Strategic innovation new game strategies for competitive advantage

Strategic Innovation

In today’s fast-changing business environment, those firms that want to remain
competitive must also be innovative. Innovation is not simply developing new
technologies into new products or services, but in many cases finding new
models for doing business in the face of change. It often entails changing the
rules of the game.
From the late 1990s to today, the dominant themes in the strategy literature
have been strategic innovation, the impact of information and communications
technologies on commerce, and globalization. The primary issues have been
and continue to be how to gain a competitive advantage through strategic
innovation using new game strategies, and how to compete in a world with
rapid technological change and increasing globalization. Strategic Innovation
demonstrates to students how to create and appropriate value using these “new
game” strategies. Beginning with a summary of the major strategic frameworks
showing the origins of strategic innovation, Afuah gives a thorough examination of contemporary strategy from an innovation standpoint with several key
advantages:

•
•
•
•
•
•

Focus on developing strategy in the face of change.
A wealth of quantitative examples of successful strategies, as well as
descriptive cases.
Emphasis on the analysis of strategy, not just descriptions of strategies.
A detailed, change-inclusive framework for assessing the profitability

potential of a strategy or product, the AVAC (activities, value, appropriability, and change) model.
Emphasis on the aspects of strategy that can be linked to the determinants
of profitability.
Consideration of how both for-profit and non-profit organizations can
benefit from new game strategies.

Allan Afuah is Associate Professor of Strategy and International Business at the
Stephen M. Ross School of Business, University of Michigan.



Strategic Innovation

New Game Strategies for
Competitive Advantage

Allan Afuah
Stephen M. Ross School of Business
University of Michigan


First published 2009
by Routledge
270 Madison Ave, New York, NY 10016
Simultaneously published in the UK
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
Routledge is an imprint of the Taylor & Francis Group,
an informa business
This edition published in the Taylor & Francis e-Library, 2009.

“To purchase your own copy of this or any of Taylor & Francis or Routledge’s
collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.”
© 2009 Allan Afuah
All rights reserved. No part of this book may be reprinted or
reproduced or utilized in any form or by any electronic, mechanical
or other means, now known or hereafter invented, including
photocopying and recording, or in any information storage or
retrieval system, without permission in writing from the publishers.
Trademark Notice: Product or corporate names may be
trademarks or registered trademarks, and are used only for
identification and explanation without intent to infringe.
Library of Congress Cataloging-in-Publication Data
Afuah, Allan.
Strategic innovation: new game strategies for competitive
advantage / by Allan Afuah.
p. cm.
Includes index.
1. Strategic planning. 2. Originality. 3. Resourcefulness.
4. Technological innovations. 5. Competition. I. Title.
HD30.28.A3473 2009
658.4′063—dc22
2008034812
ISBN 0-203-88324-1 Master e-book ISBN

ISBN10: 0–415–99781–X (hbk)
ISBN10: 0–415–99782–8 (pbk)
ISBN10: 0–203–88324–1 (ebk)
ISBN13: 978–0–415–99781–2 (hbk)
ISBN13: 978–0–415–99782–9 (pbk)
ISBN13: 978–0–203–88324–2 (ebk)

To my grandmother, Veronica Masang-Namang Nkweta, and the
Bamboutos highlands which she tilled to feed me.
To every family that has been kind enough to welcome a foreign
student to its home.



Contents

List of Figures
List of Tables
List of Exhibits for Cases
Preface
Acknowledgments

ix
xi
xiii
xv
xix

PART I

Introduction
1 Introduction and Overview

1
3

2 Assessing the Profitability Potential of a Strategy

35

3 The Long Tail and New Games

67

PART II

Strengths and Weaknesses

89

4 Creating and Appropriating Value Using New Game
Strategies

91

5 Resources and Capabilities in the Face of New Games

117

6 First-mover Advantages/Disadvantages and
Competitors’ Handicaps

145

7 Implementing New Game Strategies

178

PART III

Opportunities and Threats

197

8 Disruptive Technologies as New Games

199

9 Globalization and New Games

223

10 New Game Environments and the Role of Governments

252

11 Coopetition and Game Theory

275


viii

Contents

PART IV

Applications

301

12 Entering a New Business Using New Games

303

13 Strategy Frameworks and Measures

323

PART V

Cases

371

Case 1

The New World Invades France’s Terroir

373

Case 2

Sephora Takes on America

377

Case 3

Netflix: Responding to Blockbuster, Again

383

Case 4

Threadless in Chicago

391

Case 5

Pixar Changes the Rules of the Game

393

Case 6

Lipitor: The World’s Best-selling Drug (2008)

401

Case 7

New Belgium: Brewing a New Game

405

Case 8

Botox: How Long Would the Smile Last?

