Michael G. Jacobides

John Paul MacDuffie

<article-ideainbrief class="article-ideainbrief">
 <h4 class="ideainbrief-title">Idea in Brief</h4>
 <div class="ideainbrief-contents">
  <h5>The Problem</h5>
  <p>In times of turbulence, profits have a way of migrating up or down the value chain, away from established companies. The iconic example: the early days of the PC, when value moved from manufacturers (IBM et al.) to suppliers (Wintel).</p>
  <h5>The Argument</h5>
  <p>This trajectory is not inevitable—witness the auto industry, where the incumbent carmakers have maintained a constant share of the industry’s market capitalization despite dire predictions to the contrary.</p>
  <h5>The Lessons</h5>
  <p>Successful companies such as Apple and Google—or the established carmakers—dominate by doing four things well: controlling the assets least likely to be commoditized; being the guarantor of quality to the end customer; staying in close touch with changing customer needs; and balancing the imperatives of growth and strategic control of the value chain.</p>
 </div>
</article-ideainbrief><p>The advent of the PC, in 1981, famously resulted in the wholesale reorganization of the computer industry. Within a few years value in that industry migrated from the manufacturers that assembled and marketed the computers to the suppliers upstream of two key components: the operating system, owned by Microsoft, and the microprocessor, owned by Intel. Those two companies quickly amassed market capitalizations that eclipsed those of IBM and the other OEMs that had dominated the market.</p>

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<p><span class="reprint">Reprint: R1307H</span> </p>
<p>The story of the PC industry has been etched in the minds of strategists as a template for how industries evolve in the knowledge economy. In the natural order of things, so the story goes, industries disaggregate as interfaces between various stages of the value chain become open and standardized, allowing value to migrate up or down the value chain. </p>
<p>But value migration away from established players doesn&#8217;t have to be inevitable, argue authors Michael Jacobides and John Paul MacDuffie. Auto manufacturers, for example, have kept a fairly constant share of their industry&#8217;s total market capitalization despite much recourse to outsourcing and intense competition in the sector. </p>
<p>Carmakers and other industry leaders like Apple and Google gain and hold on to strategic control and value in their industries in four key ways: </p>
<p> <strong>1. </strong>Controlling the assets least likely to be commoditized (and blocking others&#8217; efforts to do the same) </p>
<p> <strong>2. </strong>Serving as &#8220;guarantor of quality&#8221; to the end customer (including assuming responsibility for the entire product, even components made by suppliers) </p>
<p> <strong>3. </strong>Staying in close touch with changing customer needs (changes in the end consumer are often accompanied by shifts in who captures the most value in an industry) </p>
<p> <strong>4. </strong>Balancing the imperatives of growth and strategic control of the value chain </p>
<p>Through the lens of the auto industry, the authors look at how established players can defend value in their industries and how emerging players can change the competitive landscape to drive value their way.</p>

How to Drive Value Your Way

Reprint: R1307H The story of the PC industry has been etched in the minds of strategists as a template for how industries evolve in the knowledge economy. In the natural order of things, so the story goes, industries disaggregate as interfaces between various stages of the value chain become open and standardized, allowing value to migrate up or down the value chain. But value migration away from established players doesn’t have to be inevitable, argue authors Michael Jacobides and John Paul MacDuffie. Auto manufacturers, for example, have kept a fairly constant share of their industry’s total market capitalization despite much recourse to outsourcing and intense competition in the sector. Carmakers and other industry leaders like Apple and Google gain and hold on to strategic control and value in their industries in four key ways: 1. Controlling the assets least likely to be commoditized (and blocking others’ efforts to do the same) 2. Serving as “guarantor of quality” to the end customer (including assuming responsibility for the entire product, even components made by suppliers) 3. Staying in close touch with changing customer needs (changes in the end consumer are often accompanied by shifts in who captures the most value in an industry) 4. Balancing the imperatives of growth and strategic control of the value chain Through the lens of the auto industry, the authors look at how established players can defend value in their industries and how emerging players can change the competitive landscape to drive value their way.

How to Drive Value Your Way

Summary.

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