Diagnosing Strategic Capacity with Value Chains and Value Nets

To develop a strategy, it is essential that a company perform a diagnosis of its strategic capacity, which is nothing more than the set of resources and competencies required for a company to achieve and sustain a competitive advantage.

A company’s strategic capacity can be diagnosed using two main tools: The Value Chain and the Value Net.

The Value Chain, discussed in a previous Management Tips article, shows the set of integrated activities inside and around a company that develop a product or service. It comprises primary and support activities, as illustrated in Figure 1.

The Value Net is yet a broader concept and includes the set of interorganizational links and relationships that are fundamental to the development of a product or service.

The Value Net model, seen in Figure 2, was developed by Brandenburger and Nalebuff and published in their book Co-Opetition.

The model helps us identify key actors and understand their behavior, allowing for better-informed and data-driven strategic decisions.

The value net is made up of the company, customers, suppliers, competitors and complementors.

  • Customers purchase a product or service.
  • Suppliers provide the company with the resources needed to manufacture a product / service.
  • Competitors participate in the target market by offering a similar product or service.
  • Complementors are other players who provide a product or service that can be added to the company to make both offerings more attractive to customers.

Diagnosing a company’s strategic capacity can be done by analyzing the value chain and value net to understand how customer value is generated and developed. The greater a company’s ability to generate customer value, the greater its strategic capacity.

Additionally, through a benchmarking study it is possible to understand the relative performance of companies and test management assumptions about the factors that determine business performance.

Finally, we can add chain and value net analysis and the benchmarking study to SWOT analysis, which can be helpful in diagnosing strategic capacity, as it provides a comprehensive understanding of strengths, weaknesses, opportunities and threats that challenge a company in its pursuit of superior performance and competitive advantage.

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