Session 1:

Here are some key concepts from the PDF on strategy and value creation:

 Strategy is the directions an organization takes for its business, including products, markets,
capabilities needed, etc. It guides the organization towards its vision and goals.
 Value creation is about creating something of value for customers that they are willing to pay
for, thereby generating revenues and profits for the firm.
 The evolution of strategy as a discipline went through various stages:
 Early basics focused on firm goals, SWOT analysis, business policies and plans
 Industry view - analyzed strategy from an outside-in perspective using frameworks like
Porter's 5 forces
 Transaction cost economics - looked at extended value chain and tradeoffs between
efficiency vs control
 Resource based view - focuses on a firm's unique resources as source of competitive
advantage if they are valuable, rare, inimitable and non-substitutable.
 Each evolution contributed to understanding value creation - from firm level, to industry
level, to extended value chain, to leveraging internal resources and capabilities.
 Strategy and value creation are interlinked - strategy aims to achieve vision/goals and sustain
performance via value creation. Value creation is a key lens for strategy.

Here are some more details on the key concepts from the strategy and value creation PDF:

Strategy as Directions:

 Strategy comprises the broad directions an organization sets for its business rather than
highly specific plans. This allows flexibility to explore opportunities.
 Strategic directions range from vision/mission statements to more granular business-level
and functional strategies.
 Shorter term strategies focus more on execution and implementation.
 There is a top-down flow from vision to implementation as well as bottom-up influence
based on emergent strategies.

Value Creation:

 Firms create value by converting inputs into outputs with higher market value, thereby
generating revenues and profits.
 Value creation happens via engaging with multiple stakeholders - suppliers, employees etc.
 Strategy aims to achieve vision/goals through sustained value creation and performance.
Value creation connects strategy to stakeholders and performance.

Evolution of Strategy:

 Early basics - Linked strategy to firm goals, SWOT analysis. Focus on planning. Value creation
in firm's plans and P&L.
 Industry view - Assessed strategy from perspective of industry forces using Porter's 5 Forces.
Enabled analysis of value creation and capture across industry.
 Transaction cost economics - Viewed extended value chain and tradeoffs between
transaction efficiency vs control.
  Resource based view - Firm's unique resources as source of competitive advantage if
valuable, rare, inimitable and non-substitutable. Links strategy to value creation through
distinctive activities.
 Each evolution enabled deeper understanding of strategy's linkages to value creation from
firm to industry to extended value chain to internal resources.

Here is a summary of the key points from the PDF on strategy and value creation:

 Strategy comprises the directions an organization sets for its business to achieve its vision
and goals via sustained value creation and performance.
 Value creation involves creating something of value for customers that generates revenues
and profits. It connects strategy to stakeholders and performance.

The evolution of strategy as a discipline went through phases:

 Early basics focused on firm goals, SWOT, business policies and plans. Value creation
reflected in planned revenues/P&L.
 Industry view analyzed strategy using frameworks like Porter's 5 Forces to understand value
creation across the industry.
 Transaction cost economics looked at extended value chain and tradeoffs between efficiency
vs control.
 Resource based view sees a firm's unique resources as source of competitive advantage if
they are valuable, rare, inimitable and non-substitutable. Links strategy to value creation
through distinctive activities.
 Each evolution enabled a broader understanding of strategy's linkages to value creation -
from firm to industry to extended value chain to internal resources.
 Strategy aims to sustain performance via value creation. Value creation is an important lens
for strategy. The two concepts are interdependent.
 Strategy has directional components as well as plan/target components. It flows top-down
from vision to implementation, and bottom-up based on emergent strategies.

Session 2:

 The economic view of value creation provides a mathematical and graphical construct to
understand the concepts of total value created, value captured, and consumer surplus.
 Total value created represents the maximum value or utility a consumer derives from consuming
a product. It includes both objective and subjective elements.
 Value captured represents the amount actually paid by the consumer for the product. It is the
total revenue received by the company.
 Consumer surplus is the difference between the total value created and the value captured. It
represents the additional value the consumer gets beyond what they paid.
 The price-consumption curve shows the relationship between price and quantity demanded. As
price decreases, quantity demanded increases.
 The concepts of total value, value captured, and consumer surplus are more complex and
subjective from a strategic perspective, but understanding the economic model provides a useful
foundation.
 These concepts will be a recurring theme in studying strategic value creation. Key takeaway is
value creation is centered on the customer, while value is realized by all entities in the value
chain.
 The economic model provides a useful way to understand the foundations of strategic value
creation in a structured manner. The concepts build on each other leading up to total value,
value captured and consumer surplus.

Session 3:

 The economic model of value covers utility, goods being of use to consumers, quantity consumed
driving utility, and price as a constraint on consumption.

