Download - Value Innovation
Value Innovation - The Strategic Logic of High growth
Sustainable Competitive Advantage for Business
Point of Differentiation
The success or failure of a company relies on it fundamental, implicit assumption about strategy
High-growth companies paid little attention to matching or beating their rivals while less successful companies have contrary strategies
They sought to make their competitors irrelevant through a strategic logic and we call it “Value Innovation”
Kinepolis
Since the movie theater industry in
Belgium was declining steadily, by the
1980s, many Cinema Operators (CO’s)
were forced to shut down.
The CO’s who remained took similar
actions in head-to-head competition for a
shrinking market
Kinepolis
In 1988, Bert Claeys created
Kinepolis. In its first year, this
company won 50% of the market in
Brussels and expanded the market by
about 40%.
Kinepolis is the world’s first
megaplex with 25 screens and 7,600
seats.
Difference between Kinepolis and Other Theatre’s in Belgiam
OTHER BELGIAN MOVIE THEATERS
KINEPOLIS
Have small viewing rooms with no more than 100 seats and 35-millimeter projection equipment
Up to 700 seats and so much legroom and 70-millimeter projection equipment
Screens measure 7meters by 5 meters
Screens measure up to 29 meters to 10 meters and sound vibrations are not transmitted
Do not have Located off the ring road circling Brussels.
The average cost to build a seat in Brussels is twice expensive than Kinepolis
At Kinepolis, it is about 70,000 Belgian francs.
Difference between Kinepolis and Other Theatre’s in Belgiam
OTHER BELGIAN MOVIE THEATERS
KINEPOLIS
They spent money on advertising to attract all customer segments.
The company’s value innovation generates a lot of word-of-mouth praise.
Most CO’s were thinking along these lines: movie industry is shrinking, so we should not make major investments
On the contrary, Kinepolis followed a different strategic logic. The company did all that while reducing its costs.
They broadened their film offerings, expanded their food and drink services and increased showing times
Leaving ‘Conventional Thinking’ behind
How Kinepolis achieved ‘Profitable Growth’
The CNN Case
For years, the major U.S television networks used the same format
for news programming.
In 1980, CNN came on the scene with a focus on creating a
quantum leap in value, not on competing with other networks.
CNN created real-time news from around the world 24 hours a day
and the cost was five times cheaper than other networks.
The company decided not to compete with the networks in the race
to get big-name anchors.
Conventional Logic and Value Innovation
Two Strategic LogicsThe Five Dimensions of
StrategyIndustry
Assumptions
Strategic Focus
Customers
Refer Page No. 6 of the Case Bottom Left Corner
Creating New Value Curve
Quantum leap in value for customers
Overcapacity
Stagnation
Market
Segments
No star & 1-star:Average price per room was between 60 and 90 French francs Low Price Offering
2-star:Average price of 200 francs, offering a better sleeping environment than no star & 1 star hotel.
Formule 1
+ Average cost of building a room dropped 50%.+ Staff costs dropped 25 – 35%.
Accor Hotel:2-star hotel’s features1-star hotel’s price
The Trap of Competing, the Necessity of Repeating
What happens once a company has created a new value curve?
Because of being imitated, companies must innovate frequently.
Value innovation is about offering unprecedented value, not
technology or competencies.
When a company’s value curve is different from that of the rest of
the industry, they should focus on geographic expansion and
operational improvements to achieve maximum economies of scale
and market coverage.
The Three Platforms
Product: Physical product
Service: Support such as maintenance, customer service, warranties, training for distributors and retailers
Delivery: Logistics, channel used to deliver the product to customers
Service
Delivery
Product
Virgin Atlantic: Flying in the Face of Conventional Logic
Eliminating First class service in 1984
Comfortable seats in ‘Business Class’.
Transportation Service in Limousines and Limo-Bikes
Customer wanted time to ‘Freshen-up’ and change ‘Clothes’.
Economies of Value Innovation and Reinforcing Cycle:
Highest Sales/Employee & Lowest Cost/Passenger Mile.
Adding logic of Value Innovation to other profit centers like
Insurance, Music and Entertainment Retailing.
Doing more than just leveraging existing assets and
capabilities.
Compaq’s Server Business
In 1989, Compaq introduced SystemPro
The majority of customers used only a small fraction of a server’s capacity.
Pro Signia
1/3 price of
SystemPro
Compaq’s Server Business
Competitors tried to imitate the
ProSignia and value curves in the
industry began to converge.
Compaq took another leap, this
time from the service platform.
ProLiant 1000
(SmartStart + Insight Manager)
Proliant 1000
Configuring server hardware and network
information to suit a company’s operating
system and application programs.
Helping customers manage their server networks by, for
example, spottingoverheating boards or
troubled disk drives beforethey break down.
Smart Start
Insight Manager
put companies that had been skeptical of their ability to configure and manage a network server, at ease.
creating a superior value
curve and expanding
market.
How Compaq Stayed on Top of Server Industry
Driving a company for High Growth
Despite the profound impact of a company’s strategic logic, that logic is often not articulated
it goes unstated and unexamined
a company does not necessarily apply a consistent strategic logic across its businesses
Driving a Company for High Growth
Businesses that offer
unprecedented value.
Settlers
Migrators
Pioneers
Businesses with value curves that conform to the basic shape of the industry’s.
Businesses with valueimprovements
For managers of diversified corporations, the logic of value
innovation can be used to identify the most promising possibilities for growth
across a portfolio of businesses.
Point of Differentiation
Testing the Growth Potential of a Portfolio of Businesses
If both the current portfolio and the planned offerings consist mainly of settlers, the company has a low growth trajectory and needs to push for value innovation. The company may well have fallen into the trap of competing.
If current and planned offerings
consist of migrators, reasonable growth
can be expected. But the company is
not exploiting its potential for growth
and risks being marginalized by a
value innovator.
How can senior executives promote value innovation?
Identify and articulate the
company’s prevailing
strategic logic
Challenge
They must stop and
think aboutthe industry’s assumptions,
the company’s strategic
focus, and the
approaches
They must stop and
think aboutthe industry’s assumptions,
the company’s strategic
focus, and the
approaches
Translating thinking into a New Value Curve
Q. 01
Q. 02
Q. 03
Q. 04What factors should be created that the industry has never offered?
Which should be raised well above the industry’s standard?
Which of the factors that our
industry takes for granted should be
eliminated?
Which factors should be reduced
well below the industry’s standard? New Value Curve.
Conclusion
Comparing with Conventional Logic, Value Innovation Logic is much
better for the companies that want to get the higher share market
and larger customer segments.
High growth companies have been applying the concept of Value
Innovation and adopted the strategies in accordance with the
circumstance and environment of companies.
In order to apply this logic efficiently, managers should think beyond
their industry’s traditional boundaries in order to satisfy customers’
needs.
Thank You