Decision Model Innovation: The Value Capture Perspective (=the Dark Side of the Moon)

Warning: If you are a customer, do not read further:-!

Okay, you don't want to listen. So let me show you the 'dark side of the moon' in the corporate world.

Why are 苹果 , Facebook Meta , Google, and other companies so valuable (according to the stock market)?

Their answer: Because we CREATE so much value! ...and many academics and consultants are joining their story by teaching us the latest innovation management concepts, including #DesignThinking, #ValueCurves etc., so that we can create ever-growing value for our customers. I am confident that you can name at least a few innovation concepts that promise to help you to create more value for your customers.

My answer: Because they excel at value CAPTURING!

Question: Can you name me any framework that specifically promises its users to improve value capturing? Most probably not.

Next question: Do you know what value capturing includes, and are you aware of the different approaches to achieve it? If not, you are not alone.

When I started teaching #StrategicManagement in Macquarie Business School 's MBA program, I realized that most students know much about value CREATION but little about value CAPTURE. Let me change this in the next section.

Value Capturing: A Primer

Most business model frameworks have four elements: Customer Segment, Value CREATION, Value CAPTURE & Value DELIVERY.

According to these popular business model frameworks, Value CAPTURE includes:

• The #BusinessModelNavigator asks “WHY” a customer is willing or forced to pay for the value that the company creates (i.e. value proposition). This money flow is represented in a company's Revenue (and Cost) Model.
• The #HBS Value Capture element answers the question, “why won’t we be copied?”. It basically searches for the sources of uniqueness that allows companies to become as much monopolistic as possible…with a positive impact on the company's profit margins.?
• Value CAPTURE: Although the Cost Structure & Revenue Streams elements are often somewhat neglected in strategy discussions based on the #businessmodelcanvas, they represent the most important elements to be financially sustainable in the long run.?

For my MBA students (and now you), I have developed a value CAPTURE framework that summarizes three major ways to CAPTURE value:

Approach #1: GAP CLOSURE between the Value CREATED and PRICE: Companies can maximize their Value CAPTURE by closing the gap between the (individual) willingness-to-pay of their customers and the sales price they charge each of them. This primarily includes innovative pricing strategies but also the application of network effects.

Approach #2: MINIMIZING the Value CREATED by Competitors: Companies can maximize their value CAPTURE by systematically preventing their competitors to CREATE more value.?This can include (in)formal market entry barriers, the creation of unique solutions based on patents, trademarks or proprietary algorithms, leveraging brands, and increasing switching costs.?

Approach #3: COST REDUCTIONS: Companies can maximize their value CAPTURE by reducing their Total Cost of Production. While this is the most straightforward approach, it very fast reaches its technical limits (e.g. economies of scale) when the value created for the customers remains stable.

Cost reductions (e.g. low salaries for employees, price pressure on suppliers), minimizing competition or trying to get every penny from your customer's willingness-to-pay (e.g. via individual pricing concepts) is not what a company is interested to be known for. However, these are the major ways to CAPTURE value (i.e. optimize your profit margins) but no company wants to be famous for these among their customers. That's why I call this the dark side of the moon. It's part of the moon but no one wants to shed light on it.

Value Capture & Decision Model Innovation

While Decision Model Innovation is certainly a great approach to CREATE value for customers (i.e. increase their willingness-to-pay) and avoid commoditization, it can be very useful in CAPTURING value as well.

For example, Decision Model Innovation can help you to errect market entry barriers and therefore preventing (more) competition (i.e. Approach #2) through the development of better decision-making models for customers that competitors can't keep up with (e.g. 谷歌 's search engine). Another way is to integrate your decision-making support for customers into their IT architecture that it is hard to get your solution out again without a significant loss of time, resources and an increase of operational risks (this 'lock in' business model pattern is basically why many companies still work with SAP 's ERP solutions). Similarly, Decision Model Innovation can help you with improving your pricing strategies for different customer segments (i.e. Approach #1 as some might value your decision-making support much more than the actual product or service that you offering along with it while for others the decision-making support is just an add-on feature. I personally like the summary of what the author Stefan Michel called 'value CAPTURE innovations' in his HBR article about 'CAPTURE more value'. In this article, he describes 15 different value CAPTURE innovations based on pricing mechanisms (or business model patterns) and Decision Model Innovation can be applied to many of them (e.g. remember my example of the wholesaler of bananas (newsletter issue no. 3) that can apply the decision-making support to close the gap between a retailer's willingness-to-pay (in the form of a risk premium) and the price it can charge). Finally, you can certainly also apply Decision Model Innovation to reduce costs in your own organisation in the form of support for employees to make better decisions - be in marketing, production, sourcing or even innovation.

These are just a few examples...I am totally convinced that your company might already apply?Decision Model Innovation?in one way or the other but is not aware of its actual potential and what it requires in terms of the transformation of thinking, perspectives and competencies.

If you have questions about or examples of?Decision Model Innovations, please connect with?Dr. Roger Moser.

I want to thank?SatSure?for its continued support of this newsletter.?SatSure?is a great example of how Decision Model Innovation can lead to competitive advantages!