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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
Value Innovation: A Strategic
Roadmap for High Growth
Eleftherios Iakovou, Ph.D. Associate Professor
Director, Lab of Quantitative Analysis,Logistics & Supply Chain Management
Department of Mechanical Engineering
Aristotle University of Thessaloniki
President, Greek Society of Logistics,
Branch of Thessaloniki
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
Observation
We can expect more change in
our lifetimes, thanthan has occurredsince the beginning of civilization,
over ten thousand years ago!
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
Observation
We’re in the midst of great upheaval in the
business world – established brand namesare disappearing, new upstarts are thriving,
job security is diminishing, the demands ofthe workplace are increasing, newtechnology requires constant retraining,
globalization means new competitors …and the list of challenges continues to grow.
Newsweek (020413)
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The Main Issue of Our Time
C h a n g eC h a n g e
•Accelerating
•Turbulent
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Observation
It is not the strongest of the species
that survive, nor the most intelligent,
but the one most responsive to change.
Charles Darwin
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Major Business Change Sources
EN
T
E
RP
R
I
SE
TechnologicRevolution
EconomicGlobalization
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Globalization ProcessThe simultaneous impact of
• Information technology
• Worldwide financial flows
• Logistics methodologies
compounded by• Deregulation & Privatization
• Worldwide market economy
• Reduction in trade barriers
is decoupling
procurement, production,
distribution & consumption
of offers in space & time.
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
Change: Main Consequences
• INCREASING COMPLEXITYMore variables & relationships
• INCREASING RISKHigher stakes & volatility, increasing threats
• INCREASING UNCERTAINTYMore discontinuities & surprises.
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
INCREASING VOLATILITY
1980s
1990s
2000s
Probability
VariableMean
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
Observation
Under accelerating change
track record is irrelevantvision about future fit is critical.
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
Change: Illustration
Between 1975 & 1985,
one third of the Fortune 500
companies disappeared.
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
Change: Illustration
5 of the top 15 companies
in the S&P 500 in 2000
didn’t exist in 1980.
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
Change: Illustration
• An analysis of Fortune 1000 reveals:
– 35% in the top 20 were new for the period
1973-1983
– 45% new for the period 1983-1993
– 60% new for the period 1993-2003
–Where will it be for the period 2003-2013?
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
Schumpeter’s Waves
I n n o v a t i o n P a c e
1990 2015
25
1775 1840 1900 1950
•Water Power
•Textiles
•Iron
•Steam
•Rail
•Steel
•Electricity
•Chemicals
•IntCombEngs
•PetroChem
•Electronics
• Aviation
•DigitalNets
•Software
•New Media
Years: 65 60 50 40
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
Observation
Survival is not compulsory.
W. Edwards Deming
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
Change: Critical Consequence
INCREASING
OPPORTUNITIESOPPORTUNITIES
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
OBSERVATION
Reengineering &
Benchmarking
only help to catch up:
successsuccess requiresrequiresr i n v n t i n g i n v n t i n g the businessthe business
before the competitionbefore the competition ..
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
How to Reinvent a Business
• Restructure portfolio
• Downsize headcount Smaller
• Reengineer processes• Continuous improvement Better
• Reinvent industry
• Regenerate strategiesDifferent
Source: Hamel & Pralahad: “Competing for the Future”
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
Flexibility is the Key Attribute
• Very few companies (e.g. Toyota, Johnson &
Johnson, Procter & Gamble) have managed to
sustain high performance over long periods!
• The problem: We continue to design
organizations which are averse to change!
A paradigm shift is necessary in corporate
strategy and culture that rewards innovation.
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
Major Consequence
The fastoutperform
the big.
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
Major Consequence
The sm r t
outperform
all others.
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
OBSERVATION
You are either
a master of change
or
a victim of change.
T Vi f St t
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
Two Views for Strategy
• The Stucturalist (Conventional):
– Changes are induced by factors external to the
market (changes in basic economic conditions,
technological breakthroughs)• The Reconstructionist (Value Innovation):
– Endogenous growth: internal factors such as
innovation and knowledge can influence systemic
growth.
– (Traces Back to J. Schumpeter’s innovation theory).
The Structuralist View:
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
The Structuralist View:
Ramifications
• Leads to competition-based strategic thinking
• The issue is obtaining a larger share of the existing
market share, by assessing what the competitors do
and try to do it better:a zero-sum game!
• Companies mainly seek to capture and
redistribute wealth instead of creating wealth.
The Reconstructionist View:
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
The Reconstructionist View:
Ramifications
• Structure and market boundaries exist
only in managerial minds!
• There is extra demand out there, untapped
• Necessary paradigm shifts: – from supply to demand
– from competing to value innovation: thecreation of innovative value to unlock
new demand.
V l I ti
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
Value vs. Innovation
• Value without innovation tends to focus
on value creation at an incrementallevel:
– Not sufficient to stand out on the
marketplace
• Innovation without value tends to be
technology driven: – May provide offerings well beyond
buyers are willing to pay for!
