Sustainable Competitive

Advantage for Business

Value Innovation
- The Strategic Logic of High growth

Point of Differentiation
The success or failure of a company relies on it
fundamental, implicit assumption about
strategy

High-growth companies paid little attention to

matching or beating their rivals while less
successful companies have contrary strategies

They sought to make their competitors

irrelevant through a strategic logic and we call it
Value Innovation
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Kinepolis

Since the movie theater industry

in Belgium was declining steadily,
by the 1980s, many Cinema
Operators (COs) were forced to
shut down.

The COs who remained took

similar actions in head-to-head
competition for a shrinking market
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Kinepolis

In 1988, Bert Claeys created

Kinepolis. In its first year, this
company won 50% of the
market in Brussels and
expanded the market by
about 40%.

Kinepolis is the worlds first

megaplex with 25 screens
and 7,600 seats.
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Difference between Kinepolis and Other Theatres in Belgiam

OTHER BELGIAN
MOVIE THEATERS
Have small viewing
rooms with no more than
100 seats and 35millimeter projection
equipment
Screens measure
7meters by 5 meters

KINEPOLIS
Up to 700 seats and so
much legroom and 70millimeter projection
equipment

Screens measure up to
29 meters to 10 meters
and sound vibrations are
not transmitted
Do not have
Located off the ring road
circling Brussels.
The average cost to build At Kinepolis, it is about
a seatwww.company.com
in Brussels is twice 70,000 Belgian francs.

Difference between Kinepolis and Other Theatres in Belgiam

OTHER BELGIAN
MOVIE THEATERS

KINEPOLIS

They spent money on

advertising to attract all
customer segments.
Most COs were thinking
along these lines: movie
industry is shrinking, so we
should not make major
investments

The companys value

innovation generates a lot
of word-of-mouth praise.
On the contrary,
Kinepolis followed a
different strategic logic.
The company did all that
while reducing its costs.

They broadened their

film offerings, expanded
their food and drink
services
and increased
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showing times

Leaving Conventional
Thinking behind

How Kinepolis achieved Profitable Growth

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The CNN Case

For years, the major U.S television networks used the

same format for news programming.

In 1980, CNN came on the scene with a focus on

creating a quantum leap in value, not on competing
with other networks.

CNN created real-time news from around the world 24

hours a day and the cost was five times cheaper than
other networks.

The company decided not to compete with the

networks
in the race to get big-name anchors.
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Conventional Logic and Value Innovation

Refer Page No. 6 of the Case Bottom Left Corner

The Five Dimensions of

Strategy

Two Strategic
Logics

Industry Assumptions
Strategic Focus
Customers
Assets and Capabilities
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Product and Service

Offerings

Creating New Value Curve

Stagnati
on

Overcapaci
ty

Quantum leap in value for customers

No star & 1-star:
Average price per room was between
60 and 90 French francs Low Price
Market
Offering
2-star:
Segme
Average price of 200 francs, offering a
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nts
better sleeping environment than no

Formule 1

+ Average cost of
building a room
dropped 50%.
+ Staff costs
dropped 25 35%.

Accor Hotel:
2-star hotels
features
1-star hotels price
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The Trap of Competing, the Necessity of Repeating

What happens once a company has created a new

value curve? Because of being imitated, companies
must innovate frequently.
Value innovation is about offering unprecedented
value, not technology or competencies.

When a companys value curve is different from that

of the rest of the industry, they should focus on
geographic expansion and operational improvements
to achieve
maximum economies of scale and market
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The Three Platforms

Product:
Physical product

Service:

Product
Service
Delivery

Support such as
maintenance, customer
service, warranties,
training for distributors
and retailers

Delivery:
Logistics, channel used
to deliver the product to
customers
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Virgin Atlantic: Flying in the Face of Conventional Logic

Eliminating First class service in 1984

Comfortable seats in Business Class.
Transportation Service in Limousines and Limo-Bikes
Customer wanted time to Freshen-up and change Clothes.
Economies of Value Innovation and Reinforcing Cycle:
Highest Sales/Employee & Lowest Cost/Passenger Mile.

Adding logic of Value Innovation

to other profit centers like

Insurance, Music and Entertainment Retailing.

Doing more than just leveraging existing assets and

capabilities.

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Compaqs Server Business

In 1989, Compaq

introduced SystemPro

The majority of

customers used only a

small fraction of a
servers capacity.

Pro
Signia
1/3

price of
SystemPro
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Compaqs Server Business

Competitors tried to imitate the
ProSignia and value curves in the
industry began to converge.

Compaq took another leap, this

time from the service platform.

ProLiant 1000
(SmartStart + Insight Manager)
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Proliant 1000
Smart
Start
Configuring server
hardware and network
information to suit a
companys operating
system and application
programs.

Insight
Manag
er
Helping customers manage
their server networks by, for
example, spotting
overheating boards or
troubled disk drives before
they break down.

put companies that had

been skeptical of their
ability to configure and
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manage a network

creating a
superior
value
curve and
expanding
market.

How Compaq Stayed on Top of Server Industry

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Driving a company for High Growth

Despite the profound impact of a companys
strategic logic, that logic is often not
articulated

it goes unstated and unexamined

a company does not necessarily apply a

consistent strategic logic across its
businesses
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Driving a Company for High Growth

For managers of diversified
corporations, the logic of value
innovation can be used to
identify the most promising
possibilities for growth across a
portfolio of businesses.

Pioneers

Migrators

Settlers

Businesses that
offer
unprecedented
value.

Businesses with value

improvements

Businesses with value

curves that conform to
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the basic shape of the

Point of Differentiation
If both the current portfolio and the
planned offerings consist mainly of
settlers, the company has a low growth
trajectory and needs to push for value
innovation. The company may well have
fallen into the trap of competing.

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If current and
planned
offerings consist
of migrators,
reasonable
growth can be
expected. But
the company is
not exploiting its
potential for
growth and risks
being
marginalized by
a value
Testing the
Growthinnovator.
Potential

of a Portfolio of
Businesses

How can senior executives promote value innovation?

Challenge
Identify and
articulate the
companys
prevailing
strategic
logic
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They must
stop and
think
about
the
industrys
assumptio
ns, the
companys
strategic
focus, and
the
approache
s

Translating thinking into a New Value Curve

Which of the
factors that
our industry
takes for
granted should
be eliminated?

Q. 01

Q. 04

Q. 03

Which factors
should be
reduced well
below the
industrys
standard?

Q. 02

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What factors
should be
created that
the industry
has never
offered?
Which should
be raised well
above the
industrys
standard?

New Value Curve.

Conclusion

Comparing with Conventional Logic, Value Innovation

Logic is much better for the companies that want to
get the higher share market and larger customer
segments.

High growth companies have been applying the

concept of Value Innovation and adopted the
strategies in accordance with the circumstance and
environment of companies.

In order to apply this logic efficiently, managers

should think beyond their industrys traditional
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Thank You

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