In Better, Simpler Strategy, Felix Oberholzer-Gee recommends a strategy that could not be simpler: “create substantial value for customers, employees, or suppliers” consistently, year after year after year.
This approach is best captured in a simple graph which he calls a value stick:
“Willingness-to-pay (WTP) sits at the top of the value stick. It represents the customer’s point of view. More specifically, it is the most a customer would pay for a product or service. If companies find ways to improve their product, WTP will increase.
“Willingness-to-sell (WTS), at the bottom of the value stick, refers to employees and suppliers. For employees, WTS is the minimum compensation they require to accept a job offer. If companies may work more attractive, WTS declines. If a job is particularly dangerous, WTS increases and workers require more compensation. In the case of suppliers, WTS is the lowest price at which they are willing to sell products and services. If companies make it easier for suppliers to produce and ship products, supplier WTS will fall.
“The difference between WTP and WTS, the length of the stick, is the value that a firm creates. Research shows that extraordinary financial performance (returns in excess of a firm’s cost of capital) is rooted in greater value creation. And there are only two ways to create additional value: increase WTP, or lower WTS. Strategy is conceptually simple, and simpler strategic thinking, I am convinced, will lead to better outcomes.”
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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, he received his Masters degree, summa cum laude, and his Ph. D. in Economics from the University of Zurich.
Better, Simpler Strategy: A Value-Based Guide to Exceptional Performance was published by Harvard Business Review Press (April 2021).