Value innovation strategy is based on the simultaneous pursuit of differentiation and low cost. It is an “and-and,” not an “either-or” strategy. It is different from Competitive strategy which is based on cost leadership, differentiation and focus strategy. Value innovation strategy seeks to break the value-cost trade off by eliminating and reducing factors an industry competes on and raising and creating factors the industry has never offered.
Value innovation is distinctively different from the competitive strategic approach that takes the present industry structure and seeks to increase market share within the existing competitive market. This strategy aims to make competition irrelevant through process innovation and seeks to create new and uncontested market space of new demand and high profitable growth.
Its’ Importance:
In this modern world, technological innovation leads to greater productivity at all levels thus the supply exceeds the demand causing the product/service prices to fall. So it is imperative to provide customers desired value while keeping acceptable profit margin in this globalized economy. This need could be fulfilled through creating value for new markets and develop focus on non-customers to create customer demand and make them willing to pay for it. Innovation plays a key role in this strategy which must be aligned with utility, price and cost.
Value Innovation Strategy Action Framework:
There are four action steps to add value into strategy
- Create – new industry factors that can generate value and a new market which were not offered before.
- Reduce – any of those factors which were nothing more than a consequence of the competition between industry players to differentiate themselves.
- Eliminate – those factors which have been the basis of industry competition for a long time.
- Raise – those factors that need to be raised above where they are in the industry at present.
Principles:
A company should consider value innovation strategy as a process innovation and approach it in a new way to be able to provide customers with both differentiation and low cost. From this process perspective, there are six important steps to using the strategy.
1. Reconstruct Market Boundaries – You must reevaluate industry situation and shape your business model with potential new markets and expanded value chain. To do that you need to think: where does the process start for your customers and where does it really end. For example let’s consider a fictional airline BanglaAir, which is not only flying people, but also providing the whole holiday experience with accommodation and car rentals included.
2. Focus on the Big Picture – Do not get caught up into data jungle – numbers and statistics, always keep an eye on the overall big picture. Too much emphasis on data could mislead the direction of the company. The focus should remain on what the customers really need and how this can be provided successfully.
3. Reach Beyond Existing Demand – Our usual business practice is to focus on the present customers, which invariably leads togreater market segmentation analysis of the existing market. A company’s true growth potential lies on the potential future customers, beyond the existing ones. To achieve value innovation, this is where the company needs to keep its focus. If we consider Apple in this regard, they not only created new versions of iPhone but also reinvented how people work with portable devices by introducing iPad.
4. Get the Strategic Sequence Right – To ensure maximum value to the customers through value innovation, you need to execute strategy sequentially. You have to do strategy planning process at right order and executed in the same order, keeping top quality customer experience in mind. The innovation strategy has to make your customer’s life easier, simpler and more successful. You need to have proper assessment of your product/service usefulness, ease of use, safety and security, entertainment value and environmental friendliness in terms of customers wants and need in the full consumption cycle.
5. Overcome Key Organizational Hurdles – Successful strategy execution depends on fast resolution of inter departmental differences. All the departments in the company must work as a team to provide maximum value to the end customers. Process gaps between departments should be bridged as soon as possible keeping optimum customer experience in mind.
6. Build Execution into Strategy – Your business must ensure great customer experience by incorporating value innovation strategy implementation into your organization’s ongoing processes. Encourage employees to think creatively always and make them feel empowered to bring improvements where needed.
So let’s jump in to implement value innovation strategy in the organization. To implement it, you need to think how to add more value on customer experience within its consumption cycle. A value innovation must demonstrate actual savings and an appreciable benefit that a customer can use immediately.