Great Business Ideas: Value innovation

Great Small Business Ideas to Start: Value innovation

When firms compete, they tend to become locked in a cycle of incrementally improving a combination of costs, product, and service. Value innovators break free from the pack by staking out a new market, developing products or services for which there are no direct competitors.

The idea

Pioneered by W. Chan Kim and Renée Mauborgne, value innovation is the concept of challenging and defying conventional logic to either redefine or create a market. For example, for many years, American TV networks used the same format for news programs: they aired at the same time, and they competed on the popularity and professionalism of their presenters and their ability to report and analyze events. This changed in 1980, when CNN launched real-time 24-hour news from around the world for only 20 percent of the cost of the networks.

Similarly, in 1984 Virgin defied convention when it decided to eliminate its first-class service. Prevailing logic suggested that growth relied on focusing on more, not fewer, market segments, but Virgin focused on business-class passengers. It used the money saved from first class to provide a range of popular innovations, from better and different lounges to improved in-flight amenities.

This approach was later applied to its other businesses, such as retailing and music.

In practice

Underpinning value innovation is the ability to redefine a business strategy based on an understanding of customers.

  • Work at dramatically improving everything you offer the customer: product, service, and delivery.
  • Challenge and overcome industry assumptions. Understand what these assumptions are and how the situation can be improved for customers.
  • Adopt a questioning approach. Why do customers buy? What would they really value? Why do they want this? How does this purchase relate to their other priorities?
  • Be ambitious. Monitoring competitors is good, but avoid the trap of competing with them on their (or the industry’s) terms. Concentrate on doing something different and valuable for the customer. Aim high, and competitive strength will follow.
  • Avoid segmentation. While many people insist segmentation provides greater understanding of customers, enabling them to be served better, value innovators build scale by focusing on the features that unite customers. This is the key to profitability: appealing to sufficient numbers of people and achieving scale.
  • Do not be constrained by existing resources. The question is not what you can do with current assets and capabilities, but what resources you should develop to serve your customers.
  • Think laterally. This involves cutting across traditional industry divisions between product and service, and finding ways to significantly improve the offer to the customer.
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