Success comes from value creation. 

For a strategic initiative to create value, it must increase willingness to pay or decrease willingness to sell. Otherwise, the resources expended will not flow into profitability.

Today’s discussion is one I was looking forward to because we’re focusing on value-based strategy frameworks and using strategic analysis to understand whether a company has a competitive advantage. Joining us to explore this topic is someone who has taken a fundamentally sound framework and brought it to life with excellent insights and vivid examples, Felix Oberholzer-Gee.

Felix Oberholzer-Gee is the Andreas Andresen Professor of Business Administration in the Strategy Unit at Harvard Business School. A member of the faculty since 2003, Felix has won numerous awards for excellence in teaching, including the Harvard Business School Class of 2006 Faculty Teaching Award for best teacher in the core curriculum and the 2002 Helen Kardon Moss Anvil Award for best teacher in the Wharton MBA program. He teaches competitive strategy in executive education programs such as the Program for Leadership Development, the Senior Executive Program for China, and a program for media executives titled Effective Strategies for Media Companies. His course, Strategies Beyond the Market, is a popular elective class for second-year MBA students. Felix is the author of numerous books, and his latest book, Better, Simpler Strategy, will be a major subject of today’s conversation.

In this episode, Felix, Tano, and I discuss how Felix defines his strategy framework, why willingness to pay and willingness to sell should be at the core of every strategy conversation, the value of ROIC as a metric of success, how Felix thinks about driving competitive advantages, value capture versus value creation, how to think about complements and substitutes, the potential for innovation and productivity growth, and so much more!

Key Topics:

• Welcome Felix to the show (2:03)
• Why a Ph.D. for career advancement unexpectedly led to Felix’s transition into academia (2:24)
• How case writing guides Felix’s interests and research focus (4:20)
• Defining a value-based strategy framework (6:25)
• Why should every conversation start with “Are we increasing willingness to pay or are we decreasing willingness to sell?” (10:08)
• Why Felix chose return on invested capital (ROIC) as a primary metric (12:40)
• Looking at ROIC distribution over the long term (14:22)
• Focusing on creating a competitive advantage inside of your industry segment (18:25)
• The significant issues strategists have with P&L statements (21:31)
• Value capture versus value creation (24:56)
• Determining willingness to pay (28:21)
• Harnessing network effects to increase willingness to pay (29:19)
• When to be worried about new entrants (33:18)
• Types of relationships between complementors (36:59)
• Understanding complements and value creation (40:26)
• Identifying complements and subtitutes (43:27)
• The effect of different management practices on productivity and willingness to sell (50:53)
• Tying willingness to pay and willingness to sell to strategy maps (56:01)
• Case study: Best Buy (58:09)
• The potential for innovation and productivity growth (1:02:09)
• Why Felix is obsessed with the differences between how we think about products and services versus jobs (1:04:50)
• Felix’s book recommendations (1:08:18)
• And much more!

Mentioned in this Episode:

• Felix Oberholzer-Gee’s Book | Better, Simpler Strategy: A Value-Based Guide to Exceptional Performance
• Youngme Moon’s Book | Different: Escaping the Competitive Herd
• Frances Frei & Anne Morriss’ Book | Uncommon Service: How to Win by Putting Customers at the Core of Your Business

Thanks for Listening!

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