How to Drive Value Your Way: John Paul MacDuffie in Harvard Business Review

John Paul MacDuffie

John Paul MacDuffie, Director of the Program on Vehicle and Mobility Innovation (PVMI) at the Mack Institute, recently co-authored a Harvard Business Review article titled “How to Drive Value Your Way” with London Business School faculty member Michael G. Jacobides. In this blog post, the authors share a preview of the article.

The story of the personal computer industry is one of massive value migration, in a few short years, from the manufacturers that assembled and marketed the computers to the suppliers upstream of two key components: the operating system, owned by Microsoft, and the microprocessor, owned by Intel.

That story is now etched in the minds of analysts and strategists as a template for how industries evolve in the knowledge economy. In the natural order of things, so the story goes, industries will disaggregate as interfaces between the various stages of the value chain become open and standard, allowing competition to drive down costs all along the value chain. As this happens, value and profits migrate to the suppliers of key components or the owners of platforms or other standards.

We question that narrative.

Industry disaggregation is not, in our view, inevitable in every case. Neither is value migration, even when sectors do unbundle. Many industries characterized by intense competition and innovation—including industries that are vulnerable to the advent of highly disruptive technologies—are likely to remain tightly integrated and dominated by traditional players.

The car industry is a case in point. The traditional auto manufacturers have, in good times and bad, kept a fairly constant share of their industry’s total market capitalization, despite much recourse to outsourcing and intense competition among the carmakers. Value has not migrated upstream to the components (or downstream to aftermarket products and services)—it rests where it always has: with the automakers. And there, we believe, it is likely to stay, despite disruptive technology on the horizon.

We base this forecast on our studies of competition and innovation in the auto and computer industries, as well as sectors such as telecommunications, health care, and financial services. On the basis of this work, we have developed a framework to explain the factors that cause value to migrate up or down their industry chain, or to stay where it is. Through the lens of the auto industry, we’ll look at how established players can defend value in their industries and how emerging players can change the competitive landscape to drive value their way.

About the Authors

John Paul MacDuffie is a leading researcher on the auto industry. He is an Associate Professor of Management at the Wharton School, a Mack Institute Core Team member, and the Director of PVMI.

Michael G. Jacobides completed his PhD at Wharton and worked with the Mack Institute’s precursor—Wharton’s Emerging Technologies Management Research Program. He now holds the Sir Donald Gordon Chair for Entrepreneurship and Innovation at London Business School, where he is also an Associate Professor of Strategy and Entrepreneurship.