8 Porter’s five forces influence the cost lever and
competitive discount
3
Entrants
Suppliers
Rivalry
Customers
1
2
Substitutes
Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2nd edition, © Pearson Education Limited 2008
Slide 8.12
8.2 Integrating strategic management analyses through the VPF
Exhibit 8.9 Porter’s strategy models can be used to analyse the levers
of the VPF
3
• Entrants
• Rivalry
1
• Customer power
2
• Substitutes
Value drivers
Supplier power
Cost drivers
Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2nd edition, © Pearson Education Limited 2008
Slide 8.13
8.3 Sony BMG (Germany): an actual application of the VPF
Exhibit 8.10 A value chain analysis of the MVNO project reveals
numerous value and cost drivers
Handset
purchasing
Value drivers
UMTS
multimedia
handset
Cost drivers
Wholesale
costs
MNO
services
Content,
product
design
Marketing,
branding
Sales,
distribution
MVNE
services
UMTS
technology
Concept
design,
artist roster,
applications,
features
Concept
image,
concept
brand
Content
distribution
over the air
/
MNO
service fees
Royalties
Advertising
costs
Retail
margins
MVNE
service fees
Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2nd edition, © Pearson Education Limited 2008
Slide 8.14
8.3 Sony BMG (Germany): an actual application of the VPF
Exhibit 8.11 Multiple value drivers create perceived use value mainly
in three dimensions
Perceived use value (step 2)
Value drivers (step 1)

Artist roster, content, applications,
multimedia handset

UMTS technology, handset

Applications, community
Interaction

Applications, features
Individualisation

Image (brand)
Emotional benefit
Entertainment & fun
24/7 access
Quality
Brand

Image (brand)
Individualisation

UMTS technology, handset
24/7 access
Value
Speed

UMTS technology, handset
Fast downloads
Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2nd edition, © Pearson Education Limited 2008
Slide 8.15
8.3 Sony BMG (Germany): an actual application of the VPF
Exhibit 8.12 Perceived use value and costs for the Sony BMG MVNO
would both have been high
Value creation
€
 Quality
 Brand
 Speed
1





Handsets costs
MNO service fees
Royalties
Advertising costs
Retail
commissions
 MVNE service fees
2
Supplier
power
Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2nd edition, © Pearson Education Limited 2008
Slide 8.16
8.3 Sony BMG (Germany): an actual application of the VPF
Sony BMG’s major valuable resources
 Concept design
 Artist roster
 Marketing expertise
Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2nd edition, © Pearson Education Limited 2008
Slide 8.17
8.3 Sony BMG (Germany): an actual application of the VPF
Exhibit 8.13 The German wireless telecommunications industry is of
relatively low attractiveness
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
Bargaining power of suppliers
(moderate to high)
Industry rivalry
(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)
• 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
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
Threat of substitutes
(relatively low)
• No devices in sight that could adequately
fulfil the product’s major functions
Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2nd edition, © Pearson Education Limited 2008
Slide 8.18
8.3 Sony BMG (Germany): an actual application of the VPF
Exhibit 8.14 The five forces analysis indicates a high competitive
discount
Value capturing
€
New entrants
3
Rivalry
Customer
power
Substitutes
Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2nd edition, © Pearson Education Limited 2008
Slide 8.19
8.3 Sony BMG (Germany): an actual application of the VPF
Exhibit 8.15 Perceived use value has to be extremely high to achieve
profitability
Value capturing
Value creation
Effects on competitive
discount
 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
Value drivers
 Handset
 UMTS
 Concept design, artist
roster
 Brand
 Over-the-air distribution
1
3
Cost drivers
 Wholesale costs
 Increased MNO service fees
(due to high supplier power)
 Royalties
 Advertising costs
 Retail margins
 MVNE fees
2
Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2nd edition, © Pearson Education Limited 2008
Slide 8.20
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.
Tawfik Jelassi and Albrecht Enders, Strategies for e-Business, 2nd edition, © Pearson Education Limited 2008