Value-based Business Strategy

This paper offers an exact definition of the value created by firms together with their suppliers and buyers. The "added value" of a firm is similarly defined, and shown under certain conditions to impose an upper bound on how much value the firm can capture. The key to a firm's achieving a positive added value is the existence of asymmetries between the firm and other firms. The paper identifies four routes ("value-based" strategies) that lead to the creation of such asymmetries. Our analysis reveals the equal importance of a firm's supplier and buyer relations. Cooperative game theory provides the underpinnings of the analysis. Copyright 1996 The Massachusetts Institute of Technology.