Three key concepts in strategic view of value creation are:

 Use value - total perceived benefits from an offering

 Exchange value - price charged to the customer
 Consumer surplus - difference between use value and exchange value
 Use value includes functional/physical benefits as well as psychological/emotional benefits
associated with using a branded product. Brand associations influence use value.
 For fast moving consumer goods, emotional benefits become more important than functional
benefits alone. Brand identity represents the strategic intent and associations created for the
brand by its owner.
 The examples of Sensodyne, Colgate and Nike ads demonstrate how brand associations can go
beyond functional attributes to invoke aspirational qualities.
 The economic model provides context, but a strategic view examines firm-based value creation
through branded offerings that provide both functional and emotional benefits shaped by brand
identity.

Here is a more in-depth summary of the key points from the PDF:

Economic Model of Value

 Based on utility, goods being useful to consumers, and consumer seeking to maximize utility
 Quantities consumed determined by prices and income constraints
 Does not examine how firms create value through differentiated offerings

Strategic View of Value Creation

 Use Value: Total perceived benefits from a firm's offering, includes functional and emotional
benefits
 Exchange Value: Price charged to the customer for the offering
 Consumer Surplus: Difference between Use Value and Exchange Value

Use Value

 Includes product's physical/functional attributes as well as psychological aspects associated with

the brand
 Brand associations are a key influence on perceived use value
 Brand associations shaped by usage experience and brand communications
 For consumer goods, emotional benefits often more important than functional benefits alone

Brand Identity

 Strategic view of brand associations and values created by brand owner

 Example: Fabindia's brand identity built around bringing the Indian culture and traditions to
customers
 Economic model provides context, but strategic view looks at firm-based value creation through
branded offerings combining functional and emotional benefits shaped by brand identity.

The concept of Customer Benefit Experienced (CBE) is discussed in the PDF as an approach to
understanding Use Value, developed by Richard Priem.

Key points about Customer Benefit Experienced (CBE):

 CBE represents a customer-centric, demand-focused view of Use Value

 It looks at the comprehensive set of benefits that a customer experiences from using a
company's offering (product/brand)
 It includes both functional/physical benefits as well as psychological/emotional benefits
 Functional benefits relate to product performance, quality, features etc.
 Emotional benefits relate to the feelings and emotions associated with using the product/brand
 CBE encompasses the overall experience and all benefits derived by the customer from the
offering
 It provides a more complete view of Use Value than just looking at utility from product usage
quantities
 Most company resources/strategies work by influencing CBE to create value for the customer
 So in summary, CBE represents a strategic approach to understanding Use Value from the
customer's point of view, including both functional and emotional benefits experienced.

Okay, let me summarize some additional key aspects related to Use Value and Customer Benefit
Experienced (CBE) covered in the PDF:

 Brand associations shape CBE and Use Value through both actual usage experience as well as
brand communications like advertising. Both are important.
 For consumer goods, functional product attributes may become easy to duplicate over time.
Therefore, emotional benefits and brand associations become more crucial for differentiation
and value creation.
 CBE relates not just to individual product usage, but also the social and emotional impact of
using the brand. Brands provide value at both personal and social levels.
 While CBE represents the customer viewpoint, the firm shapes CBE strategically through brand
identity - the values, associations and positioning it wants to build for the brand.
 Brand identity is created by the brand owner, even if influenced by consumer brand perceptions.
It represents the strategic intent for the brand.
 The examples of Sensodyne, Colgate and Nike ads demonstrate how brand associations can be
linked to functional attributes but also go beyond them to connect the brands to aspirational
human qualities.
 So in summary, CBE provides a comprehensive view of use value and benefits experienced by
consumers, which firms shape through branding strategy and identity. This is a key perspective
for firm-based value creation.

Session 4:
The PDF discusses use value creation for customers in business-to-consumer (B2C) and business-to-
business (B2B) contexts.

B2C Use Value Creation:

Use value for consumers arises from functional, emotional, and self-expressive benefits provided by
brands. Strong brands like Harley Davidson shape consumer lifestyles and identities.

Use value can be co-created by consumers through their engagement with brands and brand
communities like the Harley Owners Group (HOG).

Retail environments like branded showrooms and e-commerce sites allow for greater consumer co-
creation of use value.

B2B Use Value Creation:

Unlike consumers, organizational buyers have multiple stakeholders spanning functions like R&D,
procurement, production, QA, marketing etc. Each views use value differently based on their
priorities.

For procurement, use value is stable supplies at contracted prices. For R&D, it is packaging innovation
capabilities. For marketing, it is meeting product promises to end consumers.

Suppliers need to understand and cater to use value across the organizational buying center to make
the sale.

