We can create more value in two ways.<ol><li>By increasing the willingness to pay. It describes the customers. It's the most a customer would ever pay for a product or service. Value can be created by focusing on "customer delight".</li><li>By decreasing the willingness to sell. It is the least amount of compensation an employee would accept and still work for this particular company. ]t is a measure of the quality between what someone is looking for in work and what a company can offer.</li></ol>

How to create more value

Two ways to be more attractive in the market for talent:<ol><li>Pay more money. When you pay more money, you will be more competitive in the marketplace for talent.</li><li>Make the job a better job. Create more attractive working conditions, for example, better training plan, more generous promotion rules, working some days from home.</li></ol>

How to lower willingness to sell

A strategy is a plan to create value. Value for customers, value for employees, value for suppliers. It is planning for the future. Strategy doesn't begin with a focus on profit. Financials, profitability, return on investor capital is the result of strategy. It is not the starting point.

Strategy is simple

Value is the difference between a willingness to pay and a willingness to sell. This can be shown with a value stick. <ul><li>At the top, we have a willingness to pay.</li><li>At the bottom,  we have a willingness to sell.</li></ul>The difference between the two is the value the company creates. The value is split in three ways:<ul><li>Some go to customers. (The difference between willingness to pay and price.)</li><li>Some go to employees (the difference between willingness to sell and compensation.)</li><li>The middle wedge is the margin of the company.</li></ul>

Value explained

<ul><li>Product quality. The higher the quality, the more appealing the service, the higher the willingness to pay.</li><li>Product complements. A compliment is a product or service that supports willingness to pay. For example, razor and razor blades, or printer and printer cartridges.</li><li>Network effects. The more popular the product, the more widespread its adoption, the greater my willingness to pay.</li></ul>

Ways to raise willingness to pay

To many people, strategy is a total mystery. But it’s really not complicated, says Harvard Business School’s Felix Oberholzer-Gee. 00:00 To many people, strategy is a mystery. 00:25 Strategy does not start with a focus on profit. 00:52 It's about creating value. 01:00 There's a simple tool to help visualize the value you create: the value stick. 01:30 What is willingness-to-pay? 02:30 What is willingness-to-sell? 03:14 Remind me: Where does profit come in again? 03:48 How do I raise willingness-to-pay? 05:00 And how do I lower willingness-to-sell? 06:18 Real world example: Best Buy's dramatic turnaround Companies should simplify and focus on two value drivers, he argues: customer satisfaction and employee satisfaction. By aligning strategic initiatives on these alone, leaders make their workers’ jobs less complicated and improve customer experiences. Oberholzer-Gee is the author of the Harvard Business Review article “Eliminate Strategic Overload” (https://hbr.org/2021/05/eliminate-strategic-overload) as well as the book “Better, Simpler Strategy: A Value-Based Guide to Exceptional Performance” (https://www.amazon.com/Better-Simpler-Strategy-Value-Based-Exceptional/dp/1633699692/). Produced and edited by Scott LaPierre Video by Dave Di Iulio and Elie Honan Animation by Alex Belser Follow Harvard Business Review: https://hbr.org/ https://www.linkedin.com/company/harvard-business-review/ https://www.facebook.com/HBR/ https://twitter.com/HarvardBiz https://www.instagram.com/harvard_business_review Sign up for Newsletters: https://hbr.org/email-newsletters #HarvardBusinessReview #Strategy #WhatIsStrategy Copyright © 2022 Harvard Business School Publishing. All rights reserved.

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To many people, strategy is a total mystery. But it’s really not complicated, says Harvard Business School’s Felix Oberholzer-Gee, author of "Better, Simpler Strategy". 

00:00 To many people, strategy is a mystery.
00:25 Strategy does not start with a focus on profit.
00:52 It's about creating value.
01:00 There's a simple tool to help visualize the value you create: the value stick.
01:30 What is willingness-to-pay?
02:30 What is willingness-to-sell?
03:14 Remind me: Where does profit come in again?
03:48 How do I raise willingness-to-pay?
05:00 And how do I lower willingness-to-sell?
06:18 Real world example: Best Buy's dramatic turnaround 

Companies should simplify and focus on two value drivers, he argues: customer satisfaction and employee satisfaction. By aligning strategic initiatives on these alone, leaders make their workers’ jobs less complicated and improve customer experiences. 

Oberholzer-Gee is the author of the Harvard Business Review article “Eliminate Strategic Overload” (https://hbr.org/2021/05/eliminate-strategic-overload) as well as the book “Better, Simpler Strategy: A Value-Based Guide to Exceptional Performance” (https://www.amazon.com/Better-Simpler-Strategy-Value-Based-Exceptional/dp/1633699692/).

Produced and edited by Scott LaPierre
Video by Dave Di Iulio and Elie Honein
Animation by Alex Belser

Follow Harvard Business Review:
https://hbr.org/
https://www.linkedin.com/company/harvard-business-review/
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Sign up for Newsletters: https://hbr.org/email-newsletters

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Copyright © 2022 Harvard Business School Publishing. All rights reserved.

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