411

Case 9

IKEA Lands in the New World

417

Case 10 Esperion: Drano for Your Arteries?

422

Case 11 Xbox 360: Will the Second Time be Better?

434

Case 12 Nintendo Wii: A Game-changing Move

442

Notes
Author Index
Subject Index

447
469
473


Figures

1.1
1.2
1.3
1.4
2.1
2.2
3.1
3.2
3.3
4.1
4.2
4.3
5.1
5.2
6.1
6.2
6.3
6.4
7.1
7.2
8.1
8.2
8.3

8.4
8.5
9.1
9.2
9.3
9.4
9.5
9.6
10.1
10.2
10.3

Business System and Options for New Games
Components of a New Game Strategy
Types of New Game
Flow of the Book
Components of an AVAC Analysis
Drivers of the Components of an AVAC Analysis
A Long Tail Distribution
Impact of the Internet on a Long Tail Distribution
Value System of Long Tail Potential Coopetitors
Value Creation and Appropriation
A Book Value Chain
New Game Activities and Value Creation and Capture
The Role of Complementary Assets
Strategies for Exploiting Complementary Assets
Types of Player
Different New Game Product Strategies
Player Types in Different Countries
A Firm’s Evolution from Explorer to Exploiter

Strategy, Structure, Systems, People, and
Environment (S3PE) Framework
What Should a Firm Do?
S-curves Showing Physical Limits of Technologies
PC versus Mainframes and Minicomputers
Disruptive Technologies and Value Creation and
Appropriation
Disruptiveness of Disruptive Technologies
Examples of Degrees of Disruptiveness
Who Appropriates How Much from Nigerian Oil?
Effect of Taxes on Value Appropriation
Effect of Subsidies on Value Appropriation
Who Appropriates More Value than It Creates?
Types of Multinational
Different Global Strategies
The Macroenvironment
Determinants of Environments that are Conducive to
Profitable New Games
A PESTN Analysis

8
18
24
30
39
41
68
71
71
92

98
110
125
126
163
167
167
168
179
186
201
204
211
219
219
228
229
230
231
233
239
253
257
271


x

Figures

11.1
11.2
11.3
11.4
11.5
11.6
11.7
13.1
13.2
13.3
13.4
13.5
13.6
13.7
13.8
13.9
13.10
13.11
13.12
13.13
13.14
13.15
13.16
13.17

A Payoff Matrix
Dominant Strategy
Nash Equilibrium
Prisoner’s Dilemma
A Sequential Game

Players in a Value Creation and Appropriation Game
For Question 1
SWOT Framework
Elements of a PESTN Framework
BCG’s Growth/Share Matrix
Illustration of Growth/Share Matrix
GE/McKinsey Matrix
Porter’s Five Competitive Forces
Components of Porter’s Five Forces
Business System for a Technology Firm
An Automobile Maker’s Business System
A Generic Value Chain
A Value System
A Value Network
A Value Shop
Elements of the Balanced Scorecard
Elements of the S3PE
Elements of the 4Ps
Components of an AVAC Framework

277
278
279
281
282
290
300
326
329
331

333
335
337
339
344
345
346
347
349
350
351
358
359
362


Tables

1.1
1.2
1.3
1.4
2.1
2.2
2.3
2.4
2.5
3.1
3.2
3.3

3.4
3.5
4.1
4.2
5.1
5.2
5.3
5.4
5.5
6.1
6.2
6.3
6.4
7.1
8.1
8.2

Competitive Consequences of New Game Strategy
Costs, Retail, and Wholesale Prices
Forecasted Console and Games Sales
Estimates of the Profitability of Three Different Strategies
Applications of AVAC Analysis
Selected Financials
Customer Service for Year Ending March 2005
Industry Leading Margins for Year Ending March 2005
Back-of-the-envelope Estimates of the Contribution
of Some Activities to Low Cost and Revenues
The Activities Component of an iTunes AVAC Analysis
The Value Component of an iTunes AVAC Analysis
The Appropriability Component of an iTunes AVAC

