Session 03 - Value Disciplines (Compacto)

INNOVACIÓN DE MODELOS DE NEGOCIOS

SESSION 03

VALUE DISCIPLINES FOR COMPETITIVE ADVANTAGE

FACULTY TEAMIng. Jorge Valdes Simancas

Ing. Angel Tonatiuh Flores [ [email protected] ]

Daniel Pandza, M.A.Centro de Innovación

[email protected] 01-(33) 3669 3000 ext. 2266

www.gda.itesm.mx/innovar

CERTIFICADO EN INNOVACIÓNG2 - ENERO-MAYO 2009

GAP

CAP

Competitive Advantage over Time

GAP

Time

Ret

urns

Competitive Advantage GapCompetitive Advantage Gap– Distance from closest competitorsDistance from closest competitors

–New, better featuresNew, better features–Lower pricesLower prices–Superior customer serviceSuperior customer service

Competitive Advantage PeriodCompetitive Advantage Period– Barriers to entryBarriers to entry

–Market share dominanceMarket share dominance–Blocking patentBlocking patent–Switching costsSwitching costs–Brand loyaltyBrand loyalty

CAP

Moore (2002) Living on the F

ault Line. Harper B

usiness Press

CAPCAP highlow

GAPGAP

low

high

GAP/CAP Check:Where are Your Offers on this Grid?

ToyotaCorolla

PT Cruiser

ChryslerChryslerMinivanMinivan

AudiAudiTTTT

FordFordMustangMustang

VWVWBugBug

PorscheCarrera

Sustainability

FordExplorer

AtosSedan

Dif

fere

nti

atio

nD

iffe

ren

tiat

ion

Moore (2002) Living on the F

ault Line. Harper B

usiness Press

CAPCAP highlow

GAPGAP

low

high

GAP/CAP matrixWhere are Your Offers on this Grid?

Sustainability

Dif

fere

nti

atio

n

2002) Living on the Fault Line. H

arper Business P

ressMoore (

Value definitionValue definition

How will How will we we

Deliver Deliver value?value?

How will How will we we

capture capture value?value?

How will How will we create we create

value?value?

Effective strategy answer three key Effective strategy answer three key questionsquestions

Developing and Managing a Successful Technology & Product Strategy; Rebeca Henderson

Effective strategy answer three key Effective strategy answer three key questionsquestions

• How will we create value?How will we create value?• How will the technology evolve?How will the technology evolve?• How will the market change?How will the market change?

• How will we deliver value?How will we deliver value?• How do we manage the core business and growth How do we manage the core business and growth

simultaneously?simultaneously?• How do we use our strategy to drive real resource allocation?How do we use our strategy to drive real resource allocation?

• How will we capture value?How will we capture value?• How should we design the busines model?How should we design the busines model?• Where should we compete on the value chain?Where should we compete on the value chain?• How should we compete if standards are important?How should we compete if standards are important?


Maximizing shareholder value gives you a “workable” target

A meaningful maximum that can guide strategy...

☺

Price

Easy, but wrong target!

Correct, but difficult target!

Shareholder value!

Customer

satisfactio

n

Added Value

Appropiated Value

Imitation

Slack

Substitution

Holdup

The four threats to sustainability

Threats to the appropiability of added value; Cinthia Montgomery

What makes a resources valuable?

ScarcityScarcity Appropiability

Demand

Value creation zone

The dynamic interplay of three fundamental market forcesThreats to the appropiability of added value; Cinthia Montgomery

Appropriability of added value

Mutualism can be beneficial, even essential for success,in the business world. But it can potentially create a problem as well:

As players cospecialize, their added values begin to overlap.Making it impossible for all participants to appropiate the full amount.

Each can therefore be said to face the threat of being held up by the others.

• “The extent to which the value appropiated by an organization falls short of the amount potentially available to them”.

