The Value Innovation Concept of the Virgin Group - Assignment Example

Take Home Exam Student’s Name Course: Tutor’s name: Date: Question 2: “What an entrepreneur needs to be successful is not luck but great technology and good ideas. When pitching to venture capitalists it is important that you demonstrate how exciting the innovation is.” It is often said that luck is for the ill prepared; if this were true, it would be right to say that an entrepreneur that is well prepared in terms of having good and well-thought out ideas, and great technology would not need luck in order to succeed; rather, his success would come naturally based on the combination of the ideas and the technology. Good ideas are the result of entrepreneurs “doing things that are novel, unique or different” (Morris & Kuratko, 2000, p. 39). For the ideas to translate into innovations however, entrepreneurs must be committed to investing in their research and development as well as trials. In other words, luck usually does not count when it comes to innovations. As indicated by Michalko (2006), some innovations just occurred by chance; but this does not necessary mean that the innovator was lucky. For example, the hot dog (i.e. the Frankfurter sausage sandwiched in long bread) was developed by chance when in 1904, an entrepreneur by the name Antoine Feutchwanger found selling sausages on individual plates too expensive and offering his customers cotton gloves to prevent them from burning equally expensive. The ingenuity of baking the long bun and slitting it to hold the frankfurter was conceptualised by Antoine’s brother-in-law as he tried to help Antoine Out in finding a cheap solution to selling the frankfurters without burning customers’ hands (Michalko, 2006, p. 78). From this example, it is evident that the hot-dog innovation occurred because Antoine and his brother-in-law had the idea that there was a cheaper way of selling their products than what they were using at the time. The innovation was hence generated from the need to find out what the cheaper alternative was. In the end, their idea to use long buns to hold the frankfurters was complimented by their possession of the right tools (or technology) to bake the same buns. This then supports the statements position, and can be interpreted as an indication that a combination of great technology and good ideas guarantees the entrepreneur success. In other words, w hat looks like luck was just the ability by the entrepreneurs to notice a viable business opportunity and make use of it. The degree of success is however imprecise especially because some innovations are more successful than others. On the other hand, even what is perceived as good ideas and great technology can often result to a situation where the entrepreneur looses, wins, or simply survives as indicated by Dearlove and Crainer (2003, 2004, p. 2). In order to be guaranteed of success, entrepreneurs need to base their ideas on value innovation strategies that break away from already established markets into new markets with unserved needs and preferences. For example, the Body shop cited by Dearlove and Crainer (2003, p. 3) moved away from the highly saturated cosmetics consumer market segment and instead established natural beauty products for the niche market. By so doing, the Body Shop took advantage of the possibility that natural beauty products would have a large appeal among cosmetic users. Notably, the decision was not made purely on luck; rather, it is probable that Body Shop took a comprehensive visibility study among potential consumers regarding how they would respond to its ideas regarding natural beauty products. In other words, while ideas and technology are essential ingredients in the success factor, they need to be bolstered by market research and intelligence, strategies, and The importance of technology in ensuring entrepreneurs attain success is underscored by Hargadon(2003, p.8) , who defines it (technology ) as “the arrangement of people, ideas, and objects for the accomplishment of a particular goal”. In other words, technology plays a vital role in pursuing the strategy that entrepreneurs set for their enterprises. Entrepreneurs who pursue value innovation logic are especially willing to use their ideas and technologies to shape the conditions they operate in, have a different strategic focus from their competitors, and acknowledge that through innovation, some customer may be lost, but a lot more will be gained (Kim & Mauborgne, 1997). In some cases, the entrepreneur may be forced to go beyond the traditional offerings in his industry. Going back to the hot dog example indicated earlier in this essay, it is evident that the entrepreneur had to go beyond selling frankfurters alone, into selling frankfurters sandwiched in sliced buns. While there was a certain percentage of risk involved in such a move since the entrepreneur could have lost some customers, the results were quite rewarding as witnessed in the successful consumption of the hot-dog to date. . Notably, the subject statement