Analysis
The Change Component of an iTunes AVAC Analysis
Strategic Consequences of an AVAC analysis of
Apple’s iTunes Activities
Some Estimated Costs for the iPhone in 2007
October 2005 Top 8 Most Expensive Components/
Inputs of a 30GB iPod
Rank Ordering Resources/Capabilities by
Competitive Consequence
Strategic Consequence for Google’s Search Engine
Capabilities
Rank Ordering Complementary Assets
Is a Strength from a Previous Game a Strength or
Handicap in a New Game?
Sample Values of Intangible Resources (all numbers,
except rations, in $ billion)
First-mover Advantages (FMAs)
Rank Ordering First-mover Advantages
Lipitor’s Projected Sales
NPVs for the Different Revenue Flows
Is an S2P Component from a Previous Game a
Strength or Handicap in a New Game?
The New Replacing the Old: A Partial List
The Disrupted and Disruptors?

19
21
21
22
52

54
55
55
58
81
82
83
85
86
99
116
129
135
136
137
140
146
158
173
173
191
200
205


xii

Tables

8.3 To What Extent is Technological Change Disruptive

to an Established Technology?
8.4 Are Previous Strengths Still Strengths or Have they
Become Handicaps in the Face of a Disruptive Technology?
9.1 June 2007 OECD Gasoline Prices and Taxes
9.2 Oil Joint Ventures in Nigeria
9.3 What Each Player Gets
9.4 How Much Does each OECD Member Appropriate
from a Gallon of Gasoline?
9.5 What Each Player Appropriates
11.1 A Mapping of Coalitions into Value Created
11.2 Coalitions (submarkets) and Value Created
11.3 Value Added and Guaranteed Minimum
12.1 Type of New Game to Pursue When Entering a New
Business
13.1 Elements of a VIDE Analysis
13.2 Strategic Management Frameworks: A Comparison
13.3 Summary of Some Financial Measures

207
211
225
225
226
227
251
288
292
293
319
355

365
368


Exhibits for Cases

1.1
1.2
2.1
3.1
3.2
3.3
3.4
5.1
5.2
5.3
5.4
6.1
6.2
6.3
6.4
7.1
7.2
8.1
8.2
8.3
9.1
9.2
9.3
9.4

10.1
10.2
10.3
10.4
10.5
10.6
11.1

Hierarchy of French Wines
World Wine Exports in 1999 and 2007
Comparison of Industry Competitors in 2007
Summary of Netflix’s Income Statements
($US millions, except where indicated)
Summary of Netflix’s Movie Rental Plans
Summary of Blockbuster’s Income Statements
($US millions, except where indicated)
Summary of Blockbuster Total Access Movie Rental Plans
An Animation Movie Value Chain
Pixar Full-length Animation Movies
Top 12 Grossing Animation Movies
Competing Animation Movies
US Market Shares of Cholesterol-lowering Drugs,
January 1997
The Drug Development Process in the USA
Statin Average Prescription Pricing Structure
1997 Lipitor Worldwide Sales Projections
Average Cost of Goods Sold for United States Brewery
Cost Implications of Generator Purchase
2008 Plastic Surgery Fees
Allergan’s Product Areas

Allergan’s Products in 2008
IKEA Sales
Purchasing
Top Sales Countries in 2007
Where the Money Goes
Selected Disease Statistics—USA 2003
Drug Development Process
Drug Trial Expenses per Approved Compound
Total Hypolipemic Market Sales and Expectations
2002 Select Pharmaceutical Company Financial
Information ($000s)
Nominal and Real Cost-of-Capital (COC) for the
Pharmaceutical Industry, 1985–2000
Microsoft’s Financials
($US millions, except where indicated)

374
376
381
385
386
388
388
395
399
400
400
402
403
404

404
405
408
413
415
415
417
419
419
421
423
425
426
426
427
427
438


xiv

Exhibits for Cases

11.2 Xbox 360 Sales Projections
11.3 Playstation 3 Sales Projections
11.4 Sony’s Summary Financials
($US millions, except where indicated)
11.5 Game Sales Information
12.1 Xbox 2001 Forecast Sales, Costs, and Prices
12.2 Costs, Retail, and Wholesale Prices

12.3 Forecasted Console and Games Sales

438
439
440
441
443
445
446


Preface

The first question that potential readers might be tempted to ask is, why
another book on strategy? Strategic Innovation: New Game Strategies for
Competitive Advantage has many of the same features that existing textbooks
have. It draws on the latest research in strategic management and innovation, it
is peppered with the latest examples from key business cases, it is easy to read,
and so on. However, it has six distinctive features that give it a unique position
vis-à-vis existing strategy and innovation books.

