Helmer argues that invention of a product, business model, brand or process is the first cause of Power.

Evidence 4 passages

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  Scale Economies With this first power type, you must simultaneously pursue a business model that promises scale economies, industry economics, while at the same time offering up a product differentially attractive enough to pull in customers and gain relative share. Competitive Position Network Economies Here the needs are similar to scale economies, except that installed base rather than sales share is the goal. 4. Cornered resource. You must secure the rights to a valuable resource on attractive terms. This often comes from having developed that resource in the first place and then gaining ownership of it, the most common avenue being a patent award for research developments. 5. Branding. Over an extensive period of time, you make the consistent creative choices which foster in the customer's mind an affinity that goes beyond the product's objective attributes. Counter-positioning You pioneer a new, superior business model that promises collateral damage for incumbents if mimicked. Switching costs With switching costs you must first attain a customer base, meaning the same new product requirements demanded of scale and network economies factor in here as

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  Process Power You evolve a new complex process, which renders itself inimitable within a reasonable period, and yet offers significant advantages over a longer period of time. We are covering a lot of ground here, but you will notice a common thread. The first cause of every power type is invention, be it the invention of a product, process, business model, or brand. The adage, me too won't do, guides the creation of power. For any business person, me too won't do, feels right intuitively. Action, creation, risk, these lie at the root of invention. Business value does not start with bloodless analytics. Passion, monomania, and domain mastery fuel invention, and so are central. The compelling continuing contribution of founders demonstrates this. Planning rarely creates power. It may meaningfully boost power once you have established it. But if power does not yet exist, you can't rely on planning. Instead, you must creates something new that produces substantial economic gain in the value chain. Not surprisingly, we have worked our way back to Schumpeter. The Topology of Invention and Power So what are the elements of this dance of power and invention?

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  The script usually plays like this. 1. Flux in external conditions creates new threats and opportunities. In the case of Netflix, it was both. The eventual decline of their DVD-by-mail business was the threat, and streaming the opportunity. 2. The nature of flux demands that it unfolds in fits and starts. So any company wishing to capitalize on these new conditions must invent, again, by crafting not design. For a single company, these tectonic shifts do not occur frequently, but you can be certain they are coming. The relentless forward march of technology assures this Three amidst this cacophony. You must find a route to power It wasn't a fine-tuning of their DVD by mail business which increased Netflix's market cap by a factor of 100. It was streaming, with its insurmountable scale economies. Building on that, I can now chart the dynamics of power. See Figure 8.4 in the Supplementary PDF. Figure 8.4 The Dynamics of Power Getting there. What? Resources and external conditions both point with dotted arrows to invention, which also includes product, business model, brand, and process. Invention points with a dotted arrow to power. Now let's apply this framework to Netflix streaming. Resources

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  You must start with the abilities you can bring to bear. Using the academic convention, I will call these resources. They might be as personal and idiosyncratic as Steve Jobs' aesthetic sensibilities, or as corporate as Google's vast stores of organized data. For Netflix, their original DVD-by-mail business endowed them with numerous resources relevant to streaming. including such directly transferable skills as their recommendation engine, their UI, their customer data, and their relationships with content owners. Equally important was the platform of their existing business, which allowed them to easily offer streaming as a complement to DVD-by-mail, rather than a standalone service. This was far more important than you might think, as it silenced potential complaints about the initial small streaming catalog that could have driven fatally negative word of mouth. Conversely, though, there were also many abilities Netflix had to develop, and as they moved aggressively into originals, this set of required competencies expanded considerably. External Conditions

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