Many theories have been laid on the table about how companies can make better sales of their products or innovate better ways of being effective. Some of the theories released have been put to the test and many have worked. The biggest problem that some of these theories have encountered is their ability to outlast the times. Many theories have not yet outlasted the technological advancements and the social-economic shifts that are constantly changing with time over the last half a century. In effect, companies have constantly been on the lookout for new and more creative ideas, which will make it possible to match up the changing times that we currently have. In the process of doing so, one of the theories that have been brought up is “Value innovation”.
The paper below will give a vivid analysis of this new concept, showing a critical analysis of how much it has or has not been able to assist different companies in achieving effectiveness while looking for a market for their goods and services. While doing so, we shall look into a case study of a company that has taken up this approach in its business activities, making good of its advantages. Finally, the paper concludes by giving an honest opinion about the theory’s concepts, therefore giving reasons why it is or is not preferred.
Value innovation is a mix of different types of concepts. Since its conception, the theory has impressively worked for the companies that have taken it up. Statistics have shown that over 30 industries have created a “Blue Ocean” from the understanding and the internalization of this new concept. Alternatively, the companies that have decided to go the “Red Ocean” direction of diving into the competition have had their share of hard times. Blue Oceans are symbolic of peaceful seas, vast with loads of potential and with no one but just a few people to engage in exploiting the resources. The few people that get there, follow certain paths that are outlined in the concepts of value innovation and nothing but success can be expected. On the contrary, Red Oceans are symbolic of the grounds where competition is high; where every other company wants to get ahead of its competitor in the chase after potential customers.
The value innovation theory, which is the core structure of the “Blue Ocean” idea, mainly consists of four different concepts which when taken into consideration, will get a company into the “Blue Oceans” where the scope of customer potential is endless and where no disturbing amount of competition exists. The four steps are given below in brief.
Step 1: Avoid direct competitor confrontation
Research has shown that high-level innovation rarely takes place when one is involved in competition with other companies, whose innovation level is ranging within your own. In most cases, the process of seeking to beat the competitor makes the company focus less on the quality of the product and the core demand of the customer and the market. In essence, the downside of confrontation is that the company tends to make finer its specialization and in the process, loses a lot of its value. The traditional mindset involves head-to-head competition and this, as Kim and Mauborgne, the creators of this theory puts it, creates a “red ocean” situation, whose disadvantages are mentioned above. Nevertheless, the authors put it clear that “blue oceans” are found all around us if only we would look deeper and see (R-signs, 2006, p.1).
Step 2: Beat the Value Curve
After one has established himself as a company, he has to be careful enough with his competitor’s value curve. This curve is a comparison between the value of the product the company is offering in the market and the profit margin thereof. “Blue ocean” companies, in comparison with red ones give a completely different curve. McDonald Hotels’ is a perfect example. As more hotels concentrated on waiting services to impress their customers, the McDonald Group concentrated on the speed of service, having waiting services slashed down while minimizing the items on the menu (R-signs, 2006, p.1). They chose to concentrate on the “customers’ favorite” and they did so while increasing the speed of availability of the products to the customer. Waiting lines became outdated. In the end, profit margins were seen to increase exponentially with time due to the attraction the services had to the customers. Other hotels had their value curves in almost the exact way, while Mcdonald’s give a different outlook.
Step 3: The 6 Path Analysis
The third concept involves a path of analysis that will insist that the company look across its competitors in different aspects. Some of the aspects that a company has to focus on are factors like what industries across the board are currently doing. If the industry achievements prove to be a long way coming, one would rather focus on the possibility of providing service for a substitute instead of competing with the big companies. This is what Southwest Airlines did. Another factor to consider might be to link up one’s company strategically with other groups that are doing the same kind of business. Ralph Lauren did the same for the company’s cloth line collection, opting to go for common, more pocket-friendly types of clothes, after collaborating with another cloth line company.
Another factor that the company must take into consideration has to focus on the possible position in the chain of buyers. Being lower in the chain is more profitable for companies that are new and inexperienced. Another attraction to potential customers can be a company’s contribution to the emotional appeal to the customer. Companies that have succeeded in satisfying the customers’ emotional appeal are quickly gaining the trust of more customers. Finally, time should be considered. If one understands the times and the trends that concur with a certain product that it is selling, it becomes easy in capitalizing on the profits that one is making (R-signs, 2006, p.1).
