Strategy,Value Innovation

&the Knowledge

Economy

Keron Twum, Tara Armatas, Derek Potter, Ginger Nelson, Sostell Toda, Mohib Ahmad

Overview

• Competitive Innovation• Value Innovation Strategy• Value & Innovation• Market Dynamics• Creation Station• Corporate Strategy • Best and Worst• Choose Your Own Adventure

Driven By Competition

Imitative, not innovative, approaches to market

Companies act reactively

A companies understanding of emerging mass markets and changing customer demands becomes hazy

“Not too hard this time your – the last idea gave me a concussion.”

Value Innovation

• Companies must pursue Value Innovation. Value Innovation makes the competition irrelevant because it delivers new and superior buyer value.

• Do Not Imitate! Go beyond incremental improvement focus on innovation or create new ways of doing things.

• Stop acting reactively! Begin emphasize value by placing customers at the center of strategic thinking. Find out where the customer are going to be not where they are now.

Neoclassical vs. Innovation

• “Black Boxes” – Firms respond to market conditions– Innovation is a random occurrence

• “Value Innovators”– Create new markets– Fortune 500… 60% gone in two

decades

Market Valuation

0

50

100

150

200

Revenue in Billions

Company Revenues 1995

Microsoft GM

Market Valuation

Market Value 1995

Microsoft GM

Why?

• Investors Value…– Knowledge– Innovation

• Unlike traditional finite factors of Innovation, Knowledge and Ideas are infinite economic goods.

“A firm need not compete for a share of a given demand –

it can create new demand”

Value & Innovation

• Must go hand in hand

• Value without innovation = Incremental

• Innovation without Value = No consumer base

Technology vs. Value

• A value innovation does not need to be technical.

• Technical Innovation does not necessarily create value.

– Ampex 1950’s

Re-Define the Problem

• Callaway Golf “Big Bertha”

InnovationValueTechnology

Innovation

Value Creation

Value

Innovation

“Whether an executive or a factory worker, anyone can have a good idea”

Market Dynamics of Value Innovation

The proportion and value of knowledge to land, labor and capital are increasing dramatically.

Transition from the production to the knowledge economy

Enron – exemplifies the transition with traders, analysts and scientists working together

Consequences of the transition

1. Potential for high returns– Microsoft spend millions on the first copy of Windows

95, but the cost of subsequent copies was trivial

2. Potential for free riding– Rival good – One firm precludes its use by another e.g.

scientists employed by IBM can’t be simultaneously employed by another company

– Nonrival good – One firm does not limit its use by another.

– Excludability – If a company can prevent others from using it due to limited access or patent protection• Companies like Starbucks, Home Depot, Schwab, Virgin

Atlantic Airways, Amazon. COM are not about patentable technology innovation but value innovation.

Successful strategy for value innovators

Strategic pricing for demand creation.– The focus is to capture the mass of buyers and expand

the size of the market by offering radically superior value at price points accessible to a mass market

– High premium and restricted supply encourages free riding

Target costing for profit creation– Conventional strategy of limiting access, setting higher

prices, price skimming etc. doesn’t work in a world of nonrival and nonexcludable goods

– High price and limited volume doesn’t allow the value innovators to exploit economies of scale

Creation Station

• Making Value Innovation happen inside your company

• Top Management Commitment • Clearly Communication• Do away with conventional thinking• Retreats and Corporate communications

Creation Station: Structure

• Organization Structure most conducive to value innovation?

• Small autonomous units or teams focusing on common business or product goals.

• Diverse Teams– People from various backgrounds and perspectives. – Conflict and differing view points heightens

creativity.

Creation Station: Fairness

• Voluntary Cooperation– Trust and Commitment

• Fair Process– Fairness in the process of making

and executing decisions.– Recognizes people's intellectual and

emotional worth.

Corporate Strategy

Value innovation represents a competitive advantage on the competitors, especially in knowledge companies

Why?

The Product life cycles are shorter

Companies which create value through innovation are as dynamic (positive image)

Globalization and technological penetration into the market

Corporate Strategy Cont.

Companies use innovation value :

Best way to differentiate or control the marketCreate a new demand

Consolidate or to improve its position on a market

Lengthen the time for competitors to catch up

Corporate Strategy: Risks

• Market not be ready for innovation

• Return on investments between the money spent in the R&D and the sales

• Arrival of a new product or more efficient susbtitute

• Second Mover Advantage risk– Competitors save time and money when

they come up with the second new product.

Corporate Strategy: Take Home

• All the sectors tend to be concerned by value innovation

• Successful companies hold the core of the market to set the standard and attracting mass market.

• If you do not do that first, the competitors will bet you.

Shifting Focus

Conventional Focus

Value Innovation Focus

Competition Outperforming Seeking radically

the competition superior value to makethe competition irrelevant

Customers Retaining and Targeting the mass of

better satisfying buyers by followingexisting customers non-customers closely

and willingly losing someexisting customers

Corporate Capabilities Leveraging and Willing to combine with

extending the current other companies’capabilities of a capabilitiescompany

Three Basic building Blocks of Strategy

Three Basic building Blocks of Strategy

Conventional Focus

Value Innovation Focus

Three Basic building Blocks of Strategy

Conventional Focus

Value Innovation Focus

?

Three Basic building Blocks of Strategy

Conventional Focus

Value Innovation Focus

Conventional Focus

Value Innovation Focus

Three Basic building Blocks of Strategy

Shifting Focus

Conventional Focus

Value Innovation Focus

Competition Outperforming Seeking radically

the competition superior value to makethe competition irrelevant

Customers Retaining and Targeting the mass of

better satisfying buyers by followingexisting customers non-customers closely

and willingly losing someexisting customers

Corporate Capabilities Leveraging and Willing to combine with

extending the current other companies’capabilities of a capabilitiescompany

Three Basic building Blocks of Strategy

Choose Your Own Adventure

• Get in 3 Groups

• Hypothetical Scenario

• Let’s See What You Learned