Value Innovation: The Strategic Logic of High Growth

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Value InnovationThe Strategic Logic of High
Growth

• Harvard Business Review

Group 1 Dao Xuan Tung M977Z202 Le Nguyen Minh
Khoi M977Z207 Nguyen Phan Anh M977Z213
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Contents
Driving a Company for High Growth
Conclusion
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What separates high-growth companies from the
pack is the way managers make sense of how they
do business.
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Kinepolis

• Since the movie theater industry in Belgium was
  declining steadily, by the 1980s, many cinema
  operators (COs) were forced to shut down
• The COs remained took similar actions in
  head-to-head competition for a shrinking market

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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 worlds first megaplex with 25
  screens and 7,600 seats
• What were the differences between Kinepolis and
  other Belgian movie theaters?

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Differences
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Differences (cont.)
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How Kinepolis achieves profitable growth
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Conventional logic value innovation
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Conventional logic value innovation (cont.)
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• 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

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Creating a New Value Curve How does the logic of
value innovation translate into a companys
offerings in the marketplace?
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Market segments
Identify what customers of all budget hotels
wanted
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Formule 1
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Formule 1
Average cost of building a room dropped 50.
Staff costs dropped 25 35.
Accor Hotel has a 2-star hotels features 1-star
hotels price
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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 companys
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.
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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

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Compaqs server business

• In 1989, Compaq introduced SystemPro
• (it can run SCO UNIX, OS/2, Vines, NetWare, DOS
  and many application programs)
• The majority of customers used only a small
  fraction of a servers capacity.

• ProSignia
• (run NetWare, file and print only)

1/3 price of SystemPro
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Compaqs 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)

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ProLiant 1000
SmartStart
Insight Manager
Configuring server hardware and network
information to suit a companys operating system
and application programs.
Helping customers manage their server networks
by, for example, spotting overheating boards or
troubled disk drives before they break down.
creating a superior value curve and expanding
market.

• put companies that had been skeptical of their
  ability to configure and manage a network server,
  at ease.

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Compaqs server business

• By focusing on customer value, Compaq introduced
  the ProLiant 1000 Rack-Mountable Server, which
  allows companies to store servers in a tall, lean
  cabinet in a central location.
• The companys sales and profits rose again as its
  new value curve diverged from the industrys.

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Compaqs server business

• Compaq is now looking to the delivery platform
  for a value innovation that will dramatically
  reduce the lead time between a customers order
  and the arrival of the equipment.

• By achieving value innovations on all three
  platforms, Compaq has been able to maintain a gap
  between its value curve and those of other
  players.

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Driving a Company for High Growth
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Driving a Company for High Growth
How can senior executives promote value
innovation?
They must stop and think about the industrys
assumptions, the companys strategic focus, and
the approaches
Challenge
Identify and articulate the companys prevailing
strategic logic
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Four questions thattranslate the thinking into a
new value curve
Which of the factors that our industry takes for
granted should be eliminated?
What factors should be created that the industry
has never offered?
Which should be raised well above the industrys
standard?
Which factors should be reduced well below the
industrys standard?
New Value Curve.
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Driving a Company for High Growth
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.
Pioneers
Businesses that offer unprecedented value.
Migrators
Businesses with value improvements
Settlers
Businesses with value curves that conform to the
basic shape of the industrys.
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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 a lot
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.
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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 industrys
  traditional boundaries in order to satisfy
  customers needs.

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Thank You!