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Unformatted text preview: Value Creation in Knowledge-Based Firms: Aligning Problems and Resources by Jaana Woiceshyn and Loren Falkenberg Executive Overview The best known framework for analyzing value creation is the value chain, which shows how to align resources and activities to convert raw materials into finished products and deliver them to markets. The value chain model works well for firms that produce and sell standardized goods and services through a sequential, routine chain of activities. It does not, however, offer guidance to knowledge-based firms that do not manufacture and sell goods. Such firms and units, including those in architecture, law, health care, and even energy exploration (which we studied), can be modeled using the “value shop” approach, one that creates customer value by applying knowledge and technology to solve unique problems. We build on the value shop model by identifying resources firms require for problem solving (knowledge base, value attached to knowledge, networks, and technical and managerial systems) and by examining how those resources are aligned, and realigned, into bundles to match specific problems and the firms’ strategies, to enhance problem solving and value creation. Guidelines for achieving such alignments are provided. V alue creation is the raison d’e ˆtre of firms: By devising and implementing strategies, firms create value for their customers and obtain returns for their owners (Hambrick & Fredrick- son, 2001; Normann & Ramirez, 1993; Porter, 1996). Successful implementation of strategy re- quires organizational resources and activities that are aligned with it. Some analytical tools can help managers achieve a value-creating alignment of strategy, resources, and activities. The best-known model for analyzing how value can be created is the value chain (Porter, 1980). By dividing the value chain into sequential activities—identifying the required resources and systematically analyz- ing each activity along the production line—man- agers can detect where to lower costs or increase delivered value, and thus increase their firms’ profits (Porter, 1980, 1996). The value chain model is an important tool for improving strategy implementation, but it is mostly applicable to firms in manufacturing, distribution, and retail that produce and sell standardized goods and services through a se- quential, routine chain of activities—for exam- ple, car manufacturers or supermarket chains. Different models, therefore, are needed for firms that create customized outputs and implement their strategies via nonroutine activities using unique resources (Løwendahl, 1993; Stone- house, Pemberton, & Barber, 2001). For exam- ple, knowledge-based professional service firms (such as those in architecture, engineering, law, management consulting, and health care) or support units within firms (such as product de- velopment) solve nonroutine customer prob- lems, such as a hospital treating patients with various illnesses, a management consultancy...
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This note was uploaded on 12/29/2010 for the course GIS 401 taught by Professor Wilcox,j during the Spring '10 term at Lund.
- Spring '10