1. Strategic Thinking for the Next Economy - Chapter 9
Strategy, Value Innovation, and the Knowledge Economy

2. Team
Calvin Evans
Li Wang
Jeff Munsey
Tim Maciejewski

3. Agenda for this Evening
Concepts
Strategy - Calvin
Market Dynamics - Li
Shifting Strategy - Jeff
Value Innovation - Tim
The game
Lessons learned
Summary
Questions

4. 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 demand
Ex: 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 demand
Ex: Nicholas Hayek, SMH - creation of the Swatch

5. 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
Technology
Value Creation

6. 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

7. 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

8. Market Dynamics of Value Innovation Li

9. Market Dynamics of Value Innovation Li

10. Market Dynamics of Value Innovation Li

11. Shifting Strategy Focus Jeff
How do we do this?
Competition
Customer
Capabilities
Knowledge

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

21. Enron Game
Go ponder the opportunities

22. Enron Inspiration
Enron Commercial
Enron Internal Video

23. Enron Game - Tim
Now that you have determined your new company mission:
How will you create value?

24. 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

25. Summary Concepts Lessons learned Questions Strategy Market Dynamics
Shifting Strategy
Value Innovation
Lessons learned
Questions

26. Questions?

28. 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