New management research from Syracuse University’s Martin J. Whitman School of Management provides quantitative estimates of economic value creation and appropriation in two industries, the U.S. airline industry and global automotive industry. In “Measuring value creation and appropriation in firms: The VCA model,” Natarajan Balasubramanian, associate professor of management at Whitman, and his co-authors, Marvin Lieberman, UCLA Anderson School of Management, and Roberto Garcia-Castro, IESE Business School, found that the airline industry created significant economic value over the last two decades but that the value was mainly captured by customers and fuel suppliers. What’s more, the study also found that General Motors created lower levels of economic value than Toyota, which likely explains its poor financial performance over several decades.
“When examining business strategies, it is important to distinguish between those that create economic value, which is likely to benefit all stakeholders, and those that redistribute value from one stakeholder to another,” said Balasubramanian. “Our study makes this distinction between value creation and value transfer more explicit and offers one way to measure it.”
He added that the measurement tool (the “VCA model”) used a productivity technique, to estimate the overall economic value created by the U.S. airline industry. A reformulated version of that model, using value added, provided estimates for three global automotive companies, GM, Toyota and Nissan.
“Overall, there is substantial heterogeneity among firms in the creation and distribution of value,” said Balasubramanian. “We hope that our work will shed more light on this heterogeneity, and help managers assess the difference between value creation and value re-distribution effects of their strategies.”
The research is forthcoming in the Strategic Management Journal.
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