The Value Net Framework, also known as Coopetition Framework is an analytical strategy tool developed by Adam Brandenburger and Gary Nalebuff in 1996, combining strategy and game theory, in order to describe and analyze the behavior of multiple players within a given industry or market. The Value Net Framework is an alternative to Porter’s Five Forces framework, extends the five forces framework more general by examining the role of complementors.
The frameworks fundamental idea is that cooperation and competition coexist. Cooperation and competition are both necessary and desirable when doing business. Cooperation is required to increase benefits to all players (focus on market growth), and competition is needed to divide the existing benefits among these players (focus on market share).
Co-opetition is a neologism representing the ambivalence of competition and cooperation in business relationships. Co-opetition is part competition and part cooperation. It describes the fact that in today’s business environment, most companies can achieve more success in a dynamic industry than they ever could working alone. Specifically, when companies work together, they can create a much larger and more valuable market than they ever could by working individually. Companies then compete with each other to determine who gets the largest share of that market. Co-opetition allows for the real-world business situation that there can be multiple winners in the marketplace. Business, unlike war, is not a winner takes all proposition. The objective is to maximize your return on investment – regardless of how well or how poorly other people or other companies perform.
‘‘Co-opetition recognizes that business relationships have more than one aspect. As a result, it can occasionally sound paradoxical. But this is part of what makes co-opetition such a powerful mindset. It’s optimistic, without being naive. It encourages bold action, while helping you to escape the pitfalls. It encourages you to adopt a benevolent attitude towards other players, while at the same time keeping you tough-minded and logical. By showing the way to new opportunities, co-opetition stimulates creativity. By focusing on changing the game, it keeps business forward looking. By finding ways to make the pie bigger, it makes business both more profitable and more personally satisfying. By challenging the status quo, co-opetition says things can be done differently – and better.’’ – Adam Brandenburger and Barry Nalebuff
Components of Value Net Framework
Any company (or industry) operates in an environment having four main groups that influence the course of any business. These four groups are:
- Customers buy your company’s products and services, in exchange for money.
- Suppliers provide resources to your company, in exchange for getting paid.
- Competitors offer substitutes (direct or indirect) to your company’s products and services. Note that your company’s competitors compete both on the customer side (offering similar products and services) and on the supplier side (buying similar resources).
- Complementors provide products or services that allow a customer to get more value out of your products or services if they buy both. Again, there is a similar dynamic at work on the supplier side.
The Value Net Framework is a schematic map designed to represent all the players in the game and the inter-dependencies among them. Interactions take place along two dimensions. Along the vertical dimension are the company’s customers and suppliers. The vertical dimension (suppliers-company-customers) is the basic source of value (or economic surplus) creation. Along the horizontal dimension are the players with whom the company interacts but does not transact. They are its competitors and complementors. Competitors reduce the company’s added value along the vertical axis and complementors increase your added value along the vertical axis. Brandenburger and Nalebuff state that “complementors are just the mirror image of competitors.” Customers value your product more when there are complementors whereas they value your product less when there are substitutors. Understanding this relationship highlights a deficiency in current competitive practices – only focusing on how to eliminate one’s competitors. Rather organizations should also attempt to develop commodity complementors which in the long-term increases an organization’s overall value to a customer.
Using the Value Net Framework
The Value Net Framework describes the various roles of the players. It is possible for the same player to occupy more than one role simultaneously. Designing the Value Net for business is the first step toward changing the game.
According to game theory, the game has five elements: players, added values, rules, tactics, and scope. To change the game of business, you have to alter one or more of this five elements.
- Players: The obvious first task is to categorize who the relevant players are and what roles they play. In terms of shaping strategy, a company should think about whether bringing in additional players can work to its advantage (additional suppliers to decrease costs, additional complementors to increase the value of the product to consumers). Questions to ask in this context are:
- What are the opportunities for cooperation and competition in your company’s relationships with customers and suppliers, competitors and complements?
- Would your company like to change the cast of players? In particular, what new players would your company like to bring into the game?
- Who stands to gain if your company become a player in a game? Who stands to lose?
- Added Value: Identify your company’s added value from the perspective of each of the market participants. Trying to raise your added value or lower the added values of other players can make yourself a more valuable player. Some ways to raise your added value are tailoring your product to customers’ needs, build a brand, use resources more efficiently, etc. One the other hand, creating competition among your suppliers, controlling production to generate shortage of your products, using commodity parts in your products, etc, are some possible ways to lower the values of others. Questions to ask in this context are:
- What is your company’s added value?
- How can you increase your company’s added value? In particular, can you create loyal customers and suppliers?
- What are the added values of the other players in the game?
- Is it in your interest to limit their added values?
- Rules: Each industry and market has rules and regulations. Some are written and enforced by law, some unwritten but generally accepted practices. An example of that could be a “most favored nation” clause where a customer insists in a contract with a supplier to get the best price that any other customer might also get. Questions to ask in this context are:
- Which rules are helping your company? Which are hurting?
- What new rules would your company like to have? In particular, what contracts do you want to write with your company’s customers and suppliers?
- Do your company have the power to make these rules? Does someone else have the power to overturn them?
- Tactics: Tactics are defined as “actions that players take to shape the perceptions of other players”. The game of business is played in an arena of uncertainty, where each of the players has an idea (perception) of the situation and strategies of the other players, but ultimately is uncertain about the reality of those players’ situations and strategies. Questions to ask in this context are:
- How do other players perceive the game? How do these perceptions affect the play of the game?
- Which perceptions would you like to preserve? Which perceptions would you like to change?
- Do you want the game to be transparent or opaque?
- Scope: Scope describes the boundaries of the game. Managers should constantly evaluate the possibility of expanding or shrinking those boundaries. Often, a market is not isolated, but is linked to other markets. Plenty of recent examples have shown that software, hardware, media, e-commerce, advertising and telecommunications markets are either closely interlinked, or players in some markets have taken deliberate strategic moves to pro-actively link them. Questions to ask in this context are:
- What markets could potentially be linked?
- How your company could create value added from linking company’s products and services to that market?
- How that may affect the perceptions and actions of other players?