Sustainable Competitive Advantage through Value Innovation The Strategic Logic of High growth,

1. Sustainable Competitive
Advantage for Business
Value Innovation
- The Strategic Logic of High growth

2. Point of Differentiation
The success or failure of a company relies on
it fundamental, implicit assumption about
strategy
High-growth companies paid little attention
to matching or beating their rivals while less
successful companies have contrary
strategies
They sought to make their competitors
irrelevant through a strategic logic and we
call it “Value Innovation”

3. Kinepolis
Since the movie theater industry in
Belgium was declining steadily, by the
1980s, many Cinema Operators (CO’s)
were forced to shut down.
The CO’s who remained took similar
actions in head-to-head competition for a
shrinking market

4. Kinepolis
In 1988, Bert Claeys created
Kinepolis. In its first year, this
company won 50% of the market in
Brussels and expanded the market by
about 40%.
Kinepolis is the world’s first
megaplex with 25 screens and 7,600
seats.

5. Difference between Kinepolis and Other Theatre’s in Belgiam
OTHER BELGIAN MOVIE
THEATERS
KINEPOLIS
Have small viewing rooms with
no more than 100 seats and 35millimeter projection equipment
Up to 700 seats and so much
legroom and 70-millimeter
projection equipment
Screens measure 7meters by 5
meters
Screens measure up to 29
meters to 10 meters and sound
vibrations are not transmitted
Do not have
Located off the ring road
circling Brussels.
The average cost to build a seat At Kinepolis, it is about 70,000
in Brussels is twice expensive
Belgian francs.
than Kinepolis

6. Difference between Kinepolis and Other Theatre’s in Belgiam
OTHER BELGIAN MOVIE
THEATERS
KINEPOLIS
They spent money on
The company’s value
advertising to attract all customer innovation generates a lot of
segments.
word-of-mouth praise.
Most CO’s were thinking along
these lines: movie industry is
shrinking, so we should not make
major investments
On the contrary, Kinepolis
followed a different strategic logic.
The company did all that while
reducing its costs.
They broadened their film
offerings, expanded their food
and drink services and increased
showing times
Leaving ‘Conventional Thinking’
behind

7. How Kinepolis achieved ‘Profitable Growth’

8. The CNN Case
For years, the major U.S television networks used the same format
for news programming.
In 1980, CNN came on the scene with a focus on creating a
quantum leap in value, not on competing with other networks.
CNN created real-time news from around the world 24 hours a day
and the cost was five times cheaper than other networks.
The company decided not to compete with the networks in the race
to get big-name anchors.

9. Conventional Logic and Value Innovation
 Refer Page No. 6 of the Case Bottom Left Corner
Two Strategic Logics
The Five Dimensions of Strategy
Industry Assumptions
Strategic Focus
Customers
Assets and Capabilities
Product and Service Offerings

10. Creating New Value Curve
Stagnation
Overcapacity
Quantum leap in value for customers
Market
Segments
No star & 1-star:
Average price per room was between 60 and 90
French francs Low Price Offering
2-star:
Average price of 200 francs, offering a better
sleeping environment than no star & 1 star hotel.

11. Formule 1
+ Average cost of
building a room
dropped 50%.
+ Staff costs dropped
25 – 35%.
Accor Hotel:
2-star hotel’s features
1-star hotel’s price

12. The Trap of Competing, the Necessity of Repeating
What happens once a company has created a new value curve?
Because of being imitated, companies must innovate frequently.
Value innovation is about offering unprecedented value, not
technology or competencies.
When a company’s value curve is different from that of the rest of
the industry, they should focus on geographic expansion and
operational improvements to achieve maximum economies of scale
and market coverage.

13. The Three Platforms
Product:
Physical product
Service:
Product
Service
Delivery
Support such as maintenance,
customer service, warranties,
training for distributors and
retailers
Delivery:
Logistics, channel used to
deliver the product to
customers

14. Virgin Atlantic: Flying in the Face of Conventional Logic
Eliminating First class service in 1984
Comfortable seats in ‘Business Class’.
Transportation Service in Limousines and Limo-Bikes
Customer wanted time to ‘Freshen-up’ and change ‘Clothes’.
Economies of Value Innovation and Reinforcing Cycle:
Highest Sales/Employee & Lowest Cost/Passenger Mile.
Adding logic of Value Innovation
to other profit centers like
Insurance, Music and Entertainment Retailing.
Doing more than just leveraging existing assets and
capabilities.

15. Compaq’s Server Business
In 1989, Compaq introduced
SystemPro
The majority of customers
used only a small fraction of a
server’s capacity.
Pro Signia
1/3
price of
SystemPro

16. Compaq’s Server Business
 Competitors tried to imitate the
ProSignia and value curves in the
industry began to converge.
 Compaq took another leap, this
time from the service platform.
ProLiant 1000
(SmartStart + Insight Manager)

17. Proliant 1000
Smart
Start
Configuring server
hardware and network
information to suit a
company’s operating
system and application
programs.
Insight
Manager
Helping customers manage
their server networks by, for
example, spotting
overheating boards or
troubled disk drives before
they break down.
put companies that had been
skeptical of their ability to
configure and manage a
network server, at ease.
creating a
superior value
curve and
expanding
market.

18. How Compaq Stayed on Top of Server Industry

19. Driving a company for High Growth
Despite the profound impact of a
company’s strategic logic, that logic is
often not articulated
it goes unstated and unexamined
a company does not necessarily apply a
consistent strategic logic across its
businesses

20. Driving a Company for High Growth
For managers of diversified
corporations, the logic of value
innovation can be used to identify the
most promising possibilities for growth
across a portfolio of businesses.
Pioneers
Migrators
Settlers
Businesses with value curves
that conform to the basic
shape of the industry’s.
Businesses that
offer
unprecedented
value.
Businesses with value
improvements

21. Point of Differentiation
If both the current portfolio and the planned offerings
consist mainly of settlers, the company has a low
growth trajectory and needs to push for value
innovation. The company may well have fallen into
the trap of competing.
If current and
planned offerings
consist of migrators,
reasonable growth
can be expected. But
the company is not
exploiting its
potential for growth
and risks being
marginalized by a
value innovator.
Testing the
Growth Potential
of a Portfolio of
Businesses

22. How can senior executives promote value innovation?
Challenge
Identify and
articulate the
company’s
prevailing
strategic logic
They must
stop and
think about
the industry’s
assumptions,
the
company’s
strategic
focus, and
the
approaches

23. Translating thinking into a New Value Curve
Which of the
factors that our
industry takes for
granted should be
eliminated?
Q. 01
Q. 04
Q. 03
Q. 02
Which factors
should be reduced
well below the
industry’s standard?
What factors
should be created
that the industry
has never offered?
Which should be
raised well above
the industry’s
standard?
New Value Curve.

24. Conclusion
Comparing with Conventional Logic, Value Innovation Logic is much
better for the companies that want to get the higher share market
and larger customer segments.
High growth companies have been applying the concept of Value
Innovation and adopted the strategies in accordance with the
circumstance and environment of companies.
In order to apply this logic efficiently, managers should think
beyond their industry’s traditional boundaries in order to satisfy
customers’ needs.

25. Thank You