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Value Migration: How to Anticipate and Exploit the Shifts in Customer Value by Adrian J. Slywotzky


What is Value Migration and Why You Should Care




Have you ever wondered why some companies seem to rise out of nowhere and dominate their markets, while others fade into obscurity? Why do some businesses grow rapidly in revenue, profits, and market value, while others stagnate or decline? Why do some industries undergo radical transformations, while others remain stable or stagnant?




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The answer lies in a powerful phenomenon called value migration. Value migration is the flow of economic and shareholder value away from obsolete business models to new, more effective designs that are better able to satisfy customers' most important needs. Value migration is not driven by new products or technologies, but by superior business designs that create more value for customers.


Value migration is happening all around us, in every industry and every market. It affects both large and small businesses, incumbents and newcomers, leaders and followers. It creates winners and losers, opportunities and threats. It shapes the future of business and society.


In this article, you will learn what value migration is, how it works, and how you can benefit from it. You will learn from the insights and examples of Adrian Slywotzky, one of the world's leading experts on value migration and business strategy. You will discover how to think several moves ahead of the competition and create superior business designs that capture value from customers.


The Origins of Value Migration




Value migration was first identified and explained by Adrian Slywotzky in his seminal book "Value Migration: How to Think Several Moves Ahead of the Competition", published in 1996. Slywotzky is a vice president of Mercer Management Consulting, a New York-based strategy consulting firm. He has a background in economics, law, and business administration. He has been recognized by Industry Week as one of the six most influential people in management, along with Bill Gates, Jack Welch, Peter Drucker, Andy Grove, and Michael Porter.


In his book, Slywotzky defines value migration as "the shifting of value-creating forces. Value migrates from outmoded business designs to business designs that are better able to satisfy customers' priorities". He argues that value migration is the key driver of competitive advantage and business success in the modern economy. He provides a framework and a methodology for understanding, anticipating, and profiting from value migration.


Slywotzky also provides numerous examples of value migration from various industries and markets. Some of the examples are:



  • Microsoft vs. IBM: Microsoft captured value from IBM by creating a more flexible and user-friendly business design based on software rather than hardware.



  • Nucor vs. U.S. Steel: Nucor captured value from U.S. Steel by creating a more efficient and innovative business design based on mini-mills rather than integrated mills.



  • Starbucks vs. General Foods: Starbucks captured value from General Foods by creating a more differentiated and premium business design based on specialty coffee rather than commodity coffee.



  • Southwest Airlines vs. United Airlines: Southwest Airlines captured value from United Airlines by creating a more simple and low-cost business design based on point-to-point flights rather than hub-and-spoke flights.



The Three Phases of Value Migration




Slywotzky identifies three phases of value migration: inflow, stability, and outflow. Each phase has different characteristics and implications for businesses.


The inflow phase is when a company or an industry attracts value from other companies or industries by creating a superior business design that satisfies customers' most important needs. The company or the industry experiences rapid growth in revenue, profits, and market value. The inflow phase is the most desirable and rewarding phase for businesses.


The stability phase is when a company or an industry maintains its value by sustaining its superior business design and defending it from competitors. The company or the industry experiences moderate growth or stability in revenue, profits, and market value. The stability phase is the most comfortable and secure phase for businesses.


The outflow phase is when a company or an industry loses value to other companies or industries by having an obsolete or inferior business design that fails to satisfy customers' changing needs. The company or the industry experiences decline or stagnation in revenue, profits, and market value. The outflow phase is the most dangerous and painful phase for businesses.


Some examples of each phase are:



  • Inflow phase: Amazon captured value from traditional retailers by creating a superior online shopping experience that offered convenience, selection, and low prices.



  • Stability phase: Coca-Cola maintained its value by sustaining its strong brand image and global distribution network that offered consistent quality and availability.



  • Outflow phase: Kodak lost value to digital camera makers by having an obsolete film-based business model that failed to adapt to the digital revolution.



Slywotzky argues that every company and every industry goes through these three phases of value migration over time. The key challenge for managers is to identify which phase their company or industry is in and what to do about it. Slywotzky provides some tools and techniques for doing so, such as analyzing financial indicators, customer priorities, competitive forces, and business models.


The Seven Patterns of Value Migration




Slywotzky also identifies seven patterns of value migration that occur across different industries and markets. Each pattern has different causes and effects for businesses. Slywotzky suggests that managers should be aware of these patterns and learn how to anticipate and exploit them.


The seven patterns of value migration are:



  • Multidirectional migration: Value migrates from one industry to another industry that offers a better solution for customers' needs. For example, value migrated from steel to materials, such as plastics, aluminum, and composites.



