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