Business Model Innovation and Replication: Implications for the Measurement of Productivity
In this chapter we connect the strategy framework of value creation and value capture with the tools from the productivity literature to understand better how returns are distributed between different stakeholders in the business and how this distribution might evolve over time.
Value is created by the different players in the game. In the most basic setup, buyers, firms and suppliers are needed. The total value created by the interaction of a buyer, a firm and a supplier is distributed among these different players depending on the opportunity cost of the suppliers (SOC) and the willingness to pay of the buyers (WTP) and the relative bargaining power and ability of the players. Total value created by a transaction is the difference between this willingness to pay and opportunity costs. Competition among different buyers, firms and suppliers determines the bounds of the value captured by each of these different players (Brandenburger & Stuart, 1996; MacDonald & Ryall, 2004).
A change in strategy results in a change in the value created among these players and affects the distribution of value between them. As we illustrate in this chapter, the methodology of the productivity literature allows us to break down the change in value captured and allocate it to the different players in the game based on changes in their value creation and value capture potential. Over time these distributions are affected by the interactions between the players and changes in the market.
In a nutshell, our approach builds on the fact that in the absence of substantial changes in willingness to pay and opportunity costs, most of the variations in value creation over a period is driven by productivity changes (Chen, Delmas, & Lieberman, 2015; Lieberman et al., 2016a; Lieberman et al., 2016b) It is thus possible to use productivity changes to provide some (quantitative) answers to the fundamental strategy question of how value is created and distributed in a firm. Related to our work, Grifell-Tatjé and Lovell in Chapter 9 of this Handbook also rely on a "Accounting" model to study value creation at the firm level.
García-Castro, Roberto; Lieberman, M.; Ricart, Joan Enric; Balasubramanian, N., "Business Model Innovation and Replication: Implications for the Measurement of Productivity". Oxford Handbook of Productivity. (Forthcoming). 2017.