The book offers a strategic framework for companies looking to achieve exceptional performance by doing less and has been named one of the best strategy books of 2021.
We ask why some companies are so much more successful than others. The answer, it turns out, has much to do with how companies create value for their customers, their employees, and their suppliers.
It is surprising, perhaps, but nevertheless true: the companies that perform best do not think about themselves first and foremost. They dream up ever better ways to create value for others.
Think value, not profit, and profit will follow.
Pillar #1 Value for Customers
Do you tend to root for the underdog? If so, you will love the story about how Amazon gained a toehold in the market for consumer electronics in fierce competition with then-dominant Sony. Sony had it all: the best e-reader technology, a stellar brand in consumer electronics, and a marketing budget the size of a small country’s GDP. Amazon’s edge? A better way to think about value for customers
Sales-driven organizations (like Sony) and companies that focus on willingness to pay (WTP (like Amazon) would show similar performance. But this intuition turned out to be wrong. Companies that train their lenses on WTP have a significant long-term competitive advantage.
Willingness to Sell
Strategies that lower WTS also pay off in improved supplier relationships. Even prior to the COVID-19 pandemic and the increasingly frequent disruptions of global supply chains as a result of climate change, experts readily recognized the value of close and adaptable collaborations with suppliers.
If you find ways to reduce a supplier’s cost of working with your company, you can capture a part of the value that you helped create. However, what is straightforward in theory is often difficult in practice.
Many buyer-supplier relationships do not live up to their potential, not because it is challenging to see how one might create value, but because we fear the other party will capture most of the benefits from a successful collaboration.
Increasing Productivity reduces costs and work time
Productivity is a crucial factor in the success of companies, with leading companies in the United States being twice as productive as the weakest ones, while in emerging markets, top performers are five times more productive than the least efficient.
Economies of scale and learning are two strategies that can enhance productivity. Scale economies help in reducing cost and work time, while learning leads to substantial efficiency gains, especially in the age of machine learning and advanced analytics.
Basic management tools such as goal setting, performance tracking, and frequent feedback are also critical in driving productivity, but many companies fail to adopt them.
To improve the productivity of your team or company, it is essential to focus on these promising opportunities, including economies of scale, learning, and basic management techniques.
Willingness to pay
Some approaches to raising WTP are obvious: increase the quality of your products, enhance their brand image, innovate. But even strategies that are often overlooked can be exceptionally powerful.
For instance, it is fascinating to observe how some companies leverage the power of complements: products and services whose presence raises the WTP for other products and services. Think printers and toner, cars, and gasoline.
Michelin and Alibaba Group rely on complements to supercharge their entry into new industries. Apple uses them defensively to soften the blow from declining prices. Harkins Theatres cleverly offers complementary tickets to fill seats in its movie theaters.
If you compete solely on the basis of your products and services and fail to recognize your complements, there is a good chance your business is already in trouble.
Pillar #2 Value for Talent and Suppliers
Our attention will swing to the bottom of the value stick. We will meet companies that gain a competitive advantage by decreasing the willingness to sell, WTS of their employees and their suppliers. In competition for talent, firms pursue two approaches to gain leverage: offer more generous compensation or make work more attractive.
While the two strategies seem similar at first—they both create greater employee engagement and satisfaction—they have vastly different consequences. Increases in pay shift value from the company to its employees; there is no value creation, only redistribution. By contrast, more attractive working conditions create more value.
