Part 1

Must be between 300-500 words. Must be 2 references that are websites and originated in the United States. Use in text citations as well. 

If a firm has created value, is it also always able to capture that value? How does a firm create value and then what must it be able to do to capture that value? In your answer, provide an example of a firm that has been able to create value. Then discuss whether or not you believe it has captured that value and if so how it was captured and if not why it was not able to do so.

Part 2(a) 

Must be between 250-50 words. Use in text citations these are discussion responses. So please just elaborate on what was already said and add to it. Use 2 references that are based in the United States and are websites. 

When firms are trying to create value, they must consider what their rivals will respond with and to any potential value creation. Due to this, it can make it more difficult for a company to not only capture that value, but possibly even create it due to the immediate response of competitors potentially matching prices or products brought to the market. Although managers need to create and capture values to achieve their ultimate objective of sustaining profits, it is unfortunately not always able to capture that value when the value is created.

         Value creation can happen in many ways and “the possibilities for new value creation are immense” (Brickley et al., 2020). Some examples of creating value are reducing costs for the consumer and production of products or services, reducing prices, and even creating new products. For example, one way to create value in the production process could be utilizing the process of rearrangement. Paul Romer stated “So it is not the raw materials or the mass of things on earth that really lies behind economic success and high standard of living, it is the process of rearrangement. And what underlies this process of rearrangement are instructions, formulas, recipes, and methods of doing things” (Brickley et al., pg 253). Breaking this down, this is telling us that in a production process that makes 10 steps, it is possible to rearrange several steps or possibly even eliminate a step that could in turn cut costs and create value on the production side.

         After creating value, a firm needs to be able to capture the value. According to Peter Thiel, his first rule of capturing value is “if you want to create and capture lasting value, don’t build an undifferentiated commodity business” (Jorgenson, 2015). Some examples of capturing value using this philosophy could be Google and Microsoft. Google has monopolized the search market (Jorgenson, 2015) and Microsoft has monopolized the operating system market (Novet et al., 2021). When capturing value, you must consider the ability of both the buyer and the supplier to capture some of that value as well. Buyers are able to capture the value by driving the value down and suppliers are able to capture some of the value by pushing prices up of the inputs (StartupSloth.com, 2021). Three other factors that can affect a firm’s ability to capture value are based on their rivals. Value can be taken away via price competition, the threat of substitutes from competition, and the potential of new competition coming to market.

         Looking back at Microsoft, they are a company that has been able to create value and capture the value in the operating system market. As of 2021, Windows holds a 83% share of operating systems for personal computers in the market, according to a research study done by Gartner (Novet et al., 2021). The windows operating system today still accounts for 14% of Microsoft’s total revenue and is constantly coming out with new features to help continue capturing the value  with each new release of their operating system. Microsoft is doing very well when creating and capturing value in the operating system market as they’ve never really had a true competitor to rival against.

References

Brickley, J. A., Smith, C. W., & Zimmerman, J. L. (2020). Managerial Economics & Organizational Architecture. Yuzu Reader. Retrieved from https://reader2.yuzu.com/#/books/9781260701395/

Jorgenson, E. (September 28, 2015). Why Value Capture is the Most Important Business Idea You Haven’t Read Enough About. Retrieved from https://medium.com/evergreen-business-weekly/why-value-capture-is-the-most-important-business-idea-you-haven-t-read-enough-about-c035c657d091

Novet, J. & Black, E. (July 10, 2021). How Microsoft has kept Windows on top for two decades. Retrieved from https://www.cnbc.com/2021/07/10/how-microsoft-has-kept-windows-on-top-for-two-decades.html

StartupSloth.com. (2021). The difference between value creation and value capture. Retrieved from https://startupsloth.com/the-difference-between-value-creation-and-value-capture/

Part 2(b) 

Must be between 250-50 words. Use in text citations these are discussion responses. So please just elaborate on what was already said and add to it. Use 2 references that are based in the United States and are websites. 

Creating value is critical for any organization to make profits; the second step is developing ways to capture that value (Brickley et al., 2021). Organizations can use four main ways to increase value: taking actions that lower the production or producer transaction costs, implementing policies to reduce transaction costs, adopting new strategies to increase demand, and developing new products or services (Brickley et al., 2021).
      Value creation is necessary but not sufficient for an organization to stay afloat. Some established companies manage to come p with innovations that customers value but cannot realize the benefits because of an unsuccessful business model. Most if not all startups share this challenge. They may have large amounts of followers or even buyers but little or no profit and can only survive as long as the investors keep holding faith that sooner or later they will get handsomely rewarded (Verdin and Tackx, 2015).
      According to Brickley et al. (2021), the potential for organizations to capture value increases with market power. However, firms can still capture value even without market power by employing superior production factors that allow them to be more productive than their rivals (Brickley et al., 2021). It is necessary to mention that the competition will bring the market towards equilibrium. This means that even though organizations may be able to create value, other firms will copy what is successful. For instance, if a firm is gaining profits, a competitor may copy the production techniques of the firm or recruit the firm’s talented human resources (Brickley et al., 2021). At best, in a competitive market, firms can expect a standard rate of return, where marginal revenue equals marginal costs (Brickley et al., 2021).
      An organization that has been able to create and capture value is Netflix. In 1997, Netflix started as an online movie rental service (McFadden, 2020). Netflix reduced producer transaction costs by making the platform online, which downsized the workforce from working in stores to a distribution center (McFadden, 2020). In other words, Netflix benefited from economies of scale. Additionally, Netflix reduced consumer transaction costs by making ordering a movie online, then waiting for the video to be delivered via mail (McFadden, 2020). Netflix made it easier for the consumer by including the return envelope and postage in the packaging (McFadden, 2020). Netflix has quickly adopted new technologies to break ahead of the competition.
      Netflix has been able to capture value without question. First, the company switched to a subscription-based model with streaming services (McFadden, 2020). Thanks to its subscription packages, Netflix has increased its customer-based portfolio to 193 million subscribers (Business Strategy Hub, 2020). This has helped Netflix become the number one streaming service in the United States, consolidating its market power (Business Strategy Hub, 2020). Netflix is capturing additional value in the market and staying ahead of the competition by providing more television series and movie options, creating original content, and partnering with other companies like Dish, LG, Sony, Samsung, Apple, Microsoft, and others (Business Strategy Hub, 2020).

Brickley, J. A., Smith, C. W., & Zimmerman, J. L. (2021). Managerial Economics and Organizational Architecture. McGraw Hill.

Business Strategy Hub. (2020, October 10). Netflix business model (2022) / How does Netflix make money. https://bstrategyhub.com/netflix-business-model-how-does-netflix-make-money/

McFadden, C. (2020, July 4). The fascinating history of Netflix. https://interestingengineering.com/the-fascinating-history-of-netflix

Verdin, P. & Tackx, K. (2015). Are you creating or capturing value? A dynamic framework for sustainable strategy.