Name : Siti Nabilah binti Khairudin

Matric : 6181000131

Value Innovation is the simultaneous pursuit of differentiation and low cost, creating a leap
in value for both buyers and the company. The concept of Value Innovation is developed by
W. Chan Kim and Renee Mauborgne and is the cornerstone of market-creating strategy.
Because value to buyers comes from the offering’s utility minus its price, and because value
to the company is generated from the offering’s price minus its cost, value innovation is
achieved only when the whole system of utility, price, and cost is aligned. Cost savings are
made by eliminating and reducing the factors an industry competes on. Buyer value is lifted
by raising and creating elements the industry has never offered. Value innovation strategy
seeks to break the value-cost trade off by eliminating and reducing factors an industry
competes on and raising and creating factors the industry has never offered. Value innovation
is distinctively different from the competitive strategic approach that takes the present
industry structure and seeks to increase market share within the existing competitive market.
This strategy aims to make competition irrelevant through process innovation and seeks to
create new and uncontested market space of new demand and high profitable growth. This
strategy could be fulfilled through creating value for new markets and develop focus on non-
customers to create customer demand and make them willing to pay for it. Hence, innovation
plays a key role in this strategy which must be aligned with utility, price and cost. There are
four action steps to add value into strategy such as by creating a new industry factors that can
generate value and a new market which were not offered before, by reducing any of those
factors which were nothing more than a consequence of the competition between industry
players to differentiate themselves, by eliminating those factors which have been the basis of
industry competition for a long time, and by raising those factors that need to be above where
they are in the industry at present. A company should consider value innovation strategy as a
process innovation and approach it in a new way to be able to provide customers with both
differentiation and low cost.

From this process perspective, there are six important steps to be followed in the application
of value innovation strategy:

1) Reconstruct Market Boundaries

The first principal is re-constructing market boundaries to break from the competition by
looking into six paths which is look across alternative industries; look across strategic groups
within industries; look across the chain of buyer; look across complementary product and
service offering; look across functional or emotional appeal to buyer; look across time. It
means when the company designs the service offering, it should not only concern the core
service for customers‟ primary needs, but also the supporting services for customers‟
secondary needs.
2) Focus on the Big Picture, Not the Number
The company should listen to the customers and make the strategy map as visual forms,
which could open the creativity of employees and create value together. The strategy can be
used, for example to illustrate how an increase in employee motivation improves productivity
and profitability or show how employee operative activities contribute to achieving company-
level objectives.

3) Reach Beyond Existing Demand

To attract and keep customers, and thus make a profit, companies are always searching for
new and better ways to create value and differentiate their market offerings. While to
maximize the market scale, companies need not only focus on the customers, but also need to
focus on non-customers. Moreover, companies should not blindly through customization and
segments to meet the customers' need of difference, but to look for the common ground of
buyers.

4) Get the Strategic Sequence Right

Get the strategic sequence right and build a strong business model could ensure the blue
ocean idea become strategy operation, followed by gaining the profit. It means when the
company design the product or service should in a right way then the strategy will apply
successfully. the right design way could separate into four steps such as buyer utility, price,
cost and adoption. Studies in the management of technology suggest that cooperation and
communication among marketing, manufacturing, engineering and R&D leads to greater new
product or service success and gets higher product profitability.

5) Overcome Key Organizational Hurdles

Crafting strategy need pass the “mind and hand” gap and makes the strategy in company’s
daily work. It is a must to execute in case company has developed a good strategy with a
profitable business model. There are four organizational hurdles to strategy execution such as
Cognitive Hurdle, Resource Hurdle, Motivational Hurdle, and Political Hurdle. In other
words, Tipping point leadership is a good way to overcome these four hurdles fast and at low
cost while winning employees' backing in executing a break from the status quo.

6) Build Execution into Strategy

When execute strategy, a company will eventually need to resort to the most fundamental
basis for action, that is, the employee attitudes and behaviours. Because the employment
leads to creating a position in the marketplace is undertaken over time through deployment of
marketing practices including advertising, public relations, promotion, sales inducing efforts,
publicity, brand management, firm image and reputation, product development, and cost
controls. Then, the company must create a culture full of trust and loyalty to encourage
people to identify strategy. Because the trust culture will permeate throughout the
organization through authentic leadership and if leaders trust their employees, they will, in
turn, trust their customers. In order to build trust and loyalty at the beginning level,
encouraging collaboration of resources, a company needs to build execution into strategy, and
use “fair process” to develop and implement strategies.