This article provides a detailed response to: How does value innovation challenge traditional industry boundaries and create new market spaces? For a comprehensive understanding of Business Model Innovation, we also include relevant case studies for further reading and links to Business Model Innovation best practice resources.
TLDR Value Innovation challenges traditional industry boundaries by focusing on breakthrough value propositions, creating new demand in untapped markets, and making competition irrelevant, exemplified by Cirque du Soleil, Apple, and Netflix.
Value innovation is a strategic approach that challenges traditional industry boundaries and creates new market spaces by focusing on the creation of breakthrough value propositions. This approach diverges from the conventional competitive strategy by emphasizing making the competition irrelevant through the creation of new demand and the exploration of blue oceans—untapped new market areas ripe for growth.
Value innovation requires organizations to simultaneously pursue differentiation and low cost, creating a leap in value for both the company and its customers. This concept is central to the theory of Blue Ocean Strategy, articulated by W. Chan Kim and Renée Mauborgne. The essence of value innovation lies in its ability to break free from the traditional competitive landscape by not focusing on beating the competition, but rather on making the competition irrelevant through the creation of new and uncontested market space. This approach encourages organizations to shift their focus from existing demand to the creation of new demand, thereby tapping into the non-customers of the industry.
Organizations that successfully implement value innovation strategies do not just rely on incremental improvements but seek to redefine the terms of competition within their industries. This often involves rethinking which buyer group to target, what needs to be offered, and how to deliver that offering in a cost-effective manner. By doing so, they can unlock new demand and enjoy uncontested market space—at least for a time.
Value innovation challenges organizations to critically analyze and rethink their value curves—the graphical depiction of how an organization allocates resources across its factors of competition. By identifying and eliminating the factors that the industry takes for granted while raising and creating elements that the industry has never offered, organizations can achieve a quantum leap in value for both themselves and their customers.
Learn more about Value Innovation Competitive Landscape
Cirque du Soleil is often cited as a quintessential example of value innovation. By combining the high-quality, artistic atmosphere of the theater with the excitement of a circus, Cirque du Soleil created a new form of entertainment that did not directly compete with either traditional circuses or theaters. This innovation allowed them to capture a whole new audience that was previously untapped by the industry.
Another example is Apple’s introduction of the iPhone. Before its launch, the mobile phone market was largely segmented into two categories: feature phones and smartphones. The iPhone redefined the market by integrating the functionality of a phone, an iPod, and an internet communicator, thereby not only meeting the existing needs of customers but also creating new ones. Apple's success with the iPhone was not just in creating a superior product but in reshaping the competitive landscape and creating a new market space that it dominated for years.
Netflix’s transformation from a DVD rental service to a streaming service is also an example of value innovation. By capitalizing on the emerging broadband internet technology and changing consumer preferences towards on-demand entertainment, Netflix created a new market space that fundamentally changed how people consume media. This shift not only allowed Netflix to grow rapidly but also disrupted the traditional video rental and television industries.
To successfully implement value innovation, organizations must start by redefining the problem space. This involves stepping back from the existing competitive landscape and instead focusing on the broader context of the customer experience. Organizations should ask themselves what problems their customers are really trying to solve and how they can address these problems in a way that no other company does.
Next, organizations must embrace a holistic approach to innovation that goes beyond products and services to include business models, processes, and customer experiences. This requires a deep understanding of the entire value chain and a willingness to challenge industry orthodoxies and operational constraints.
Finally, organizations must cultivate a culture of innovation that encourages experimentation, tolerates failure, and rewards creative thinking. This involves not only providing the necessary resources and support for innovation initiatives but also fostering an organizational mindset that views change as an opportunity rather than a threat.
In conclusion, value innovation represents a powerful strategy for organizations looking to create new market spaces and achieve sustainable growth. By focusing on making the competition irrelevant through the creation of breakthrough value propositions, organizations can unlock new demand and enjoy the benefits of uncontested market space. However, achieving value innovation requires a commitment to rethinking traditional industry boundaries, embracing holistic innovation, and fostering a culture of creativity and experimentation.
Learn more about Customer Experience Value Proposition Value Chain Creative Thinking
Here are best practices relevant to Business Model Innovation from the Flevy Marketplace. View all our Business Model Innovation materials here.
Explore all of our best practices in: Business Model Innovation
For a practical understanding of Business Model Innovation, take a look at these case studies.
Business Model Innovation for Ecommerce in Beauty Sector
Scenario: A firm operating within the ecommerce beauty sector is grappling with the challenge of differentiating its business model in a rapidly saturating online market.
AgriTech Innovation Strategy for Precision Farming in Sustainable Agriculture
Scenario: A leading AgriTech organization specializing in precision farming solutions is at a crossroads requiring business model innovation to stay ahead.
Business Model Revamp for Boutique Hotel Chain in Competitive Market
Scenario: A boutique hotel chain operates in a highly competitive urban market and has been grappling with stagnant growth.
Online Learning Platform Strategy in Educational Services
Scenario: A leading online learning platform is at a crossroads, needing business model innovation to stay competitive in a rapidly evolving educational services market.
Retail Business Model Innovation for Specialty Apparel Market
Scenario: The company is a specialty apparel retailer facing stagnation in a highly competitive market.
Operational Efficiency Strategy for Telecom Service Providers in Asia
Scenario: A major telecom service provider in Asia is at a crossroads, requiring business model innovation to stay competitive.
Explore all Flevy Management Case Studies
Here are our additional questions you may be interested in.
Source: Executive Q&A: Business Model Innovation Questions, Flevy Management Insights, 2024
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