Strategic Thinking for the Next Economy - Chapter 9

Strategy, Value Innovation, and the Knowledge Economy

Team

• Calvin Evans• Li Wang• Jeff Munsey• Tim Maciejewski

Agenda for this Evening• Concepts

– Strategy - Calvin– Market Dynamics - Li– Shifting Strategy - Jeff– Value Innovation - Tim

• The game• Lessons learned• Summary• Questions

The Basis of Strategy Calvin

• Competition-Based Strategy– Pursue cost leadership or differentiation– Innovation seen as exogenous (externally generated) to

firms– “Second-Best” Strategy - Competing for share of current

demandEx: IBM vs. Compaq - failed to see low-end PC market

• Knowledge-Based Strategy– Pursue cost leadership and differentiation– Push managers to new way of thinking– “First-Best” Strategy - stimulate new demandEx: Nicholas Hayek, SMH - creation of the Swatch

Value and Innovation Calvin

• Value creation– Focuses on improving buyer’s net benefit on an incremental scale

• Technology Innovation– Technological discoveries often benefit the overall economy– Viewed as solutions to customer’s problems

• Value innovation - links innovation to mass buyer value– Redefines the problem– Uses market insights to discover “hidden” demand– Ex: Callaway Golf - make clubs easier to swing

Value Innovation

TechnologyInnovation

Value Creation

Market Dynamics of Value Innovation Li

Two main consequences:– Creates the potential for increasing returns– Creates the potential for free-riding

Rival Goods vs. Nonrival Goods• Excludability

Market Dynamics of Value Innovation Li

Innovative Approach: Price and Cost Strategic pricing for demand creation

• Charging premium allows competitors to free-ride and undercut the price.

• High prices and limited volume keep innovator from exploiting economies of scale.

Target costing for profit creation

Market Dynamics of Value Innovation LiMarket Dynamics of Value Innovation Li

Market Dynamics of Value Innovation LiMarket Dynamics of Value Innovation Li

Market Dynamics of Value Innovation LiMarket Dynamics of Value Innovation Li

Shifting Strategy Focus Jeff

• How do we do this?– Competition– Customer– Capabilities– Knowledge

Shifting Strategy Focus Jeff

• Competition– Do you want your company to be just another Me

too player in the same game?– Major opportunities will be missed if your focus is

only on the competition– Shift to new opportunities beyond the

competition

Shifting Strategy Focus Jeff

• Customers– Existing customers are great, but…– Shift your focus to the mass of buyers even if it

means losing some of your existing customers

Shifting Strategy Focus Jeff

• Capabilities– Just because you do not have a certain resource

does not block you from a solution– Shift your thinking to use the resources of others

to reach beyond your current limits

Shifting Strategy Focus Jeff

• Knowledge– High stock of knowledge has tremendous wealth

creating potential– Use that knowledge to your advantage– Your unique knowledge is something that your

competition does not have

Making Value Innovation Happen Tim

• Support from top management– Encouraging environment– Drive-out conventional logic

• Shift thinking to value innovation• Group styles

– Small, autonomous teams focusing on group goals, not individual function

– Team members of diverse backgrounds and perspectives

Making Value Innovation Happen Tim

• These concepts create potential for value innovation

• Potential must be actualized– Corporate culture must encourage voluntary

cooperation, not simply willful cooperation• Fair process

– Empowering people to make decisions• Compaq Example• People are the primary resource of value-based

organizations in today’s information economy

Value Innovation as Strategy Tim

• Companies want not only to increase profits, but to create business breakthroughs

• Organization momentum– Large value innovations followed by small process

improvements

The Game

• Congratulations, you are now Enron• Yes, the company is bankrupt – figure out

what to do next… INNOVATE!• As a team, answer three questions with three

answers for each– Industry– Location– Customer Type

?

? 2B 100M 10M ?

?

Examples: Babyboomers Soccer Moms Runners

Examples: Automotive Grocery Store Clothing

Examples: Texas The Moon Europe

Now that you have identified your corporate strategy.

Identify some potential competitors

How you would create value to surpass those competitors.

You are working for Enron and have decided to pursue a new strategy. Go around the E filling in the lines for the category listed. Once finished create a spiral in the center as many revolutions as you want. Starting at center of the spiral count the lines to the edge. With that number begin at industry and count around the E eliminating the option you land on. Proceed until you have one option in each category.

Enron Game

• Go ponder the opportunities

Enron Inspiration

• Enron Commercial• Enron Internal Video

Enron Game - Tim

• Now that you have determined your new company mission:– How will you create value?

Review Concepts of Value Innovation - Tim

• You have just experienced diversity in your newly formed groups

• Hopefully, your knowledge should have led you to an innovative solution

• Congratulations, you have just created new demand through value innovation

Summary• Concepts

– Strategy– Market Dynamics– Shifting Strategy– Value Innovation

• Lessons learned• Questions

Questions?

Possible Essay Questions• What are the three bedrock principles of the Fair process

– Engaging people in decisions that effect them– Explain the final decision– Establish clear expectations

• Explain how value innovation relates to value creation and technology innovation.– Value creation focuses on customer’s net benefit– Technology innovation can be a solution to a problem– Value innovation links the two creating a sustainable growth strategy