Ho

ld u

pH

old

up

Sla

ckS

lack

ManufacturerManufacturer

DistributorDistributor

SuppliersSuppliers

Value Value capturedcaptured

Total Total value value

createdcreated

WTPWTP

Managing InertiaThe Core/Context Analysis Framework

CoreTargeted

InnovationVector(s)

ContextAll other Activities

Mission CriticalProcess shortfall creates

serious and immediate risk

Non-Mission-CriticalAll other processes

Differentiation

Ris

k

Supports change

Re

tard

s c

han

ge

Risk

Reward

Disengages from a Disengages from a process but still have process but still have active control over its active control over its

outcomesoutcomes

(2003) Living on the Fault Line. Harper Business PressMoore

Core & Context

ContextCore


The elements of the Business Model

ValueProposition

PartnerNetwork

CoreCapacities

ValueConfiguration

CustomerRelationship

DistributionChannel

Customer Segment

CostStructure

RevenueStreams

Success /Failure

Differentiation

Markets

Value Chains

Technologies

Industry advantage

Offer advantage

Category advantage

Customer advantage

Increasing

Impact

GAP

CAP

Competitive Advantage Drivers Competitive Advantage Effects

Competitive Advantage Hierarchy

Types of competitive advantage

Each lower layer provides a stronger basis for power in the marketplace(2003) Living on the Fault Line. Harper Business PressMoore

RepresentsRepresents differentiation embodied in the offer itselfdifferentiation embodied in the offer itself..

It is the It is the most fundamentalmost fundamental of all advantages. of all advantages.

Most of the organizations Most of the organizations devote most of their resources heredevote most of their resources here

In In commodity markets commodity markets wherewhere buying power is concentrated in the buying power is concentrated in the customer.customer.

Offer advantageOffer advantage is about is about the only advantagethe only advantage that a vendor can really that a vendor can really count on.count on.

And often And often it is priceit is price that carries the sale. that carries the sale.

This is the lower level in the power game.This is the lower level in the power game.

There are instead strategies that can end up being profitably.There are instead strategies that can end up being profitably.

Offer power

• None of the underlying sources of power in the competitive advantage hierarchy None of the underlying sources of power in the competitive advantage hierarchy can actually create value.Until companies ultimately transform them into can actually create value.Until companies ultimately transform them into differentiated offeringsdifferentiated offerings

This is the domain of price/performance marketing (good better and best).This is the domain of price/performance marketing (good better and best).

Product is asserting its differentiation and claiming a price reward for so doingProduct is asserting its differentiation and claiming a price reward for so doing

The more the Customers heterogeneity and customization of the product to The more the Customers heterogeneity and customization of the product to meet different needs, the greater the sustainability of the advantage gained.meet different needs, the greater the sustainability of the advantage gained.

Trying to differentiate the offerings.

Without building foundations in the lower in the lower stratastrata of the hierarchy. of the hierarchy.

Are deemed to be Are deemed to be short short lived and undervaluedlived and undervalued..

They representThey represent the surface of the surface of the modelthe modelThe part that actuallyThe part that actually touches touches the customer.the customer.GAP GAP is created throughis created through differentiating from other differentiating from other competing offers competing offers of the of the market.market.No CAP No CAP can be created at this can be created at this level.level.

Differentiated offerings

Market segments

Represent the third strongest form of competitive leverage, after Represent the third strongest form of competitive leverage, after technology leverage and value chain power.technology leverage and value chain power.

Initially the new value chains support a single integrated market defined Initially the new value chains support a single integrated market defined by the by the new category of productnew category of product

Over time, this approach of Over time, this approach of one size fits allone size fits all approach inevitably approach inevitably compromises the unique interest of specific compromises the unique interest of specific market segmentsmarket segments..

Where such compromised interest rebel, vertical markets emerge Where such compromised interest rebel, vertical markets emerge and create opportunities for companies and create opportunities for companies

That did not garner global value-chain power.That did not garner global value-chain power.

to get local market share dominance.to get local market share dominance.

Victories in one or more market competitions create strong GAPs Victories in one or more market competitions create strong GAPs and highly sustainable CAPs,and highly sustainable CAPs,

But only over a limited domain of economic opportunity.But only over a limited domain of economic opportunity.

