Value Innovation: The Strategic Logic of High Growth

1
Value Innovation The Strategic Logic of High
Growth

• By W. Chan Kim Renèe Mauborgne

2
Growth Through Strategic Innovation

• Kim Mauborgne propose that prosperous firms
  across industries share similarities in the ways
  they
• Engage in strategic planning.
• Envision manage growth opportunities.
• Perceive value addition innovation.

3
Value Innovation

• Kim Mauborgne argue that high growth firms
  differ on 5 basic strategic dimensions.
• Industry Assumptions
• Strategic Focus
• Customer Commonalities
• Assets Capabilities
• Product Service Offerings

4
Kinepolis Example

• Kinepolis achieved large market share in the
  Belgium movie market by
• Re-conceiving the movie experience (large
  theatres screens, comfortable seats, free
  parking).
• Redefining the industry (by changing the movie
  experience, moved from industry decline to
  growth).
• Seeking out a strong customer base (customers
  willing to pay a premium price for a quality
  experience).
• Realizing customer demand was directly linked to
  product quality.

5
Creating a New Value Curve

• Accomplished by addressing four main questions
• Which taken-for-granted industry value factors
  should be eliminated?
• Which value factors can be reduced below the
  industry standard?
• Which value factors should be raised above
  industry standards?
• Which value factors should be created/added that
  have not been offered within the industry?

6
Accors Formule 1 Budget Hotels

• Primary Customer Need A good nights sleep for a
  low price.
• Eliminated in-house restaurants lounges.
• Limited receptionist hours, modular block rooms,
  basic rooms with bare necessities.
• Invested in sound control for quietness,
  high-quality beds, room cleanliness.
• Results Lower Costs, Reasonable Prices, Market
  Share Growth.

7
The Innovation Trap

• Innovators must avoid the temptation to stick
  with an innovative value curve once competitors
  start to imitate. Instead, firms should
• Resist innovation when their value curves are
  fundamentally different from major competitors,
  instead emphasizing geographic expansion
  efficiency improvements.
• Continue to re-analyze and seek out quantum leap
  improvements once major competitors adopt similar
  value curve strategies.

8
Rotating Value Curve Platforms

• Kim Mauborgne also propose that innovative
  firms innovate on each of 3 main platforms
• Product (shifting the physical attributes of the
  product).
• Service (shifting the means of product support).
• Delivery (shifting the logistics and channels
  employed to delver products to customers).
• Successful companies often grow by rotating
  value-added innovations across these three
  channels.

9
Virgin Atlantic Airlines Example

• Virgin Atlantic shifted industry convention by
  focusing on business class flyers, eliminating
  first class.
• Product innovation- Installing large, reclining
  seats in business class, increasing passenger
  comfort.
• Delivery Innovation- Offering limo motorcycle
  delivery services for customers in high-traffic
  cities.
• Service innovation- Building passenger lounges
  with amenities (showers, clothing pressing
  services, massages, office equipment) for
  customer use between after flights.

10
Portfolio Analysis for Growth Innovation

• The final tool offered to facilitate growth
  potential analysis is the portfolio tool. This
  system plots the firms business portfolio in one
  of three areas
• Pioneers- Businesses that are value leaders and
  offer opportunities for high growth.
• Settlers- Businesses with value curves similar
  to those of the industry (limited growth
  potential unless the industry is growing at a
  rapid rate).
• Migrators- Businesses that offer some
  differential value to customers, but still fit
  the basic industry profile.