Competitive Advantage and the Value Network Configuration: Making Decisions at a Swedish Life Insurance Company

Abstract

Executives in industries that facilitate transactions within a network of customers, such as financial services and telecommunications, currently face tough challenges. The factors determining success in their industries are changing rapidly and the boundaries of many of their markets are realigning. General analytical tools exist to support decision-making on these issues, but many of these tools have been devised primarily with manufacturing industries in mind. These tools may therefore require modifications in order to accommodate the underlying value creation logic of transaction services, the so called network-industries. We present a case study of a project in a Scandinavian life insurance company where the value network, an alternate value configuration analysis tool to the established value chain, was used to represent the company's activities and identify and evaluate the strategic options facing the company. The value network tool, which closely matched the executives' view of their industry and firm, proved useful in making a significant decision for the company. In particular, value network analysis channelled attention to the composition of the customer set and the mechanisms affecting the composition as being at the heart of the company's competitive position. Transaction service firms link their customers for a wide variety of purposes, such as risk sharing, financial transactions or communication. The composition and the size of the customer set are therefore important drivers of the value of service to individual customers of such firms. The experience of this case study merits further investigation of the use of different types of activity configurations depending on a given industry's underlying value creation logic. It provides insights into the types of situations in which value configuration analysis is most helpful, and gives guidance on how to identify issues for which the value network is the more powerful tool to support decision-making.