L/O/G/O

Value Innovation:

The Strategic Logic of High Growth

Value Innovation:

The Strategic Logic of High Growth

Harvard Business ReviewGroup 1Group 1

Dao Xuan TungDao Xuan Tung M977Z202M977Z202

Le Nguyen Minh KhoiLe Nguyen Minh Khoi M977Z207M977Z207

Nguyen Phan AnhNguyen Phan Anh M977Z213M977Z213

ContentsContents

Introduction

Conventional Logic Versus Value Innovation

Creating a New Value Curve

The trap of Competing, the Necessity of Repeating

The Three Platforms

Driving a Company for High Growth

Conclusion

What separates high-growth companies from the pack is the way managers make sense of how they do business.

What separates high-growth companies from the pack is the way managers make sense of how they do business.

KinepolisKinepolis

• 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

KinepolisKinepolis

• 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

• What were the differences between

Kinepolis and other Belgian movie

theaters?

DifferencesDifferences

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.

Differences (cont.)Differences (cont.)

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 COs 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.

- As a result, they improved their performance by competition. - They broadened their film offerings, expanded their food and drink services and increased showing times.

- In order to give most moviegoers a package they would value highly, the company put aside conventional thinking about what a theater is supposed to look like.

How Kinepolis achieves profitable growthHow Kinepolis achieves profitable growth

Conventional logic & value innovationConventional logic & value innovation

The five dimensions of strategy

Conventional logic Value innovation logic

Industry assumptions Industry’s conditions are given

Industry’s condition can be shaped

Strategic focus A company should build competitive advantages. The aim is to beat the competition

Competition is not the benchmark. A company should pursue a quantum leap in value to dominate the market

Customers A company should retain and expand its customer base through further segmentation and customization. It should focus on the differences in what customers value

A value innovator targets the mass of buyers and willingly lets some existing customers go. It focuses on the key commonalities in what customers value

The five dimensions of strategy

Conventional logic Value innovation logic

Assets and capabilities A company should leverage its existing assets and capabilities

A company must not be constrained by what it already has. Is must ask, What would we do if we were starting anew?

Product and Service offerings

An industry’s traditional boundaries determine the products and services a company offers. The goal is to maximize the value of those offerings

A value innovator thinks in terms of the total solution customers seek, even if that takes the company beyond its industry’s traditional offerings

Conventional logic & value innovation (cont.)

Conventional logic & value innovation (cont.)

• 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

Creating a New Value CurveHow does the logic of value innovation translate into a

company’s offerings in the marketplace?

Creating a New Value CurveHow does the logic of value innovation translate into a

company’s offerings in the marketplace?

Budget hotel industry in

France

Value Innovation Logic

Market segmentsMarket segments

1

No star & 1-star:Average price per room was between 60 and 90 French francs Customers came just for the low price.

2

2-star:Average price of 200 francs, offering a better sleeping environment than no star & 1 star hotel.

Identify what customers of all budget hotels wanted

Formule 1Formule 1

Formule 1Formule 1

+ Average cost of building a room dropped 50%.+ Staff costs dropped 25 – 35%.

Accor Hotel has a:2-star hotel’s features1-star hotel’s price

The Trap of Competing, the Necessity of RepeatingThe 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 PlatformsThe 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

1/3 price of

SystemPro

1/3 price of

SystemPro

Compaq’s server businessCompaq’s 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 server’s capacity.

ProSignia(run NetWare, file and print only)

Compaq’s server businessCompaq’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 1000ProLiant 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.

SmartStart

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.

creating a superior

value curve and

expanding market.

Compaq’s server businessCompaq’s 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 company’s sales and profits rose

again as its new value curve diverged from

the industry’s.

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

Compaq’s server businessCompaq’s server business

• 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.

Driving a Company for High GrowthDriving a Company for High Growth

Driving a Company for High GrowthDriving a Company for High Growth

How can senior executives promote value How can senior executives promote value innovation?innovation?

How can senior executives promote value How can senior executives promote value innovation?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

Four questions thattranslate the thinking into a new value curveFour questions thattranslate the 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.

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.

Driving a Company for High GrowthDriving a Company for High Growth

Testing the Growth Potential of a Portfolio of Businesses

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.

ConclusionConclusion

• 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.

L/O/G/O

Thank You!Thank You!