Summary by James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida
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Strategy Related Main Page
The purpose of this article is to discuss what separates high-growth companies from the rest of their industry. Based on Kim and Mauborgne's research in 30 companies around the world in approximately 30 industries, the main difference between companies with high growth and other companies is in how they view the five dimensions of strategy. These differences are presented in the table below adapted from their illustration on page 106. As indicated in the table, value innovators view strategy in an entirely differ way than companies using the conventional strategic logic.
| Two Types of Strategic Logic | ||
| Five Dimensions of Strategy |
Conventional Logic | Value Innovation Logic |
| Industry assumptions | Industry's conditions are given. | Industry's conditions can be shaped. |
|
Strategic focus |
A company should build competitive advantages. The aim is to beat the competition. | The 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. |
| Assets & capabilities | A company should leverage its existing assets and capabilities. | A company must not be constrained by what it already has. It must ask, What would we do if we were starting anew? |
| Product & 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. |
How to Promote Value Innovation
Value innovation is defined as "the simultaneous pursuit of radically superior value for buyers and lower costs for companies" (p. 112). To promote value innovation, a company must do the following.
1. Identify and articulate the company's prevailing strategic logic.
2. Challenge it.
3. Think about the industry's assumptions, the company's strategic focus, and
offerings that are taken as given.
4. Reframe the company's strategic logic around value innovation, and ask the
following four questions.
Which of the competitive factors our industry takes for granted should be eliminated?
Which factors should be reduced well below the industry's standard?
Which factors should be increased well above the industry's standard?
Which factors should be created that the industry has never offered?
The Value Curve
Value innovators create a new Value Curve defined as "a graphic depiction of a company's relative performance across its industry's key success factors" (p. 108). Several examples are discussed in the article including Kinepolis, a Belgian company that operates cinemas, CNN news, SAP business applications software, Virgin Group's chain of music stores, Accor's Formule 1 line of budget hotels, Compaq's servers and Virgin Atlantic Airways. For example, the value curve for Accor's Formule 1 Budget hotels is illustrated below.
Accor's Formule 1 Hotels are based on a new concept where standard hotel features are eliminated (e.g., restaurants, lounges and receptionists except for peak check-in and check-out times). They use automated tellers instead of receptionist for customers to check-in and check-out. Their rooms are small and include a bed and only the bare necessities. The rooms are modular blocks that are economical to build and provide good sound insulation. This new concept cut the average cost of building a room by 50% and staff costs dropped from 25-35% of sales to 20-23%. The company captured a large percentage of the budget hotel business and expanded the market to people that would not otherwise have stayed in a hotel. For example, truck drivers who previously slept in their trucks and business people who needed only a few hours of rest.
The most successful companies were those that used value innovation in all the platforms where innovation can take place including product, service and delivery. Compaq's innovations in the computer server industry are used to illustrate the idea. To avoid what Kim and Mauborgne refer to as "the trap of competing", Compaq focused on creating customer value, rather than what their competitors were doing.
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Related Summaries:
Campbell, A. and M. Alexander. 1997. What's wrong with strategy? Harvard Business Review (November-December): 42-44,46, 48-51. (Summary).
Christensen, C. M. 1997. Making strategy: Learning by doing. Harvard Business Review (November-December): 141-142, 144, 146, 148, 150-154, 156. (Summary).
Iansiti, M. and R. Levien. 2004. Strategy as ecology. Harvard Business Review (March): 68-78. (Summary).
Kaplan, R. S. and D. P. Norton. 2000. Having trouble with your strategy? Then map it. Harvard Business Review (September-October): 167-176. (Summary).
Kaplan, R. S. and D. P. Norton. 2001. The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment. Harvard Business School Press. (Summary).
Karmarkar, U. 2004. Will you survive the services revolution? Harvard Business Review (June): 100-107. (Summary).
Kim, W. C. and R. Mauborgne. 1999. Creating new market space: A systematic approach to value innovation can help companies break free from the competitive pack. Harvard Business Review (January-February): 83-93. (Summary).
Kim, W. C. and R. Mauborgne. 2002. Charting your company's future. Harvard Business Review (June): 77-83. (Summary).
Kim, W. C. and R. Mauborgne. 2004. Blue ocean strategy. Harvard Business Review (October): 76-84. (Summary).
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Kim, W. C. and R. Mauborgne. 2015. Red ocean traps: The mental models that undermine market-creating strategies. Harvard Business Review (March): 68-73. (Summary).
Magretta, J. 2002. Why business models matter. Harvard Business Review (May): 86-92. Explains the difference between a business model and a competitive strategy. (Summary).
Luehrman, T. A. 1998. Strategy as a portfolio of real options. Harvard Business Review (September-October): 89-99. (Summary).
Porter, M. E. 1980. Competitive Strategy: Techniques for Analyzing Industries and Competitors. The Free Press. (Summary).
Porter, M. E. 1987. From competitive advantage to corporate strategy. Harvard Business Review (May-June): 43-59. (Summary).
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