In today’s context, where digital transformation has become crucial for companies’ competitiveness, strategy plays a fundamental role. Strategy is often perceived as complex and reserved for highly experienced senior executives. However, as Felix Oberholzer-Gee points out in his article for the Harvard Business Review, strategy is, at its core, a plan to create value. This value creation is the heart of any successful strategy.
The Essence of Strategy: Creating Value
Strategy should focus on how a company plans to create value for its customers, employees, and suppliers. According to Oberholzer-Gee, the concept of value can be visualized using a “value stick,” where the top represents the customers’ willingness to payand the bottom represents the suppliers’ and employees’ willingness to sell. The difference between these two points is the value that the company creates.
Strategy and Financial Results
It is common to focus on financial outcomes such as profit margins and profitability, but these are merely consequences of a good strategy. A true strategy looks forward, planning how to create value. A crucial aspect is understanding that value creation refers not only to products or services but also to relationships with employees and suppliers. An effective strategy considers how to increase customers’ willingness to pay and how to decrease employees’ and suppliers’ willingness to sell.
Increasing Willingness to Pay
There are three main ways to increase customers’ willingness to pay:
1. Product or Service Quality: Improving the quality of what is offered will always increase willingness to pay.
2. Complements: Additional products or services that enhance the value of the main product, such as coffee capsules for an espresso machine.
3. Network Effects: The popularity and widespread adoption of a product or service can increase its perceived value, as seen with social media platforms.
Reducing Willingness to Sell
For employees, willingness to sell refers to the minimum acceptable compensation. Thiswillingness can be reduced through two approaches:
1. Improving Compensation: Offering higher salaries.
2. Improving the Work Environment: Creating better working conditions, such as training programs, more generous promotion rules, and job flexibility.
Improving the work environment not only redistributes value within the company but also truly creates additional value by making employees more satisfied and engaged.
Case Study: Best Buy
A concrete example of how a value-creation-focused strategy can transform a company is the case of Best Buy. A decade ago, most analysts predicted its bankruptcy. However, through strategies to increase customers’ willingness to pay and reduce employees’ willingness to sell, Best Buy managed to reverse its situation.
Best Buy implemented local store shipping to improve delivery times, increasing customers’ willingness to pay. Additionally, it introduced the “store within a store” concept with brands like Microsoft and Samsung, which not only reduced costs but also improved employee specialization and satisfaction, reducing their willingness to sell.
In summary, an effective strategy for digital transformation projects must focus on creating value before capturing a part of that value. This involves increasing customers’ willingness to pay and reducing employees’ and suppliers’ willingness to sell. By adopting this perspective, companies can not only improve their financial results but also build stronger and more sustainable relationships with all stakeholders involved.
Adopting a value-creation-based strategy is crucial for long-term success in an increasingly digital and competitive world.
Sources
1. Oberholzer-Gee, Felix. 2021. “Better, Simpler Strategy,” Harvard Business Review.
2. Oberholzer-Gee, Felix. 2022. “What Is Strategy? It’s a Lot Simpler Than You Think.” Harvard Business Review. Available at: https://www.youtube.com/watch?v=o7Ik1OB4TaE&t=201s&ab_channel=ColumbiaBusinessSchool
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