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Value Innovation

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Value Innovation

  1. 1. Sustainable Competitive Advantage for Business Value Innovation - The Strategic Logic of High growth
  2. 2. 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”
  3. 3. 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
  4. 4. 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.
  5. 5. 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 35millimeter 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 At Kinepolis, it is about 70,000 in Brussels is twice expensive Belgian francs. than Kinepolis
  6. 6. Difference between Kinepolis and Other Theatre’s in Belgiam OTHER BELGIAN MOVIE THEATERS KINEPOLIS They spent money on The company’s value advertising to attract all customer innovation generates a lot of segments. 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
  7. 7. How Kinepolis achieved ‘Profitable Growth’
  8. 8. 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.
  9. 9. Conventional Logic and Value Innovation  Refer Page No. 6 of the Case Bottom Left Corner Two Strategic Logics The Five Dimensions of Strategy Industry Assumptions Strategic Focus Customers Assets and Capabilities Product and Service Offerings
  10. 10. Creating New Value Curve Stagnation Overcapacity Quantum leap in value for customers 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.
  11. 11. Formule 1 + Average cost of building a room dropped 50%. + Staff costs dropped 25 – 35%. Accor Hotel: 2-star hotel’s features 1-star hotel’s price
  12. 12. 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.
  13. 13. The Three Platforms Product: Physical product Service: Product Service Delivery Support such as maintenance, customer service, warranties, training for distributors and retailers Delivery: Logistics, channel used to deliver the product to customers
  14. 14. 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.
  15. 15. 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
  16. 16. 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)
  17. 17. Proliant 1000 Smart Start Configuring server hardware and network information to suit a company’s operating system and application programs. Insight Manager Helping customers manage their server networks by, for example, spotting overheating boards or troubled disk drives before they break down. 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.
  18. 18. How Compaq Stayed on Top of Server Industry
  19. 19. 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
  20. 20. 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 Migrators Settlers Businesses with value curves that conform to the basic shape of the industry’s. Businesses that offer unprecedented value. Businesses with value improvements
  21. 21. Point of Differentiation 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. Testing the Growth Potential of a Portfolio of Businesses
  22. 22. How can senior executives promote value innovation? Challenge Identify and articulate the company’s prevailing strategic logic They must stop and think about the industry’s assumptions, the company’s strategic focus, and the approaches
  23. 23. Translating thinking into a New Value Curve Which of the factors that our industry takes for granted should be eliminated? Q. 01 Q. 04 Q. 03 Q. 02 Which factors should be reduced well below the industry’s standard? What factors should be created that the industry has never offered? Which should be raised well above the industry’s standard? New Value Curve.
  24. 24. 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.
  25. 25. Thank You

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