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 / First Quarter 2002 / Issue 26(originally published by Booz & Company)


W. Chan Kim and Renée Mauborgne: The Thought Leader Interview

Mauborgne: We ask, Who is doing something interesting? What is it that makes companies exciting, confident, and strong? Innovation is the life of a company, and we have fun by looking inside companies — both leaders and laggards — to understand the way forward.

We have a natural curiosity. So, as our research progresses, we create new hypotheses: Why is it that companies stop innovating and growth slows? How can you find the one idea faster? How do you price something that hasn’t been sold before?

S+B:  Your work suggests that companies often lack insight into the basis of their competitiveness. They don’t have all that many answers to your questions.

Mauborgne: That’s true. Companies are often unclear on which factors they compete on. They rarely think about alternative industries — the broad range of industries that provide similar products or services. Give companies 20 factors they compete on, and they will agree on 10, but dispute the remainder.

That is a large part of the reason organizations are overtired and lacking in creative momentum. Because companies often lack a clear, compelling strategy that everyone understands and that sets the company apart, projects are often undertaken that pull the organization in different directions. Individually, a case can be made to justify each project, but collectively, because they are not guided by a unified strategy, the actions do not add up to significant gains.

S+B:  Strategy, in your eyes, needs to be built around value innovation.

Kim: Our point is that value and innovation are — or should be — inseparable. Value innovation places equal emphasis on value and innovation. Value without innovation can include value creation that simply improves the buyers’ existing benefits. Innovation without value can be too technology driven.

S+B: The mistake has been to equate innovation with advances in technology?

Kim: Yes, value innovation is a strategy concept that is distinct from either value creation or technology innovation. There are plenty of examples of companies that developed technology and then failed to capitalize on it — in video recording technology, Ampex [Corporation] led the way technologically in the 1950s. But value innovators like JVC and Sony brought the technology to the mass market.

There are also many examples of true value innovation occurring without new technology. Look at Starbucks coffee shops, the furniture retailer IKEA, the fashion house of Ralph Lauren, or Southwest Airlines. They are in traditional businesses, but each is able to offer new and superior value through innovative ideas and knowledge.

The power of value innovation is in engaging people to build collective wisdom in a constructive manner. Value innovation means that the range of disagreement becomes smaller until creativity explodes. Value innovation is fundamentally concerned with redefining the established boundaries of a market. If you offer buyers hugely improved value or create an unprecedented set of utilities in order to give birth to new markets, then the competition becomes unimportant. Instead of playing on the same field, you have created a new one.

Mauborgne: Value innovation enables companies to shift the productivity frontier to a new terrain. Value improvements get you only so far. Value innovation is concerned with challenging accepted assumptions about particular markets, changing the way managers frame the strategic possibilities.

S+B:  Is the driving force behind value innovation the willingness of companies to create new markets?

Mauborgne: Fundamentally. Innovation occurs across industries, across countries, across companies. These are universal forces. It is, therefore, irrelevant to categorize organizations by their sector or geographical location. Yet, if you look at strategy literature, industry boundaries are usually regarded as central — think of SWOT analysis or Michael Porter’s Five Forces Framework.

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