ChaprrrL

The Challenge of
Value Migration
What is my company worth todaY? What
will it be worth five years from now?
Is my business design obsolete? What
should my next business design be?
What five moves will capture the next cycle
of value growth in rrry industry?
Fnou 1984 ro 1994,lBMand DEC Iost $55 billion in market value,
while Microsoft, Intel, EDS, and Novell were gaining
$80
billion.'
The reallocation of value within the computing industry was rapid
and dramatic.
During the same decade, the operating margin of Nucor, a steel
minimill operator, was double that of the Iarge integrated steelmak-
ers. The $5
billion market value Nucor created exceeded that of U.S.
Steel, a company whose revenue was twice as
great as Nucor's' Over
two decades, the integrated steel producers saw their value migrate
to four very different business designs, one of which was Nucor's
rninimill model.
'.
From 1983 to 1994, while the market value of many traditional
tores stagnated or declined, the value of five new retail-
designs grew by more than $100
billion.
these examples constitute a pattem of mismanagement on
$t scale? Hardly. They do, howevel constitute a pattern that
the increasing obsolescence of traditional business designs, a pattern
ing YALIJE MIGzu.TIONSM away
from
increasingly outmoded
CoNCEPTS
business designs toward others that are better designed to maximize utility
for
castomers and profit
for
the companies.
It is widely acknowledged that products go through cycles, from
growth through obsolescence. It is not as dell recognized that busi-
ness designs also go through cycles andreach economic obsolescence.
Customer priorities-the issues that are most important to them,
including and going beyond the product or service offered-have a
natural tendency to change; business designs tend to stay fixed'
When the mechanism that matches the company's business design
to the structure of customer priorities breaks down, Value Migration
begins to occur.
Value Migration and Business Design
Value migrates from outmoded business designs to new ones that
are better able to satisfy customers' most important priorities. A
business design is the totality of how a company selects its customers,
defines and differentiates its offerings, defines the tasks it will perform
itself and those it will outsource, configures its resources, goes to
market, creates utility for customers, and captures
profit. It is the
-4 litY lo
customers and earni
y-
'-"y'ofi'er
Prodrias,
thtiY
technology, but that offering is embedded in a comprehensive system
of activities and relationships that represents the company's business
design.
Consider, for example, Nucor, a company prospering in the other-
wise
"unattractive" steel industry. Nucor's primary focus has been
on producing non-flat rolled steel for construction applications. Its
customers demand a minimum acceptable
quality level and other-
wise care about only one tbjng-priu. The company built its entire
business design around this central reality of its customers'priorities'
The conventional explanation of Nucor's success is the use of low-
cost technology and raw materials (electric ore furnaces that melt
scrap steel). But this is only one element of its business design
equation. The other critical components indude low-cost (rural) and
flexibte
(nonunion) Iabor and low overhead (a headquarters staff of
23 for a business with revenue of $3
billion). Through employing
an explicit policy of reliance on external sources of technology, Nucor
has also achieved
a low-cost
position in R&D and technical
develop-
ment. All in aII, it employs
a superb business
design to serve a
customer
group whose decision-making
system
is dominated
by
price.
