Value Innovation: The Strategic Logic of High Growth
This article introduces the term “Value innovation” which is defined as “the simultaneous pursuit of radically superior value for buyers and lower cost for companies”. It focuses on the factors that deliver real value to users, not the factors the industry tells you is valuable. This is a large strategic choice - ignoring what other competitors are doing and saying no to focus. Examples are given that show the large amounts of profits for companies studied came from new innovations rather than from line-extensions of existing products.
The innovation focus is on the commonalities of customers, not their differences, aiming for the mass market and ignoring specialised needs. The idea is that massive value added in some factors users value will overcome the shortcomings in the other factors. The example given is of a cinema that gave users big screens, great sound and comfortable seats, but built the cinema outside the city limits. Customers valued locality so building a cinema away from the city goes against that need, but the low cost of the land meant that they could create huge leaps of value in the other factors.
A standardised question is to ask “What would we do if we were to start fresh?” - a question Intel asked when it moved to microprocessors from memory chips.
Five dimensions of value innovation strategy:
- Industry assumptions
- Strategic focus
- Customers
- Assets and capabilities
- Product / service / delivery offerings