If a competitive advantage is to form the basis of corporate success it must also be appropriable. Appropriability is the capacity of the firm to retain the added value it creates for its own benefit. Adding value is an objective for a not-for-profit organization just as it is for a corporation. But while a tennis club or a university will wish to see that added value distributed to its members or though the community, the successful corporation must be concerned with appropriation.
If, and only if, the firm generates added value does it have something which it can distribute to its various stakeholders over and above the minimum necessary to persuade them to work for it, invest in it, supply it, or buy its products. When a firm successfully adds value, the government will generally seek to secure part of that added value through taxation (and, conversely, where companies are not successful in adding value there is no sustainable corporate tax base). Shareholders are the residual claimants on added value and, in the United States, are also the principal claimants on added value. This primacy of shareholders is less clearly true in other countries and other cultures.
Who benefits from the firm's success in adding value depends partly on the decisions of the firm, partly on the structure of the markets which it faces, and partly on the sources of the added value itself. To sustain distinctive capabilities based on architecture and reputation, it is generally necessary to share at least part of the returns among all the stakeholders in the business and to achieve their agreement, or at least acquiescence, in that distribution. The returns to strategic assets, in contrast, will generally be fought over by the different stakeholder groups.
Adding value is not an objective only for profit-making institutions. The purpose of a university, or a tennis club, is to add value, just as the objective of IBM or Sony is to add value. They seek to create an output which