Study note on value capture

Study note on value capture

References and some extracted points

Cliff Bowman and Véronique Ambrosini. 2000. "Value Creation Versus Value Capture: Towards a Coherent Definition of Value in Strategy" British Journal of Management, Vol. 11, 1–15 (2000).

"Resources may be capable of producing profits, but if the resource owner, not the firm, is able to capture this exchange value, firm profitability will suffer";

"Despite this important distinction between creation and capture, most contributors to the resource-based school focus their attention on barriers to imitation at the level of competing firms, rather than on the problems of retaining value within the firm. Their main concern is with the processes of capturing value from customers";

"...as Peteraf (1994) points out, there is no benefit to the firm if the value captured from customers is lost through resource suppliers bidding up the price of their resources to the point where they capture the differential value won from customers";

"Porter (1991, p. 108) addresses this issue: ‘successful firms are successful because they have unique resources. They should nurture these resources to be successful. But what is a unique resource? What makes it valuable? Why was a firm able to create or acquire it? Why does the original owner or current holder of the resource not bid the value away?’ Barney’s (1986b) response to this last question is to suggest that, in strategic factor markets, firms competing for strategic resources have different expectations about a resource’s value. As a result they will be prepared to pay different amounts for the resource";

"The amount of profit realized cannot be determined solely from an examination of processes within the firm. Although the source of differences in products produced (and their production costs) across firms is attributable to the particular deployment of resources peculiar to that firm, the amount of profit realized on exchange of those products is determined by: (1) comparisons customers make between the firm’s product, their needs, and feasible competing offerings from other firms; (2) comparisons resource suppliers make between the deal they have struck with this firm, and possible deals they could make with alternative buyers of their resource";

Sharon D. James, Michael J. Leiblein and Shaohua Lu "How Firms Capture Value From Their Innovations" 2013 39: 1123 Journal of Management.

"Although value capture mechanisms are often discussed in the literature, drawing distinc­tions across each mechanism requires precise definitions. Patents refer to legally granted rights to exclude others from making, using, selling, or importing an invention, for a limited time, within a given country. The use of secrecy as a protection mechanism refers to a firm’s efforts to protect the uniqueness of an innovation by withholding its technical details from public dissemination. These efforts enjoy legal protection as trade secrets when the underly­ing formula, method, technique, or process derives independent economic value from not being known and the owner of this information makes reasonable efforts to maintain its secrecy ....3 Lead time advantages result from early timing of developing and introducing an innovation .... . Complementary assets refer to supplementary assets such as manufacturing, distribution, marketing, or service that are used in conjunction with the know-how underlying a focal innovation to deliver value";

"Secrecy provides another mechanism firms may use to maximize the portion of the value they capture from an innovation";

"A significant subset of the literature regarding secrecy and value capture emphasizes the trade-off firms face between publicly disclosing technical details of an innovation and main­taining trade secrets. This trade-off has its roots in what Arrow (1962) called the paradox of disclosure. Firms must disclose technical details to signal the value of their innovations; however, once disclosed, technical knowledge becomes a public good, and receivers of that knowledge might appropriate its value without compensating the innovator";

"Firms must weigh the costs and benefits of pursuing lead time advantages as a value capture strategy. Early commitment to a course of action can provide firms with preemptive competitive advantages, but possible flexibility disadvantages, with respect to future invest­ment opportunities. In contrast, although late commitment can provide flexibility advantages, it also entails potential competitive disadvantages";

"The fourth basic value capture strategy emphasizes the importance of complementary assets. Conceptual work in this area is based on an assumption that valuable complementary assets are heterogeneously distributed across firms in a manner familiar to resource-based scholars who emphasize the role of endowments, prehistory, or initial heterogeneity. Given a weak appropriability environment, firms must assess whether complementary assets neces­sary to commercialize a technology are contractible (e.g., generic vs. specialized/co-special­ized) in strategic factor markets and then determine whether the nature of the technology warrants developing complementary assets internally versus contracting with a third party who owns or controls those assets";

Wolfgang Ulaga "Capturing value creation in business relationships: A customer perspective" Industrial Marketing Management 32 (2003) 677– 693.

