Aligning Utility or Usefulness to Create Value Innovation

In order to have value innovation, the value to the customer, the price to the customer and the cost to the company, must all be aligned. If any of these three elements are out of alignment, the initiative will not be a commercial success. Just try to have the price out of alignment with the cost. The company will lose money. Or have the price not in line with the value to the customer, the customer won’t buy and the product won’t be a commercial success.

Value can be such a nebulous word. Kim and Mauborgne, the researchers and authors of Blue Ocean Strategy, simplify it by describing six ways you can be valuable to a customer. They describe the word utility as the usefulness or value that provides the reason customers will buy. There are six ways a company can provide value: increase productivity, improve simplicity, improve convenience, reduce risk; be fun and/or improve image and be environmentally friendly. Virtually every value you can come up with will fall in one of those six broad categories.

According to the free dictionary, value innovation is a business strategy that involves thinking about strategy in terms of creating entirely new markets or redefining existing markets. The concept was also created by Kim and Mauborgne. There are five dimensions of Value innovation:

1. Industry assumptions: These are the usually unwritten rules of the industry. Value innovators challenge and leapfrog these. Years ago, for example, the professional services industries (such as law and medicine) had an unwritten rule about not advertising for patients or clients.

2. Strategic focus: Value innovators use the new tools to create new markets rather than follow existing ones. These new tools include the strategy canvas, four actions framework and other tools.

3. Customers: Rather than looking for differences, they look for commonalities between customers. Value innovators do not segment into smaller and smaller niches. Rather they group segments or niches by finding the common ground so they can create larger and larger markets to serve.

4. Assets and capabilities: Value innovators build capabilities to fit the market rather than defining the market according to their capabilities. They get out of their own way by continually growing their capabilities and learning new ways to add value. Sometimes the capabilities needed are less than the company can offer. For example, Casella wine was capable of aging wine, but the market they were after indicated that aging didn’t matter to them. Casella created a wine that wasn’t aged, creating a major cost saving.

5. Product and service offerings: Value innovators offer goods and services that customers value even if it means moving outside their established business. Cirque du Soleil saw that the circus non customer really valued the venues of other industries such as theater, dance, and opera. They included those offerings as they re-invented the circus.

For a free copy of the Customer Utility Chart, email your request to me at info@corporatestrategy.com with your name, company and email address

Dr. Sarah Layton, CMC, CEO and Managing Partner of Corporate Strategy Institute, is a certified management consultant and motivational speaker. Blue Ocean Strategy, outlines the processes of removing the fight for competitive advantage and the battle for differentiation typical of many corporate strategies.