Journal of Information, Control and Management Systems, Vol. 5, (2007), No. 2 241

THE VALUE NET

Viliam LENDEL

University of ilina, Faculty of Management Science and Informatics, Slovak Republic

e-mail: viliam.lendel@fri.uniza.sk

Abstract

Co-opetition provides a framework, based in game theory, from which to reassess the uncertainties of your strategic position and alternatives in any given situation. It amplifies the field of vision to include customers, competitors, suppliers and, a new one, complements. The Value Net is a high level view of the key relationships that drive any companys ability to succeed sustainably. Interestingly, sustainability is more critical than economic profit. In order to succeed in this framework, the principles of adding value over time, understanding and creating the rules of engagement, awareness of different perspective all come into play. This article deals with the model Value Net and its application in the selected transport company. Keywords: value net, complements, competitors, suppliers, customers, players, added value, rules, tactics, scope, parts model, transport, cost

1 INTRODUCTION Managers can benefit by using the insights from game theory to design a game

that is right for their companies. The rewards that can come from changing a game may be far greater than those from maintaining the status quo. Sometimes the best way to succeed is to let others be successful. Including your competitors.

The basic idea is that business is a game where you are sometimes competing and sometimes cooperating with other players in industry. Cooperation generally leads to an expansion of the business pie and competition to a slicing up of the pie. Both cooperation and competition are necessary and desirable aspects of a business enterprise. An exclusive focus on competition (which is the predominant mindset of much that has been written about strategy in recent years) largely ignores the potential for changing the nature of business relationships, and thus the potential for expanding the market or creating new profitable forms of enterprise. A 'co-opetition' mindset actively looks for ways to change and expand the business, as well as newer and better ways to compete.

The Value Net 242

2 THE VALUE NET This is a way of looking at a business situation that recognizes that the company (or industry) operates in an environment having four main groups that influence the course of any business. These four groups are:

1. Suppliers, 2. Customers, 3. Competitors and 4. Complements.

The basic framework is illustrated in the diagram below:

CUSTOMERS

COMPANY

SUPPLIERS

COMPLEMENTSSUBSTITUTORSCOMPETITORS

Figure 1 The Value Net [1] The Value Net is a schematic map designed to represent all the players in the

game and the interdependencies among them. Interactions take place along two dimensions. Along the vertical dimension are the company's customers and suppliers. Along the horizontal dimension are the players with whom the company interacts but does not transact. They are its competitors and complements.

Competitors are alternative players from whom customers may purchase products. Or to whom suppliers may sell their resources.

Complements are players from whom customers buy complementary products. Or to whom suppliers sell complementary resources.

3 STEPS IN USING THE VALUE NET

1. The Value Net 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.

Journal of Information, Control and Management Systems, Vol. 5, (2007), No. 2 243

2. The second step is identifying all the elements of the game. There are five (the PARTS model):

- Players - Added Values - Rules - Tactics - Scope

'PARTS' is an acronym: - P stands for the players in the game (following the 'Value Map' approach

outlined earlier), - A stands for the added value that a company can bring to any of the

players, - R represents the rules of the game or business in which a company or

organization is participating, - T represents tactics, which are essentially ways of influencing perceptions

of how your organization fits into the game and - S stands for the scope of the business, or the linkages between company

and any of the other players in its Value Net.

3.1 Players When a company enters a market, is has to 'pay to play'. Sometimes, if its just

being asked to submit a quote on a piece of work, the price to play can be fairly low. In other cases, for example if it has to build a new factory to compete, the price can be quite high. Another way to view market entry, though, is from a game theory perspective. Here the view is that companys entry into the game may benefit somebody else - for example, company may be an alternative source of supply to a customer, or provide a complementary good or service. This added value (to whomever it is benefiting) that it brings to the game of business may be worth something. Recognizing this, a company may be able to get the beneficiaries to 'pay it to play'.

Players Questions - Have you written out the Value Net for your organization, taking care to

make the list of players as complete as possible? - What are the opportunities for cooperation and competition in your

relationships with customers and suppliers, competitors and complements? - Would you like to change the cast of players? In particular, what new

players would you like to bring into the game? - Who stands to gain if you become a player in a game? Who stands to lose?

The Value Net 244

3.2 Added values Company has to develop a relationship with the customer (for example, through

affinity programs such as frequent flyer schemes which create added value to the customer at little cost to the company, while at the same time enhancing customer loyalty).

Added Values Questions - What is your added value? - How can you increase your 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?

3.3 Rules The basic idea is, that if a company can alter the rules to the game, then it can

change the game itself in its favour. Rules Questions

- Which rules are helping you? Which are hurting you? - What new rules would you like to have? In particular, what contracts do

you want to write with your customers and suppliers? - Do you have the power to make these rules? Does someone else have the

power to overturn them?

3.4 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. Thus there is a certain 'fog' in which the game of business is played.

Tactics Questions - 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?

3.5 Scope Scope is simply the link that exists between the game of business that is company

currently playing, and other games being played by those in the given Value Net. The

Journal of Information, Control and Management Systems, Vol. 5, (2007), No. 2 245

underlying logic here is that other enterprises in given Value Net, in addition to being part of the this game, are also parts of other games that company is not in, and that linking to them in various ways can expand its scope. If this can create a larger pie, in which the company can have a significant added value, then its profitability is potentially enhanced. Scope Questions

- What is the current scope of the game? Do you want to change it? - Do you want to link the game to other games? - Do you want to de-link the game from other games?