"The measurement of value creation in buyer–seller relationships is still in its infancy, and a sound understanding of the concept is a prerequisite for developing reliable and valid assessment tools ... Emerging studies investigate relationship value based on dimensions derived from theory. However, a sound conceptualization grounded in managerial practice is missing";

"More recently, Mo¨ ller and To¨rro¨nen (2003) suggest to conceptualize value in a supplier–customer relationship along three dimensions: the supplier’s efficiency function, the effectiveness function, and the network function. The efficiency function refers to the efficacious use of resources in a business relationship. Effectiveness refers to an actor’s ability to invent and produce solutions that provide more value to customers than existing offers. The network function finally takes into account the potential of value creation in the larger network beyond the dyadic supplier–customer relationship";

"When investigating relationship value, researchers may draw on the existing literature on vendor performance evaluation in industrial marketing (Hutt & Speh, 2001), purchasing (Lehmann & O’Shaughnessy, 1982; Timmerman, 1986), and supply chain management .... For example, Hutt and Speh (2001) mention key criteria such as ‘quality,’ ‘service,’ and ‘price.’";

Christos N. Pitelis "Co-Evolution of Organizational Value Capture, Value Creation and Sustainable Advantage" Organization Studies 2009 30: 1115.

"In their thoughtful introduction Lepak et al. point out that ‘value creation is a central concept in the management and organization literature’ and that value creation is ‘not well understood’ (Lepak et al. 2007: 180). They suggest that ‘value creation depends on the relative amount of value that is subjectively realised by a target user (or buyer) who is the focus of value creation’ (Lepak et al. 2007: 182). They proceed to discuss the process of value creation and the mechanisms that allow the creator of value to capture it";

"Organizational ‘value’ can be conjectured or realized. Conjectured value is what an organization believes it can engender by undertaking a certain action, for example an innovation or a transactional activity. Conjectured value becomes realized through sale in the market. At the individual level, such as that of a firm, value created is only realized as value captured—ontologically, value is created and only manifests itself as value captured. In this context, producer value creation equals consumer value creation at the point of exchange, for the agreed price. Prior to this, however, producer value created is only potential and it can well diverge from perceived consumer value (Kim and Mahoney 2002)";

"While realized value creation and value captured coincide at the individual level, this is not the case at more aggregate levels, such as the industry, the economy or the globe. For instance, potential value creation by one agent can be realized as value captured by another agent who, for example, is in a better position to capture such value through appropriate strategy (Teece 1986).Value creation and value capture need not coincide also because value can be co-created by other economic agents, including competitors, suppliers, customers and users";

Robert McGaffin & Mark Napier & Lucille Gavera 2013. "Value Capture in South Africa—Conditions for their Successful Use in the Current Legal Context" Urban Forum (DOI 10.1007/s12132-013-9211-3).

"International and local evidence shows that value capture instruments can be used to benefit the state, developers, investors, and households in a number of ways (Brown-Luthango 2011; Hendricks and Tonkin 2010; Huxley 2012). Revenue generated through value capture mechanisms can be used to provide infrastructure in underserved areas of the city and to make it more viable to extend existing infrastructure to some areas that might otherwise be passed over";

DOVEV LAVIE "Capturing Value from Alliance Portfolios" Organizational Dynamics, Vol. 38, No. 1, pp. 26–36, 2009 "Given the potential benefits of alliances, managers often assume that building a portfolio of alliances can enhance corporate performance. Surprisingly, this assumption has received limited support in empirical research, partially because of the high failure rates of alliances but also because some companies fail to capture value from successful alliances, leaving the lion’s share of the proceeds from the collaborative effort to their partners";

"My findings reveal that while dominant partners can contribute to value creation in alliances by furnishing substantial resources, they may capture a larger share of that value at the company’s expense. For example, many companies strive to become Oracle’s alliance partners, but as Oracle’s worldwide head of Alliances and Channels notes, these partners often realize that Oracle may have benefited at their expense";

"Value-creation strategies enable a company and its partners to generate value from their relationships by collectively pursuing shared objectives and extending the range of their value chain activities. Often, these activities cannot be implemented independently by individual participants in alliances";

".. value-capture strategies do not create new value but rather determine how much value a company can extract from its alliances relative to its partners. Although alliances are collaborative in nature, value-capture strategies often lead to tacit competition, also known as coopetition, in which partners competitively attempt to increase their share of the value generated in the alliance";