Value Chain competitionThere are four phases of value chain competition:There are four phases of value chain competition:

New chain vs incumbent chainNew chain vs incumbent chain. Determining whether the new . Determining whether the new technology can gain a foothold for itself in the market.technology can gain a foothold for itself in the market.

Among Among emerging value chainsemerging value chains each seeking to impose its each seeking to impose its standards on the marketplace at the expense of the others.standards on the marketplace at the expense of the others.

This tend to have a This tend to have a winner take all outcomewinner take all outcome, so prudent companies , so prudent companies will try to secure a place in every chain that has a chance to be the will try to secure a place in every chain that has a chance to be the winner.winner.

The third and fourth occur The third and fourth occur within value chainswithin value chains where individual where individual companies jockey for power, both among their direct competitors for companies jockey for power, both among their direct competitors for a specific role in the chain, anda specific role in the chain, and

Also with the other chain membersAlso with the other chain members over how profits are allocated over how profits are allocated across the chain.across the chain.

In these latter two competitions, the goal is to build power In these latter two competitions, the goal is to build power while the while the chain is still fluidchain is still fluid and forming. and forming.

In technology enabled markets once the chain has formed, In technology enabled markets once the chain has formed, it is it is often too late to effect change in positionoften too late to effect change in position (high switching cost). (high switching cost).

Competitive advantage hierarchy

•The highest form of competitive leverage comes The highest form of competitive leverage comes from riding from riding the adoption of a new wave of the adoption of a new wave of technologytechnology, as it displaces and older one., as it displaces and older one.•New paradigms New paradigms rewrite all the rulesrewrite all the rules of competition, of competition,•Making Making obsolete all market positionsobsolete all market positions

Should be Should be read from read from the bottom the bottom up. up.

For this displacement to occur, the new technology must be integrated For this displacement to occur, the new technology must be integrated into end to end systems that meet existing customer needs.into end to end systems that meet existing customer needs.

In the new economy, no one company is responsible for this integration, In the new economy, no one company is responsible for this integration, instead it is the end product of a value chain.instead it is the end product of a value chain.

Whole Product Analysis

The The ProductProduct

ComplexComplexconfigurationsconfigurations Hardware Hardware

SoftwareSoftware

PeripheralsPeripherals

ConnectivityConnectivityInstallationInstallation

Presales Presales servicesservices

Postsales Postsales service & service & supportsupport

Based on Based on understanding understanding customer’s problem customer’s problem and its solutionand its solution

What other What other competitors in competitors in category have in category have in common with youcommon with you

What you can show based What you can show based on commitment to solve on commitment to solve

problem through a problem through a preengineered solutionpreengineered solution

Complementary Complementary ProductsProducts

Complementary Complementary ServicesServices

Why Morphing Between Groups is Hard

Complex SystemsComplex Systems Volume OperationsVolume Operations

SalesHigh-touch salesComplex sales cycle

ServicesConsultativePlanned

MarketingWhole-product focusValue-chain orientation

EngineeringConfigurationCustomization

SalesLow-touch salesSingle decision-maker

ServicesTransactionalReactive

MarketingFeature-benefit focusEnd-user orientation

EngineeringMass-producedMass-customized

Product economics1. Product design (Mission critical)2. Branding and distribution channels3. Product become subordinated as

systems evolve (better whole product)4. Product share5. Rivalry (beating the competitor)6. Competence culture

Supply chain efficiency1. Productivity and price2. Offer can be commoditized3. Neutralize product leadership.4. Context rather than core5. Neutralizing customer intimacy6. Outsourcing any type7. Optimizing efficiency (Process

leadership)8. Repet. situations/objective Quality 9. Focus on timing rhythm /speed10. Reducing misses not increase hits11. Value chain reengineering 12. Network positioning13. Control culture

