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Value and Profits in Business Strategy

a seven-step method for improving the bottom line

Table of Contents

About the Author iii
About Agityne iii
Acknowledgements iii
Overview of the Book iv
Table of Contents vi
 

Part 1. Overview 1
1. Overview of the Seven-Step Method 3
     Introduction 3
     Step 1: Identify Initial Strategic Options 4
     Step 2: Map the Value Net 4
     Step 3: Identify the Value Drivers 8
     Step 4: Buyer Side and Potential Market Price 8
          Customer Value 8
          Value Adjusted for Risk 9
          Market Power 11
          Price Ceiling 12
     Step 5: Seller Side and Cost Structure 13
     Step 6: Optimize Profit 14
     Step 7: Create a Dynamic Business Strategy 17
 

Part 2. Theory 19
2. Introduction 21
     Motivation 21
     Status Quo and Challenges Today 22
     This Book’s Approach 25
     The Basic Profit Equation 27
3. Step 1: Identifying Initial Strategic Options 30
     A. Background and Constraints 31
     B. Key Strategic Questions 32
     C. Alternatives 33
     D. Evaluation 33
     E. Preparing for Implementation 34
4. Step 2: Mapping the Value Net 36
5. Step 3: Identifying the Value Drivers 43
     A. Type of Need 45
     B. Type of Interaction 47
          Supply Value Drivers 48
          Interaction Value Drivers 52
          Consumption Value Drivers 53
     C. Value Driver Protocols 59
     D. Mutual Benefit Patterns 60
     E. Identifying the most Important Value Drivers 62
6. Step 4: Buyer Side and Potential Market Price 66
     A. Estimating Value 66
     B. Adjusting the Value for Risk 69
     C. Estimating Market Power 75
     D. Estimating the Price Ceiling 81
          Price Ceiling 81
          Pricing in Competitive Markets 82
          Pricing Decision Factor 82
7. Step 5: Seller Side and Cost Structure 84
     A. Non-Monetary Income 84
     B. Cost Structure 84
          Internal Fixed Cost 85
          Internal Variable Cost 86
          Customer Fixed Cost 86
          Customer Variable Cost 87
          Strategic Considerations 87
8. Step 6: Optimizing Profit 89
     A. Evaluating the Profit Opportunity 89
     B. Interrelationship between Parameters 92
     C. Purchase Decision 94
     D. Aggregate Market 97
     E. Optimizing the Price 99
9. Step 7: Creating a Dynamic Business Strategy 101
     A. Evolution over Time and Anticipating Responses 101
     B. Dealing with Changes of External Origin 105
     C. Planning for Evolutionary Changes 107
     D. Preparing for Revolutionary Changes 108
     E. Developing an Alert System 113
     F. Regular Reevaluation of Strategies 114
10. Knowledge Management, Quantification and Modeling 115
     Approaches to Knowledge Management 115
          Intuition Method 116
          Modeling Method 116
          Selecting an Approach 117
          A General Approach 121
     Quantification 122
          The Electronics Industry 123
          Currencies of Value 124
          Money 125
          Non-Monetary Value 127
          Quantifying Risk 129
          Quantifying Market Power 129
          Examples and Practical Approaches 130
     Modeling 131
11. Organizations 133
     Value Net Gradients 134
     Value Net Inertia 135
     Enabling Mindset and Technological Cultivation 135
          Enabling Mindset 136
          Technological Cultivation 139
12. Radical Innovation 142
     Business Process Development 143
     Value Net Development 146
          Customers 147
          Business Collaborations 149
          Business Organizations 149
          Teams 155
 

Part 3. Examples and Applications 157
13. Example 1: Introducing a New Business Publication 159
     Step 1: Identifying Strategic Options 159
          Background 159
          Objectives 168
          Strategic Alternatives 168
          Two Initial Strategies 175
          Delivery Options for Custom Tailored Publication 177
     Step 2: Mapping the Value Net 178
     Step 3: Identifying the Value Drivers 180
     Step 4: Estimating the Potential Market Price 180
          Mass Market Magazine 180
          Custom Tailored Publication 182
          Potential Market Price 185
     Step 5: Analyzing the Cost Structure 187
     Step 6: Optimizing the Profit 188
     Step 7: Creating a Dynamic Business Strategy 191
          Mass Market Magazine 191
          Custom Tailored Publication 193
     Publication Case Conclusions 194
          Mass Market Magazine 194
          Custom Tailored Publication 194
          Comparing the Investment Opportunities 194
14. Example 2: Stockholder Value 196
     A. Interpreting the Stock Market 196
     B. Bottoms up Approach Based on Strategy 201
15. Three Types of Economies 204
     Comparing Scarce Resource, Knowledge and Network Economies 204
          Value Nets 208
          Sources of Value 208
          Risk 209
          Market Power 210
          Cost and Manufacturing Methods 211
          Strategies 213
          Company Examples 215
16. Example 3: Inflation and Exchange Rates 217
     Foreign Exchange Rates 217
     Inflation and the Market Price of Money 220
          A Bottoms-Up Approach to Inflation 220
          A Top-Down Approach to Inflation 224
     U.S. Industry Sectors 227
17. Historical and Geographic Evolution 232
          Changes through Time 236
          Long-Term Impact on Standard of Living 237
18. Wider Perspectives 239
     Fairytales 239
     Games 241
     Other Fields 242
 

19. Conclusions 247
     Success Strategies 247
     Trends and Future Opportunities 249
Summary 252
     The Seven-Step Method 252
          Step 1: Initial Strategic Options 253
          Steps 2-3: The Value Net and the Value Drivers 253
          Steps 4-6: Profit Optimization 254
          Step 7: Developing a Dynamic Strategy 256
     Applications 257
     Innovation 258
Appendix: Foundations for the Work 259
     Foundations in Economy and Finance 259
     Foundations in Strategy 266
References 269
List of Terms 281
List of Symbols 283
Index 284