Industry leaders like Tetra Pak adopt a solutions-orientation, leveraging domain expertise in
packaging and processing to provide differentiated use value.

Specifications mandated by buyers that only the supplier can meet at reasonable cost also create
unique use value while blocking competition. This requires working closely with beneficiaries in the
buying organization.

In summary, the reading provides frameworks to analyze use value creation in B2C and B2B contexts,
with examples illustrating co-creation of value and strategies adopted by leading suppliers.
Examination questions are likely to test application of concepts like customer value proposition,
buying center dynamics, and value co-creation.

how do they provide differentiated use value

The reading discusses several ways in which leading suppliers like Tetra Pak provide differentiated use
value to business customers:

Solutions-orientation: Leveraging expertise in packaging and food processing, Tetra Pak provides
value-added services and solutions for developing new products, improving existing ones, and
reducing costs. This allows for additional revenue streams that competitors cannot easily replicate.

Creating strong business brand: The solutions approach also deepens engagement with customers,
increasing switching costs. This reinforces Tetra Pak as a strong business brand based on domain
expertise, making it difficult for competitors to dislodge them.

Super-specs: Tetra Pak can potentially get customers to mandate specifications in packaging that only
Tetra Pak can meet at reasonable cost, effectively blocking competition. For example, an extremely
stringent bacteria count specification for milk packaging. This requires working closely with the right
stakeholders like R&D or quality assurance in the customer organization.

Segment exclusion: Tetra Pak can develop certain high-value use elements that tapped customer
needs so well that competitors are excluded from those segments. For example, a packaging feature
that extends shelf-life so much that it enables access to new remote markets.
In essence, Tetra Pak aims to maximize customer value while minimizing competition. Domain
expertise, solutions provision, strategically mandated super-specs and segment exclusion help create
differentiated use value vis-a-vis rivals.

Session 5:
 It discusses the aseptic packaging industry in India with players like Tetrapak, Asepto (Uflex),
European and Chinese exporters.
 It examines value creation options and strategies for these players based on use value and
exchange value. Asepto can focus on tailored value propositions for value seekers.
 It explains value creation from the perspective of scale - tapping multiple customers versus a
single customer. Concepts like network effects, single-sided and multi-sided platforms are
covered.
 For multi-sided platforms like operating systems, value is created for all users but focus should be
on final consumer for network effects. Platforms need to maximize user base and variety.
 Strategic necessity in India is to tap large and expanding customer base due to population
growth and economic development. Income distribution is expected to evolve with more
households in higher income brackets.
 Overall, the reading covers key concepts of value creation, competitive strategies and analysis of
the Indian market for companies. My summary focuses on the main discussion points relevant
for exam preparation. Let me know if you need any specific section summarized further.
 It then moves on to examining the aseptic packaging industry in India. The major players are
identified:
 Tetrapak - Global leader with 65% market share in India
 Asepto (Brand of Uflex) - Indian company which entered this market 6-7 years back. Has strong
technical capabilities.
 European exporters - High-end products
 Chinese exporters - Low-end products
 Different value creation approaches are analyzed for these players based on use value and
exchange value:
 Tetrapak has many options given its pioneer status, quality leadership, scale etc. It can provide
high use value at competitive exchange value.
 Asepto can focus on tailored value propositions for value seekers. This focused strategy is easier
for a domestic player.
 The global competitor of Tetrapak will need to provide high use value at slightly lower exchange
value compared to Tetrapak.
 Chinese exporters will aim for lower use value at lower exchange value.
 The concept of value creation is then examined from the perspective of scale by looking at
multiple customers versus a single customer. Aggregate use value, value extracted and consumer
surplus are considered.
 Network effects are explained as an additional benefit of increased number of customers.
Reasons for network effects are covered - bandwagon effect, word-of-mouth, attracting new
customers.
 Types of network effects - direct and indirect effects, single-sided and multi-sided platforms are
differentiated. Examples are provided for both types. Multi-sided platforms like operating
systems are analyzed.
 For multi-sided platforms, use value creation focuses on maximizing user base across all sides,
although final consumer is important for network effects. Platforms need evolving value
propositions and adjacencies.
 In the Indian context, value creation through scale is strategically necessary given population
growth, economic development and evolving income distribution.

tell me more about the network effects mentioned

 Network effects refer to the phenomenon where the value of a product or service increases as
more people use it.
 There are direct network effects - where value increases directly with number of users. For
example, value of a telephone increases as more people have telephones.
 There are also indirect network effects - where value increases indirectly. For example, more app
developers for an operating system leads to more apps, which attracts more users, further
attracting more developers.
 Single-sided network effects involve one group of users. For example, value of a social media
platform like Facebook increases as it has more users.
 Multi-sided platforms have network effects across different user groups. For example, an e-
commerce site connects buyers and sellers. Value increases as there are more buyers and more
sellers.
 For multi-sided platforms, cross-side network effects mean more buyers leads to more sellers
and vice versa.
 Types of multi-sided platforms given as examples include e-commerce sites like Amazon, Swiggy,
travel sites, real estate platforms etc. that connect different user groups.
 Operating systems like Android, iOS, Windows are analyzed as multi-sided platforms that connect
developers, hardware vendors and end-users.
 For platforms, while use value is created for all users, focus on final consumer is important as
network effects originate and end with them.

