Lecture Ten (Revision): Outline

1. Lecture Ten (Revision): Outline • Value as a Consumer Surplus • Exchange Value • The Producer’s Surplus • Value in Use • Virtual Organisations. The Virtual Firm; Synergy Revisited • Managing Processes • Managing Knowledge • Managing Technology • Managing Relationships

2. Value as a Consumer Surplus • Bovet and Martha (2000) show that: The value proposition is the utility-creating product and/or service that a company offers to customers.

3. Value as a Consumer Surplus (cont’d)

4. Value as a Consumer Surplus (cont’d) Source: Walters (2002)

5. Value as a Consumer Surplus (cont’d) Source: Walters (2002)

6. Value as a Consumer Surplus (cont’d) • Customer Value = Benefits – Costs

7. Value as a Consumer Surplus (cont’d) Source: Walters (2002)

8. Exchange Value • Walters (2002) shows Exchange value is realised when the product is sold. It is the amount paid by the buyer to the producer for the perceived use value

9. Exchange Value (cont’d) Source: adapted from Buttery and Richter-Buttery (1997) and Kotler (2000).

10. Exchange Value (cont’d) Source: adapted from Walters (2002)

11. Exchange Value (cont’d) • McTaggart et al (1996) show that the formula for price elasticity of demand is percentage change in quantity demanded divided by percentage change in price.

12. Exchange Value (cont’d)

13. The Producer’s Surplus Source: Walters (2002)

14. The Producer’s Surplus (cont’d) Source: Walters (2002)

15. The Producer’s Surplus (cont’d) Source: Walters (2002)

16. The Producer’s Surplus (cont’d) Source: Walters (2002)

17. The Producer’s Surplus (cont’d) Source: adapted from Walters (2002), Gadeish and Gilbert (1998) and Slywotzky and Morrison (1997)

18. The Producer’s Surplus (cont’d) • Customer Solutions profit. • Product Pyramid profit. • Multi-component profit. • Switchboard profit. • Time profit. • Blockbuster profit. • Profit-multiplier model. • Entrepreneurial profit. • Specialisation profit. • Installed base profit. • De-facto standard profit. • Brand profit. • Specialty product profit. • Local leadership profit. • Transaction scale profit. • Value chain position profit. • Cycle profit. • After-sale profit. • New product profit. • Relative market share profit. • Experience curve profit. • Low-cost business design profit. Source: Slywotzky and Morrison (1997)

19. The Producer’s Surplus (cont’d)

20. Value in Use • Walters (2002) explains that value in use (or use value) is the perceived value that is available to the customer/ consumer when considering a purchase. Use value is a subjective assessment of the benefits available (the consumer surplus and the price actually negotiated with the vendor of the price/ service.

21. Value in Use (cont’d) • McTaggart et al (1996) identifies the opportunity cost of any action as the best alternative forgone by that action. This is illustrated below.

22. Old success factors Size Role clarity Specialisation Control New success factors Speed Flexibility Integration Virtual Organisations. The Virtual Firm; Synergy Revisited Source: Ashenkas, Ulrich, Todd and Kerr (1995) cited in Walters (2002).

23. Virtual Organisations. The Virtual Firm; Synergy Revisited (cont’d) Source: Walters (2002)

24. Virtual Organisations. The Virtual Firm; Synergy Revisited (cont’d) Source: Walters (2002)

25. Virtual Organisations. The Virtual Firm; Synergy Revisited (cont’d) Source: Walters (2002)

26. Virtual Organisations. The Virtual Firm; Synergy Revisited (cont’d) Source: Walters (2002)

27. Virtual Organisations. The Virtual Firm; Synergy Revisited (cont’d) Aaker (1998) states that achieving synergy between Strategic Business Units can lead to one or more of the following effects: • Increased customer value • Lower operating costs • Reduced investment

28. Virtual Organisations. The Virtual Firm; Synergy Revisited (cont’d) Aaker (1998) continues by identifying commonality in some of the following areas: • Customer and customer applications (potentially creating a systems solution) • A sales force or channel of distribution • A brand name and its image • Facilities used for manufacturing, offices, or warehousing • R & D efforts • Staff and operating systems • Marketing and marketing research

29. Managing Processes • Walters (2002) shows that a process is “the end-to-end series of linked, continuous, and managed activities (tasks) that contribute to an overall desired outcome or result.

30. Managing Processes (cont’d) Source: Walters (2002)

31. Managing Processes (cont’d) Source: Walters (2002)

32. Managing Processes (cont’d) Source: Walters (2002)

33. Managing Processes (cont’d)

34. Managing Knowledge • Walters (2002) defines knowledge management as the organisational capability which identifies, locates (creates or acquires), transfers, converts and distributes knowledge into competitive advantage.

35. Managing Knowledge (cont’d) Source: Walters (2002)

36. Managing Knowledge (cont’d) Source: Walters (2002)

37. Managing Technology Dodgson (2000) shows: • The development and use of technology are a key source of competitive advantage. • The complex, uncertain, and expensive processes of R & D, developing new products, and production and operations innovations will result in piecemeal, short-term, and potentially disruptive outcomes unless they are guided by a strategy that builds synergies and grows expertise cumulatively. • The globalisation of technology and markets requires companies to take a strategic approach to their technological investments. • The organisational structures that firms adopt to encourage technological development – for example, in the organisation of R & D – should follow the strategy pursued by the firm.

38. Managing Technology (cont’d) Source: Walters (2002)

39. Managing Technology (cont’d) Source: Walters (2002)

40. Managing Relationships • Walters (2002) defines Relationship management as the managerial activity which identifies, establishes, maintains and reinforces economic relationships with customers, suppliers and other partners with complimentary (and supplementary) capabilities and capacities so that the objectives of the organisation and those of all other partners may be bet by agreeing and implementing mutually acceptable strategies

41. Managing Relationships (cont’d) Source: Hutt and Speh (1998)

42. Managing Relationships (cont’d) Source: Walters (2002)

43. Managing Relationships (cont’d) Source: Walters (2002)

44. Managing Relationships (cont’d) Source: Walters (2002)

45. Managing Relationships (cont’d) Source: Walters (2002)