Article | Long Range Planning | April 2006

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

by Øystein D. Fjeldstad and Christian H.M. Ketels

Abstract

When the Swedish Life Insurers Förenade Liv found themselves in difficulties in a rapidly changing market, their response was to call in the consultants. And one of the consultant's first suggestions was to use the Value Network, not the Value Chain, as a new analytical tool to represent the company's activities. How the Value Network model changed the way company executives and consultants framed the company's problems and evaluated its strategic options provides the background to this article. The authors take care to outline how value creation and competitive advantage work in mediating industries that facilitate transactions between customers within a network, and show how the Value Network model asks more effective questions, and thus yields more effective answers, in such situations. In sectors such as communications, insurance etc, where firms' main activity is to assemble and manage a pool of customers as the network in which transactions take places, who already is a customer is important for who might become one. The composition and the size of the customer set can be as important an influence on the benefits of being a member as the quality of the actual services the network provides: mechanisms affecting the composition of the customer pool are at the heart of the company's competitive position. The case analysis shows how, while the product offered had not deteriorated, the market into which it was being offered had changed radically, with dramatic effects on the customer pool that could be attracted. The authors point to the growing importance of new market sectors with network properties, where old value configurations are being challenged and supplanted, and where using the appropriate analytical tools to understand them can become critical for companies to gain a competitive edge in their strategic decision-making.

Keywords: Competitive Advantage; Fluctuation; Networks; Management Analysis, Tools, and Techniques; Value; Quality; Decision Making; Market Transactions; Performance Effectiveness; Customers; Insurance Industry; Sweden;

Citation:

Fjeldstad, Øystein D., and Christian H.M. Ketels. "Competitive Advantage and the Value Network Configuration: Making Decisions at a Swedish Life Insurance Company." Long Range Planning 39, no. 2 (April 2006): 109–131.