1. Value Innovation: The Strategic Logic of High Growth
Harvard Business Review
Group 1
Dao Xuan Tung M977Z202
Le Nguyen Minh Khoi M977Z207
Nguyen Phan Anh M977Z213

2. Contents Introduction Conventional Logic Versus Value Innovation
Creating a New Value Curve
The trap of Competing, the Necessity of Repeating
The Three Platforms
Driving a Company for High Growth
Conclusion

3. What separates high-growth companies from the pack is the way managers make sense of how they do business.
The success or failure of a company relies on it fundamental, implicit assumption about strategy
High-growth companies paid little attention to matching or beating their rivals while less successful companies have contrary strategies
They sought to make their competitors irrelevant through a strategic logic and we call it “Value Innovation”

4. Kinepolis
Since the movie theater industry in Belgium was declining steadily, by the 1980s, many cinema operators (COs) were forced to shut down
The COs remained took similar actions in head-to-head competition for a shrinking market

5. Kinepolis
In 1988, Bert Claeys created Kinepolis. In its first year, this company won 50% of the market in Brussels and expanded the market by about 40%
Kinepolis is the world’s first megaplex with 25 screens and 7,600 seats
What were the differences between Kinepolis and other Belgian movie theaters?

6. Differences OTHER BELGIAN MOVIE THEATERS KINEPOLIS
- Have small viewing rooms with no more than 100 seats and 35-millimeter projection equipment
- Up to 700 seats and so much legroom and 70-millimeter projection equipment
- Screens measure 7meters by 5 meters
- Screens measure up to 29 meters to 10 meters and sound vibrations are not transmitted
- Do not have
- Located off the ring road circling Brussels.
- The average cost to build a seat in Brussels is twice expensive than Kinepolis
- At Kinepolis, it is about 70,000 Belgian francs.

7. Differences (cont.) OTHER BELGIAN MOVIE THEATERS KINEPOLIS
- They spent money on advertising to attract all customer segments
- The company’s value innovation generates a lot of word-of-mouth praise
- Most COs were thinking along these lines: movie industry is shrinking, so we should not make major investments
- On the contrary, Kinepolis followed a different strategic logic. The company did all that while reducing its costs.
As a result, they improved their performance by competition.
They broadened their film offerings, expanded their food and drink services and increased showing times.
- In order to give most moviegoers a package they would value highly, the company put aside conventional thinking about what a theater is supposed to look like.

8. How Kinepolis achieves profitable growth

9. Conventional logic & value innovation
The five dimensions of strategy
Conventional logic
Value innovation logic
Industry assumptions
Industry’s conditions are given
Industry’s condition can be shaped
Strategic focus
A company should build competitive advantages. The aim is to beat the competition
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

10. Conventional logic & value innovation (cont.)
The five dimensions of strategy
Conventional logic
Value innovation logic
Assets and capabilities
A company should leverage its existing assets and capabilities
A company must not be constrained by what it already has. Is must ask, What would we do if we were starting anew?
Product and 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

11. For years, the major U.S television networks used the same format for news programming.
In 1980, CNN came on the scene with a focus on creating a quantum leap in value, not on competing with other networks.
CNN created real-time news from around the world 24 hours a day and the cost was five times cheaper than other networks.
The company decided not to compete with the networks in the race to get big-name anchors

12. Creating a New Value Curve
How does the logic of value innovation translate into a company’s offerings in the marketplace?

13. Quantum leap in value for customers
Overcapacity
Stagnation
Budget hotel industry in France
Value Innovation Logic

14. Market segments 1
No star & 1-star:
Average price per room was between 60 and 90 French francs
 Customers came just for the low price. 2
2-star:
Average price of 200 francs, offering a better sleeping environment than no star & 1 star hotel.
Identify what customers of all budget hotels wanted

15. Formule 1

16. Formule 1 + Average cost of building a room dropped 50%.
+ Staff costs dropped 25 – 35%.
Accor Hotel has a:
2-star hotel’s features
1-star hotel’s price

17. The Trap of Competing, the Necessity of Repeating
What happens once a company has created a new value curve?
Because of being imitated, companies must innovate frequently.
Value innovation is about offering unprecedented value, not technology or competencies.
When a company’s value curve is different from that of the rest of the industry, they should focus on geographic expansion and operational improvements to achieve maximum economies of scale and market coverage.