Session 6:
 Understanding the concepts of use value, exchange value and consumer surplus
 Examining value creation across multiple products, product lines and customers
 Concepts of economies of scale and scope in value creation
 Branded Consumer Products
 Contrasting branding approaches of HUL (House of Brands) and Samsung (Branded House)
 HUL's approach driven by sharper differentiation and positioning of individual brands
 Samsung leveraging umbrella brand providing limited differentiation
 Importance of value creation through branding for long term value capture

Business Markets
 Branding synergies less relevant in business markets
 Other routes to value creation like capability and network leverage
 Case study of All Cargo Logistics expanding service portfolio by leveraging networks
 Networked product range expansion through vertical integration and related diversification
 Improved value creation through economies of scope and better customer service
 Increased value capture through greater customer stakes and exit barriers
 Key takeaways - importance of value creation, product range expansion strategies, difference in
consumer and business markets.
 The Basic Framework of Value Creation and Value Capture
 Use value is the utility or benefit derived by the customer from consuming/using a product
 Exchange value is the price paid by the customer to acquire the product
 Consumer surplus is the difference between use value and exchange value
 Scaling up to multiple products and customers leads to higher overall use value and consumer
surplus
 Interaction effects between products can further increase use value due to synergies and
capabilities leverage

Branded Consumer Products

 HUL uses a House of Brands approach with individual branding of each product to enable sharp
differentiation and positioning
 This is critical in frequently purchased low involvement products where brand associations drive
purchase
 Samsung uses umbrella branding under the Samsung name without differentiation between
products
 Umbrella branding provides limited use value in high involvement infrequent purchases like
consumer electronics
 Samsung strategy is more value capture focused through pricing and discounts
 Apple contrasts with sharp differentiation and value creation through product and user
experience

Business Markets

 Branding synergies less important in business markets compared to capabilities leverage

 All Cargo case illustrates networked expansion leveraging supplier/customer relationships
 Forward and backward integration plus related diversification of service portfolio
 Economies of scope and better coordination improves use value and lowers exchange value
 Increased customer stakes and exit barriers support higher value capture
 Importance of value creation for long term value capture
 Expanding product range through interaction effects, integration and diversification
 Differences in consumer versus business markets and purchase behaviour
 Leveraging capabilities, relationships and networks for value creation
 explain about the key concepts mentioned above

Value Creation vs Value Capture

 Value creation refers to the value provided to the customer through the product/service, as
reflected in the use value
 Value capture refers to the value retained by the firm, as reflected in revenues and profits
 Value creation is driven by product utility, performance, quality, differentiation. It must precede
value capture.
 Value capture is driven by firm's market position, bargaining power, competitive strategy.
 Strong value creation supports premium pricing and higher value capture.

Branding Approaches

 House of Brands: Individual branding for each product, enables tailored positioning for each
brand. More costly.
 Branded House: Single umbrella branding across products. Limited differentiation but has
branding synergy benefits.
 Optimal approach depends on product characteristics and purchase behaviour. House of Brands
better for frequent purchases.

Networked Product Range Expansion

 Leveraging supplier, complementor and customer relationships to expand into related

products/services
 Enables transfer of capabilities and access to new business models
 Results in vertical integration, related diversification and economies of scope
 Improves value creation through synergies, coordination and tailored customer service
 Increases value capture by deepening customer relationships and stakes

Business versus Consumer Markets

 Consumer purchases driven by brand associations and loyalty. Requires sharp differentiation.
 Business purchases driven by product performance, capabilities, and relationships.
 Business markets focus more on capabilities and network leverage for value creation.
 Branding synergies less relevant in business markets compared to consumer markets.
 Synergies and capabilities leverage refer to the competitive advantages and additional value that
can be generated when a firm operates multiple products or businesses together.
 Some examples of synergies include:
 Economies of scope - when two products share capabilities like R&D, manufacturing, distribution
etc. leading to lower costs.
 Shared customers - when existing customer relationships can be leveraged to cross-sell new
products.
 Vertical integration - combining upstream suppliers and downstream channels provides better
coordination.
 Complementary products - selling related products provides more value as a bundled offering.
 Common branding - umbrella branding provides synergy in marketing and customer retention.
 Capabilities leverage refers to transferring organizational capabilities and resources from one
product/business to another:
 Transferring technical or engineering expertise across products.
 Leveraging strengths in manufacturing processes and scale across units.
 Transferring best practices in project management across business units.
 Building on customer intimacy and relationships across product lines.
 Reusing branding, IP, and other intangible assets.
 Shared functions like HR, IT, Finance providing specialized skills.
 The key is to identify potential synergies and capability sharing opportunities for competitive
advantage and increased value creation. This is a major strategic benefit of expanding the
product/business range.

