Sanoma's 'value constellation strategy' in the post-assembly-line media eco system

The media company Sanoma is a collective mind of a large group of over 20.000 individuals.

Strategy is the art of creating value. It provides the intellectual frameworks (conceptual models) and governing ideas that allow Sanoma to identify opportunities for bringing value to B2C and B2B customers and for delivering that value at a profit. In this respect, strategy is the way Sanoma defines its business and links together (by mediating human relations) the only two resources that really matter in today’s media economy:

1. 'knowledge' (technologies, specialised expertise and business processes; Sanoma's collective mind that is accumulated over time and packaged in our offerings). But knowledge is not enough. Sanoma's knowledge/competencies are worthless without B2C/B2B customers willing to pay for them.
2. Thus, the other key asset for Sanoma is 'relationships'; our establisched B2C/B2B customer base

Our traditional thinking about value is grounded in the assumptions of an industrial economy. According to this view, Sanoma occupies a position on a value chain. Upstream, suppliers provide inputs. Sanoma then adds value to these inputs, before passing them downstream to the next actor in the chain. Seen from this perspective, strategy is primarily the art of positioning Sanoma in the right place on the value chain -- the right business, the right products and market segments, the right value adding activities.

Today, however, this understanding of value is as outmoded as the old assembly line that it resembles and so is the view of strategy that goes with it. Please, forget Micheal Porter's Value Chain concept. The fluidity-trend (changing mediamarkets, changing roles of relevant actors, changing business models, changing technology) and global competition are opening up new ways of creating value.

Two important challenges:

1. Of course, more opportunities also mean more uncertainty and greater risk. Forecasts based on projections from the past become unreliable. Factors that have always seemed peripheral turn out to be key drivers of change in Sanoma’s key markets. New competitors, from previously unrelated sectors, with radically different business-models, change the rules of our game.
2. Sanoma exists in value networks where the actors have similar metrics, margins and motivations. Moving from one value network to another is very challenging (source: The innovator's Dilemma, Clayton M. Chistensen)

Due to the insight that strategy is no longer a matter of positioning a fixed set of activities along a value chain, Sanoma transforms its strategy from 'adding value' to 'reinventing value'.

• Sanoma's focus of strategic analysis transforms from 'the company' or 'the industry' to 'the value-creating system' itself, within which different actors (suppliers, B2B customers, B2C customers, Sanoma employees and other business partners) work together in a constellation of different business models to co-produce value.
• Sanoma's key strategic task is becoming: the reconfiguration of roles and relationships among this constellation of actors in order to mobilise the creation of value in new forms.
• Sanoma's underlying strategic goal is becoming: creating an ever-improving fit between 'Sanoma's competencies' and 'B2C/B2B customers'.

Sanoma’s value constellation strategy is made possible by a fundamental transformation in the way that value is created. But what is this new logic of value, and what are its strategic implications for Sanoma?

To answer these questions, begin with the simple observation that any product or service is really the result of a complicated set of activities: economic transactions and institutional arrangements among actors (suppliers, B2C customers, B2B customers, Sanoma employees and other business partners). In fact, what we usually think of as products or services (magazines, websites, events) are really frozen activities, concrete manifestations of the relationships among actors in a value-creating system. To emphasise the way all our 'products and services' are grounded in activity, let's call them 'co-produced offerings'.

Second observation: The distinction between physical products and intangible services is breaking down. Does Sanoma offer a product or a service? The answer is neither -- and both. Very few of our 'co-produced offerings' can be clearly defined as one or the other anymore. Increasingly, they involve some complex combination of the two roles.

Today, under the impact of information technology and the resulting globalisation of markets and production, new methods of combining activities into 'co-produced offerings' are producing new opportunities for creating value.

The reconfiguration of activities can offer Sanoma's B2C and B2B customers a qualitatively new kind of value. For example, engaging Sanoma's B2B customers in a self-service activity (for example: our recently launched content portal which enables self-supported uploading of their magazine-ads for our B2B customers) can eliminate traditional constraints of space and time. No longer do our B2B customers have to go to their fysical appointment during business hours. They can act at any time and with the proliferation of digital networks, pretty much anywhere. In our view, the vast majority our B2B customers will flock to Sanoma's online 'communications solutions services' and adapt to them quickly and easily.