19. The Three Platforms Product: physical product
Service
Delivery
Product
Product: physical product
Service: support such as maintenance, customer service, warranties, training for distributors and retailers
Delivery: logistics, channel used to deliver the product to customers

20. Compaq’s server business
In 1989, Compaq introduced SystemPro
(it can run SCO UNIX, OS/2, Vines, NetWare, DOS and many application programs)
The majority of customers used only a small fraction of a server’s capacity.
ProSignia
(run NetWare, file and print only)
1/3
price of SystemPro

21. Compaq’s server business
Competitors tried to imitate the ProSignia and value curves in the industry began to converge.
Compaq took another leap, this time from the service platform.
ProLiant 1000
(SmartStart + Insight Manager)

22. ProLiant 1000
SmartStart
Insight Manager
Configuring server hardware and network information to suit a company’s operating system and application programs.
Helping customers manage their server networks by, for example, spotting
overheating boards or troubled disk drives before
they break down.
creating a superior value curve and expanding market.
put companies that had been skeptical of their ability to configure and manage a network server, at ease.

23. Compaq’s server business
By focusing on customer value, Compaq introduced the ProLiant 1000 Rack-Mountable Server, which allows companies to store servers in a tall, lean cabinet in a central location.
The company’s sales and profits rose again as its new value curve diverged from the industry’s.

25. Compaq’s server business
Compaq is now looking to the delivery platform for a value innovation that will dramatically reduce the lead time between a customer’s order and the arrival of the equipment.
By achieving value innovations on all three platforms, Compaq has been able to maintain a gap between its value curve and those of other players.

26. Driving a Company for High Growth
Despite the profound impact of a company’s strategic logic, that logic is often not articulated
it goes unstated and unexamined
a company does not necessarily apply a consistent strategic logic across its businesses

27. Driving a Company for High Growth
How can senior executives promote value innovation?
They must stop and think about
the industry’s assumptions, the company’s strategic focus, and the approaches
Challenge
Identify and articulate the company’s prevailing strategic logic

28. Four questions that translate the thinking into a new value curve
Which of the factors that our industry takes for granted should be eliminated?
What factors should be created that the industry has never offered?
Q. 03
Which should be raised well above the industry’s standard?
Q. 02
Which factors should be reduced well below the industry’s standard?
New Value Curve.

29. Driving a Company for High Growth
For managers of diversified corporations, the logic of value innovation can be used to identify the most promising possibilities for growth across a portfolio of businesses.
Pioneers
Businesses that offer unprecedented value.
Migrators
Businesses with value
improvements
Settlers
Businesses with value curves that conform to the basic shape of the industry’s.

30. Testing the Growth Potential of a Portfolio of Businesses
If both the current portfolio and the planned offerings consist mainly of settlers, the company has a low growth trajectory and needs to push for value innovation. The company may well have fallen into the trap of competing.
If current and planned offerings consist of a lot of migrators, reasonable growth can be expected. But the company is not exploiting its potential for growth and risks being marginalized by a value innovator.
Testing the Growth Potential of a Portfolio of Businesses

31. Conclusion
Comparing with Conventional Logic, Value Innovation Logic is much better for the companies that want to get the higher share market and larger customer segments.
High growth companies have been applying the concept of Value Innovation and adopted the strategies in accordance with the circumstance and environment of companies.
In order to apply this logic efficiently, managers should think beyond their industry’s traditional boundaries in order to satisfy customers’ needs.

32. Thank You!