Themigrationofvaluecanaffectaspecificdivisionofacompany'
a whole company,
or even a whole
industry as customers
make de
facto choices about the business designs that best meet their needs'
Valuecanmigratetootherbusinessdesignswithinanindustryol
flow out of one industry andinto another with designs better config-
uredtoSatisfycustom.erprioritiesandmakeaprofit'Inthesteel
example, value flowed within the industry
from the integrated
steelmakers
to alternative
business designs like those of Nucor and
the next-generation
integrated
mills in Japan and I(orea' At the
same tim;, value was flowing out of the entire steel industry as
companiesinotherindustries_plasticandaluminum_emerged
with business
designs that better satisfied the emerging
priorities of
specific customer
groups such as canners and auto manufacturers'
Measuring
the Value Migration
Process
To understand
the direction
and magnitude
of value Migration,
it
is helpful to establish a s
of
tfrs--pgluer-sf e-bglrggsr
is
AAi*d
as the caPitalizati
es
stock
price plus long-term
debt) at any
given time' Like all financial
numbers,
market ui-trr. has its flaws: it is volatile,
it is subject to the
ups and downs of the stock
quarterly earn-
ings-per-share
changes and
ions' But as the
sum total of the analysis and opi
of investors and
investmentprofessionals,itisthebestmeasureofabusinessdesign's
economic-Stower
and future eaming
potential' The market value
ofalarge,diversecompanywithmultiplebusinessdesignsisthe
aggregation
of each ind'ividual
design's ability to perform in the
market.2
Throughout
this book the market value of companies'
groups of companies,
and entire industries
will be used as a pragmatic
proxy for value creation and decline'
Thesuccessofabusinessdesignincreatingvalueisindependent
of company
size. Quite
often, new' small firms introduce
the most
innovativeandpowerfulbusinessdesignsandcapturemostoftheir
Coxcnr"rs
industry,svalueglowth.Thepowerofabusinessdesign,therefore,
must be measured
by the amount
of. market value relative to the size
of the cnmpany.
Taking revenue as a useful estimation
of size' the
ratio of market vatuJ to revenue allows us to compare
the value
creation
power of business designs of different scales. For example:
1994 Revenue*
1994 Ma
U.S. Steel $6,.I
Bethlehem $4.8
Inland $4.5
Nucor $3.0
*in
billions
$4.1
$2.7
$2.3
$5.0
,7
.6
.5
t.7
Thus,whileallthesecompaniesmanufacturesteel'andU'S'Steel'
Bethlehem,
and Inland aie much larger' Nucor's more
powerful
business design has succeeded
in creating significant,
sustained
value
growth.
If revenue
is a measure of the mass of a business
design' the
marketvalue/revenueratioisanindicatoroftheprofitabilityand
momentumofthatdesign.Isitcapturingvalue?Isitlosingvalue?
Atwhatrate?Theratioisafeedbackmechanismthatindicates
how a design is valued relative to its competitors_and
to investors,
options in other industries'l
Theabilitytomeasuretherelativepowerofbusinessdesigns
provides a diagnostic
for understanding
the direction
and velocity
ofValueMigration.Thesemetricsarealsoextremelyusefulinunder-
standinghowtheeconomicpowerofabusinessdesignchanges.
The Three Phases of Value
Migration
eof
to Valug
on its abilitY to
describe
;;;it customer
priorities better than competitors
do and thus to
earn suPerior
returns.
business
design
responding
to customer
priorities
that established
competitors
had fi;;;"tee
or had neglected'
Value
flows
into
such designs
becaostof
their superior
economics
and the emerging
recognition
of tfreir
po*tt
'o.t"tifV
llstomers'
Microsoft
and EDS
are among
.o*pJ"'
experiencing
the value
inllow
phase'
Stlsrr.rrY.
The second
phase' sqbiliry
is characterized
by busi-
ness designs
that
"*
*.u
*.t.r"d
to customer-pT:tit:t
and by
overall
competiil
equilibrium'
This
phase can vary
in length'
depending
on the
'"tt
ut which
customei
piiorities
ctrange
and new'
more
effective
business
designs
emerge'
ouring
the stability
phase'
value
remains
in the busineis
design'
but eroectations
of relatively
moderate
future
growth
prevent
new value
from
flowing
to the
company.
comp#es
such
as DuPont
are in this
phase'
V,a'r-us
Otlrxr'ow'
In outflow'
the third
phase' value
starts
to
moveawayfromanorganization,straditionalactivitiestowardbusi-
nessdesignsthat*o..-.ff.oi,nelymeetevolvingcustomerpriorities'
Although
the value
outflow
mav start t1"*tt:11t^":l:rates
as a
business
designil;*;
increasingly
obsolete.
companies
like DEC
and-Bethletttm
it-J-tt*t
"t"
""L"
flow
out of their
business
designs.
