Lecture 7 Value innovation88888888888888888 BB.pdf

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1. 1
VALUE INNOVATION
LECTURE 7
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2. Course Program
2
Resources
(assets,
capabilities)
Customer
Interface
Customer
Value
Profit
Costs Sales
Revenue model
2
WEEK 4

3. 3

4. 4

5. 5

6. Blue Ocean Strategy
6
Kim & Mauborgne (2004)

7. Blue Ocean
 Different from technological innovation
 Often created by incumbents
 ‘Strategic move’ rather than ‘firm’ or ‘industry’
 Builds brand equity
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8. 8
 Charact. 4: new generation
 Charact. 5: superior customer value
 Charact. 6: latent need
Innovation in the market life cycle
Disruptive Innovation
 Charact. 1: unmet needs
 Charact. 2: ill met needs
 Charact. 3: technological
Disruptive
Innovation
Product
Innovation
Business Model Innovation
Time
Sales Growth
Product Innovation Business Model Innovation
 Charact. 7: commoditization
 Charact. 8: value proposition
 Charact. 9: value vs cost

9. 9
Business Model
 Description of the value a company offers to one or
several segments of customers;
 the architecture of the firm and its network of
partners;
 how value is appropriated (how is a profitable and
sustainable revenue stream generated?)
“Story” and “profit”

10. How firms do business (Zott & Amit 2010)
 Activity system content
 What activities are performed?
 Activity system structure
 How are the activities linked?
 Activity system governance
 Who performs the activities?
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11. Design themes (Zott & Amit 2010)
 Novelty
 Adopt innovative content, structure or governance
 Lock-In
 Build in elements to retain business model
stakeholders, e.g., customers
 Complementarities
 Bundle activities to generate more value
 Efficiency
 Reorganize activities to reduce transaction costs
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12. 12
Business Model Innovation
 VALUE MODEL (What value to create and deliver, for Whom and How)
 Do we really offer a superior customer value proposition?
 Customer value proposition (“getting a job done”)
 RESOURCE MODEL (What resources and activities to deploy?)
 Is this superior customer value proposition sustainable (immune to
competitive erosion)?
 Unique configuration of resources (assets, capabilities) and
processes (activities)
 PROFIT MODEL (How profitable is your business model)
 How to deliver the most customer value at a comparative cost
advantage
 Revenue model (price x volume), cost structure, margin model,
resource velocity

13. 13
Economic and cognitive
barriers to entry and
imitation
(compare concept of fit in
activity system)

14. 14
Zara Fast Fashion (Source: Science & Strategy)
Speed of
fashion cycle
Up to date
design
Production cost
(location)
Price Margin # of products
on sale
Production cost
(ecs of scale)
High
Low
COMPETITORS

15. 15
Redefine the
profit model
Business Model Innovation
Redefine the
value model
Redefine the
resource model
(value chain)

16. 16
Redefine the Value Model:
VALUE INNOVATION
 Creating a new value curve (and new market)
 Questions current industry assumptions
 Performs worse on current performance characteristics
 Introduces new performance characteristics or performs
superiorly on ignored ones
 Involves choice of target customer, customer goals to be
addressed (“jobs to be done”), way of doing so (offering)
 Examples:
 Apple
 Low-cost airlines
 IKEA
 The Body Shop

17. 17
Formule 1
value profile
Budget hotels France
Eating facilities
Architectural aesthetics
Lounges
Room size
Availability of receptionist
Furniture and amenities in
room
Bed quality
Hygiene
Room quietness
Price
Hotel
Attributes
Low High
Average
1-star
hotel
Average
2-star
hotel

18. 18
Source: Kumar (2006)

19. 19
Redefine the Resource Model
 Value chain:
 Configuration of assets, capabilities, processes and
activities
 Position in value network
 Activity system:
 Change processes and activities such that the traditional
way of competing is redefined

20. 20
Source: Kumar (2006)

21. 21
Source: Kumar (2006)

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Redefine the Profit Model
 Change source of income
 Sales, lease, licensing, transaction-based model,
subscription model, razor-razor blade model, …
 Examples:
 Océ
 Timesharing
 Autolease
 Service contracts
 Online payment (Bibit)
 …
 Change cost structure

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How to identify value opportunities?
Customer needs
“job to be done”
Customer segments
“target customer”
1
4
5
2
3

24. Summary
 Value innovation or business model innovation
involves offering a superior customer value
proposition in a distinctive way (content, structure,
governance)
 Blue oceans are uncontested market spaces that
enable firms to break the value/cost trade-off
 Innovation of the business model has implications for
the value model, resource model and profit model
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