Value
Value Creation
Creation
Suvit Maesincee
Sasin
Sasin Institute
Institute for
for Global
Global Affairs
Affairs
Profit Increases with Value Created
Profit
Dollar
Price
Cost
Value
Value Creation Function
Price
Brain &
Opportunity
Dollar
Sweat
& Brain
Sweat
&Tear
Cost
Value
More
for Less
More
for More
Less
for More
Starbucks decommoditized coffee along its value
chain
Upstream
Upstream
Midstream
Midstream
Downstream
Downstream
Starbucks Coffee Price Build Up Per Serving
90
THB/ Serving
90
55
7
0.7
Source price
Packet
Blend/
roast
Source: Starbucks, New York Commodity market
Retail Serving
Brew
Retail Serving with
Topping
Top
Total
Business Value Creation
Business Value Creation
Innovation
Innovation
Model
Model
Business
Business
Model
Model
Upstream
Profit
Profit
Model
Model
Downstream
Operation
Operation
Model
Model
Investment
Investment
Model
Model
Value Creation Opportunity
Value
Created
Innovation
Business
Upstream
Upstream
Investment
Operations
Downstream
Downstream
Total Value
Innovation Model
Innovation Models
Breakthrough
Innovation
Fusion
Innovation
Fission
Recycled
Innovation
Return on Innovation
Neutralization
Differentiation
Waste
Source: Dealing with Darwin
Productivity
Fusion Innovation Model
Downstream
Fusion of
Products
Fusion of
Consumers
Upstream
Fusion of
Technologies
Fusion of
Needs
Producer
Consumer
Fusion of Technology : Biocomputer
Neural Networks
Biocomputer
Fuzzy Logic
Bioelectronics
Fusion of Technology : Optomechatonics
Optics
Optomechatonics
Mechanics
Electronics
Fusion of Product
• Harrier
• 2 in 1 Shampoo
• 3 in 1 Coffee
• Bird + Sake
• Fusion Foods
Fusion-Driven Business Redefined : Boots
• Health products are not limited to foods and beverages
• They cover a wide range of products including skin and hair
creams, sports clothing and equipment, and services such as
diet plans
• Boots the Chemist, the UK retailer, has offered a variety of
health products, including health insurance, under the
‘Boots’ brand
Fusion-Driven Business Redefined
• BP now stands for ‘Beyond Petroleum’--The fundamental values
of the company are about innovation and creativity
• David S. Pottrack of Charles Schwab pointed out
‘…We pattern ourselves not after big banks or brokerages
but after Wal-Mart, the home Depot, the Gap’
• The World Bank redefined its product from viewing its as money to
viewing its as knowledge
--The World Bank products can basically be thought of as
how an enterprise creates value or generates revenue
from what it knows
Fusion of Consumers : Knowledge Bank
The universities of tomorrow will be branded and will function
as modular “knowledge banks”
Focusing on a new kind of ‘flexible lifelong, global
learning’ that caters to student from around the world,
both on campus and far away, with different
background and agendas rather than the traditional,
youth-driven highly structured undergraduate and
graduate programs
Traditional Need Articulation
Outer directed
Creation
Knowledge
Belonging
Change
Social Life
Participation
Diversion
Family and Friends
Chaos
Order
Individuality
Safety
Freedom
Voluntary
Solitude
Source:Marketing Moves
Me-ism
Stability
Relaxation
Health
Personalized Website
Inner directed
Articulation of Fusion Need: Type I
Outer directed
Creation
Knowledge
Belonging
Change
Social Life
Participation
Diversion
Family and Friends
Chaos
Order
Individuality
Safety
Spa/ Yoga
Freedom
Voluntary
Solitude
Source:Marketing Moves
Me-ism
Stability
Relaxation
Inner directed
Health
Articulation of Fusion Need: Type II
Outer directed
Creation
Knowledge
Belonging
Change
Social Life
Participation
Diversion
Family and Friends
Chaos
Order
Edutainment
Individuality
Freedom
Voluntary
Solitude
Source:Marketing Moves
Safety
Stability
Me-ism
Relaxation
Inner directed
Health
Articulation of Fusion Need: Type III
Outer directed
Creation
Knowledge
Belonging
Change
Participation
Diversion
Chaos
Facebook,
MySpace, Hi 5
Individuality
Family and Friends
Order
Safety
Freedom
Voluntary
Solitude
Social Life
Stability
Me-ism
Relaxation
Inner directed
Health
Business Model
The S-Curve
Shifting S Curve
Extending S Curve
Normal S Curve
Value Ladder
Sweat & Tear
