Value‐based Business Strategy

Abstract

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.