Customer economics1. Superior matching/Knowledge of

the customer domain2. Core / personal service.3. Context / Automated

personalization4. Set the bar higher/ Less tolerance5. Customer relationships6. Demand chain mgmt7. Skill vs scale8. Number of hits9. Optimizing scope10. Customer share11. Buyer and user are the same12. Collaboration Culture

Customer Customer IntimacyIntimacy

Value Value NetworkNetworkArchitectArchitect

Best Best ProductProduct

Process Orientation

Degree ofDifferentiation

Through Processes

Value disciplinesValue disciplines

Best product

Unilever’s Managing Risk in Innovation

Consumer Value Perception

En

ablin

g T

echn

olo

gy

AggressiveHigh CompetitiveStrength butHigh Risk

VulnerableEasily imitated product or service

Reactive Low Risk but Low

Competitive Strength

RecklessHigh Risk Low

Business Gains

Radical

Next Generation

Incremental

Base

New Core Product

Product New Benefit

Product Improvement

Product Variant

No Change


Operational excellenceSeeks to differentiate from others in category through superior execution• Measured by productivity and ultimately by price.• It is most succesful when the offer can be commoditized• Neutralizing the power of product leadership.• Works better when it is context rather than core.• Thereby neutralizing the power of customer intimacy.• Outsourcing of virtually any type is a natural ground for differentiating

through operational excellence.• Mass production represents another.• The key is a focus on process.• Value chain reengineering.

Operational excellence• Identify the minimum set of attributes required by the customer.• It seeks to root out any subactivity that does not explicity add value.• Some tools like JIT, advanced and collaborative supply chain, vendor

managed inventory, • are attempts to make uses of funds for inventory more productive.• Focusing on process implies a focus on timing.• Attend to rhythm first and speed second.• Process focus works best in situations that are repetitive where output

quality can be measured objectively.• Success is measured by reducing the number of misses rather than

increasing the number of hits.

Value network arquitects/ Operational efficiency

Customer Intimacy

Seeks to differentiate from others in category through superior matching of customer expectation with order fulfillment.

Justifies a pricing premium based on greater perceived and received value.

When the offer is core to the customer. Personal service and tailoring are key. Requires superior domain expertise in a consultative sales and service

relationship, Leading to tailored offers that solve the customer´s problem end to end.

Customer Intimacy

The key is a superior knowledge of the customer domain and Personal expectations and values, Combined with the ability to customize the offer to capitalize on this

knowledge. Focus on response time. Calibrated by the interval between:

• The customer's becoming aware of a need or an The customer's becoming aware of a need or an opportunity and opportunity and

• The vendor being able to present the offering that The vendor being able to present the offering that matches.matches.

The more context the offer, the shorter the interval The more context the offer, the shorter the interval that the customers will tolerate.that the customers will tolerate.

Customer Intimacy

Customers are willing to grant significant more time when the offer is core,

But they also set the bar higher for making the match. Scale companies embrace mass customisation to meet these demands. In which they can premake the offer and Stage it for final configuration and customization at the point of

purchase. This is in itself a form of operational excelllence, focused on earning a

premium as opposed to increasing a discount. Customer inimacy works best when the buyer and the user are the Customer inimacy works best when the buyer and the user are the

same.same. Like in most consumer purchases.Like in most consumer purchases.

Customer Intimacy

The major challenge is that the domain expertise is scarce. Customer sensitive representants even scarcer and Both are hard to scale. Is measured by the number of hits. Works best on collaborative cultures. Where the customer's problem or need become the focusing element of

the collaborative effort. The goal is to optimizing the offerings on relation to customer's

experience as opposed to optimizing the means of production wich is the goal of

Operational excellence, Or optimizing the competitive performance of the offer itself wich is the

goal of product leadership.

Customer intimacy

The progression of economic value from core commodities to optimum experiences

(adapted from The Experience Economy by Pine and Gilmore).

High High RelevanceRelevance

CUSTOMER CUSTOMER NEEDSNEEDS

Low Low RelevanceRelevance

Low Differentiation

POSITIONED POSITIONED COMPETITIVELYCOMPETITIVELY

High Differentiation

Core Core CommoditiesCommodities

• Internal Internal Supply Supply chain.chain.