As a business
design
passes thrgugh
the tluee
phases of Value
Migration,
,n.'"'tt-ot
'i*ugement
changes'
At each stage'
managers
must
make
at"*"tit"Uy
difrerent yrrdt
of moves'
and those
moves
determine
*i,"tti'
""d
lo"tt
in the Value
Miglation
process'
Value
Migration
and
the Game
of Business
value
Migration
is not new. value
migrated
away
from Ford's
verti-
cally
integrated,
"s;;t-t"i-to*ted
tusiness
design
toward
GM's
price-laddered
o'u!int"
at'igtt
in the 1920s'
It moved
lrom
grocery
store
chain,
.o ,-]p.il;keis
in the 1930s'
from
fragmented
mer-
chandisers
to natiinal
catalogue
sales
in the^i:::t^J::ars)'
and
to
national
*.r.t*Iir.
.trinJi"
the I920s
(Sears
again).
Business
designs
"rra "o;;er
prioritiel
l""t
been
moving
into and out of
phase to, a.t"at-''-crtiti"g
and destroying
fortunes
in the
process'
E
UONCEI"TS
In the
I990s,
however'
the r
in manY
industries'
The
game o
itt. f
q6Ot
and
1970s'
it was
like
;;;t
called
plavs' If
vou
exe-cuted
the
?**mi,i,iil'l;.,""HJ:"*ff4liiln"""3l'itdmarket
sharewereall.import,inmostcasesassuringprofitability'Large-
scale,
large-*"'Xt'I'iare
players
like IBM'
DEC'
and
U'S' Steel
pros-
pered.
Somedme
in trre I980s'
the
game changed'
the
pace
quickened'
It was
no longer
,""ri"u.
rt was basketball]
Scale
and
market
share
were
important,
;; ffi n'*iat-a
less
protection
than
formerly'
You had
to be fast u' *tll
as big'
You had
to
,i-.
o. the other
side
would
score
on
you-r
was
signaled
by a mid-I980s
flurry
of articles'
That
was
what
mattered'
Consumer
electro
firms
were
t"q"titrv
Jttd
"'
.effecdve
exarnp
ns
that
focuseA
o" gt*i"g
new
products
to market
a
le'
t-
*'.['|
::ffiil.jl1:'"tfi::
and
p olishin
g its " ba sk:'o
un
:!lI'
however,
tt"
gurtJ;;;;t*
t?atri"ta'
Between
1987
and 1993'
the rules
that
determined
succest
""J
pttit changed
in a radical
and
disquie""r
*"t'
*^t*
Jayers
like Microsoft
and
TeleCommunr-
cations,
r,"',
"tJtded
bV
"*pf"V*g
"t*'
nonspeed-based
skills
such
as identifying
and ownin'
tt"-"i"ttgic
controlpoints
in their
industry.
Vf""
""-O
market
share
to to"g;t
offered
the
profitability
and. value
protection
they
once
provideJ'
In fact'
newcomers
could
use
your mass
against
you' t?iTjt:9
customers
that
what
you
were
good at, what You
were
big at' w
their
future
prioriti:s'
In industry
after
From
steel
to computing
to air travel
to
newcorlers
with
innovative
business
desi
their
industry''
utt"t
growth
(see Figure
I-I)'
Several
t"""*
"tt
ariving
this
d'ecline
of the
giants:
I
-qualitY
substitute
is
available'
40
6
g
go
E8
-a?
zo
E:
=.6
10
II
.9O
Frcunr l-1 TRaPnvc Plecns
DEC/Microsoft
86 87 88 89
92 93 94
Bethlehem/Nucor
USAir/Southwest
84 85 86 87 88 89 90 91 92 93 94
soUBGE: CDI Value Growth Database.
6
g5
9L
:H;
EE
2
1
gO
90 91
84 85 86 87 88 89 90 91 92 93 94
6
g5
4
d3
U(JI\' LETI J
increasing
num-
competitors
with
innovative
business
designs
can provide superior
utility
to customers.
i
3.
which have made it far easier to
stitutes
for manY
manufactured
goods and components,
have created more soss-category
Iompetition
tnun existed' in the
past (e'g" steel versus
plastic versus aluminum)'
4.
away from manufacturing
intensity
are all reducing
barri-
ers to entry.
