Strategy & Change

By: Michael Ryall

In its early days strategy was a loose affair. Content originated either from commonsense approaches such as SWOT analysis or from frameworks like the Boston Consulting Group’s growthshare matrix. In 1979, however, Michael Porter’s five forces model changed the field forever.

It masterfully synthesised practical implications of economic research on industrial organisations from the 1960s and 1970s. Knowledge-based innovation put strategy on the map as a field of study, virtually overnight.

But the field lacked a mathematical model capable of synthesising and refining the jumble of early theoretical ideas.The inability to identify causal relationships or define general principles about firm performance in the face of competition reduced the field to a perpetual “in search of excellence” syndrome.

From that backdrop, a general model of competitive strategy, which I call the value capture model (VCM), has emerged. It applies the mathematical concept of cooperative game theory to business strategy.

The model is a work in progress, but scholars are using it to explain dynamics of competition and to identify practical implications for strategic decision making.

At VCM’s core is this axiom: “The value that any party can capture from engaging in transactions with a given set of parties is bounded by the value each of them can add to parties outside the set.”

From “The New Dynamics of Competition”