Transcript Strategy, Value Innovation, and the Knowledge Economy Bret Overbaugh Teresa Stearns

Strategy, Value Innovation, and
the Knowledge Economy
Bret Overbaugh
Teresa Stearns
Mohammad Almulla
Ben Shaver
Kristal Heikes
Sophie Ma
Introduction
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Competition
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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
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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
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First-best strategy
Stimulates demand side of economy
 Far out perform the latter
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Second-best strategy
Competing for share of contracting market
 Cutthroat
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Shifting the Basis of Strategy
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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
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Value and Innovation
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Value Innovation Vs. Technology
Innovation
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Value Innovation is typically independent of Technology
Innovation
Technology innovation does not necessarily produce value
innovation
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Ampex Video Recording
Tech. innovation focuses on solving the problem; Value
innovation redefines it
Value innovation creates new demands and market spaces
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Callaway Golf – Alternative industries (tennis) as opposed
industry competitors
Value and Innovation
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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
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Rival Goods vs. Nonrival Goods
 Excludability
Market Dynamics of Value
Innovation
Volume, Price and Cost (important)
 Charging
premium allows competitors to freeride 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
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“Intense competition makes innovation
indispensable, but an obsessive focus on
the competition makes innovation difficult
to attain.”
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Must focus on capturing the mass of
buyers, even if that means losing some
existing customers.
Shifting Strategy Focus
Making Value Innovation Happen
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Top management must clearly communicate the
company’s commitment to innovation
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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
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Compulsory Cooperation – based on
organizational rules and regulations
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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
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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
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The value innovation is the essence of
strategy
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Supported by the proper tactics
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Reshape the industrial landscape
Value Innovation as Strategy
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Competition-driven strategy and other
successful strategies
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The space for success narrows
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As further penetrate
Going Forward
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What lessons from this discussion can
you use towards your IBP?
“Innovation at Work”
Chapter Questions
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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, nonexcludable good?
Compare the concept of Value Innovation to
the Schumpeterian notion of “creative
destruction”?