Agriculture
Sweat & Brain
Commodity
Model
• Tesco Model
• Nabisco Model
• Starbuck Model
Physical
Endowment
Product
Differentiation
Brain & Opportunity
Michelin Model
Platform
Leadership
Starbucks
A model of out-of-home coffee
New concept for café ( A “third place” away from home or work)
A gathering place for friends or a place of quiet contemplation
and a neighborhood office for the work a day customer
Building the business through experience, not through the product
The Starbucks Experience had been designed to be pleasant,
uplifting and diverse
Ambience Strategy
The atmosphere of warmth and comfort even employees were
trained to not only provide advice on coffee selection and
appropriateness to potential customer need, but to engage
the customer
Starbucks
Social
• Need for escape opportunity
• Excess free time
• Need for intellectual forum
• Breakfast on the run
• Use of coffee to carry and
highlight day
• Coffee becomes drug of choice
Social Interaction in
Comfortable
Environment Focused
Around Coffee
Economic
• Expendable income
• Cost of eating on the run
• Seeing the value for high
quality, intense breaks in
workday
Source: Cagan and Vogel
Technology
• Quality roasting and
brewing processes
• System approach to
environmental design
for customer and
employee
Value Opportunity Analysis
Low
Emotion
Ergonomics
Aesthetics
• Visual
• Auditory
• Tactile
• Olfactory
• Taste
Impact
Core Tech.
• Reliable
• Enabling
Quality
• Craftsmanship
• Durability
Profit Impact
Brand Impact
Extendable
High
• Adventure
• Independence
• Security
• Sensuality
• Confidence
• Power
• Comfort
• Safety
• Ease of use
• Point in time
• Sense of place
• Personality
• Social
• Environmental
Identity
Medium
Source: Cagan and Vogel
Part Differentiation Matrix
Primary Lifestyle Impact
• Ice cream
• Books
• Travel mugs
• Beans
• Roast process
• Interior design of
the retail stores
Low Complexity
High Complexity
• Milk
• Sugar
• Napkins
• Brewing machines
• Roasting machines
Secondary Lifestyle Impact
Source: Cagan and Vogel
Value Ladder
Sweat & Tear
Manufacture
Sweat & Brain
Brain & Opportunity
Subcontracting
Model
• LVMH Model
• Nike Model
• Zara Model
De-beer Model
Physical
Endowment
Product
Differentiation
Platform
Leadership
ZARA
A speed takes control model
•
•
•
•
•
•
Respond rather than Predict
Responding to an actual customer’s need rather than forecasting fashion trend
New lines on a regular basis
More styles but less quantities per style
More styles = More choice, and more chances of hitting it right
Reducing cost from unsold items and loss margin from discount items
Lower quantities = Scarce supply = More visit for customers = Limited
production
Creating a culture of scarcity with customer
Pull driven rather than push driven
Autonomy in the hands of store managers to determine their own store’s product
mix
Short Lead Time = More Fashionable clothes
With this kind of local control, Zara is able to switch product development from six to
seven months to two months
ZARA
A speed takes control model
•
A vertical integration of design
Three parallel ( women’s men’s and children’s clothing line) but
operationally distinct product families
•
Single & centralized design and production center
It is a vertically integrated company that concentrates multiple functions
in-house: from weaving and dying about 40 percent of the material it
uses, to designing the garments, cutting them, organizing all the logistics
of distribution, and owning and operating some 600 shops—mainly in
Europe. It subcontracts out all the sewing—mainly to about 500 sewing
factories operating near Zara’s HQs, plants, and distribution centers
•
Invest in information technology and communications infrastructure
for close communication between departments
Simple technology and communication is absolutely key
•
Having prime retail locations rather than on advertising
(only 0.3% of sales)
ZARA
A speed takes control model
Se
Cluster of local
g
win
co-operatives for sewing
Head Quarter
Send Information
Women’s
(Customer’s need)
Retail
stores
clothing line
k
ec
h
C
ed
ed
p
rap
w
&
Designer
Production staff
Merchandising
Packaging
Etc.
