Making Value Migrate Your Way | 2014 Global Leadership Summit
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Transcript of Making Value Migrate Your Way | 2014 Global Leadership Summit
Making value migrate your way
Global Leadership Summit Insight Session
London, June 24, 2014
Michael G. Jacobides
© Michael G. Jacobides
The changing dynamics of value creation and capture:
We don’t just compete in a sector. We compete for a sector
• Sectors dis-integrate, split off, re-integrate, split off again
• From Financial Services to Cars to Pharma to Computers
• New players invade from different sectors or countries
• With new ways of making money, changing the landscape
• Rules of the game change, leading to massive value migration
• Competition is no longer within a sector, it is to shape a sector
© Prof. Michael G. Jacobides
Look at the hot companies of today…
&
…and the reactions of concerned incumbents….
&
© Michael G. Jacobides
© Prof. Michael G. Jacobides
Tracking value creation and value migration
© Michael G. Jacobides
Trieste Clevernet / Nobels Event
© Prof. Michael G. Jacobides, 2007
© Michael G. Jacobides
Trieste Clevernet / Nobels Event
© Prof. Michael G. Jacobides, 2007
© Michael G. Jacobides
A few things to remember:
It doesn’t matter how good you are. It matters what you do
• Firms often too focused on own segment and competitors
• Need to figure out how the world around you changes
• Value shift around the value chain, not just between offerings
• And firms strategically shape their industry architecture & playscripts
• The way you create and capture value changes over time
• Your strategy from yesterday doesn’t make sense today
© Michael G. Jacobides
Learning from disruption that didn’t happen in cars:
Outsourcing without value migration, despite the hype
• “The dawn of the mega-supplier” – new giant suppliers will quickly move to
“designing vehicle systems that can be ‘standardized’ within and across OEMs
– in other words, used in multiple models of an OEM and eventually by multiple
OEMs.” (Bain and Company, 1997)
• “Chrysler has played the role of the Compaq of the auto industry. Just as
Compaq helped to drive the entire computer industry to a horizontal/modular
structure, Chrysler’s strategy allows suppliers – even Ford’s and GM’s internal
suppliers – to strengthen their capability to develop whole automotive
subsystems, thereby pushing the entire structure of the industry from vertical
toward horizontal.” (Fine, 1998: 62)
© Michael G. Jacobides
©2010 Deloitte Turkey. Member of Deloitte Touche Tohmatsu Limited
Key Points
• Shift in profit allocation from
assembly to information
technology and components
• New “players“ from different
industries such as energy, IT
and electronics
• Change from one-to-one
towards multi-multi structure
• Lower entry barriers
With the transformation to e-mobility there will be a significant
change in the value chain of the automotive industry
Initiated by automaker
integration
Affiliated
Supplier
Affiliated
Importer /
Dealer
Automaker
A
Affiliated
Supplier
Affiliated
Importer /
Dealer
Automaker
B
Affiliated
Supplier
Affiliated
Importer /
Dealer
Automaker
C
Initiated by various players’
specialization
Sale
s
Man
ufa
ctu
rin
g
Part
s
Assem
bly
R
&D
Automaker
A
Automaker
B
Automaker
C
Independent Research Companies
(e.g. Engineering Companies
Independent Suppliers
(e.g. Battery, Motor, Inverter suppliers)
Independent Multi-brand Dealers
Value Chains
Conventional Vehicle EV
©2010 Deloitte Turkey. Member of Deloitte Touche Tohmatsu Limited
With “modularization-” and “plug-and-play-” concepts the role
and power of suppliers in the industry will significantly shift
• Definition of global standards enable “Modularization”
• Connectivity without calibration - “Plug-and-Play”
1. Supply to two or more automakers
2. Achieve economies of scale (similar to semiconductor industry)
3. Mega-suppliers would become profitable, while automakers producing
relatively small volumes of EVs would be less so
Battery Motor Inverter CPU HDD Graphic
s
Lisbon Seminar October 2007
© Michael G. Jacobid
es
© Michael G. Jacobides
Lisbon Seminar October 2007
© Michael G. Jacobid
es
© Michael G. Jacobides
© Michael G. Jacobid
es
© Michael G. Jacobides
What explains when sectors transform and value migrates?
• Principles that explain the dynamics of value migration
• …but also account for value sticking around!
• Study sectors that shifted, and sectors that managed not to
• Continuous struggle under the surface – what determines who wins?
• Consider the forces that explain stasis, change, and disruption
• And provide advice on how to adapt your strategy
• Replaceability and mobility. Let’s see how these work for wine & coffee
© Michael G. Jacobides
© Michael G. Jacobides
© Michael G. Jacobides
© Michael G. Jacobides
© Michael G. Jacobides
© Michael G. Jacobides
© Michael G. Jacobides
Computers, Cars, and certification
• In computers, IBM unwittingly “standardized itself out” of success
• Creating a more open value chain, allowing its value-add to diminish
• “Intel Inside” campaign, though accidental, shifted fortunes
• And work with Microsoft. As for HDD… Forget it!
