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


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

Fair process is based on the simple human need for intellectual and emotional recognition. Without fair process it can be difficult for companies even to achieve something their people generally support.

S+B: What are the basic questions companies need to ask themselves if they are to embrace fair process?

Mauborgne: First, they need to ask whether they engage people in decisions that affect them. Do they ask for input and allow people to refute the merit of one another’s ideas? Do they explain why decisions are made and why some opinions have been overridden? And, after a decision is made, is it clearly stated so that people understand the new standards, the targets, responsibilities, and penalties? The big U.S. automakers have a history of violating fair process and have paid the price for it many times over.

S+B: Most recently you have moved into the world of predictions with your work on how to spot winning business ideas. Surely this is more of an art than a science?

Mauborgne: We have created three analytical tools to help managers identify a winning business idea whatever the market space it occupies or creates.

The first is the Buyer Utility Map, which indicates the likelihood that customers will be attracted to a new idea. This is a matrix based on six stages of buyer experience, from how easy it is to find a product to how easy it is to eventually dispose of it, and six “customer utility levers” — from environmental friendliness to improved customer productivity. Innovations should occupy as many squares on the matrix as possible, although it is unlikely to be more than three or four.

The second tool, the Price Corridor of the Mass, identifies which price will unlock the greatest number of customers. It does this by benchmarking prices not just against similar products, but against different products that fulfill the same function. For example, short-haul airlines compete not just against other airlines, but against buses, trains, and cars.

The third tool, the Business Model Guide, is a framework for calculating whether and how a company can deliver an innovative product or service at the targeted price. It includes options such as cost targeting and opportunities for outsourcing and partnering.

S+B: If you apply the tools, will innovation surely follow?

Mauborgne: Not quite. First, innovation, like all other strategic actions, will always involve both opportunities and risks. Ours are designed to help systematically raise the probabilities of success, shifting the odds in favor of the opportunities over the risks.

Innovations also often have to overcome adoption hurdles. There may be resistance from stakeholders both inside and outside the company. Employees, business partners, and the general public can tackle those problems. The key is open discussion with these stakeholders about the impact and ramifications of the innovation. Look at genetically modified food. What if Monsanto had opened up discussions with the stakeholders? Perhaps, instead of being vilified, it might have ended up as the “Intel Inside” of food for the future — the provider of the essential technology.

S+B: Are you still finding new value innovators doing interesting things that are largely unknown?

Mauborgne: Constantly. The periphery exists in less-developed countries and in countries not known for value innovation. Peripheral companies include the Hungarian bus company NABI, which is rapidly dominating the U.S. bus market by changing the value curve of the industry, and Cirque du Soleil, the Canadian circus that has led to a rebirth and redefinition of the circus industry. Cirque du Soleil collapses the two industries of theater and circus and in doing so leapfrogs Ringling Brothers and Barnum and Bailey circuses and opens up the entire adult audience to circus at a price point several multiples more than that of a traditional circus.

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