  • No-profit migration: Value migrates from an industry that has low or negative profitability to an industry that has high profitability. For example, value migrated from airlines to travel agents, hotels, car rentals, and credit cards.



  • Blockbuster migration: Value migrates from an industry that has many small products to an industry that has few large products that dominate the market. For example, value migrated from generic drugs to blockbuster drugs, such as Lipitor, Viagra, and Prozac.



  • ## Article with HTML formatting (continued) Multicategory migration: Value migrates from an industry that has one product category to an industry that has multiple product categories that appeal to different customer segments. For example, value migrated from coffee to specialty coffee, such as espresso, cappuccino, and latte.



  • Specialization migration: Value migrates from an industry that has integrated products or services to an industry that has specialized products or services that focus on a specific customer need. For example, value migrated from computing to software, hardware, networking, and services.



  • Distribution migration: Value migrates from an industry that has conventional selling methods to an industry that has low-cost or high-value distribution methods that reach customers more effectively. For example, value migrated from retailing to online shopping, direct selling, and catalog shopping.



  • Solutions migration: Value migrates from an industry that has standard products or services to an industry that has customized solutions that solve customers' complex problems. For example, value migrated from selling to consulting, outsourcing, and systems integration.



Some examples of each pattern are:



Pattern


Example


Multidirectional migration


Value migrated from newspapers to online news platforms, such as Google News, Yahoo News, and Facebook News.


No-profit migration


Value migrated from music recording to music streaming, such as Spotify, Apple Music, and Pandora.


Blockbuster migration


Value migrated from movies to franchises, such as Marvel, Star Wars, and Harry Potter.


Multicategory migration


Value migrated from smartphones to wearables, such as smartwatches, fitness trackers, and wireless earbuds.


Specialization migration


Value migrated from banking to fintech, such as PayPal, Venmo, and Square.


Distribution migration


Value migrated from education to online learning platforms, such as Coursera, Udemy, and Khan Academy.


Solutions migration


Value migrated from advertising to digital marketing platforms, such as Google Ads, Facebook Ads, and Instagram Ads.


How to Anticipate Value Migration




One of the most important skills for managers is to anticipate value migration before it happens. Anticipating value migration can help managers avoid losing value to competitors and capture new value from customers. Anticipating value migration can also help managers create new opportunities for growth and innovation.


Slywotzky provides some tools and techniques for anticipating value migration in any industry and any market. Some of these tools and techniques are:



  • Defining the competitive field: The competitive field is the set of companies or industries that compete for the same customer needs. Slywotzky suggests that managers should define their competitive field broadly and dynamically, rather than narrowly and statically. By doing so, managers can identify potential sources of value migration and avoid being blindsided by new entrants or substitutes.



  • Using radar screens: A radar screen is a visual tool that helps managers monitor the competitive field and track the movements of value. Slywotzky suggests that managers should use radar screens to scan the environment for signals of value migration, such as changes in customer preferences, competitor actions, technology trends, regulatory shifts, and social forces. By doing so, managers can detect early signs of value migration and respond accordingly.



  • Analyzing customer priorities: Customer priorities are the most important needs or desires that customers have when they buy a product or service. Slywotzky suggests that managers should analyze customer priorities regularly and systematically, rather than sporadically and intuitively. By doing so, managers can understand what customers value most and how their values change over time.



  • Designing business models: A business model is a set of choices that a company makes about how it selects customers, differentiates its offerings, ## Article with HTML formatting (continued) Designing business models: A business model is a set of choices that a company makes about how it selects customers, differentiates its offerings, configures its resources, goes to market, and captures value. Slywotzky suggests that managers should design their business models based on a deep understanding of customer priorities and competitive forces. By doing so, managers can create superior business designs that attract and retain value from customers.



Some examples of anticipating value migration are:



  • Netflix anticipated value migration from DVD rental to online streaming by creating a superior online platform that offered convenience, variety, and personalization.



  • Apple anticipated value migration from personal computers to mobile devices by creating a superior ecosystem of products and services that offered functionality, design, and integration.



  • Amazon anticipated value migration from online shopping to cloud computing by creating a superior cloud platform that offered scalability, reliability, and affordability.



How to Defeat Institutional Memory




One of the biggest obstacles for managers to anticipate and profit from value migration is institutional memory. Institutional memory is the collective set of beliefs, habits, routines, and norms that shape how a company operates and behaves. Institutional memory can be a source of strength and stability for a company, but it can also be a source of inertia and resistance to change.


Slywotzky argues that institutional memory can hinder value migration by making managers complacent, conservative, or blind to new opportunities and threats. He suggests that managers should defeat institutional memory by challenging their assumptions, creating a sense of urgency, fostering innovation, and embracing change.