T Diff t Vi
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
Two Different ViewsThe FiveThe Five
DimensionsDimensions
of Strategyof Strategy Conventional LogicConventional Logic Value Innovation LogicValue Innovation LogicIndustryIndustry
Assumptions Assumptions
Industry’s conditions are given. Industry’s conditions can be shaped.
StrategicStrategic
FocusFocus
A company should build competitive
advantages. The aim is to beat the
competition.
Competition is not the benchmark. A company
should pursue a quantum leap in value to
dominate the market.
CustomersCustomers A company should retain and expand itscustomer base through further
segmentation and customization. It
should focus on the differences in what
customers value.
A value innovator targets the mass of buyersand willingly lets some existing customers go. It
focuses on the key commonalities in what
customers value.
Assets and Assets andCapabilitiesCapabilities
A company should leverage its existing
assets and capabilities.
A company must not be constrained by what it
already has. It must ask: what would we do if
we were starting anew?
Product andProduct and
ServiceServiceOfferingsOfferings
An industry’s traditional boundaries
determine the products and services a
company offers. The goal is to maximizethe value of those offerings.
A value innovator thinks in terms of the total
solution customers seek, even if that takes the
company beyond its industry’s traditionalofferings.
I ti A D fi iti
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
Innovation: A Definition
• “ The successful production,
assimilation and exploitation ofnovelty in the economic and social
spheres”Commission's Communication on
Innovation Policy (2003)
The Value Innovation
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
Framework
• Which of the factors that our industry takes
for granted should be eliminated?
• Which factors should be reduced well below
the industry’s standard?• Which factors should be raised well above
the industry’s standard?• Which new factors should be created that
the industry has never offered?
Th St t C f S th t Ai li
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
The Strategy Canvas of Southwest Airlines
High
LowPrice
Meals
Lounges
Seating
Class
Choices
Hub
ConnectivityFriendly
Service
Speed
Frequent
Point-to-Point
Departures
Average
Airlines
Southwest
Car Transport
Value Cost Model & Strategic Positioning
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
Value-Cost Model & Strategic Positioning
High Cost
Low
Value
Perceived Value
to Customer
High
Value
Low CostDelivered Cost
Value Cost Model Descriptions
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
Value-Cost Model Descriptions
VALUE
(What and Who?)
COST
(How?)
Product Excellence
-- Performance, Functionality, Durability, Reliability
(e.g., Nike, Sony, Nokia)
Service Excellence-- Access, Customization, After-sales-Service, Packaging
(e.g., Nordstrom, Virgin, Singapore Airl ines)
Process Excellence
-- Procurement, Assembly, Distribution, Logistics(e.g., Wal-Mart, Dell, Southwest)
Innovation is at the Heart of Strategy:
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
gy
Product, Process, Service Innovations
High
Value
Low
Value
High Cost Low Cost
Product Excellence
OrService Excellence
Process Excellence
VALUE INNOVATION
(Product / Service Innovation)
VALUE NETWORK INNOVATION
(Process Innovation)
Today’s Goal is to Understand
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
the Innovation Life Cycle
Product
Innovation
Disruptive
Innovation
Service
Innovation
Process
Innovation
Disruptive
Technology
Model
Dominant Design Model
Value-Cost
Model
Shifts in Consumers’ PreferencesCreate Opportunities for New Firms
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
Create Opportunities for New Firms
to Enter or Take Leadership…..
• Dell did not succeed because its product were better thanthose of its competitors.
• The basis of competition shifted from technicalperformance to price, speed, convenience, customizationand after-sales service.
• Dell in the late 1990s:
– Selling more than $50 million per day through its website
– More than 50% of technical support delivered over the web
– Dell held just 5 days worth of inventory – It had a negative cash conversion cycle of 8 days
– It had a 12% cost advantage over rivals
– Since 1999 Dell held the #1 rank in customer satisfaction.
The Evolution of the US PC market
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
The Evolution of the US PC market….
High Cost Low Cost
Low
Value
High
Value
In the late 1990s…..with Dell around,how can a firm enter the market?
Low Delivered Cost
P e r c e i v e d V a l u e
t o t h e C u s t o
m e r
“ Value Curves” and Competitive
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
Shifts in the industry….
Elements
of Product
or Service
Relative Value Level
PC Servers
Low Medium High
Expandability
Performance
Price
Open Operating System
Compatibility
File & Print Performance
Configurability / Manageabili ty
Storability / Serviceability
Some Well-Known Value
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
Innovators…
• Dell Computers
• IKEA• ZARA
• Virgin Atlantic
• Wal-Mart
• CNN
• Cirque du Soleil
• SAP
ZARA
Wrapping-Up
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‘Regional Innovation and Entrepreneurship’ , 9th – 10th March 2006, CERTH, Thessaloniki, Greece
Wrapping Up
• Need for a paradigm shift in corporate strategy
across all businesses• Value Innovation is not a static achievement but
rather a dynamic process
• As imitators/competitors threaten value innovators
rotate among innovations on:
– Product – Service
– Delivery.