2.4 The value innovation framework and blue ocean strategy

Value innovation and blue ocean strategy are game-changing approaches to business. They focus on creating new markets instead of competing in existing ones. These strategies aim to make competition irrelevant by offering unique value to customers.

These concepts align with disruptive innovation theory by challenging industry norms. They emphasize finding unmet needs and creating new demand. Companies using these strategies often start in niche markets before expanding, transforming entire industries along the way.

Value Innovation and New Markets

Concept and Strategic Approach

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• Value innovation simultaneously pursues differentiation and low cost to create a leap in value for buyers and the company
• Shifts focus from beating competition to making competition irrelevant by creating new market space
• Aligns innovation with utility, price, and cost positions
• Breaks value-cost trade-off to create uncontested market space (blue ocean)
• Identifies and addresses unmet customer needs or creates new demand
• Involves eliminating and reducing factors an industry competes on, while raising and creating factors never offered

Creating New Market Spaces

• Challenges traditional industry boundaries and assumptions
• Focuses on non-customers to unlock new demand
• Redefines buyer value elements across industries (Nintendo Wii combining gaming with physical activity)
• Explores complementary products and services to enhance value proposition (Apple integrating iTunes with iPod)
• Looks across time to identify emerging trends and adapt offerings (Netflix transitioning from DVD rentals to streaming)

Blue Ocean Strategy and Disruptive Innovation

Blue Ocean Strategy Principles

• Creates uncontested market space rather than competing in existing markets
• Makes competition irrelevant by offering unique value propositions
• Creates and captures new demand by targeting non-consumers
• Aligns company's activities to pursue differentiation and low cost
• Looks across alternative industries, strategic groups, and buyer groups for opportunities
• Advocates reconstructionist view of market, challenging industry norms

Relationship to Disruptive Innovation

• Both focus on creating new markets and value networks
• Challenge incumbent firms with overlooked or underestimated value propositions
• Transform industries by introducing novel business models or technologies
• Often start in niche markets before expanding to mainstream (Uber initially targeting urban professionals)
• Emphasize value innovation over traditional competitive strategies
• Align with transformative nature of market-creating innovations (Airbnb disrupting hotel industry)

Value Innovation Framework for Business Models

Four Actions Framework (ERRC)

• Eliminate factors industry has long competed on (Cirque du Soleil eliminating animal acts)
• Reduce factors well below industry standard (Southwest Airlines reducing service frills)
• Raise factors well above industry standard (Starbucks raising coffee quality and cafe experience)
• Create factors industry has never offered (Amazon creating one-click ordering and personalized recommendations)

Strategy Canvas and Application

• Diagnostic and action framework for building compelling blue ocean strategy
• Visualizes current state of play and future strategy
• Helps identify and challenge industry assumptions
• Redefines buyer value elements across buyer chain
• Explores complementary products and services for added value
• Breaks away from traditional boundaries to create new value-cost frontiers
• Encourages looking across time to anticipate future needs (Tesla anticipating shift to electric vehicles)

Value Innovation vs Blue Ocean Strategies in Practice

Case Studies and Success Metrics

• Cirque du Soleil reinvented circus industry by blending theater and acrobatics
• Southwest Airlines created low-cost airline model focusing on short-haul routes
• Nintendo Wii expanded gaming market by appealing to non-traditional gamers
• Measure success through creation of new market spaces and sustained growth
• Evaluate ability to remain unchallenged for extended periods
• Analyze significant departures from industry norms in offerings, pricing, or target markets
• Assess longevity and profitability of companies implementing these strategies

Implementation Challenges and Effectiveness

• Organizational hurdles in shifting strategic focus
• Resource constraints in developing new capabilities
• Difficulty in sustaining blue ocean once created (competitors imitating successful models)
• Comparative analysis of companies within same industry (Netflix vs Blockbuster)
• Adaptability across different industries and market conditions
• Effectiveness in various economic climates and technological landscapes
• Long-term impact on industry structure and competitive dynamics (Amazon's effect on retail)