Strategy, Value Innovation, and the Knowledge EconomyStrategy, Value Innovation, and the Knowledge Economy

Bret OverbaughTeresa StearnsMohammad AlmullaBen ShaverKristal HeikesSophie Ma

Bret OverbaughTeresa StearnsMohammad AlmullaBen ShaverKristal HeikesSophie Ma

IntroductionIntroduction

Competition The center of strategic thinking Only provides marginal value improvement Often provides imitation, not innovation

Innovation breaks the paradigm and creates a sustainable advantage

Competition The center of strategic thinking Only provides marginal value improvement Often provides imitation, not innovation

Innovation breaks the paradigm and creates a sustainable advantage

IntroductionIntroduction

Companies that break the mold succeed in large ways and become industry leaders

Wal-Mart, Southwest Airlines, IKEA, Home Depot are prime examples of innovation

Value innovators excel during bad industry periods

Value innovators drive performance standards

Companies that break the mold succeed in large ways and become industry leaders

Wal-Mart, Southwest Airlines, IKEA, Home Depot are prime examples of innovation

Value innovators excel during bad industry periods

Value innovators drive performance standards

Shifting the Basis of Strategy

Shifting the Basis of Strategy

First-best strategyStimulates demand side of economyFar out perform the latter

Second-best strategyCompeting for share of contracting

marketCutthroat

First-best strategyStimulates demand side of economyFar out perform the latter

Second-best strategyCompeting for share of contracting

marketCutthroat

Shifting the Basis of Strategy

Shifting the Basis of Strategy

Value innovatorsMost rapidly growing companiesKnowledge and ideas take front seat

to physical assetsPursue both low cost and

differentiation strategies simultaneously

Competitors are irrelevantDon’t have to compete for a share of

demand

Value innovatorsMost rapidly growing companiesKnowledge and ideas take front seat

to physical assetsPursue both low cost and

differentiation strategies simultaneously

Competitors are irrelevantDon’t have to compete for a share of

demand

Value and InnovationValue and Innovation

Value Innovation Vs. Technology Innovation Value Innovation is typically independent of

Technology Innovation Technology innovation does not necessarily produce

value innovation Ampex Video Recording

Tech. innovation focuses on solving the problem; Value innovation redefines it

Value innovation creates new demands and market spaces

Callaway Golf – Alternative industries (tennis) as opposed industry competitors

Value Innovation Vs. Technology Innovation Value Innovation is typically independent of

Technology Innovation Technology innovation does not necessarily produce

value innovation Ampex Video Recording

Tech. innovation focuses on solving the problem; Value innovation redefines it

Value innovation creates new demands and market spaces

Callaway Golf – Alternative industries (tennis) as opposed industry competitors

Value and InnovationValue and Innovation

Value Innovation Vs. Value CreationValue innovation places more emphasis

on buyer valueValue creation is too broad; cannot be

used to guide corporate direction Value Innovation and Creative Destruction

Both create a fundamentally new and superior value

One depends on the entrepreneur; the other depends on knowledge and ideas

Value Innovation Vs. Value CreationValue innovation places more emphasis

on buyer valueValue creation is too broad; cannot be

used to guide corporate direction Value Innovation and Creative Destruction

Both create a fundamentally new and superior value

One depends on the entrepreneur; the other depends on knowledge and ideas

Market Dynamics of Value Innovation

Market Dynamics of Value Innovation

Two main consequences:Creates the potential for increasing

returnsCreates the potential for free-riding

Rival Goods vs. Nonrival GoodsExcludability

Two main consequences:Creates the potential for increasing

returnsCreates the potential for free-riding

Rival Goods vs. Nonrival GoodsExcludability

Market Dynamics of Value Innovation

Market Dynamics of Value Innovation

Volume, Price and Cost (important)Charging premium allows competitors to

free-ride and undercut the price.High prices and limited volume keep

innovator from exploiting economies of scale.

Innovative ApproachStrategic pricing for demand creationTarget costing for profit creation

Volume, Price and Cost (important)Charging premium allows competitors to

free-ride and undercut the price.High prices and limited volume keep

innovator from exploiting economies of scale.

Innovative ApproachStrategic pricing for demand creationTarget costing for profit creation

Market Dynamics of Value Innovation

Market Dynamics of Value Innovation

Shifting Strategy FocusShifting Strategy Focus

Irony of Competition

“Intense competition makes innovation indispensable, but an obsessive focus on the competition makes innovation difficult to attain.”