Session 7:
 The PDF covers the view of a firm as a customer, drawing resources from suppliers. It explains
the different types of suppliers - input materials, capital equipment, services, administrative
items etc.

It introduces the concept of 3 levels of input items based on the value creation potential:

 Level 1 - Basic functional items with low differentiation. Provide baseline inert value.
 Level 2 - Good quality and performance. Meet specifications. Provide opportunity cost based
returns.
 Level 3 - Superior capabilities and quality. Enable significant value creation for the firm.
Commands premium pricing.
 The proportion of these inputs depends on whether the firm sells unbranded vs branded
outputs. Branded firms have more level 2 and some level 3 inputs.
 Value creation potential increases from Level 1 to 3. But so does bargaining power and value
capture potential of suppliers. Hence managing supplier relationships is critical.
 For Level 1 inputs, value capture can be easily managed through competitive bidding.
 For Level 2, need professional supplier management with alternative approved suppliers.
 For Level 3, critical to maintain good relationships between buying and selling centers. Involve
top management. Explore backward integration if feasible.
 Overall, the firm as customer has to balance value creation and value capture across the supplier
base. Market mechanisms work for Level 1. Need strategic relationship management as you go
up the levels.
 From an exam perspective, application of these concepts to analyze a company's supplier
management practices will be important. Comparison between branded vs unbranded firms can
also be examined. Evaluation of risks and relationship management approaches across the 3
levels of suppliers is also key.
 Human capital and organizational capital are also resources that provide value and have to be
managed by the firm. Their interaction creates value for the firm.

Session 9:
The PDF examines value creation and value capture in an industry context using Porter's 5 forces
framework. It looks at how the different forces - buyers, suppliers, competitors, substitutes and
potential entrants - impact a firm's ability to capture value through their bargaining power and
competition.

 Buyers can reduce a firm's value capture by demanding lower prices i.e. lower exchange value.
But there are win-win scenarios where both buyers and firms benefit through acceptable surplus
and exchange value.
 Powerful suppliers can extract more exchange value and reduce a firm's retention of customer
exchange value. Suppliers aim to maximize their share of value from the overall value chain.
 Competitors, substitutes and potential entrants compete for value capture from buyers through
lower prices, differentiated offerings and increasing scale. Substitutes compete with the whole
industry.
 Suppliers also compete among themselves for value capture from industry firms, similar to how
firms compete for value from buyers.
 The PDF examines suppliers marketing to indirect customers (customer's customer) to improve
bargaining power and competitiveness. Success depends on value provided, power dynamics and
capability to understand indirect customer needs.
 In mediated value creation with consultants/specifiers, suppliers can take a passive vs active role.
Passive role leads to lower value creation. By developing domain expertise, suppliers can
collaborate with consultants for superior value creation and capture.
 In an exam, students should examine industry dynamics from a value creation and value capture
lens using Porter's 5 forces. Examples can demonstrate both competitive scenarios as well as
win-win value creation. Discussion on suppliers interfacing with indirect customers and managing
mediated value creation will demonstrate application of strategic concepts.

Interactions Between Forces for Value Capture

 While suppliers, competitors, substitutes and new entrants all compete for value capture from
buyers, suppliers exclusively compete for value capture from industry firms. This supplier
dynamic could be analyzed.
 The relative bargaining power between suppliers, firms and buyers impacts value capture
outcomes. Changing power equations could be examined.

Supplier-Buyer Value Creation

 Suppliers can create new use value propositions for indirect customers that benefit the entire
value chain. Examples of new products or business models can be discussed.
 Various types of supplier relationships with indirect customers can be analyzed - from arm's
length to collaborative - based on value provided to direct and indirect customers.

Mediated Value Creation

 Reasons why mediated value creation arises in certain industries and situations can be examined.
 A supplier's choice to take a passive or active role in mediated creation is a key strategic decision.
Advantages and disadvantages of each approach could be analyzed.
 Consultants/specifiers play a dual role - ensuring quality but also controlling suppliers. This dual
impact on value creation and capture can be discussed.
 So in summary, the exam can discuss value capture interactions between forces, suppliers
leveraging indirect customers, varying supplier-buyer relationships, and managing mediated
value creation scenarios.

