Value InnovationThe Strategic Logic of High

Growth

Presented by Icebreak team

2006 3.23

Value Innovation

• Introduction: a case

• Conventional logic and value innovation logic

• Application of value innovation

• The fields to apply value innovation

• Face of rival’s imitation

• Conclusion

Introduction

What separates high-growth companies from others?

• The way to approach strategy

• The companies’ fundamental, implicit assumptions about strategy

• Staying ahead of competition vs Making competitor irrelevant

A Case: Kinepolis

Background:

• The business was shrinking

• The competition was getting more fierce

• A lot of cinemas were forced to shut down

A Case: Kinepolis

Kinepolis’ performance

• Win 50% of the market in Brussels in the first year

• Expand the market by about 40%

A Case: Kinepolis The approach other companies adopted:

• Turn the cinemas into multiplexes with ten screens

• Broad film offerings

• Expand food and drink services

• Increase showing times

A Case: Kinepolis Kinepolis’ Strategy

• Have up to 700 seats in a room, and no legroom

• Install over-sized seats with individual armrests

• Design a steep slop in the floor

• Have a screen of 29 meters by 10 meters

• Locate off the ring road circling Brussels

• Have a large well-lit lots where patrons can park for free

Differences Between Two Strategic Logics

Value Innovation

Four questions to ask:

• Which factors that our industry has taken for granted?

• Which factors should be reduced well below the industry’s standard?

• Which factors should be raised well above the industry’s standard?

• Which factors should be created that the industry has never offered?

Application Of Value Innovation Logic

Consider The Case of Accor.

What may happen once a company has created a new value curve?

• Rival’s imitation

• Growth and profits under attack

• Fall into the trap of conventional strategic logic

• Performance just like the rivals

Face of Rival’s Imitation

How to avoid the trap?

• View the value curve in a dynamic way

• Monitor the value curve

• Accumulate the differences

Face of Rival’s Imitation

• Product

• Service

• Delivery

The Platforms to Apply Value Innovation

• The difference between a high-profit company and others lies in value innovation

• Senior executives must ask four questions when to create a new value curve: which to eliminate, which to reduce, which raise and which to create

• Value innovation is the simultaneous pursuit of radically superior value for buyers and lower costs for companies

• We can pursuit it in the three fields: product, service and delivery

Conclusions

Resource Barriers and Sustained Competitive Advantage

Presented by icebreak team

2006 3.23

Resource barrier

What’s resource?All assets controlled by a firm which can enable the firm to conceive of and implement strategies to improve efficiency and effectiveness.

It can be divided into three parts: physical capital resource, human capital resource and organizational capital resource.What’s sustained

competitive advantage?

A firm is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy.

Resource barrier

Two assumptions

Firm resource heterogeneity

Firm resource immobility

The firms may be heterogeneous with respect to the strategic resources they control.

Resource may be perfectly mobile across firms, and thus heterogeneity can be long lasting.

Resource barrier

Functions

Technological

leads

Technological

leads

Machine

capacity

Machine

capacity

Customers

loyalty

Customers

loyalty

Production

experience

Production

experience

Bargaining

power

Bargaining

power

Resource barrier

Bargaining power

Bargaining advantage over suppliers, buyers, and substitute resource

Machine capacity

Lower expected revenues for prospective acquirers

Customer loyalty

Later buyers will have to pay higher than earlier buyers

Production experience

Using experience curve strategy, and assuming no first mover advantage exist

Technological leads

Given resource position barrier will have consequences for several products

Resource Barriers and Sustained Competitive Advantage

Resource

control

Resource

control

valuevalue rarenessrareness substitutabilitysubstitutabilityImperfect

imitability

Imperfect

imitability

History

dependent

History

dependent

Social

complexity

Social

complexity

Causal

ambiguity

Causal

ambiguity

Sustained

Competitive

advantage

theory

Resource Barriers and Sustained Competitive Advantage

A method