Value Creation, Capture, and Allocation

This chapter discusses three important topics related to corporate value growth. First, it revisits value-added business activities, costs, products, and vertical value chains as four significant value drivers. It also proposes various initiatives to combine these drivers with network integration strategies to create synergy effects in the value creation process. Value creation, by definition, is related to how much target customers subjectively perceive the value of products or services as novel, appropriate, useful, and worthy. A firm produces potential value in the market, but value creation can only be realized by firms capable of capturing value. These are two distinct processes. The focus of this discussion is how a firm manages to capture value, especially for internet businesses. In fact, there are impediments in the value capture process. I exemplify these issues by borrowing the concept of market friction dimensions from economics. Market friction refers to incomplete linking in the market, resulting in market imperfections. It influences the buyer's exchange value (i.e., willingness to pay) and manifests itself at both the firm and industry (trade) levels. Friction at both levels creates market inefficiency, undermining the size of firms in the market. Interestingly, internet businesses (e.g., online retail) have exhibited high levels of friction, leading to market domination by a few firms. Regarding revenue allocation, it is a mechanism to distribute benefits in terms of revenue to various parties. There are motivational and ethical issues that influence productivity and innovation. I propose a few allocation methods. In particular, the Shapley value (if possible) is highly recommended due to the fairness axiom embedded in the calculation logic. Cases and examples have been provided to exemplify the concepts and approaches. Finally, I have raised a few governance issues on network business for discussion.