Session 10:
Main Concepts:

 Porter's 5 Forces framework for industry analysis - threat of new entrants, power of suppliers,
power of buyers, threat of substitutes, competitive rivalry
 Generic strategies - differentiation, cost leadership, focus
 Differentiation strategy - providing unique benefits through activities, hard to imitate, can lead to
win-win value creation
 Cost leadership - efficiency and productivity in activities, strategic choice of target segment,
Southwest Airlines example
 Coopetition - simultaneous competition and cooperation between firms, benefits of cooperation
in early stage value chain, competition in consumer facing areas
 Rule of Three theory - markets tend to be left with 3 generalists and smaller specialists,
generalists get 70-90% share
 Coopetition in tech - Apple-Samsung, Google-Microsoft examples of competitors cooperating to
benefit consumers
Key Examples for Examination:

 Southwest Airlines cost leadership - point to point, one aircraft type, target segment
 Samsung OLED supplier to Apple - risks and benefits tradeoff of being competitor's supplier
 Microsoft and Google software compatibility - competing but cooperating for consumer benefit
 Grindwell, Bosch, Intel - suppliers engaging with customer's customer for insights
 Pharma joint research, telecom tower sharing - cooperation in early stage value chain

Potential Exam Questions:

 Explain coopetition and how it impacts value creation in an industry. Give examples.
 Discuss the generic strategies. Explain with examples how they enhance value creation and
capture.
 What is differentiation strategy? How can it lead to win-win value creation in an industry? Give
examples.
 Explain the rule of three theory of competitive markets. What strategies are available to
companies in such markets?
 Discuss how technology competitors like Apple-Samsung cooperate as supplier-buyer. What risks
and benefits does it present?

Session 11
Main Concepts:

 Inter-firm competition in an industry impacts value capture or the exchange value that firms are
able to extract from customers. Industries play a crucial role in moderating the value captured by
firms.
 Different types of industry structures based on degree of competition:
 Perfect competition - Many small firms, undifferentiated products, price takers
 Monopoly - Single firm, sets prices and quantities
 Oligopoly - Few large firms dominate the industry
 Monopolistic competition - Many firms, differentiated products
 Real world industries lie on a continuum between the theoretical extremes of perfect
competition and monopoly.
 Structure-Conduct-Performance framework: Industry structure impacts conduct or behavior of
firms which in turn impacts performance.

Crude Oil/Petrochemical Industry Analysis:

 Core sector industry with high entry barriers and concentrated structure - oligopoly
 Upstream suppliers have mild bargaining power, downstream buyers have low power
 Limited threat of substitutes
 Stable growth and demand spread across industries
 High exit barriers
 Result is cooperative oligopoly with benign competition and high value capture

Flexible Packaging Industry Analysis:

 Downstream industry, lower entry barriers

 Higher supplier power, buyer power
 More threat of substitutes
 Also high growth market
 Lower exit barriers
 Industry structure leads to monopolistic competition, higher inter-firm rivalry, lower value
capture
 Industries tend to comprise oligopolistic strategic group competing on differentiation and
monopolistic group competing on costs
 In summary, the reading analyzes how industry structure and competitive forces shape the
nature of competition between firms and impact the value they are able to capture from
customers. A core industry with concentrated structure sees cooperative oligopoly while a
downstream industry sees higher rivalry.

Session 12:
Introduction

 The reading covers how organizations decide whether to 'own and manage' operations internally
or 'outsource' them to external vendors
 It examines this from the perspective of production operations, but the principles apply more
broadly to other functions as well
 The decision depends on assessing transaction costs of the alternative governance structures of
outsourcing versus internal organization

Transaction Costs

 Transaction costs are the costs of planning, adapting, operationalizing, controlling and
monitoring transactions under different governance structures
 To decide whether to outsource an activity or do it internally, the firm must compare the
transaction costs under the two alternatives

Outsourcing Transaction Costs

 Planning costs - High costs to design and draft detailed contracts to capture all elements of the
work with the vendor
 Adaptation and operationalization costs - Aligning people, processes, systems to the outsourcing
arrangement; costs of coordination, managing deviations
 Review and control costs - Costs of mechanisms for ongoing monitoring and control of the
outsourced operations

Asset Specificity

 As asset specificity of an activity increases, the vendor's cost advantage declines due to lower
fungibility of resources across different operations
 Higher asset specificity also increases transaction costs of outsourcing due to greater oversight
and governance requirements

Complexity and Frequency

 Greater complexity and frequency of interactions in an activity also increase transaction costs of
outsourcing
 General Conclusions
 Higher asset specificity and complexity/frequency -> Higher transaction costs of outsourcing ->
Favor internal organization
 Lower asset specificity and complexity/frequency -> Lower transaction costs of outsourcing ->
Favor outsourcing

