Strategy, Value Innovation & the Knowledge Economy Keron Twum, Tara Armatas, Derek Potter, Ginger Nelson, Sostell Toda, Mohib Ahmad

Overview Competitive Innovation Value Innovation Strategy Value & Innovation Market Dynamics Creation Station Corporate Strategy Best and Worst Choose Your Own Adventure

Driven By Competition Imitative, not innovative, approaches to market Companies act reactively A companies understanding of emerging mass markets and changing customer demands becomes hazy “Not too hard this time your – the last idea gave me a concussion.”

Value Innovation Companies must pursue Value Innovation. Value Innovation makes the competition irrelevant because it delivers new and superior buyer value. Do Not Imitate! Go beyond incremental improvement focus on innovation or create new ways of doing things. Stop acting reactively! Begin emphasize value by placing customers at the center of strategic thinking. Find out where the customer are going to be not where they are now.

Neoclassical vs. Innovation “Black Boxes” –Firms respond to market conditions –Innovation is a random occurrence “Value Innovators” –Create new markets –Fortune 500… 60% gone in two decades

Market Valuation

Why? Investors Value… –Knowledge –Innovation Unlike traditional finite factors of Innovation, Knowledge and Ideas are infinite economic goods.

“A firm need not compete for a share of a given demand – it can create new demand”

Value & Innovation Must go hand in hand Value without innovation = Incremental Innovation without Value = No consumer base

Technology vs. Value A value innovation does not need to be technical. Technical Innovation does not necessarily create value. –Ampex 1950’s

Re-Define the Problem Callaway Golf “Big Bertha” Technology Innovation Value Creation Value Innovation “Whether an executive or a factory worker, anyone can have a good idea”

Market Dynamics of Value Innovation The proportion and value of knowledge to land, labor and capital are increasing dramatically. Transition from the production to the knowledge economy Enron – exemplifies the transition with traders, analysts and scientists working together

Consequences of the transition 1.Potential for high returns –Microsoft spend millions on the first copy of Windows 95, but the cost of subsequent copies was trivial 2.Potential for free riding –Rival good – One firm precludes its use by another e.g. scientists employed by IBM can’t be simultaneously employed by another company –Nonrival good – One firm does not limit its use by another. –Excludability – If a company can prevent others from using it due to limited access or patent protection Companies like Starbucks, Home Depot, Schwab, Virgin Atlantic Airways, Amazon. COM are not about patentable technology innovation but value innovation.

Successful strategy for value innovators Strategic pricing for demand creation. –The focus is to capture the mass of buyers and expand the size of the market by offering radically superior value at price points accessible to a mass market –High premium and restricted supply encourages free riding Target costing for profit creation –Conventional strategy of limiting access, setting higher prices, price skimming etc. doesn’t work in a world of nonrival and nonexcludable goods –High price and limited volume doesn’t allow the value innovators to exploit economies of scale

Creation Station Making Value Innovation happen inside your company Top Management Commitment Clearly Communication Do away with conventional thinking Retreats and Corporate communications

Creation Station: Structure Organization Structure most conducive to value innovation? Small autonomous units or teams focusing on common business or product goals. Diverse Teams –People from various backgrounds and perspectives. –Conflict and differing view points heightens creativity.

Creation Station: Fairness Voluntary Cooperation –Trust and Commitment Fair Process –Fairness in the process of making and executing decisions. –Recognizes people's intellectual and emotional worth.

Corporate Strategy Value innovation represents a competitive advantage on the competitors, especially in knowledge companies Why? The Product life cycles are shorter Companies which create value through innovation are as dynamic (positive image) Globalization and technological penetration into the market

Corporate Strategy Cont. Companies use innovation value :  Best way to differentiate or control the market  Create a new demand  Consolidate or to improve its position on a market  Lengthen the time for competitors to catch up

Corporate Strategy: Risks Market not be ready for innovation Return on investments between the money spent in the R&D and the sales Arrival of a new product or more efficient susbtitute Second Mover Advantage risk –Competitors save time and money when they come up with the second new product.

Corporate Strategy: Take Home All the sectors tend to be concerned by value innovation Successful companies hold the core of the market to set the standard and attracting mass market. If you do not do that first, the competitors will bet you.

Shifting Focus Conventional Focus Value Innovation Focus CompetitionOutperforming Seeking radically the competitionsuperior value to make the competition irrelevant CustomersRetaining and Targeting the mass of better satisfying buyers by following existing customersnon-customers closely and willingly losing some existing customers Corporate CapabilitiesLeveraging and Willing to combine with extending the currentother companies’ capabilities of a capabilities company Three Basic building Blocks of Strategy

Conventional Focus Value Innovation Focus

Three Basic building Blocks of Strategy Conventional Focus Value Innovation Focus

? Three Basic building Blocks of Strategy Conventional Focus Value Innovation Focus

Conventional Focus Value Innovation Focus Three Basic building Blocks of Strategy

Shifting Focus Conventional Focus Value Innovation Focus CompetitionOutperforming Seeking radically the competitionsuperior value to make the competition irrelevant CustomersRetaining and Targeting the mass of better satisfying buyers by following existing customersnon-customers closely and willingly losing some existing customers Corporate CapabilitiesLeveraging and Willing to combine with extending the currentother companies’ capabilities of a capabilities company Three Basic building Blocks of Strategy

Choose Your Own Adventure Get in 3 Groups Hypothetical Scenario Let’s See What You Learned