• In cars, OEMs fought hard the battle of branding the experience
• Components invisible, through strategic action
• (Though car makers were lucky and started from a stronger place)
© Michael G. Jacobides
© Michael G. Jacobides
© Michael G. Jacobides
Cars vs computers: Industry structure & replaceability
© Michael G. Jacobides
Automobiles: Hierarchical Structure Computers: A set of verticals
© Michael G. Jacobides
Are (electric) cars becoming computer-like?
Apple, Inc
So rather than cars becoming computers, computers are
becoming cars. Witness Apple….
Our interviews with a number of Apple’s suppliers suggest that Apple
‘atomizes’ its supply chain to an unprecedented degree, breaking up
component processing steps across multiple vendors. This aids in preserving
product secrecy – since even the suppliers themselves often do not know
how Apple will ultimately use a component – and gives Apple inordinate
control over the manufacturing process, as if Apple were vertically integrated
and owned the factors of production. (Sanford Bernstein Research, March
2012)
© Michael G. Jacobides
Apple and the architecture of its ecosystem
• A “band of control” around
the user
• = iPhone by Apple
• Large integral “core”
• Little use of Open Source
• Proprietary formats for
complementors
© Michael G. Jacobides
…and the counter-attack from Google: a different architecture
• Open source everywhere
• Complementors design
and make handsets
• Search engine replaces
Store
• = Android by Google
© Michael G. Jacobides
Back to differentiability & mobility:
Google, Android & Samsung
© Michael G. Jacobides
What I want you to remember:
Differentiability and replaceability rule value migration
• The more differentiable you are, the better for you (& friends)
• Don’t think narrowly about yourselves, but broadly about the segment
• The more replaceable others become, the more you keep value
• Fight with standards, with practices, with clever positioning
• Some settings change easily, others manage to fight back
• Question of luck, question of positioning, question of perspective
© Michael G. Jacobides
What does this mean for incumbents or challengers?
Jacobides & Macduffie, HBR, summer 2013, How to Bring Value your Way
© Michael G. Jacobides
What else happens as sectors shift?
• Market cap jitters, even as OCF slowly moves along
• There’s froth, and there’s scope to educate or fool the market
• Changes from new players do affect expectations and pricing
• Even w small share, established business model is challenged
• Firms face a new set of strategic dilemmas
• The “equity vs dividend” dilemma, and the burden of scope
© Michael G. Jacobides
Why unbundling can have profound effects:
Uncovering multi-speed sectors with uni-speed incumbents
© Michael G. Jacobides
Transportation/infrastructure Devices Apps, content, access
• Need for CapEx &
planning
• Fixed income, not equity
• Local, not global
• User, not driver
• EBITDA will decline
• Huge change velocity
• Skewed, variable
• Fully global
• Platform wars
• Convergence threat
• Highest change
• Ecosystem changes
• Mostly global
• Platform wars
• Control wars
What’s the problem of existing firms?
• Faced with an innovation, they freeze
• Faced with headcount / budget reduction, they turn inside
• Faced with a new model, they want to copy it
• Which, as airlines learnt, may be a very silly idea
• As the world changes, they cant adjust their habits
• Integrated mentality, rigidity: organizational pathologies
© Michael G. Jacobides
Success stories
If you want to innovate… study what works & what doesn’t
Failures
© Michael G. Jacobides
© Prof. Michael G. Jacobides
What separates the wheat from chaff?
• Supply-side mentality, forgetting about the customer’s choices
• What do your customers want and where will they source it?
• Self-absorbed vertically integrated focus
• Doing it all inside or wanting to acquire anything that shines
• Allowing its (understandable) organizational issues to take over
• In times of hardship, we focus inside; org design & governance rule
• Which is why entrepreneurs are finding it easier to succeed
• Though they, too, require a good map of value migration & capture
© Michael G. Jacobides
What should we do as value migrates?
• Have a clear map of our sector and its business models
• Defend our position, but start by adding more value than others
• Replaceability, differentiability, growth… judo tactics
• See what changes are best suited to our organization
• Don’t just react: take a bold position, re-think your model
• Value from reshaping sector or re-thinking your business (FI vs EQ)
• Help re-wire your organizations’ DNA
• Manage in the new ecosystem, align your responses
• Articulate a vision, change your habits
© Michael G. Jacobides
What an Australian Jewel Beetle can teach us
Julodimorpha bakewelli
© Michael G. Jacobides