Exceptions

 Apple outsources iPhone manufacture despite high asset specificity due to extremely high
quality standards best met by specialized vendors + Apple's governance
 Pepsi outsourced bottling, distribution despite normally being high asset specificity activities to
get operational efficiencies

Session 13:
Introduction

 Innovation starts with ideas that either represent the proposition itself (e.g. Post-it notes) or help
a developed proposition take off (e.g. flying cars)
 Innovation requires more than just a brilliant idea - it needs passion, dedication and drive to see
it through, especially in existing organizations where people resist change

Idea Generation in Organizations

 Innovation requires associational (associating) and lateral thinking - being curious, observing,
sensing things, and relating to other contexts
 Examples like Steve Jobs being sensitized to noiseless computers through meditation, and Uber's
founders unable to get a cab sparking the app idea
 Founders with associational thinking can drive innovation, but employees typically undertake
innovation in organizations

Case Study: Innovation in the Paint Industry

 Paint was seen as a chemical product for painters, not exciting for consumers
 Insight that consumers relate to shades, though not aware of paint details
 Earlier technical breakthrough allowed tinting at depots instead of factor
 Combined insight and breakthrough to promise 'any shade of your choice'
 Expandedshade range from 20-25 to 151 shades, mapped to the consumer promise
 Delivered through tinting systems, a stretch technologically and on ground
 Competitor Reactions and Sustaining Innovation
 Competitors react swiftly, e.g. 1000 shades but restricted rollout due to cost
 Company responded by extending its tinting system to 20000 dealers nationwide
 Sustained lead through shade trends, virtual painting, channels, consumer services
 Innovation leadership requires continuously developing the innovation

Implications for Exams

 Understand sources and process of innovation in organizations

 Appreciate role of associational thinking and technical inputs
 Analyze how innovations create new value for consumers and firms
 Evaluate sustaining innovation and maintaining leadership
Session 15:
 The reading covers the evolution of strategy theories, focusing on the resource-based view and
dynamic capabilities.
 Key Points:
 Early strategy theories focused on industry structure and positioning (Porter's Five Forces). This is
described as the "market-based view".
 The "resource-based view" emerged as a theory focusing on a firm's unique resources as a
source of competitive advantage. Resources must be valuable, rare, imperfectly imitable and
non-substitutable (VRIN).
 Dynamic capabilities theory arose to explain how firms build, integrate and reconfigure
competencies to respond to rapidly changing environments. This is a more dynamic "firm-based"
view compared to the static resource-based view.
 Second order dynamic capabilities involve specific actions like mergers, new products etc. Higher
order capabilities are the meta-capability to constantly exhibit second order capabilities.
 Samsung developing its design capability over 25 years is an example of second order dynamic
capabilities. The tech industry requires higher order dynamic capabilities to constantly sense,
shape and seize new opportunities.
 Overall, the evolution of strategy theories reflects the need to explain sources of advantage in
increasingly dynamic markets, going from industry analysis to firm resources and finally to
adaptive, renewal capabilities.

Samsung Electronics

 In the 1990s, Samsung was seen as a low-cost mass producer of consumer electronics.
 They decided to build internal design capability as a differentiator, establishing a Corporate
Design Center (CDC) on par with other functions.
 The CDC had a multi-disciplinary "design corps" of engineers, designers, musicians etc. It was
1600 people strong.
 Engineers now saw their role as implementing CDC designs. Design became a strategic input
rather than an operational concern.
 Developing the CDC over 25+ years is an example of second-order dynamic capabilities. Samsung
reconfigured itself to make design a core competence.

Restaurant Aggregators

 Zomato started as a restaurant directory. Swiggy quickly went further by enabling online food
ordering and delivery.
 Swiggy then evolved to offer quick grocery and other deliveries. The business model kept
changing rapidly.
 This exemplifies the extreme volatility in digital businesses. Firms require higher order dynamic
capabilities to constantly sense and seize new opportunities through new business models.
 According to the reading, the competences of an organization arise from its processes, asset
positions, and paths.

Some key points:

 Processes can be integrating (core operating processes), learning (improve and adapt), and
reconfiguring (major changes).
 Asset positions refer to tangible and intangible assets like technology, brands, finances,
structures etc.
 Paths mean the strategic directions and moves the company has taken over time to reach its
current position.

An example given is Maruti Suzuki's competences in:

 Understanding needs of middle-income Indian car buyers

 Translating those needs into appropriate car models, features, service etc.
 Sourcing parts and manufacturing the cars efficiently
 Another example is Fabindia's competences in:
 Understanding urban consumer demand for ethnic designs
 Managing decentralized supplier networks of regional craftspeople
 Operating co-branded retail stores
 In summary, an organization's competences emerge from how it leverages its processes, assets
and strategic paths in a way that competitors cannot easily replicate. Competences enable an
organization to create unique value for customers.

