Value Creation, Value Capture, and Supply Chain Structure: Understanding Resource–Based Advantage in a Project–Based Industry

• Published date: 01 July 2014
• Date: 01 July 2014
• DOI: http://doi.org/10.1111/jscm.12053

VALUE CREATION, VALUE CAPTURE, AND SUPPLY

CHAIN STRUCTURE: UNDERSTANDING RESOURCE–

BASED ADVANTAGE IN A PROJECT–BASED INDUSTRY

PAUL F. SKILTON

Washington State University

This study uses resource-based theory concerning the interplay between

value creation and value capture (Priem & Swink, 2012) to explain supply

chain structure in a project-based industry. Taking this approach has the

potential to change the focus of resource-based thinking from competition

between industry rivals to the tension between buyers and suppliers that

structures supply chains. Value creation, which is the function of product

market strategy, determines which supplier resources are critical and thus

determines which suppliers should be in a position to capture value.

When supplier capabilities are critical, buyers have incentives to maintain

value creation while structuring the supply chain to reduce supplier

power. I test the resulting hypotheses by applying multivariate analysis of

variance techniques to data from the worldwide motion picture industry.

Because the production companies that make movies enact a variety of

product market strategies to create value for consumers, suppliers of

visual and special effects have a range of opportunities for value capture. I

find support for the hypotheses, suggesting that some buyers structure

supply chains in counter-intuitive ways when suppliers have high levels of

resource-based bargaining power.

Keywords: value creation; value capture; resource-based theory; supply chain struc-

ture; services; archival research; analysis of variance

INTRODUCTION

As the resource-based view of the firm came into

fashion (Barney, 1991; Reed & DeFillippi, 1990;

Wernerfelt, 1984) scholars have argued that control

of valuable, rare, inimitable and nonsubstitutable

resources or capabilities can be the basis for sustain-

able competitive advantage. Strategy researchers have

assessed competitive advantage by identifying who

owns competitive resources; by theorizing that

resources bundled into capabilities (Grant, 1996) or

capabilities bundled into core competencies create

advantage (Prahalad & Hamel, 1990); by proposing

that advantage derives from ownership of knowledge

based resources (Grant, 1996); or by arguing that

dynamic capabilities for reconfiguring resource bun-

dles create advantage (Eisenhardt & Martin, 2000).

Building on these ideas, supply chain scholars have

proposed that the combined capabilities of buyers

and suppliers can produce sustained advantage (Bar-

ney, 2012; Craighead, Hult & Ketchen, 2009). Priem

and Swink (2012) call this the “value creation”

approach following the study of Porter (1980), who

argues that creating value for customers is the crux of

product market strategy. It seems clear that the selec-

tion and management of suppliers with critical capa-

bilities can play a central role in the creation of

customer value (Barney, 2012; Cousins & Lawson,

2007; Kotabe Murray & Westjohn, 2009).

Priem and Swink (2012) contrast this with what

they call the “value capture” approach to the resource-

based view. If buyer or supplier capabilities are critical

to value creation, then the firms that control such

capabilities may have sufficient bargaining power to

capture a disproportionate share of returns to the

combined efforts of the supply chain (Benasou, 1999;

Coff, 1999; Crook & Combs, 2007; Porter, 1980).

Bringing value creation and value capture together

requires a clear understanding of what we mean by

value. I adopt Bowman and Ambrosini’s (2000)

position that value has a dual meaning. Use-value

measures the benefits consumers derive from a prod-

uct and is what firms design strategies and supply

chains to create. Exchange value is what consumers are

willing to pay for a product and is the focus of value

capture. Products whose use-value to exchange-value

ratio is favorable to consumers will be competitive in

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markets, but they will only create advantage for sup-

ply chain participants who can capture a share of

exchange value that exceeds their costs. The ability to

capture value is determined partly by the ownership

of critical capabilities and partly by supply chain

structure (Coff, 1999; Porter, 1980). Priem and Swink

(2012) argue that when supplier capabilities are

critical to value creation, buyers have incentives to

structure supply chains to create value while simulta-

neously limiting supplier value capture (Benasou,

1999).

Not every value creation strategy in an industry

depends critically on the same supplier capabilities.

Particular capabilities may be critical to one strategy

and incidental to another (Kraljic, 1983). Figure 1

outlines the set of strategy driven sourcing decisions

that this study proposes as the basis for supply chain

structure. As shown on the left side of Figure 1, some

buyer value creation strategies depend on key supplier

capabilities. Buyers pursuing such strategies will rou-

tinely source from suppliers who control critical capa-

bilities and gain bargaining power over buyers as a

result. This creates a strategic incentive for buyers to

limit supplier power; one way to do this is to simulta-

neously source from less capable or intrinsically less

powerful suppliers. This would create a paradox if

buyers were limited to single sourcing (Benasou,

1999; Kotabe & Murray, 2004), but when multisourc-

ing is the norm, buyers are able to manage supplier

power by sourcing from a mix of suppliers.

When buyer value creation strategy does not depend

on supplier capability, as shown on the right side of

Figure 1, buyers can routinely source from less

capable or less powerful suppliers, except when it is

cheap or convenient to do otherwise. The strategic

decisions that buyers make concerning value creation

and value capture thus determine the overall structure

of sourcing for the service in question. This study

makes its contribution by developing new insights

into the relationship between buyer value creation

strategies, value capture and the resulting structure of

sourcing choices.

I conceptualize the structure of sourcing choices

using two attributes that influence supplier bargain-

ing power. The first is whether or not suppliers are

part of a core supply base that controls capabilities

critical to value creation in a buyer product market

strategy. Suppliers that control critical capabilities

typically have greater bargaining power than those

who do not (Crook & Combs, 2007; Porter, 1980).

The second is whether suppliers are onshore or off-

shore. Research has shown that the bargaining power

of offshore suppliers is often limited by barriers

related to physical and cultural distance (Couto,

Mani, Lewin & Peeters, 2006; Manning, Massini &

Lewin, 2008; Porter, 1980). What this study proposes

is that value creation strategy drives the need to

manage value capture and thus determines the mix

of suppliers chosen. The questions that drive this

study are therefore nested. First, how do different

buyer product market strategies influence the mix of

suppliers chosen to participate in value creation? Sec-

ond, when supplier capabilities are critical to value

creation, how do buyers structure the supply chain

to maintain value creation while limiting suppliers’

ability to capture value?

FIGURE 1

Conceptual Model

Value creaon

strategy depends

on supplier

capabilies

Highly capable

specialized core

suppliers

Rounely

source from

Value creaon

strategy does

not depend on

supplier

capabilies

Less capable,

less specialized

or intrinsically

less powerful

suppliers

Opportuniscally source from

when cheap or convenient

Rounely

source from

Rounely

source from

Strategic need to

limit supplier

value capture

Creang a

Bargaining

power of

supplier mix

increasing

decreasing

July 2014

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