Strategy, Value Innovation, and the Knowledge Economy Bret Overbaugh Teresa Stearns Mohammad Almulla Ben Shaver Kristal Heikes Sophie Ma

Introduction 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

Introduction 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 First-best strategy Stimulates demand side of economy Far out perform the latter Second-best strategy Competing for share of contracting market Cutthroat

Shifting the Basis of Strategy Value innovators Most rapidly growing companies Knowledge and ideas take front seat to physical assets Pursue both low cost and differentiation strategies simultaneously Competitors are irrelevant Don’t have to compete for a share of demand

Value 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 and Innovation Value Innovation Vs. Value Creation Value innovation places more emphasis on buyer value Value 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 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 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 Approach Strategic pricing for demand creation Target costing for profit creation

Market Dynamics of Value Innovation

Shifting 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.

Shifting Strategy Focus

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

The World's Most Innovative Companies The 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 – based on organizational rules and regulations Voluntary Cooperation – going beyond the call of duty! Exert effort, energy, and initiative Need trust and commitment Often involves major company changes Recognize intellectual and emotional worth

Fair 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 decisions 3. Establishing clear expectations of actions and deliverables People are the KEY resource of companies pursuing value innovation!!

Value Innovation as Strategy The value innovation is the essence of strategy Supported by the proper tactics Reshape the industrial landscape

Value Innovation as Strategy Competition-driven strategy and other successful strategies The space for success narrows As further penetrate

Going 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 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”?