5 . Imp rov-e-d
qu$-o
+-qI-
a9!
911
-t9*r.4onnation
ha s lowere
d
switching
costs'
6. New competitors
have easier access to capital'
removing
"
ffige
exiiffiE
casliflow?ssociated
with
an established Position'
ThedeclineoflBM,svaluewasthesymboliceventthatsignaled
game. Unexpected'by-and
bitterly
disap-
tors, it didn't seem to make any sense' In
IBM the best-managed
company
in the
world.n
rn LggT,it
earned its peak profits as a corporation.
By 1992,
however,
its market value
had fa[en by more than 70 percent from
I98l-$70
billion of market value had been lost'
What was most d'isorienting
to executives
and investors
was the
growing disproportion
between
size and value'
2.
1994 Revenue*
1994 ShareholdelWlue:
IBM
964
Microsoft
$5
*in
billions
$43
$36
revenue,
be
tnes as much
competition
was changing,
they had difficulty
articulating
what the change
was'
Anin-depthandcandidconversationwithanextremelysuccess-
ful
pharmaceutical
executive
d'uring
1994 captures
the
point:
.IIIE
CHALLENGE OF VALI]B IVIIGRATION
II
JuSt a few
years ago I felt differently
about the future' I knew
what my three most important
moves were' I knew
precisely
what we had to accomplish
to grow the company's
value'
Restmcture and fine-tune the sales force' Bring disciplined
eco-
nomic thinking to the marketing
investment
process' Create a
genuine dialogue between marketing
and RED' and work to
reduce R&D development
time-by a lot'
TodayI'minarlifferentpredicament'Idon'tknowwhat
my top three moves are. There might be five moves that matter'
or one. I can sense that the rules have changed. But I can't put
my finger on what they are' It feels awful't
He was right. The rules have changed. The frequency and speed
of Value Migiation
have turned the task of management
into chess'
Execution
and speed are still importanL
but neither is adequate
anymore.
Managers must leam new rules for this new game' New
questions must be asked: Speed toward what? Where will I be
allowedtomakeaprofit?wherewillthevalueintheindustrybe?
What new corecompetencies
do I need? What dolneed to be good
at? What moves do ineed to make to capture the next cycle of value
gowth?
Chessisagameofmovesandcounteflnoves.Assessingthediffer-
entidl
power of each
piece and eactr square on the boar4 the
player
aooaaio.,
of and then executes
a series of moves that creates a
strategically
adv4ntageous
position-for a while' Then' as the board
ckranges, advantage
Lut to be created again' It is a complex
game'
the rianager must look at his or her situation-the
board, the
pieces,
thecompetitor'spieces,thecustomer'spieces-andaskWhat'smy
next move? What series of moves must l make to achieve and
maintain value
growth?
Ttrenewgameofbusinesshasbeensodisorientingtoexecutives
arid investors
because it is different, founded on a new and funda-
mentally
different set of assumptions
about what is important:
such a shift is the d eparture
point f or understanding
value Migra-
tion. Different factors, requiring a different mind-set, are what count
today. The mind_set mu;t focus on understanding
where the value
in an industry resides today and where it will move in the future.
As customers,
priorities change, value can shift away from activi-
ties-be they manufacturing,
marketing, sales' or specific types of
RED; from products-say, buggy whips, slide rules' mainframes' or
basic materials; from customer segments-such
as regulated,
profit-
Iess segments in home health care; and from entire business
designs-for
example, integrated broad product line manufacturers,
traditional department stores, hub-and-spoke
airlines, or proprietary
computer Systems. Activities, skills, and business designs that were
once highly rewarded fade into economic irrelevance'
It's not that the value disappears, but that it moves-rapidly
at
times-toward.
new activities and skills and toward new business
designswhosesuperiorityinmeetingcustomerprioritiesmakes
profit possible. In some cases, customers
are the only beneficiaries
of vulrr. Migration because the industry's current business designs
offer customers
high utility but fail to recapture any of that utility
in the form of pricing and profits. (Environmental
remediation,
for
example,providesgreatutilitytocustomers'buttheindustry'sbusi-
ness designs have not succeeded
in recapturing any significant
level
of profitaUility for shareholders')
While the Value Migration
process
creates huge economic vulnerability,
it also opens large new spaces
of opportunitY.