Step 4: Interviews
The fourth innovative concept is more or less like the third, only that it specializes in the customer. The company needs to understand thoroughly issues like the kinds of buyers that heavily influence that particular industry. One should understand the class of buyers that are consistent buyers of that particular product, to understand the kind of system that is more suitable in satisfying that particular customer. The company might also want to examine the fears, frustrations, and emotions that the customers have and get a hold of the belief patterns of the customer. In taking interviews, one should not just do it at face value. Depth is required to understand the core issues that affect the customer. The mistake that most companies make is that they never get deep into understanding some of these deeply felt issues by the customers.
Brief Case Study
A company that has shown great improvement in terms of profit margins, innovation, and customer satisfaction is Southwest Airlines. A brief study about this airline showed that the company did not start as a big company. The airline came into existence at a time when bigger, better, and more experienced airlines like NetJet were already established. The company management had to be courageous enough to take up this huge mantle and propel the airline to a competitive position. New ways of getting hold of customers needed to be invented, and in doing this, new thinking patterns had to be adopted by the company to get a go-ahead as an airline (Field, 2010, p.5).
Some of the key factors that the airline considered were its points of focus. Management decided to focus more on friendly services. They would therefore outdo the other airline companies with their customer services and packages. They offered better pre-visit and post-visit services. In addition, they concentrated on speed. No airline could outdo Southwest Airlines in frequency and flexibility. Queues were less in their waiting rooms and computerization and minimization of protocol became one of the company’s greatest strengths. The company also thought more about air transport as an alternative to vehicle transportation. It, therefore, simplified its prices to compete with prices that alternative vehicle systems would offer. A “blue ocean” was almost instantly created by doing this.
In terms of numbers and comparison with other established companies, Southwest Airlines had a unique Value Curve. It stood out completely from the rest of the competitors like NetJet and this would make it a different airline, with increasing profit margins. In making a paradigm shift, it concentrated less on international flights and more on inter-city ones, taking a hold of the lead when it came to these short distance journeys. Southwestern Airlines made it clear to the customer that its services were customer-friendly. They concentrated on making the customer feel emotionally satisfied. With slogans that insisted that their prices were like those of car travel, the company attracted more to themselves. True to their word, they put prices that were fair enough for any customer who wished to travel such long distances.
Analysis and Opinion
With a fast-changing economy, business opportunities are getting flooded day after the other with heavy investment. There is a constant need for businesspersons to be innovative in many ways. The “Blue Ocean” status of a company is a unique position that a company can get itself to. Not many companies or organizations get to reach a “Blue Ocean”. The rate at which the blue ocean is created is quite low. This is in comparison to the number of companies created by the day. It is therefore impossible to assume that all companies, in one way or the other, will find a place in this kind of a state. This is synonymous with a competition whereby all the teams involved are expected to win. In any kind of competition, there will have to be winners and losers.
The same applies to the industrial sector. There will always be a particular company or two that will soar above the rest. Such companies like Southwest Airlines make up the minority of companies that think beyond the rest. Value Innovation, though a difficult concept, and more often than not expensive to implement, is a concept that will make a revolution to one’s business when done correctly. Some of the processes like carefully holding interviews, employing financial experts to make financial analyses, making sure that customer needs are met to the core, and many other factors to consider make it difficult for some of these processes to be implemented, simply because of the cost of implementation.
In my own opinion, the company itself should be allowed to figure out whether or not it will take up such a strategy. The amount of expense that the company is bound to undertake in the process is extremely huge. Data collection methods need to be advanced and the amount of research that should be carried out is a lot and is expensive. Small companies should go into this strategy with a lot of caution. Nevertheless, they should consider such practices as found in step 3 (Path analysis). New Companies should find a way in which to collaborate with other well-experienced companies to find a good standing for themselves. At the same time, they should always look into getting better ways of satisfying their customers’ emotional needs. Simple moves like having employees who are trained in courtesy go a long way in retaining customers. As for a company, that has business premises, good presentation, attractive frontages, and the exquisite presentation should be as frequent as possible.
The Value Innovation concept is an excellent theory for all companies that are willing to go the extra mile to acquire a better and free customer base and thus enter into the blue ocean. The ability for one to be creative enough to find a way to diversify the uniqueness of his service or product, to acquire a new customer base is not possessed by just any other person. A lot of thinking goes into innovation. The good side about this is that it can apply virtually across the board. Almost any company can reinvent itself to capture the attention of its customers. Whether the company is an established one, like Coca-Cola, or whether it is a small one like Southwest Airlines as it began its business venture. Innovation is on one and instinctive and on the other hand adoptive. One should have the courage to reinvent himself if he is to realize more effectiveness in his business. Alternatively, one can concentrate on downsizing his competitors and racing head-on with them to beat them in business.
- Field, Love. (2010). Southwest Airlines Co. Reference for Business.
- R-signs. (2006). An Introduction to Value Innovation. Business Innovation.