Value Innovation:
The Strategic Logic of
High Growth
L/O/G/O Harvard Business Review
Group 1
Dao Xuan Tung
M977Z202
Le Nguyen Minh Khoi
M977Z207
Nguyen Phan Anh
M977Z213
Contents
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.
The success or failure of a company relies on it
fundamental, implicit assumption about strategy
High-growth companies paid little attention to matching
or beating their rivals while less successful companies
have contrary strategies
They sought to make their competitors irrelevant
through a strategic logic and we call it “Value
Innovation”
Kinepolis
• 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
Kinepolis
• 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?
Differences
OTHER BELGIAN MOVIE
THEATERS
KINEPOLIS
- Have small viewing rooms with no - Up to 700 seats and so much
more than 100 seats and 35legroom and 70-millimeter
millimeter projection equipment
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.)
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 growth
Conventional 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
Conventional logic & value
innovation
(cont.)
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
• 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 Curve
How does the logic of value innovation translate into a
company’s offerings in the marketplace?
Budget hotel
industry in
France
Value Innovation Logic
Market segments
1
2
No star & 1-star:
Average price per
room was between
60 and 90 French
francs
 Customers came
just for the low
2-star:
Average price of
200 francs, offering
a better sleeping
environment than
no star & 1 star
hotel.
price.
Identify what customers of all budget hotels wanted
Formule 1
Formule 1
+ Average cost of
building a room
dropped 50%.
+ Staff costs
dropped 25 – 35%.
Accor Hotel has a:
2-star hotel’s features
1-star hotel’s price
The 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 Platforms
Product:
Product
Service
Delivery
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
Compaq’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)
1/3
price of
SystemPro
Compaq’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 1000
Smart
Start
Configuring server hardware
and network information to
suit a company’s operating
system and application
programs.
Insight
Manager
Helping customers manage
their server networks by, for
example, spotting
overheating boards or
troubled disk drives before
they break down.
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.
Compaq’s server business
• By focusing on customer value, Compaq
introduced the ProLiant 1000 RackMountable 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’s server business
• 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.
• 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 Growth
Despite the profound impact of a
company’s strategic logic, that logic is
often not articulated
it goes unstated and unexamined
a company does not necessarily apply a
consistent strategic logic across its
businesses
Driving a Company for High Growth
How can senior executives promote value
innovation?
Identify and
articulate the
company’s
prevailing
strategic logic
Challenge
They must stop
and think about
the industry’s
assumptions, the
company’s
strategic focus,
and the
approaches
Four questions that
translate the thinking into a new value curve
Which of the
factors that our
industry takes
for granted
should be
eliminated?
Q. 01
Q. 04
Q. 03
Which factors
should be
reduced well
below the
industry’s
standard?
Q. 02
New Value Curve.
What factors
should be
created that
the industry
has never
offered?
Which should
be raised well
above the
industry’s
standard?
Driving a Company for High Growth
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.
Pioneers
Migrators
Settlers
Businesses with value
curves that conform to
the basic shape of the
industry’s.
Businesses with value
improvements
Businesses that offer
unprecedented value.
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.
Testing the Growth
Potential of a Portfolio
of Businesses
Conclusion
• 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.
Thank You!
L/O/G/O