• Product Product innovationinnovation

•Solutions Solutions innovation.innovation.• Demand Demand

side of side of Supply Supply

networks.networks.•Systems Systems integrationintegration

•Experience Networks.

•Personalized Experiences

Cost Driven PremiumPRICING PRICING STRATEGYSTRATEGY

RelationshipOwner

Value NetworkArchitect

Product Innovator

“Dominate theEco-System”

“CreativeDestruction”

“Work Backwardsfrom the Customer”

Process Orientation


Through Processes

Strategy Space business model frameworkStrategy Space business model framework

Many worldsMany worlds

Core Value Drivers1. Product development2. Branding3. Distribution channels

Core Value Drivers1. Network positioning2. Process leadership3. Optimizing efficiency

Core Value Drivers1. Customer relationships2. Demand chain mgmt3. Optimizing scope

RelationshipOwner


Product Innovator

Process Orientation


Through Processes

Associated core value driversAssociated core value drivers


2000

2000

or here . . .

RelationshipOwner


Product Innovator

2000

1985

and sometimes move here . . .

businesses start here . . .

1990

19621990

1996

Example business model paths over timeExample business model paths over time


Degree of differentiation

through process

Process OrientationRelationship

Owner


Product Innovator

Core Value Drivers1. Customer relationships2. Demand chain mgmt3. Optimizing scope

Stalemate!

Core Value Drivers1. Network positioning2. Process leadership3. Optimizing efficiency

Example competitive migration pathsExample competitive migration pathsAmazon vs Wal martAmazon vs Wal mart


Competitive Advantage Grid

SorcerersSorcererseBay, Yahoo, Nintendo, Polaroid.

DisruptersDisruptersAmazon, AOL, Time Warner, Qualcomm, Enron.

EnchantersEnchanters Home, Shopping, Tivo, Intuit, Pleasant Company

FlashersFlashersPriceline, eTrade, Netscape, Napster.

Disruptive Innovation

InnovatorsInnovatorsIpod, Iphone, Sharper Image.

ExcludersExcluders

Cisco, Microsoft, Mercedes, Nokia, Toyota

ExcellersExcellersREI, Adobe, Ferrari, Lawson, Reiek

ReassuresReassuresDuracell, Sony, Tumi, Dyson.

Product Leadership

Niche-carversNiche-carvers Silicon Vailey Bank. Pleasant Company.

Market- MakersMarket- MakersMerril Lynch, N.Y. Yankees, Disney, IBM.

IncludersIncludersMcKinsey, Martha Stewart, Saturn, Starbucks.

DelightersDelightersNordstrom’s, Nike, Crystal Geyser, Hold Everything.

Customer Intimacy

ReinventorsReinventorsMcDonalds, Fed Ex, Jiffy-Lube, Charles Schwab, Colora Genomics.

DominatorsDominatorsWalmart, Dell, Visa, Exxon.

SatisfiersSatisfiersKinko’s, IKEA Southwest Airlines

EconomizersEconomizers BIC, Motel 6, Costco

Operational Excellence

Category Advantage

Industry Advantage

Customer Advantage

Offer Advantage


CONTACT:Daniel Pandza | Innovation CenterTecnológico de Monterrey | Campus Guadalajara

Tel: 0052 (33) 3669 3000 ext. 2266E-Mail: [email protected] URL: http://www.gda.itesm.mx/innovar

Center Blog: http://paradygnamics.wordpress.com

NUEVAS PERSPECTIVAS PARA EL ÉXITO

EMPRESARIAL

http://paradygnamics.wordpress.com

CENTRO DE INNOVACIÓNTECNOLÓGICO DE MONTERREY

SERVICES Innovation Certificate for Undergraduate Students

Innovation Consulting for the Business Community

International Seminars and Executive Training

Session 03 - Value Disciplines (Compacto)

Education

Transcript of Session 03 - Value Disciplines (Compacto)