This post dives into the profitable concept and practice of Value Innovation. It defines it, compares and contrasts it from similar approaches, and then looks at the impact of leveraging Value Innovation in the practice of strategy and project management – developing a Value Innovation Strategy.
What Is a Value Innovation Strategy?
“Value innovation” is a concept introduced by W. Chan Kim and Renée Mauborgne in their book “Blue Ocean Strategy.” It refers to the simultaneous pursuit of differentiation and low cost to create a leap in value for both customers and the company itself, thereby opening up new, uncontested market space.
The following video by Blue Frontier Path provides a quick overview of Blue Ocean Strategy and Value Innovation:
Traditional competitive strategies often focus on beating the competition within existing market boundaries, resulting in a “red ocean” where companies compete for a share of existing demand. In contrast, value innovation seeks to break away from this competitive mindset by creating a “blue ocean” of uncontested market space where competition is irrelevant.
Value innovation involves identifying and aligning key factors that create exceptional value for customers while simultaneously reducing costs. By doing so, companies can offer unique products or services that stand out in the marketplace, attracting new customers and creating new demand.
A Value innovation Strategy is about creating a new market space using value innovation. That’s where the competition is irrelevant because the company has successfully differentiated itself and simultaneously lowered its costs, leading to sustained growth and profitability.
Value Innovation and Related Concepts
Value innovation, the strategy canvas, the four actions framework, and the buyer value equation are all interconnected concepts within the framework of Blue Ocean Strategy, developed by W. Chan Kim and Renée Mauborgne. Here’s how they relate to each other:
- Value Innovation – The topic of this post, value innovation is the core concept of Blue Ocean Strategy. It involves simultaneously pursuing differentiation at the lowest cost to create new market space, where competition is irrelevant. Value innovation aims to break away from the competition by offering unique value propositions that attract new customers and create demand.
- Strategy Canvas – The strategy canvas is a Blue Ocean diagnostic tool used to visually compare a company’s strategic profile to that of its competitors. It plots key factors of competition on a graph, allowing companies to visually see where they stand in the market vs competitors and identify areas of differentiation. The strategy canvas helps in understanding the current state of competition and guides the process of value innovation by highlighting areas where the company can differentiate itself while creating new value for customers.
- Four Actions Framework – The four actions framework is another analytical tool used in Blue Ocean Strategy to guide value innovation. It consists of four key questions that challenge companies to rethink their strategic priorities:
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- Which factors should be reduced well below the industry standard?
- Which factors should be eliminated that the industry has long competed on?
- Which factors should be raised well above the industry standard?
- Which factors should be created that the industry has never offered?
By answering these questions, companies can identify opportunities for value innovation and formulate strategies to create a leap in value for customers.
- Buyer Value Equation – The buyer value equation is a concept within Blue Ocean Strategy that emphasizes the importance of understanding customer value perceptions. It suggests that value to buyers is the sum of perceived benefits and the price they pay, where benefits are defined as functional, emotional, and economic. Companies can use the buyer value equation to identify opportunities for creating new value propositions that resonate with customers’ needs and preferences.
Value innovation is the overarching strategy of Blue Ocean Strategy.
The strategy canvas, the four actions framework, and the buyer value equation are complementary tools and frameworks. They help companies implement value innovation by analyzing market conditions, identifying strategic priorities, and understanding customer value perceptions.
Impact of Value Innovation on Strategy
Value innovation, as part of the Blue Ocean approach, is part of an overall strategic framework. But how would a strategist leverage the ideas behind value innovation at various stages of developing strategy?
Here are some ideas:
- Market Analysis – Before formulating a strategy, a strategist analyzes the market to identify existing competition, market trends, and customer needs. Understanding the current state of the market provides insights into where value can be innovated to create new demand and leapfrog competitors.
- Strategic Planning – During strategic planning, a strategist would use tools such as the strategy canvas and the four actions framework to assess the company’s current strategic profile and identify areas for value innovation. The strategist should be prepared to challenge industry norms, question assumptions, and redefine strategic priorities to create a differentiated value proposition.
- Product and Service Development – Value innovation plays a crucial role in product and service development by guiding decisions on features, pricing, and positioning. Strategists can leverage value innovation with a focus on developing offerings that deliver exceptional value to customers while minimizing costs, leading to a competitive advantage in the market.
- Competitive Positioning – A strategist can use value innovation to help position their company uniquely in the market, away from direct competition. By creating a blue ocean of uncontested market space, companies can avoid head-to-head competition and instead focus on capturing new demand by offering differentiated value to customers.
- Marketing and Branding – Value innovation influences marketing and branding strategies by shaping messaging and communication to emphasize the unique value proposition of the company’s offerings. Strategists would highlight the benefits of choosing their products or services over competitors’ offerings, based on the value they deliver to customers.
- Continuous Improvement: – Value innovation is not a one-time event but an ongoing process. Strategists would continuously monitor market dynamics, gather customer feedback, and refine their strategies to stay ahead of the competition and maintain their position as market leaders.
Value innovation can serve as a guiding principle throughout the strategic planning process. It can help companies create new market space, differentiate themselves from competitors, and sustain long-term growth and profitability.
Leveraging Value Innovation in Project Management Practice
Project managers, program managers, and project portfolio managers can leverage value innovation principles in various aspects of their roles to enhance project success and drive organizational growth. Here are some areas where value innovation can be applied:
- Project Selection and Prioritization – Project portfolio managers can apply value innovation to help evaluate potential projects for inclusion in the portfolio. In practicing Project Portfolio Management (PPM), they can prioritize initiatives that align with the organization’s overall strategy of value innovation. For example, projects that offer the potential for creating new market space, delivering unique value to customers, or significantly improving cost efficiency should be given preference.
- Scope Definition and Requirements Gathering – Project managers can collaborate with stakeholders to define project scope and gather requirements with a focus on value innovation during the initiation phase of a project, . This involves identifying opportunities to introduce innovative features or functionalities that will differentiate the project deliverables and provide superior value to end-users.
- Risk Management – Project managers can leverage value innovation principles to inform risk management strategies. This can help them identify and mitigate risks associated with innovation. This could include assessing the potential impact of new technologies, market disruptions, or changes in customer preferences on project outcomes and developing contingency plans to address these risks proactively.
- Stakeholder Engagement – Project and program managers need to engage stakeholders throughout the project lifecycle. It’s essential for ensuring alignment with value innovation goals. For example, they can collaborate closely with stakeholders to communicate the value proposition of the project or program, gather feedback on proposed innovations, and address concerns or objections effectively.
- Resource Allocation and Budget Management – Project portfolio managers can leverage value innovation principles to guide resource allocation decisions by prioritizing investments in projects that offer the highest potential for creating value. They can allocate resources strategically to support initiatives that align with the organization’s strategic objectives and have the greatest impact on customer satisfaction and profitability.
- Performance Measurement and Evaluation – Project and program managers can incorporate value innovation metrics into performance measurement frameworks to evaluate the success of projects and programs. They can track key performance indicators related to customer satisfaction, market share, and profitability to assess the effectiveness of value innovation initiatives and identify areas for improvement.
By integrating value innovation principles into project management, program management, and project portfolio management practices, organizations can drive innovation, enhance customer value, and achieve sustainable competitive advantage in the marketplace.
Conclusion and Further Resources
This post dove into the profitable concept and practice of Value Innovation. It defined it, compared and contrasted it to similar approaches, and then looked at the impact of leveraging Value Innovation in the practice of strategy and project management.
Can you shore your experience in practicing Value Innovation?
The following video provides a short overview offers an international and venture perspective, consistent with the underlying principles of value innovation.