4 THE VALUE NET OF THE SELECTED TRANSPORT COMPANY The company DPM, s. r. o. offers its customers the following services:

- Urban mass transportation on the urban area of ilina, - Accommodation services (tourist hostel), - Random bus transport, - Motor vehicle service and repair, - Advertising activity.

CUSTOMERS

DPM, s. r. o.

SUPPLIERS

COMPLEMENTSSUBSTITUTORSCOMPETITORS

townspeoples, town ilina, tourists, abroad tourists, students, education institutions

electric energy,driving fueltransport by taxi,transport by walking,

transport by bike,transport by car ,transport by bus (SAD ilina, a. s.)

SSE, a. s.,Slovnaft, a. s.,other requisite firms for safety of the urban mass transportation

Figure 2 The Value Net of the company DPM, s. r. o.

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For every service is possible to work out the separate Value Net. In the following part is the Value Net working out for principal activity of the company. DPM, s. r. o. as principal activity has the urban mass transportation on the urban area of ilina. Figure 2 illustrates the Value Net for principal activity of the company DPM, s. r. o.

It is needed to analyse detail every group of this schematic map (suppliers, customers, competitors and complements). The company must know the information about its market position and who are the players in its Value Net.

5 SUBSTITUTORS (COMPETITORS) AND THE SELECTED COMPANY The company DPM, s. r. o. has the following competitors (substitutors) in the

area of transport in ilina: - Transport by bus (SAD ilina, a. s.), - Transport by car, - Transport by bike, - Transport by taxi, - Transport by walking.

The attention is devoted to passenger transport in Vlince, the largest housing estate in ilina. In the following part is analyzed to passenger in this housing estate by two main criteria:

- Time transport, - Price transport.

Table 1 Transport by car (data from [5])

Route Distance (in km) Petrol cost

(in Sk) Time

(in min) ilina, centre Ul. Sv. Cyrila a Metoda 2,5 11,86 5 ilina, centre Obchodn ul. 2,5 11,18 5 ilina, centre Ul. Matice Slovenskej 3 14,57 6 ilina, centre Fatransk ul. 3 15,24 6 Real petrol costs depend in the first place on the automobile type and traffic

concentration. Final costs of transport by car are advanced. It is needed to include in this transport other costs (parking fee, amortization, third-party insurance, etc.).

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Figure 3 Transport by car - routes

Table 2 Transport by bus - SAD ilina, a. s. (data from [6], [8])

Fare (in Sk) Route coarse transport card reduced

Time (in min)

eleznin stanica Zvolensk ul. 12 10,50 6 7 eleznin stanica Plemenrsky podnik 12 10,50 6 9

Table 3 Transport by trolley-bus line 14 (data from [7])

Fare (in Sk) coarse reduced Route

normal city card normal city card

Time (in min)

eleznin stanica Ul. Sv. Cyrila a Metoda 10 6,5 7 5 11 eleznin stanica Obchodn ul. 12 7,2 8 6 13 eleznin stanica Ul. Matice Slovenskej 12 7,2 8 6 15 eleznin stanica Fatransk ul. 12 7,2 8 6 18

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Table 4 Transport by trolley-bus line 4 (data from [7])

Fare (in Sk) coarse reduced Route

normal city card normal city card

Time (in min)

trovo nmestie Ul. Sv. Cyrila a Metoda 10 6,5 7 5 8 trovo nmestie Obchodn ul. 10 6,5 7 5 10 trovo nmestie Ul. Matice Slovenskej 10 6,5 7 5 12 trovo nmestie Fatransk ul. 12 7,2 8 6 15

Figure 4 Price and time transport by several ways transport (route ilina Vlince III)

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Table 5 Transport by bike and walking

Time (in min) Route Petrol cost (in Sk) bike walking

ilina, centre Ul. Sv. Cyrila a Metoda 0 10 20 ilina, centre Obchodn ul. 0 13 25 ilina, centre Ul. Matice Slovenskej 0 15 30 ilina, centre Fatransk ul. 0 20 35

Other groups of this schematic map (suppliers, customers, competitors and complements) are needed to be analyzed equally way. Obtained data from the Value Net provide to the company DPM, s. r. o. precious information for decision of managers in the area of planning of bus and trolley - bus routes and of fare set.

6 CONCLUSION The model Value Net is an invaluable tool for managers in the companies. The

company gets precious information for the area of decision in management. The Value Net is used in the first place in the firm and marketing strategy. Makes it possible to know the information about its market position and who are the players in its Value Net. The Value Net has strengths:

- Useful when considering complex markets involving integrated players and non-integrated players,

- Recognizing that sometimes the best way to succeed is: to let others be successful. Including your competitors.

This model is not used much in the Slovak firm, primarily on the ground of insufficient knowing of managers about this specific tool. The model is used primarily in foreign firms functioning in Slovakia.

REFERENCES [1] BRANDENBURGER, A. J., NALEBUFF, B. J.: Co-opetition, Doubleday, New

York 1997. [2] http://www.12manage.com [3] BRANDENBURGER, A. J., NALEBUFF, B. J.: The Right Game: Use Game

Theory to Shape Strategy, Harvard Business Review, July-August 1995. [4] RABBINO H.: Applying the Principles of Co-opetition With System Dynamics

Tools. [5] http://www.viamichelin.com/viamichelin/int/dyn/controller/Driving_directions [6] http://www.sadza.sk [7] http://www.dpmz.sk [8] http://www.cp.sk

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