Distinctive Features
First, Strategic Innovation: New Game Strategies for Competitive Advantage is
about change. While existing textbooks acknowledge the importance of
change, especially in an ever-changing world, they devote very little or no attention to the subject of change. All the chapters in New Game Strategies are about
change and strategic management—about how to create and appropriate value
in the face of new games. Second, existing strategic management texts tend to
have very few or no numerical examples. This lack of numerical examples does
little to reinforce the growing consensus that strategy is about winning but
rather, it might be promoting the “anything goes in strategy” attitude that is not

uncommon to students who are new to the field of strategic management. Nine
of the thirteen chapters in the book have numerical examples that link elements
of the balance sheet to components of the income statement. Of course, the
book is also full of case examples. Third, while other texts are more descriptive
than analytical, this book is more analytical than descriptive. It is largely about
the why and how of things, and less about the what of things. Fourth, the book
includes a detailed framework for assessing the profitability potential of a strategy, resource, business unit, brand, product, etc. Called the AVAC (activities,
value, appropriability, and change), the framework is distinctive in that it
includes not only both firm-specific and industry-specific factors that impact
firm profitability, but also a change component. Fifth, the book’s emphasis is on
those activities that can be linked to the determinants of profitability; that is, the
book focuses on those aspects of strategy that can be logically linked to elements of the balance sheet and income statement. Sixth, the book summarizes the
major strategic management frameworks that are otherwise scattered in other
texts. This is a useful one-stop reference for many students.


xvi

Preface

The Dawn of Strategic Innovation
To understand why a book with these six features is needed today in the field of
strategic management, it is important to take a quick look at the evolution of
the field. In the 1960s, the dominant theme in the field of strategic management
was corporate planning and managers were largely concerned with planning for
the growth that had been spurred by reconstruction of Europe and Japan, and
the Cold War, following World War II. The SWOT (Strength, Weaknesses,
Opportunities, and Threats) framework became popular as the tool of choice
for identifying and analyzing those internal and external factors that were
favorable or unfavorable to achieving firm objectives. In the late 1960s and

early 1970s, the primary theme had shifted to corporate strategy and the issues
of the day were dominated by diversification and portfolio planning. Tools such
as BCG’s Growth/Share matrix, and the McKinsey/GE matrix enjoyed a lot of
popularity as analysis tools. In the late 1970s and early 1980s, the theme shifted
to industry and competitive analysis, and the primary issues became the choice
of which industries, markets, and market segments in which to compete, and
where within each industry or market to position oneself. Porter’s Five Forces
and business system (value chain) were the analytical tools of the day. In the late
1980s and early 1990s, the theme had evolved into the pursuit of competitive
advantage and its sources within a firm. Professors C.K. Prahalad and Gary
Hamel’s core competence of the firm and the resource-based view of the firm
emerged as the dominant themes.
From the late 1990s to today, the dominant themes have been strategic
innovation, globalization, and the impact of information and communications
technologies on value-adding activities. The primary issues have been and continue to be how to gain a competitive advantage through strategic innovation
using new game strategies, and how to compete in a world with rapid technological change and increasing globalization. A strategic innovation is a gamechanging innovation in products/services, business models, business processes,
and/or positioning vis-à-vis coopetitors to improve performance. A firm’s new
game strategy is what enables it to perform well or not so well in the face of a
strategic innovation. Thus, to perform better than its competitors in the face of
a new game, a firm needs to have the right new game strategies. This book is
about the new game strategies that firms use to exploit strategic innovations. It
is about change. It is about how to create and appropriate value using new game
strategies. These new game strategies can be revolutionary or incremental, or
somewhere in-between. This book is not only about a firm using new game
activities to offer customers new value (from new products/services) that they
prefer to that from competitors, but also about how the firm can better position
itself to appropriate the value created in the face of change or no change, and to
translate the value and position to money. It is also about some of the more
recent issues about the digital economy such as the Long Tail, and the not-sorecent issues such as disruptive technologies. Firms that initiate new games, and
are therefore first movers, can make a lot of money; but so can firms that follow

the first movers. It all depends on the new game strategy that each firm pursues.