A Strategic
Perspectite
on the Customer
Thefirsttaskoftopmanagementistounderstandthedirectionand
velocity of value nigration
in its industry. without such understand-
ing, diligent effort b-y thousands
of excellent workers is misdirected'
Even worse, thousands of
jobs and billions of dollars of market value
areplacedatunnecessaryrisk.Enormousresourcesareinvested
without
producing
"rr.y
..t,'*s, and opportunities
for new value
growth are lost.
TomeetthechallengeofValueMigration'managers'mustask'
Ibe,aUnued PrPlit?
How is that
he change?
mY organization
do
about it?
Beneath these questions lies a more fundamental inquiry: What
accurate, and actionable.
customers make choices based on their priorities. Those choices
develop potential value for the businesses from which they buy. At
any given time, the pattern of those choices auocates value to various
business designs. As customers'priorities change and new designs
present customers with new options. they make new choices. They
reallocate value. These changrng priorities, and the way in which
they interact with new competitors' offerings, are what tngger,
enable, or facilitate the Value Migration process.
One of the most powerful examples of Value Migration occurred
in the computer industry where value moved away from business
designs built around proprietary mainlrames and minicomputer sys-
tems to business designs built around workstations and
pCs
and
finally to those built around the elements of computing functionality
that customers mest value-processor chips, operating systems, low-
cost distribution, communications software (network
software,
groupware), and systems integration. What matters to customers,
what makes them willing to pay a premium, shifted as their previous
priorities were met, as they became more sophisticated, and as new
priorities emerged or better ways of satisfying old priorities were
developed. Customers' choices have redistributed value from out-
moded business designs-those of IBM and DEC o others that
deliver more utility to customers and profit to shareholders-those
of Intel, Microsoft, Novell, EDS, and others (see Figure l-2).
Changing customer priorities, then, trigger the Value Migration
process, creating opportunities for new business designs. Incumbents
frequently ignore or overlook such opportunities, presenting signifi-
cant openings for newcomers.
Understanding customer priorities requires understanding more
than
just
customer needs. Needs refer to the benefits and features of
products that customers would Iike to buy. Most market research
focuses on needs. But what customers really want is the result of a
complex decision-making system. They are influenced by a number
of external factors-regulation, commoditization, the offerings of
Frcunr r-z C orvrpurrn
INousrnv Varue MrcnenoN
IBM
InteUMicrosoft
DEC
Novell/EDS
g,
_g
o
o!t
f*
?o)
so
o=
Jv
a9
>6
=
II
=
Withinadecade,tBMandDEC'lost$sobillioninvaluewhile
new speciai,t-iL;7'il;iless
-desigis
gained
$s0
bi'fton'
soURCE: CDI Value Growth Database'
newan
ers,
ctorcosts'Thesefactofs
are pro
the
a customer's
sYstem of
dec.ision
making,
presenting a set of clear' well-defined
customer
t-lillustratest}riseffect.Understandingthedeci-
em and resuliing
priorities constitutes
a strategic
understanding
of the customer'
120-
o
t*'
s
880
Tuo
E+o
I
20
Ezo
a!
E
t15
o
o
910
g
o
5
40
35
30
25
20
15
Priorities
t.
2.
3.
Decision Makers
Systems Economics
Frcunn r-r Ttm CusroMER's DscrsroN-MAKtr'IG SYSTEM
External
forces
have an impact on customer needs, economics,
ina aecision making. What-emerges are new custonrer
priorities.
