Michael Ryall

In his book Innovation and Entrepreneurship, Peter Drucker made this observation about industries that rely on knowledge-based innovation: “For a long time, there is awareness of an innovation about to happen….Then suddenly there is a near-explosion, followed by a few short years of tremendous excitement, tremendous start-up activity, tremendous publicity….Later comes a ‘shakeout,’ which few survive.”

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In 1979 Michael Porter&#8217;s five forces model transformed the field of strategy. But the 1996 article &#8220;Value-Based Business Strategy,&#8221; by Adam Brandenburger and Harborne Stuart Jr., may prove to be even more significant, as it applied mathematics to the evaluation of strategic decisions. Ryall, of the University of Toronto&#8217;s Rotman School of Management, now introduces a model of competitive strategy that is built on Brandenburger and Stuart&#8217;s mathematical work.
The value capture model (VCM) has an explanatory, predictive power that no other theory of competitive strategy can claim. It defines competition in an industry as a tension between the value generated from transactions that a firm undertakes with a given set of agents and the forgone value it could have generated from transactions with other agents. An important implication is that strategists must shift from looking at how a firm competes with other players to examining how players compete for a firm.
Work on the VCM is already revealing important insights to leaders who chart the strategic direction of their firms. A streamlined version with a reasonably full complement of input variables, bolstered by empirical research and further refinements, could illuminate the way to better business practices.

The New Dynamics of Competition

In 1979 Michael Porter’s five forces model transformed the field of strategy. But the 1996 article “Value-Based Business Strategy,” by Adam Brandenburger and Harborne Stuart Jr., may prove to be even more significant, as it applied mathematics to the evaluation of strategic decisions. Ryall, of the University of Toronto’s Rotman School of Management, now introduces a model of competitive strategy that is built on Brandenburger and Stuart’s mathematical work. The value capture model (VCM) has an explanatory, predictive power that no other theory of competitive strategy can claim. It defines competition in an industry as a tension between the value generated from transactions that a firm undertakes with a given set of agents and the forgone value it could have generated from transactions with other agents. An important implication is that strategists must shift from looking at how a firm competes with other players to examining how players compete for a firm. Work on the VCM is already revealing important insights to leaders who chart the strategic direction of their firms. A streamlined version with a reasonably full complement of input variables, bolstered by empirical research and further refinements, could illuminate the way to better business practices.

The New Dynamics of Competition

Summary.

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