Must focus on capturing the mass of buyers, even if that means losing some existing customers.

Irony of Competition

“Intense competition makes innovation indispensable, but an obsessive focus on the competition makes innovation difficult to attain.”

Must focus on capturing the mass of buyers, even if that means losing some existing customers.

Shifting Strategy FocusShifting Strategy Focus

Making Value Innovation Happen

Making Value Innovation Happen

Top management must clearly communicate the company’s commitment to innovation

Create small autonomous units or teams focusing on a common product.

Team members of diverse backgrounds and perspectives.

Create the Potential for idea and knowledge sharing

Cultivate a corporate culture of collaboration to Actualize these concepts

Top management must clearly communicate the company’s commitment to innovation

Create small autonomous units or teams focusing on a common product.

Team members of diverse backgrounds and perspectives.

Create the Potential for idea and knowledge sharing

Cultivate a corporate culture of collaboration to Actualize these concepts

The World's Most Innovative CompaniesThe leaders in nurturing cultures of

creativity May 4, 2007

It should come as little surprise, then, that Apple tops the Business Week’s list of the World’s Most Innovative Companies for the third year in a row.

That sort of staying power speaks volumes about the sort of innovation that matters today. Unlike the Post-it Note, which proves the value of lone inventors, the iPod epitomizes today’s innovation sensibilities.

The World's Most Innovative CompaniesThe leaders in nurturing cultures of

creativity May 4, 2007

It should come as little surprise, then, that Apple tops the Business Week’s list of the World’s Most Innovative Companies for the third year in a row.

That sort of staying power speaks volumes about the sort of innovation that matters today. Unlike the Post-it Note, which proves the value of lone inventors, the iPod epitomizes today’s innovation sensibilities.

Compulsory Cooperation Vs Voluntary Cooperation

Compulsory Cooperation Vs Voluntary Cooperation

Compulsory Cooperation – based on organizational rules and regulations

Voluntary Cooperation – going beyond the call of duty!

Exert effort, energy, and initiativeNeed trust and commitmentOften involves major company changesRecognize intellectual and emotional worth

Compulsory Cooperation – based on organizational rules and regulations

Voluntary Cooperation – going beyond the call of duty!

Exert effort, energy, and initiativeNeed trust and commitmentOften involves major company changesRecognize intellectual and emotional worth

Fair ProcessFair Process

Fairness in the process of making and executing decisions by recognizing people’s intellectual and emotional worth

1. Engaging people in decisions that affect them

2. Explaining final decisions3. Establishing clear expectations

of actions and deliverables• People are the KEY resource of

companies pursuing value innovation!!

Fairness in the process of making and executing decisions by recognizing people’s intellectual and emotional worth

1. Engaging people in decisions that affect them

2. Explaining final decisions3. Establishing clear expectations

of actions and deliverables• People are the KEY resource of

companies pursuing value innovation!!

Value Innovation as Strategy

Value Innovation as Strategy

The value innovation is the essence of strategy

Supported by the proper tactics

Reshape the industrial landscape

The value innovation is the essence of strategy

Supported by the proper tactics

Reshape the industrial landscape

Value Innovation as Strategy

Value Innovation as Strategy

Competition-driven strategy and other successful strategies

The space for success narrows

As further penetrate

Competition-driven strategy and other successful strategies

The space for success narrows

As further penetrate

Going ForwardGoing Forward

What lessons from this discussion can you use towards your IBP?

“Innovation at Work”

What lessons from this discussion can you use towards your IBP?

“Innovation at Work”

Chapter QuestionsChapter Questions

How does Value Innovation make Competition irrelevant? Compare it with the conventional approach in dealing with the competition?

Discuss the difference between rival and non-rival goods. How can a company maximize its profits from a non-rival, non-excludable good?

Compare the concept of Value Innovation to the Schumpeterian notion of “creative destruction”?

How does Value Innovation make Competition irrelevant? Compare it with the conventional approach in dealing with the competition?

Discuss the difference between rival and non-rival goods. How can a company maximize its profits from a non-rival, non-excludable good?

Compare the concept of Value Innovation to the Schumpeterian notion of “creative destruction”?