Children’s
clothing line
Men’s
Delivering
garment twice
clothing line
a week
Retail
stores
Value Ladder
Sweat & Tear
Services
Sweat & Brain
Labor Intensive
Model
• Club 21 Model
• Wal-Mart Model
Physical
Endowment
Product
Differentiation
Brain & Opportunity
Visa Model
Platform
Leadership
Visa Introduces New Platform of Payment
Data
Data
$
Credit Card
Issuing Institution
$
Acquirer
Merchant’s bank
Settlement bank
$
$
Bill
Data
Payment
Cardholder
Merchant
Speed,
Speed, Convenience
Convenience and
and Security
Security are
are value
value
propositions
propositions to
to use
use credit
credit card
card as
as alternative
alternative
Open Collaborative Model
Collaborative Network
•Venture funds and
personal savings
High Impact
Entrepreneurs
•Strategic investment
•Transfer of human
capital
•Purchase of
innovative goods
•Acquisition
Mature Firms
Equity and Debt
Source: Carl J. Schramm
•R&D funding
•Purchase of
innovative goods
Government
Tax Revenue
•R&D funding
•Transfer of technology
•Transfer of human capital
Universities
Endowment Income
Five Major Shifts
Massification
Demassification
Compartmentalization
of Information
Democratization
of Information
Protecting
Trade Secrets
Sharing
Trade Secrets
Owning
Assets
Gaining
Access
Proprietary
Innovation Economy
Open
Innovation Economy
Sharing, rather than protecting, trade secret– is
quickly becoming the way forward
• IBM, Intel, AT&T, Eli Lilly and many others are decentralizing R&D
• Sony and Morgan Stanley are deconstructing their traditional corporate
hierarchies
• At Google, the motto is “the many are smarter than the few”
• The fastest growing academic fields are sciences like behavioral economics
and nanotechnology, which combine experts from many different fields to
solve problems
• Many Governments, including China, India, Brazil and South Korea, have begun
moving away from proprietary, closed software (read: Microsoft) and toward
an open-source model
Source: Learning to Share—Newsweek, Dec 2005-Feb 2006
Toward the Open Source Platform
• A method of tapping a community of experts to develop useful things
• Began in software, in which programming technology is free and shared
• Now applied broadly, and is anything but anti-capitalist
• Raise quality at reduced costs, and vastly expands opportunities for profits
• In a sense, open source fuels innovation much the way science fuels
technology
Source: The Information Puzzle—Newsweek, Dec 2005-Feb 2006
InnoCentives
• Eli Lilly launched an online company—InnoCentives—where rewards are
offered for posted research problems
• Forty companies, from Dow to DuPont to P&G, now use the site, where
80,000 “solvers” from China, the US, Russia, and India began connecting
online
• Rewards in the open innovation model flow to outcomes whereas the
closed model rewards the flow of effort (read: paychecks and promotions)
with a less-direct coupling to outcomes
• Recently, InnoCentives launched a new conference business to bring them
together to like a big bang of science
Source: Learning to Share—Newsweek, Dec 2005-Feb 2006
From R&D to C&D
In consumer product development, Proctor & Gamble switched
from internal R&D to research and development with the
external world via a “Connect & Develop Model” (C&D)
P&G sets up a new position called Director of External
Innovation who is responsible for connecting internal
development with external innovation
It is projected that within 5 years, half of P&G’s innovations will
come from outside
P&G has 8,600 in-house scientists with the new product
development knowledge, while it has a whopping 1.5 million
external people
Moving toward the Realm of Co-Creation
Distributed
Creativity
Open Source
Platform
Peer
Production
Common
Production
Co-creation
Paradigm
Profit
Profit
Model
Model
Innovation
Model
Operation
Operation
Model
Model
Business
Model
Collaborative
Model
Investment
Investment
Model
Model
Upstream
Downstream
The New Skill-Set Required
• Trusting
• Caring
• Sharing
• Serving
• Experiencing
• Thinking
• Knowing
• Collaborating