Monday, September 8, 2008

Strategy, Value Innovation, and the Knowledge Economy

Competition has occupied the center of strategic thinking for the past twenty years. This approach results an unintended effects, that are: imitative approach to the market, the companies act reactively, and understanding of emerging mass markets and changing customer demands becomes bazy. But high growth and successful companies view this approach was irrelevant. They pursue value innovation which is not about striving to out perform the competition. These companies offer fundamentally new and superior buyer value in existing markets and by enabling quantum leap in buyer value to create new markets. They went beyond competing in existing markets to expanding the demand side of the economy.

Value innovation links innovation to what the mass of buyers value. High growth companies offer customers with radically superior value at accessible price level to the mass buyers.

Successful value innovators using two different approaches. First, strategic pricing for demand creation, leads to high volume and rapidly establishes a powerful brand reputation. Second, target costing for profit creation, leads to attractive profit margins and a cost structure that is hard for potential followers to match.

To make value innovation happen, top management must clearly communicate the company’s commitment to value innovation as the key strategic component by articulating its underlying logic. Then, when putting value innovation strategies into action, companies must cultivate a corporate culture conducive to willing collaboration. Companies must pursue its individuals to share their best ideas and knowledge, because these are the primary inputs for value innovation. Fairness in the process of making and executing decisions must also be engaged, because fair process and value innovation create a positively reinforcing cycle.

Value innovation is the essence of strategy in the knowledge economy. By implementing value innovation, strategies of cost leadership and differentiation are likely to succeed. But, it is also important to note that value innovators must shifting their strategy focus, from conventional to value innovation focus.

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