Some strategies for defeating institutional memory are:



  • Challenging assumptions: Managers should question their assumptions about their customers, competitors, markets, and industries. They should test their assumptions against reality and data. They should seek feedback and input from different sources and perspectives. They should be open to new ideas and possibilities.



  • Creating a sense of urgency: Managers should create a sense of urgency among their employees and stakeholders. They should communicate the need for change and the consequences of inaction. They should set clear goals and deadlines. They should reward action and penalize complacency.



  • Fostering innovation: Managers should foster innovation among their employees and partners. They should encourage creativity and experimentation. They should provide resources and support for innovation. They should celebrate successes and learn from failures.



  • Embracing change: Managers should embrace change as an opportunity rather than a threat. They should adapt to changing customer needs and competitive forces. They should learn from best practices and benchmarks. They should continuously improve their business models and processes.



Some examples of defeating institutional memory are:



  • Nintendo defeated institutional memory by challenging its assumption that video games were only for young males. It created the Wii console that appealed to a broader audience of casual gamers.



  • Tesla defeated institutional memory by creating a sense of urgency among its employees and stakeholders. It communicated its vision of accelerating the transition to sustainable energy and set ambitious goals for its products and services.



  • Google defeated institutional memory by fostering innovation among its employees and partners. It encouraged its engineers to spend 20% of their time on personal projects and provided them with resources and support for their ideas.



  • Netflix defeated institutional memory by embracing change as an opportunity rather than a threat. It adapted to changing customer preferences and competitive forces by expanding its offerings from DVD rental to online streaming to original content production.



How to Profit from Value Migration




The ultimate goal for managers is to profit from value migration by creating superior business designs that capture value from customers. Slywotzky argues that superior business designs are based on a strategic understanding of customer priorities and competitive forces. He suggests that managers should create superior business designs by making smart choices about how they select customers, differentiate their offerings, configure their resources, go to market, and capture value.


Some principles for creating superior business designs are:



  • Selecting customers: Managers should select customers who have high-value needs that are underserved or unsatisfied by existing solutions. They should focus on customers who are willing to pay more for better solutions or who can generate more revenue or referrals for the company.



  • Differentiating offerings: Managers should differentiate their offerings by providing unique benefits or features that address customers' most important needs. They should avoid competing on price or quality alone, but rather on value or experience.



  • Configuring resources: Managers should configure their resources by aligning their assets, capabilities, and partnerships with their customer value proposition. They should optimize their resource allocation and utilization to deliver their offerings efficiently and effectively.



  • Going to market: Managers should go to market by choosing the best channels and methods to reach and serve their customers. They should leverage their distribution network and customer relationships to create awareness, demand, and loyalty for their offerings.



  • Capturing value: Managers should capture value by designing their pricing, revenue, and cost models to maximize their profitability and sustainability. They should balance their short-term and long-term goals and align their incentives and rewards with their value creation.



Some examples of superior business designs are:



  • Starbucks created a superior business design by selecting customers who valued premium coffee and a social atmosphere, differentiating its offerings by providing high-quality coffee and a cozy environment, configuring its resources by investing in its baristas and locations, going to market by expanding its global presence and loyalty program, and capturing value by charging premium prices and selling complementary products.



  • Amazon created a superior business design by selecting customers who valued convenience, selection, and low prices, differentiating its offerings by providing a vast range of products and services, configuring its resources by building its technology and logistics capabilities, going to market by creating an online platform and a prime membership program, and capturing value by generating multiple revenue streams and reducing its costs.



  • Apple created a superior business design by selecting customers who valued functionality, design, and integration, differentiating its offerings by providing innovative products and services that worked seamlessly together, configuring its resources by developing its hardware and software expertise, going to market by creating an ecosystem of devices, apps, and stores, and capturing value by charging premium prices and creating loyal fans.



Conclusion




Value migration is a powerful phenomenon that shapes the future of business and society. Value migration is the flow of economic and shareholder value away from obsolete business models to new, more effective designs that are better able to satisfy customers' most important needs. Value migration is not driven by new products or technologies, but by superior business designs that create more value for customers.


In this article, you learned what value migration is, how it works, and how you can benefit from it. You learned from the insights and examples of Adrian Slywotzky, one of the world's leading experts on value migration and business strategy. You discovered how to think several moves ahead of the competition and create superior business designs that capture value from customers.


If you want to succeed in the modern economy, you need to understand value migration and how it affects your business. You need to anticipate value migration before it happens and respond accordingly. You need to defeat institutional memory and embrace change. You need to cr


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