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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!