Preface

xvii

Some Strategic Innovation Questions
New game strategies often overturn the way value is created and appropriated. They can create new markets and industries, destroy or reinforce existing product-market positions, and most important of all, they can be very
profitable for some firms. This raises some very interesting questions. What
exactly are new game strategies? What do we mean by creation and appropriation of value? Which new game strategies are likely to be most profitable for
a firm—to give a firm a competitive advantage? If resources are really the
cornerstones of competitive advantage, what is the role of resources during
new games? Since, in playing new games, firms often move first, what really
are first-mover advantages and disadvantages, and how can one take advantage of them? What are competitor’s handicaps and how can a first mover
take advantage of them? How can the profitability potential of a strategy—
new game or non-new game—be analyzed? Is entering a new business using
new game strategies any better than entering using non-new game strategies?
Does game theory have anything to do with new game strategies? What is
likely to be the reaction of competitors when a firm pursues a new game
strategy? Given competitors’ likely reaction, what should a firm do in pursuing new game strategies? Does implementing new game strategies require
more precaution than implementing any other strategy? What are the sources
of new game strategies? What is the role of globalization and a firm’s
macroenvironment in its ability to create and appropriate value using new game
strategies? Are some environments more conducive to new game strategies
than others? What is the role of government in new games? How many of
the new game concepts and tools detailed for for-profit firms applicable to
nonprofit organizations?
This book explores these questions, or provides the concepts and tools to
explore them. The book takes the perspective of a general manager who has

overall responsibility for the performance of his or her firm, for a business unit
within the firm, or for any organization for which performance is important.
Such a manager needs to understand the basis for the firm’s performance in the
face of change. The manager needs to know what determines the performance,
what other change might erode that performance, and when and what the firm
could do to gain and maintain a competitive advantage. The manager must then
use the firm’s resources to formulate and implement a strategy that will give it a
competitive advantage. Thus, the book should be useful in courses whose goal
is to challenge students to think strategically when confronting day-to-day
activities. It should also be useful to managers who want to challenge themselves to think strategically, irrespective of their functional role within their
organization.
The seeds of the book were sowed in the period from 1997 to 2006 when I
taught the Strategy Core Course at the Stephen M. Ross School of Business at
the University of Michigan. During that time, I also taught an elective in Innovation Management. In 2003/2004 when I was on academic sabbatical leave
from Michigan, I also taught the core course in strategy at The Wharton School
of the University of Pennsylvania in the USA, and at INSEAD, in Fontainebleau,
France. The ideas that most of my students in these schools found fascinating
had a common theme—changing the rules of the game. Students could not have


xviii

Preface

enough of the concepts and cases about strategic innovation, and the associated
new game strategies for a competitive advantage.

Intended Audience
The book is written for courses in strategic management, entrepreneurship, or
marketing that emphasize strategic innovation or change in a graduate or

undergraduate curriculum. It should also be useful to managers who want to
challenge themselves to think strategically, irrespective of their functional role
within their organization. Managers and scholars who are interested in exploring any of the questions raised above would also find the book useful; so should
those managers who are in positions that have a direct impact on firm profitability, or who are in consulting, entrepreneurship, or venture capital. It should
also be of interest to those functional specialists (finance, marketing, HRM,
engineering) who must participate in game-changing activities.


Acknowledgments

I continue to owe a huge debt of gratitude to my Professors and mentors at the
Massachusetts Institute of Technology (MIT); in particular, Professors Rebecca
Henderson, James M. Utterback, and Thomas Allen. They introduced me to the
subject of strategic innovation, and to the virtues of patience and tolerance.
When I arrived at the University of Michigan from MIT, I was lucky that the
Dean of the Business School at the time, B. Joseph White (now the President of
the University of Illinois) had created an environment in which we could thrive
as researchers and teachers. That meant a lot to me and I am forever grateful! I
would also like to thank three anonymous reviewers for their suggestions and
help in reshaping this book. Some of my students at the Stephen M. Ross School
of Business at the University of Michigan gave me very useful feedback when I
pre-tested the concepts of the book, at the formative stage. Some of the cases in
Part V of the book were written by some of these students under my supervision. I am grateful to all of them. I would also like to thank Joseph Lui, who
read through some of the chapters and gave me useful feedback. Katie Chang
provided me with dependable research assistance. Finally, I would like to thank
Michael and Mary Kay Hallman for the funding that enabled me to explore the
topic of strategic innovation with a little more freedom.
I would like to thank Nancy Hale, Routledge editor for business books,
whose professionalism convinced me to work with Routledge.
Allan Afuah

Ann Arbor, Michigan
July 29, 2008



Part I

Introduction

Chapter 1: Introduction and Overview
Chapter 2: Assessing the Profitability Potential of a
Strategy
Chapter 3: The Long Tail and New Games



Chapter 1

Introduction and Overview

Reading this chapter should provide you with the conceptual and analytical
tools to:

•
•
•
•

Define strategy, new games, new game strategies, value creation and value
appropriation, and strategic innovation.