Analyzing customers' decision-making systems makes it possible
to interpret what customers say they want. It also helps decipher
what customers are not saying and to anticipate what they will say
in the future. Needq-gggfyg$ .Suplqmers
want.
priorities*irn-alyiii
d,e-termineq
yy;\41 business design creates the
greatest omers
)lF-or-example,
in the business forms market, customers describe
ffiii needs as high-quality
products, quick-cycle delivery, and Iow
price. Extensive market research reveals how well various suppliers
meet these criteria. A priorities analysis, howeveL will reveal some-
thing completely different. It will show that the top priority for
many large customers is to accomplish the transition from paper to
electronic forms. Ttre implications for the business designs of form
suppliers are clear and
Profound.
In business-to-business
settings, understanding a customer's
decision system means knowing as much (or more) about the cus-
tomer's business aS its management does. It requires a level of rela-
tionship well beyond the traditional sales rep-purchasing agerLt,
for
Frcunr
r-a
Tts MscHANrsM
oF V*i
fgon-lrt""
A business
design
l
il
I
rl
l1
ti
ll
1r
l1
il
ll
l
ti
i1
:l
li
ll
rl
tl
Ir
Li
il
ii
iir
ill
lir
ii
il
1
ii
I
I
1i
l
,.;G;;;-'.
sene.rates
yllY::,,
(
weattilprotit |
,
b|:ofii'
ana
wealth'
V
that matches ...
customer Priorltles
supplier-customer
structure'
It means
understanding
functionality'
and the customer's
entire
deci-
setting,
it is understanding
the
functionalities
that create the
expressed
needs.
ffi;
;;;.
customer
decision
:v*:-t ."* ::::lt-i:nt:
to, #r'1.'r.*i;;;,
of the market.
understanding
customers
atthe
- ---^*l-
+L^ o{fnrf lor .'rscrtLs
rLE;'rlur
difficult
but worth
the effort
level of their decision-making
system
rs
--r
r-^.rr rrrarr
;t";'":ii'"'il;;;"
to recognize
cusromer
priorities and how thev
changt.
once
vou
have achieved
this
"::t:1-Tj:::t::.f#;"t""":
can anticiPate
Value Migration'
prioriti
'
iortnnt Figure I-5 illustrates
the changing
-Q
tomodve
customers'
which
created
I L--^:-^--
'locinns
A Tnen-
maj or opp ortunitie
s f or new
plastics
-bas e dbusine
s s
5 litlli#?1"
;?ii#ffi
;ilil;;;-.r'*Td"':'i1'1li:::;3;*'";;;"i3l:
t';ffi#;;;;;-nrioritils"li?v'-:ll'I"-lf
*,*"H:t:#
#ffi;i;;;;;*pii"e
value
tuiiration
bv bu'dins
the risht
business
design
to meei tomorrow's
customer
priorities'
Institutional
Memory
Whenacompanyisestablished,itcraftsitsbusinessdesignaround
its customers.
In fact, customers
are the focus of everything
the
Dynamlc
Cuetomer
Decision
Pattems
Frcunr r-r Cn nrvcnvc Cusronarn
Pnronrrms
other words, institutional
memory is built'
When a business dPqP moves-from
to value outflow,
marketplace
rarely
penetrate an organization's
protectrve layers' Anq
iftheydo,theyarerhetwithdenial'"Thisiswhathasmadeusso
sreatest.
=-Tm'"
hrge market value, a company in the stability
phase can
ensure the financing required to move in new directions and acquire
capabilities
needed to thrive in a new environment.
But after the
transition to value outflow, market value shrinks, talent departs,
1994
1. Low sqstems cos[s
2. Engineoring,/
design suqqort
1. Lightweight
2, Corrosion rcsistance
1 . Structural functionalittl
2. Minimum
qualittl threshold
cash flow diminishes, financing is more difficult to obtain, and com-
petitors are likely to have staked out sfrong positions in the new
areas of value
growth. At this point, the company is caught in a
powerful downward spiral. Large revenue streams have led to a
Iarge infrastructure that customers see as "cost-added," not value-
added. When these costs and head count are removed, morale
declines and the best performers in the organization leap to competi-
tors with inlovative business designs that offer the promise of sig-
nificant value growth. Customers move. Talent moves. Value
migrates away.