This is not merely a change in technology or even in the transaction itself. It is a change in the entire value-creating system. The scene, the script, the roles of the relevant actors are all transforming. For example, a great deal of Sanoma's attention, expertise, and activity is now devoted to the design, building, and maintenance of self-service support tools for our B2B customers (for example: the launch of a content portal for self-supported uploading of ads, or last week's launch of the new B2B site of Sanoma Netherlands).

The new logic of value presents Sanoma with three strategic implications:

1. The goal of Sanoma is not to create value for B2C/B2B customers, but to mobilise B2C/B2C customers to create value for themselves from Sanoma's various offerings. Sanoma does not profit from B2C/B2B customers. Sanoma profits from B2C/B2B customers value-creating activities. The 'company' Sanoma does not really compete with other media companies anymore. Rather, it is our 'offerings' that compete for the time and attention and money of B2C/B2B customers.
2. What is true for individual offerings is also true for entire value-creating systems. As potential offerings become more complex and varied, so do the relationships necessary to produce them. A single company rarely provides everything anymore. Instead, the most attractive offerings involve B2C customers, suppliers and B2B customers, in new combinations, in new roles, in new business models. As a result, Sanoma’s principal strategy task is the reconfiguration of its relationships and business systems.
3. If the key to creating value is 'co-produced offerings that mobilise B2C/B2B customers', then the only true source of competitive advantage is the ability to conceive the entire value-creating system and make it work; the reshuffling of activities among actors so that actor and activity are better matched.

To win, Sanoma must write the script, mobilise and train the relevant players and make the B2C customers and B2B customers the final arbiter of success or failure. To go on winning, Sanoma must create a dialogue with our B2C customers and B2B customers in order to repeat our performance over and over again and keep our co-produced offerings competitive.

• Always keep the following equation in mind: (Perceived value [Sanoma] - Price [Sanoma]) > (Perceive value [alternative] - Price [alternative]). Perceived value is the worth in monetary terms of the benefits our customer receives in exchange for the price it pays for our market offering. Raising of lowering the price of our market offering does not change the value that our offering provides to our customer. The equation conveys that our customer's incentive to purchase an offering of Sanoma must exceed its incentive to buy the next best alternative.

The economics in the post-assembly-line media economy presents Sanoma with a stark choice: either re-configure our business system to take advantage of these trends or be reconfigured by more dynamic competitors.

To exploit these trends, Sanoma takes three steps:

1. Reconsidering the business potential of our chief assets: Sanoma’s knowledge base and Sanoma's B2C/B2B customer base.
2. Repositioning or reinventing our co-produced offerings to create a better fit between Sanoma's competencies and the value creating activities of our B2B/B2C customers.
3. Making new business arrangements and sometimes new social and political alliances to make these offerings feasible and efficient.

As been said, in an economy founded on the new logic of value, only two assets really matter: 'knowledge' and 'relationships' or 'Sanoma's competencies' and 'our customers'.

• Competencies are the technologies, specialised expertise, business processes and techniques; the collective mind of 20.000 experts that Sanoma has accumulated over time and packaged in its offerings. But knowledge alone is not enough. Obviously, Sanoma’s competencies are worthless without customers willing to pay for them.
• Thus the other key asset for Sanoma is its established customer base. Sanoma's relationship with a B2C customer and with a B2B customer is really an access channel to the B2C/B2B customer’s ongoing value-creating activities. Any B2C/B2B customer, whether another business or an individual, uses a wide range of inputs in order to create value. Sanoma’s offerings have value to the degree that B2C/B2B customers can use them as inputs to leverage their own value creation.

Sanoma needs to enlarge its knowledge base continuously. Sanoma must invest in an ever broadening range of knowledge resources and combine ever expanding kinds of knowledge into Sanoma's offerings. What is more, these investments in new knowledge can become so large that Sanoma’s own offerings to its existing B2C/B2B customer base are no longer adequate to recoup its investment. So the new knowledge tends to drive Sanoma into new businesses in search of new relationships with new B2C/B2B customers. And the cycle repeats.

The secret of value creation is building a better and better fit between relationships and knowledge. Currently, Sanoma accountmanagers are trained in our Sales Academy:

1. To master the design and management of interconnected, co-productive offerings.
2. How to mobilize value creation in their B2B customers businesses by reconfiguring roles, relationships, and structures.
3. To perpetually reinventing value in a dialogue between competencies and their B2B customers.

These are the skills that a winning network of Sanoma experts will have to acquire in the post-assembly-line media economy that is now emerging.

David de Boer, Head of B2B Marketing, Sanoma Uitgevers, The Netherlands