Strategy in Three Minutes. Episode Four.
1. Strategy and Value Exchange
Value Chain and Value Exchange
Michael Porter coined the Value Chain concept in 1985.
He stated that every company is a set of activities that aim to create value for its customers.
The concept is often visualized as a line, running from the raw materials to the products for the customers.
But there are some ‘buts:’
[1] Business processes (or activities) never look like lines going from left to right.
[2] Though customers are the main stakeholders, they are not the only ones. A company must deliver value for employees, suppliers, shareholders, and other stakeholders.
[3] We shouldn’t consider the processes inside an organization in isolation from the processes that connect it with the other organizations – suppliers, banks, subcontractors, etc.
[4] A company not only creates value for customers but also gets value from them, not just in money but also through insights and feedback.
So, the Internal Value Network can be a better definition than the Value Chain.
The internal Value Network is a set of business processes or Value Waves, that:
[1] Deliver value for key stakeholders.
[2] Connect the company with the other organizations.
Contemplation questions:
[1] Do you have a map of your key processes?
[2] Do they deliver more value to stakeholders than your competitors?
[3] What can you do to improve the key processes?
[4] What processes in your Value Network capture more value than they create?
[5] What strategy could let you make your Value Network stronger?
2. Customer cognitive biases: Why customers don’t switch to your product
Once, Daniel Kahneman, Jack Knetsch, and Richard Thaler conducted an experiment.
Students were given a mug and then offered the chance to sell it or trade it for an equally valued alternative (pens).
The amount participants required as compensation for the mug once their ownership of the mug had been established ("willingness to accept") was approximately twice as high as the amount they were willing to pay to acquire the mug ("willingness to pay").
We love what we have more than we theoretically could have.
The scientists called this the Endowment Effect.
When your clients tell you that they’re fully satisfied with the solution they have, this may happen because of this effect.
They value what they have more than what you offer them – even if your product is better.
A bird in the hand is better than two in the bush.
You need to demonstrate many advantages of your solution to convince them to give it a try.
Or it may have only one edge, but it must be a killer advantage.
Contemplation questions:
[1] How many advantages does your product have?
[2] Are these edges clear, obvious, and convincing?
[3] How could you change the way you communicate these advantages?
[4] What could you do to convince customers to try your product? How about a free trial period?
Check out my new book, Red and Yellow Strategies: Flip Your Strategic Thinking and Overcome Short-termism, here.
3. Trend of the week: Are you a freelancer? You’re in a big company!
Nearly half of the world’s workforce are now considered freelancers.
Some stats by TechReport:
1.57 billion people out of 3.38 billion workers across the globe, or nearly 46.7%, are freelancers.
As of 2023, the US alone had up to 73.3 million freelancers, and this number is estimated to rise further, reaching 76.4 million by 2024 and 90.1 million by 2027.
Typical freelancers (36.1%) spend over 20 hours freelancing weekly.
According to predictions, the market size of freelance platforms will hit $9570.3 million in 2030.
An average freelancer earns roughly $47.71 in the United States. On average, freelancers earn an annual income of $99,230.
As of August 2024, 50 countries have a digital nomad visa program (compared to only three in 2020).
We need to take these numbers with a grain of salt.
In such statistics, a freelancer is any person who is not employed. But there is a difference between a digital nomad, a DoorDash delivery driver and a guy who’s looking for a full-time job but is currently taking on some side hustles.
Moreover, some freelancers or self-employed would be happy to have full-time employment, but it's just too hard in their countries.
Contemplation questions:
[1] Do you take advantage of this trend?
[2] Do you hire freelancers to handle any tasks for your business?
[3] Do you consider going freelance yourself?
Read also: How To Spin the Flywheel: Three Steps to Skyrocket Your Business
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I enjoyed reading this roundup of three important concepts, Svyatoslav, but I still agree with Michael Porter and Roger Martin - If you're not creating value for end-user clients, you won't have a business for very long, regardless how happy your other stakeholders are.
Yes, you have to create value for those other stakeholder groups, but I would use the analogy of a camera – stakeholders are out there, and you have to take care of them, but only by keeping your focus on customers in ways that work for the business will you be able to sustain and grow your company.