Learning to Play Business Chess
There are always winners ald losers in the Value Migration process.
At critical
junctures, companies must make sharp transitions to a
new, more effective busingss design or risk losing the value they've
built. The historical record provides examples of companies that have
identified key moves and made transitions effectively. In the I950s,
value migrated from radio networks to TV networks. NBC, the leader
in radio, led the transition to network TV. Also in the 1950s, value
migrated from tabulating to computing. IBM, the Ieader in tabulating
systems, entered computing in 1953. By the end of the decade, it
had actrieved undisputed leadership in the new value space. In the
I930s, value flowed from chains of small grocery stores to chains
of supermarkets, which were larger in scale, broader in product
offering, and lower in cost. A&P made the move belatedly. Although
the shift was traumatic and late, the company emerged at the other
end of the transition
process with its leadership position intact. More
recently, as value flowed out of television manufacturing, Motorola
switched to semiconductors and communications equipment. As
cornmoditization threatened the long-distance telephone industry,
AT&T invested in business designs that created significant new areas
of value growth.
In each transition, the trauma of change was the trauma of
changing how ttre company did business. For AsR for IBI\A for
Motorola, it was not
just a technology or format. It was how these
cornpanies organized themselves, how they con-figured their re-
sources, and how they fashioned their approach to the customer.
The examples of companies that have successfully changed their
business design in response to changing customer priorities demon-
strate that Value Migration is not a process beyond your control. As
a manager, as a fiduciary responsible for shareholder wealth, and
as an investor, you have choices. In every industry there is a limited
set of key moves that allows you to take advantage of the next cycle
of value
growth. Every business design has a limited value creation
lifecycle. Managers must act to create the next viable business design.
IBM may have made such a move with its purchase of Lotus and
its innovative Notes product. Nucor may have missed one as minimill
saturation has threatened its unique position. The key questions are:
Which move should I make? Which future business design element
will be most important? Which future competitors do I have to worry
about most? It is a complex game.
When you Iearn to play chess, you start by becoming acquainted
with the pieces. You learn.how to deploy them, how to capture them.
Then you acquire some basic moves, simple techniques-openings,
traps to Iook for, end-game moves. Next you learn the strategic
values of the different squares and the importance of controlling the
four central ones. You can finally play chess competently because
you know the rules.
Leaming to play well enough to win, howeve[, involves Iearning
patterns.6 Winning is based on the ability to see and understand
patterns quickly. Pattems allow the player to see moves in series,
to look at the position of the pieces on the board and see strategic
meaning. The player who grasps the most patterns has a tremendous
advantage. In fact, chess grand masters can describe and use hun-
dreds of discrete patterns with great facility.
One Iearns to play the game of business chess the same way. A
set of basic rules must be understood. Part I of this book describes
the basic rules of Value Migration and the workings of the new game
of business. Equipped with that set of tools, you can play the game.
Playing the game well, however, requires that you become famil-
iar with its patterns. You Iearn chess patterns by studying games
played by others. Fortunately, as Value Migration has been e>rperi-
enced in industry after industry, many of its basic patterns are becom-
ing clear. While complex, the interaction of customer priorities and
business designs can be mapped and understood.
I
i
il
20 Corvcnpts
Part tr describes seven basic patterns that every manager and
investOr should know. There are, of course, dozens of others. New
ones emerge constantly as Value Migfation affects new industries.
However, the seven included hdre have proved to have wide applica-
bility and are the beginnings of a basic vocabulary.
Part Itr is devoted to learning to play the game well on a day-
to-day basis. It is about the specific actions that you can take to
avoid value loss and to preempt the next cycle of value
growth. The
final chapter of the book focuses on the increasingly high-stakes
nature of the decisions that determine future value growth. In most
cases of Value Migration, five or fewer key strategic moves deter-
mined how value was redistributed in the next cycle of value growth
in tlre industry. The chapter provides away of thinking about these
moves that can help your organization improve its odds of making
the right decisions.