Here is a more detailed explanation of the Samsung Electronics example:

 In the 1990s, Samsung was primarily known as a low-cost mass producer of consumer
electronics.
 They decided to build world-class design capability as a differentiator. Rather than outsourcing
design or making incremental improvements, they wanted to develop it as an internal strategic
capability.
 Samsung established a Corporate Design Center (CDC) reporting directly to the company head.
This gave design equal status to other functions like marketing and engineering.
 The CDC had a "design corps" of over 1600 people from diverse backgrounds like designers,
engineers, musicians etc. This multidisciplinary team could imagine designs creatively while also
understanding functional constraints.
 Samsung instilled a "primacy of design" philosophy where product development started with a
unique design concept before finalizing other parameters.
 Engineers now saw their role as implementing the designs created by the CDC designers. Earlier,
design was subordinate to technical performance.
 Developing the CDC required reconfiguring existing processes and integrating design as a key
input. This demonstrated dynamic capabilities as Samsung strategically reconfigured itself to be
design-driven.
 The CDC has operated for over 25 years, reflecting Samsung's long-term commitment to building
design as a core capability. This has differentiated Samsung from its low-cost image.
 In summary, Samsung leveraged second-order dynamic capabilities by creating, empowering and
integrating the Corporate Design Center to transform itself into a design-led organization. This is
a key example used in the reading. Let me know if you need any clarification or have additional
questions!
Session 17:
The PDF discusses the extended stakeholder framework and value creation in detail. It covers how
firms create and capture value not just for direct stakeholders like customers, employees, suppliers
etc but also for indirect stakeholders like the community, environment and overall governance
systems.

The Extended Stakeholder Framework

 It first recaps the conventional framework of a firm creating use value for customers which
translates into exchange value and value retained.
 It then poses the question - is there any 'value detraction' arising from the firm's activities that is
not accounted for in the conventional framework?

Examples of Value Detraction

 Codeine in cough syrups - creates addictive tendencies imposes social costs on community. Firm
removes codeine to avoid this cost. Reduction in firm's value retention is the price paid to avoid
social cost.
 Heavy metals in inputs/compromised vendor processes - can affect health and safety. Use of
costlier but safer inputs reduces firm's value retention. This is the cost to ensure safety.
 Environmental damage from operations - Investments to reduce waste/pollution reduce firm's
value retained. This is the cost to prevent environmental damage.
 Lack of ethics/integrity in governance - Weakens institutional frameworks related to business,
law, revenue etc. Undermines investor faith in financial system. Gap between true and reported
valuation is cost imposed on investors.

Extended Stakeholders

 For social costs - community, govt, consumer groups etc.

 For environment - the planet, govt, NGOs, local communities
 For governance - govt, judiciary, investors

Freeman's Three Problems

 How do firms create value for extended stakeholders? Requires integrated long-term view.
 How to reconcile business and ethics? Requires incorporating extended costs in strategy.
 How to change managerial mindset? Requires 'triple bottom line' approach.

Key Examination Perspective

 Understand extended stakeholder framework

 Examples of value detraction and related costs
 Identify extended stakeholders in social, environment, governance domains
 Freeman's problems and their resolution through triple bottom line thinking

Codeine in Cough Syrups

 Codeine provides relief from cough but also leads to addiction. Presence in cough syrups
imposed social costs on community like addiction, health issues etc.
 Though it created consumer surplus for customers and allowed the firm to capture more
exchange value, it also created value detraction for society.
 By removing codeine, the firm reduces value creation for customers and its own value capture.
But this is the price it pays to avoid imposing social costs on community.
 Heavy Metals/Compromised Vendor Processes
 Heavy metals in raw materials or compromised vendor processes can affect health and safety of
customers. But they lower costs for the firm.
 By using costlier but safer materials, or instituting stringent vendor checks, the firm reduces its
own value retained.
 This reduction is the cost the firm bears to ensure safety and avoid value detraction for society.

Environmental Damage

 Manufacturing generates effluents/pollutants. Insufficient efforts in waste treatment lead to

environmental damage.
 Investments to reduce pollutants lower the firm's value retained. This is the cost it pays to
prevent environmental value detraction.

Ethics and Governance

 Unethical practices like financial mis-reporting, corruption etc undermine governance institutions
like financial systems, law and order.
 The gap between true and reported valuation due to mis-reporting imposes costs on investors.
 Systemic unethical practices overall weaken business, legal and financial frameworks which
enable development.