Strategy, Value Innovation & the Knowledge EconomyOverviewDriven By CompetitionValue InnovationNeoclassical vs. InnovationMarket ValuationSlide 7Why?“A firm need not compete for a share of a given demand – it can create new demand”Value & InnovationTechnology vs. ValueRe-Define the ProblemMarket Dynamics of Value InnovationConsequences of the transitionSuccessful strategy for value innovatorsCreation StationCreation Station: StructureCreation Station: FairnessCorporate StrategyCorporate Strategy Cont.Corporate Strategy: RisksCorporate Strategy: Take HomeShifting FocusThree Basic building Blocks of StrategySlide 25Slide 26Slide 27Slide 28Choose Your Own AdventureStrategy,Value Innovation&the Knowledge EconomyKeron Twum, Tara Armatas, Derek Potter, Ginger Nelson, Sostell Toda, Mohib AhmadOverview•Competitive Innovation•Value Innovation Strategy•Value & Innovation•Market Dynamics•Creation Station•Corporate Strategy •Best and Worst•Choose Your Own AdventureDriven By CompetitionImitative, not innovative, approaches to marketCompanies act reactivelyA companies understanding of emerging mass markets and changing customer demands becomes hazy“Not too hard this time your – the last idea gave me a concussion.”Value Innovation•Companies must pursue Value Innovation. Value Innovation makes the competition irrelevant because it delivers new and superior buyer value.•Do Not Imitate! Go beyond incremental improvement focus on innovation or create new ways of doing things.•Stop acting reactively! Begin emphasize value by placing customers at the center of strategic thinking. Find out where the customer are going to be not where they are now.Neoclassical vs. Innovation•“Black Boxes” –Firms respond to market conditions–Innovation is a random occurrence•“Value Innovators”–Create new markets–Fortune 500… 60% gone in two decadesMarket ValuationMarket ValuationWhy?•Investors Value…–Knowledge–Innovation•Unlike traditional finite factors of Innovation, Knowledge and Ideas are infinite economic goods.“A firm need not compete for a share of a given demand – it can create new demand”Value & Innovation•Must go hand in hand•Value without innovation = Incremental•Innovation without Value = No consumer baseTechnology vs. Value•A value innovation does not need to be technical.•Technical Innovation does not necessarily create value.–Ampex 1950’sRe-Define the Problem•Callaway Golf “Big Bertha”InnovationValueTechnologyInnovationValue Creation ValueInnovation“Whether an executive or a factory worker, anyone can have a good idea”Market Dynamics of Value InnovationThe proportion and value of knowledge to land, labor and capital are increasing dramatically.Transition from the production to the knowledge economyEnron – exemplifies the transition with traders, analysts and scientists working togetherConsequences of the transition1. Potential for high returns–Microsoft spend millions on the first copy of Windows 95, but the cost of subsequent copies was trivial2. Potential for free riding–Rival good – One firm precludes its use by another e.g. scientists employed by IBM can’t be simultaneously employed by another company–Nonrival good – One firm does not limit its use by another.–Excludability – If a company can prevent others from using it due to limited access or patent protection•Companies like Starbucks, Home Depot, Schwab, Virgin Atlantic Airways, Amazon. COM are not about patentable technology innovation but value innovation.Successful strategy for value innovatorsStrategic pricing for demand creation.–The focus is to capture the mass of buyers and expand the size of the market by offering radically superior value at price points accessible to a mass market –High premium and restricted supply encourages free ridingTarget costing for profit creation–Conventional strategy of limiting access, setting higher prices, price skimming etc. doesn’t work in a world of nonrival and nonexcludable goods–High price and limited volume doesn’t allow the value innovators to exploit economies of scaleCreation Station•Making Value Innovation happen inside your company•Top Management Commitment •Clearly Communication•Do away with conventional thinking•Retreats and Corporate communicationsCreation Station: Structure•Organization Structure most conducive to value innovation?•Small autonomous units or teams focusing on common business or product goals.•Diverse Teams–People from various backgrounds and perspectives. –Conflict and differing view points heightens creativity.Creation Station: Fairness•Voluntary Cooperation–Trust and Commitment•Fair Process–Fairness in the process of making and executing decisions.–Recognizes people's intellectual and emotional worth.Corporate StrategyValue innovation represents a competitive advantage on the competitors, especially in knowledge companiesWhy?The Product life cycles are shorterCompanies which create value through innovation are as dynamic (positive image)Globalization and technological penetration into the marketCorporate Strategy Cont.Companies use innovation value :Best way to differentiate or control the marketCreate a new demandConsolidate or to improve its position on a marketLengthen the time for competitors to catch upCorporate Strategy: Risks•Market not be ready for innovation•Return on investments between the money spent in the R&D and the sales •Arrival of a new product or more efficient susbtitute•Second Mover Advantage risk–Competitors save time and money when they come up with the second new product.Corporate Strategy: Take Home•All the sectors tend to be concerned by value innovation •Successful companies hold the core of the market to set the standard and attracting mass market. •If you do not do that first, the competitors will bet you.Shifting FocusConventional FocusValue Innovation FocusCompetition Outperforming Seeking radicallythe competition superior value to makethe competition irrelevantCustomers Retaining and Targeting the mass ofbetter satisfying buyers by followingexisting customers non-customers closelyand willingly losing someexisting customersCorporate Capabilities Leveraging and Willing to combine withextending the current other companies’capabilities of a capabilitiescompanyThree Basic building Blocks of StrategyThree Basic building Blocks of