Understand the characteristics of new games and how a firm can exploit
them to gain and prolong a competitive advantage.
Begin to understand how to use an AVAC analysis to evaluate the profitability potential of a new game strategy.
Describe types of new game (regular, resource-building, position-building,
and revolutionary).

Introduction
Consider the following business performances:
With a market value of over $160 billion for most of 2008, Google was one
of the most valuable companies in the world. Its net income in 2007 was
$4.2 billion on sales of $16.6 billion, giving it a net profit margin of 25.4%,
one of the highest of any company of its size. This was a remarkable performance for a company that only four years earlier, in 2002, had revenues
of $439 million and a net income of $99 million in a struggling dotcom
industry.
In 2006, Threadless, an online T-shirt company founded in 2000, had
profits of $6 million on revenues of $18 million, from T-shirts that had been
designed, marketed, and bought by members of the public.1 This made the
firm one of the most profitable in the clothing retail business.
In 2007, Pfizer’s Lipitor was the world’s best-selling drug with sales of
$12.7 billion, more than twice its nearest competitor’s sales (Plavix, with
$5.9 billion). This was the third year in a row that Lipitor had topped the
best-seller list. One of the most remarkable things about Lipitor is that it
was the fifth cholesterol drug in its category (statins) in a pharmaceuticals
industry where the third or fourth product in a category usually has little
chance of surviving, let alone of becoming the best seller in the industry.
During the 2007 Christmas season, demand for the Nintendo Wii was so
strong that Nintendo was forced to issue rain checks to customers. On eBay,
bids for the $249 machine were in the thousands of dollars. What was even

4

Introduction

more remarkable was that each Wii console was sold at a profit, unlike
competing consoles from Microsoft and Sony that were being sold at a loss.
Goldcorp, a Canadian gold mining company, offered prizes totalling
$575,000 to anyone who would analyze its banks of geological survey data
and suggest where, in its Red Lake, Canada, property gold could be found.2
Fractal Graphics, an Australian company, won the top prize of $105,000.
More importantly, the contest yielded targets that were so productive that
Goldcorp was said to have mined eight million ounces of gold worth more
than $3 billion in the six years following the launch.3
Between 1994 and 1998, Dell’s sales increased by five times, its profits
increased by ten times, its stock shot up by 5,600%, its revenue growth was
twice as fast as that of its rivals while its operating earnings were greater
than the combined operating earnings of all of its major rivals.4
From 2000 to 2005, Ryanair posted after-tax profit margins of 20–28%
in an airline industry where most firms were losing hundreds of millions of
dollars. These record high after-tax profit margins made Ryanair not only
the most profitable major airline company in the world over that period, but
also one of the most profitable European companies!

Definitions
New Game Strategies
At the core of each of these remarkable performances are strategic innovations,
and new game strategies. A strategic innovation is a game-changing innovation
in products/services, business models, business processes, and/or positioning
vis-à-vis coopetitors to improve performance. A new game strategy is a set of
activities that creates and/or appropriates value in new ways.5 It is what determines a firm’s performance in the face of a strategic innovation. It entails performing new value chain activities or existing ones differently from the way

they have been performed in the past, to create value and/or position a firm to
appropriate (capture) value.6 It is about not only creating value in different
ways, but also about putting a firm in a position to profit from the value created. It is often about rewriting the rules of the game, overturning existing ways
of creating and appropriating value. For example, rather than keep its databanks of geological survey data on its Red Lake, Ontario property secret, and
struggle to find where gold might be located, Goldcorp made the data available
to the public and challenged it to locate the gold. Goldcorp was looking to the
public, rather than to its employees or a contractor, to solve its problem. Only
the winners, those who produced desirable results, would be paid. Contrast this
with employees who would be paid whether or not they succeeded in locating
gold. Rather than design and market its own T-shirts, Threadless had members
of its registered users design and submit designs to the firm each week. Members of the community then voted for the best design, and winners were
awarded prizes. The winning design was then produced and sold to members of
the community. Effectively, the firm did not perform many of the activities that
T-shirt companies traditionally performed, or did so differently.
The winner of a new game can be a first mover or follower; that is, the winner
of a new game can be the firm that moved first to change the rules of the game,