The Idea in Brief
Struggling to stay ahead of your rivals? No need. Instead of trying to match or beat them on cost or quality, make the other players irrelevant—by staking out new market space where competitors haven’t ventured.
How? Become a value innovator: Identify radical ideas that make quantum leaps in the value you provide customers.
Value innovators ask, “What if we started fresh—and forgot everything we know about our industry’s existing rules and traditions?” When CNN’s creators asked this question, they replaced the traditional networks’ format with real-time news from around the world, 24 hours a day.
Value innovators don’t set out to build competitive advantage. But their innovative practices lead them to achieve precisely that. Virgin Atlantic, for example, cut first-class airline service and channeled cost savings into greater value for business-class passengers: more comfortable seats and free transportation to and from airports. It attracted not only business-class customers but also full-economy-fare and first-class passengers of other airlines.
The Idea in Practice
To become a value innovator, consider the following strategies, as exemplified by French hotelier Accor:
Assume that you can shape your industry’s conditions. In the mid-1980s, the budget hotel industry in France had two markets: inexpensive hotels that had poor beds and noise, and pricier hotels that provided upscale amenities and a decent night’s sleep. Accor redefined the industry by providing inexpensive and superior accommodations to cost-conscious travelers.
Focus on what the majority of your buyers value. Accor identified what customers of all budget hotels wanted: a good night’s sleep for a low price.
Consider how you might change your offering to capture the market you’ve identified. Eliminate features that offer no value for customers—or that detract from value. Simplify products or services that have been overdesigned in the race to match or beat rivals. Further improve high-value features so that customers no longer have to make compromises. And create new features that your industry has never offered. Example:
Accor created an entirely new hotel concept: its Formule 1 line of budget hotels. The company eliminated costly restaurants and lounges, reckoning that target customers could do without them. It reduced other features; for example, providing receptionists only during peak check-in and check-out hours, and replacing closets and dressers with a few shelves and a pole for clothing. And it improved several features—for instance, providing good sound insulation by building rooms with low-cost modular blocks.
After a decade of downsizing and increasingly intense competition, profitable growth is a tremendous challenge many companies face. Why do some companies achieve sustained high growth in both revenues and profits? In a five-year study of high-growth companies and their less successful competitors, we found that the answer lay in the way each group approached strategy. The difference in approach was not a matter of managers choosing one analytical tool or planning model over another. The difference was in the companies’ fundamental, implicit assumptions about strategy. The less successful companies took a conventional approach: Their strategic thinking was dominated by the idea of staying ahead of the competition. In stark contrast, the high-growth companies paid little attention to matching or beating their rivals. Instead, they sought to make their competitors irrelevant through a strategic logic we call value innovation.
