As mentioned in part I, much of this information is based on the book Co-opetition by Brandenburger & Nalebuff, which I encourage those interested in Game Theory strategy to purchase.
If business is a game, who are the players and what are their roles ? There are customers and suppliers of course: you wouldn’t be in business without them. And naturally there are competitors. There’s one more, often overlooked but equally important group of players – those who provide complementary rather than competing products and services.
The classic example of complements is computer hardware and software. Faster hardware prompts people to upgrade to more powerful software, and more powerful software motivates people to buy faster hardware.
New anesthesia / analgesia techniques may inspire new surgical / birthing techniques and vice versa. Think of labor epidurals, now so commonplace and safe, they are almost automatic at many birthing centers. They have become so effective that “laboring down” with an epidural when a patient is complete, allowing contractions to bring the baby down, spares the mother some pushing and allows the mother to save her energy for the actual birth. Lacking epidural analgesia or other equally potent pain relief, this technique is not feasible.
A complement to one product or service is any other product or service that makes the first one more attractive. Thinking complements is a different way of thinking about business. It’s about finding ways to make the pie bigger rather than fighting with competitors over a fixed pie.
Although many have mixed feelings about labor epidural analgesia, especially after hours or on weekends, the wide spread acceptance of epidurals significantly enlarged the anesthesia/analgesia market. The practice of Pain Management is another example of enlarging the pie and adding value to healthcare.
Thinking complements is a different way of thinking about business. It’s about finding ways to make the pie bigger rather than fighting with competitors over a fixed pie. To benefit from this insight, think about how to expand the pie by developing new complements or making existing complements more affordable.
The Value Net
If business is a game, who are the players and what are their roles? Customers, suppliers and competitors, and one more category – people who provide complements. Which Brandenburger and Nalebuff named “complementor”, a natural counterpart to the term “competitor”.
Why not just call complementors “partners” or “allies” ? Two reasons, first, the term partner and ally are too broad. Customers, suppliers and complementors can all be your partners and allies. Second, the term partner and ally are too narrow. They don’t necessarily capture the full nature of the business relationship – a relationship that involves some inherent tensions.
To present a complete picture of the game of business, we must explore the various roles of players and the interdependencies among them. The same player can have multiple roles. This replication of a Co-opetition schematic, should help us visualize the whole game. Referred to as the Value Net, it represents all the players and the interdependencies among them.
Along the vertical dimensions of the Value Net are customers and suppliers. Resources flow from Suppliers to Company and products and services flow from Company to the Customers. Money flows in the reverse direction, from Customers to Company and from Company to the Suppliers.
Along the horizontal dimension are the company’s competitors and complementors. A definition for – Complementor: A player is your complementor if customers value your product or service more, when they have the other player’s product than when they have your product alone.
Thus foot long hotdogs and ketchup/mustard are complementors. Some people value hotdogs more when they have ketchup/mustard than when they don’t. And vice versa. The ways to identify complementors is to put yourself in your customer’s shoes and ask yourself – what else might my customers buy that would make my product more valuable to them?
Competitors are the reverse case: A player is your competitor if customers value your product LESS when they have the other player’s product, than when they have your product alone.
Coke and Pepsi are classic examples of competitors. If you’ve just had a Coke, you value Pepsi a lot less.
The traditional approach defines competitors as the other companies in your industry – those companies that make products or provide services similar to yours. The right way to identify your competitors is again to put yourself in the customer’s shoes.
Understanding Your Value Net
To understand the game you are in, start by going around your Value Net. This approach applies to any organization – private, public, or non-profit. As an example here is a Value Net for a Hospital.
Patients are the primary customers of a hospital, but they have not always been treated as customers. Some believe that is the way it should be, after all the hospital staff have the know how and the patients have come there for treatment. To the extent that is true, this makes patients “clients”. They are employing a professional service and should follow the guidance offered. In return the staff should listen carefully when the patient expresses dissatisfaction with the service they get.
Insurance companies, Federal and State Government are customers because they pay for the care provided to patients. Donors are customers who seek to give back, leave a legacy or help develop future hospital services or facilities.
Obviously these different customers sometimes have competing views as to what type of health care the hospital should provide. A hospital may not be able to listen to all of its customers at the same time.
A hospital’s suppliers are primarily its employees, medical staff and administration. Since hospitals are in the business of providing healthcare, equipment and supply companies are suppliers. Because nurses and doctors make up the employees and medical staff, nursing and medical schools may be considered suppliers as well.
The Hospital’s Competitors
Hospitals have no shortage of competitors. Free standing ASCs, Birth Centers, Pain Practices, Physician’s offices all provide services once the sole domain of the hospital. Alternative medicine draws people away when the Western Medicine model doesn’t meet their needs. Hospital foundations compete for Donor Dollars.
On the supply side hospitals compete for market share, medical staff, administrators and employees. They align with larger organizations to compete for the best prices for equipment and supplies.
The Hospital’s Complementors
Hospitals, though they compete for patients and staff, are complementors in creating the health care market in the first place. Individuals are more willing to pursue health care occupations, if they know their will be a market for their services when they graduate.
Physician offices, extended care facilites, ASCs, assorted businesses all provide complements to hospitals, allowing patients more convenient access to various services.
There could be much more to say about a hospital’s vale net, but the larger point is that drawing your value net is valuable. You may know your business inside and out, but drawing value net helps you understand your customers and suppliers perspective, allowing you to view your company from the outside in.
Next time- we’ll look at game theory strategy.