is consistent with how the writer’s group approached the business planning assignment because as opposed to relying on luck to dictate the outcomes of the group work, members of the group engaged in activities meant to generate ideas and put them into practice. As such, the group could be said to have used a combination of technologies and ideas in its quest to attain success in its business planning project. Question 3: What is the value innovation concept? How can an organisation formulate its innovation strategy using the value innovation concept? The value innovation concept is best defined as business strategy that departs from the dictates of conventional logic in order to create breakthrough value curves for customers (Kim & Mauborgne, 1997). In other words, the value innovation concept indicates that companies need to redefine their products or services offerings beyond the prevailing market norms in order to stay ahead of competitors. In its core, the value innovation concept maintains that the business needs to break away from convention, and hence move away from market boundaries that constrain their potential. Through the concept, companies execute their strategies in a similar manner to new businesses. By so doing, such companies introduce new or different product or service offers and this places them ahead of their competitors and even sometimes ahead of the consumers (Kim & Mauborgne, 1997). Companies that use the value innovation concept often create fundamental “shifts in attitudes, behaviours, and structure of competitors, allies, potential partners, investors and other industry actors” (Hills & Sarin, 2003, p. 15). While the value inmovation concept sounds easy in theory, examples offered by Kim and Mauborgne (1997) create the impression that it is often a challenging aspect applying theory in real-life cases. For example, organisations have to justify their actions not only to their staff, but also to the shareholders and customers. This is in addition to the fact that companies which adopt the value innovation concept have to foster a questioning attitude that enables them to discovered uncharted market areas that could become the target of future strategies (Kim & Mauborgne, 1997). Organisations can formulate their innovation strategies using the value innovation concept by targeting what Kim and Mauborgne (2005, p. 22) call ‘blue oceans’. The term blue oceans is used symbolically to denote the untapped markets, whose demand is yet to be created, and which hold the potential for profitable growth. The blue oceans are unlike the ‘red oceans’, which are characterised by crowded market spaces, cutthroat competition, and reduced growth and profits potentials (Kim & Mauborgne 2005, p. 22). In other words, Kim and Mauborgne (2005) recommends a strategy, which instead of focusing on beating competition, companies should seek to make competition irrelevant. The authors recommend that “creating a leap in value for buyers” and the company opens up uncontested markets for companies (Kim & Mauborgne, 2005, p. 22). As such, innovation strategies based on the value innovation concept are bound to introduce new product dimensions or value propositions that may take time before competitors catch up with and hence replicate. Notably, and as indicated by Kim and Mauborgne (1997, p. 107), companies that base their innovative strategies on the value innovation concept must “align innovation with utility, price and cost positions” in order to benefit from the strategies. Failure to align the innovation in such a way may lead to a situation where they innovate, but fail to fully attain the benefits associated with their innovations. Through the ERRC practical actions, companies can restructure the value perceptions held by customers by answering four questions from where the ERRC acronym if derived. They include “Which factors that the industry takes for granted should be eliminated?”; “which factors should be reduced well below the industry’s standards?”; “which factors should be raised well above the industry’s standards?” and “which factor should be created that the industry has never offered?” (Kim, In, Baik, Kazman & Han, 2008, p. 80). In other words, the ERRC analysis points to what needs to be eliminated, reduced, raised and/or created in order to access the blue ocean markets. For ERRC to be effective, it must be based on customer requirements and preferences, systems elements and the relationship between the two (Kim et al., 2008, p. 81). Applying the ERRC analysis on the Virgin Atlantic example given by Kim and Mauborgne (1997, p. 111) for example, it is clear that in a bid to break from the red ocean (i.e. the competitive airline industry where differentiation was only based on airfare charges), Virgin Atlantic eliminated first-class services. While this was perceived as a wrong move on its part by critics, the company’s actions were informed the fact that besides being a big cost generator, the first class service was not as profitable as the business class service. Secondly, Virgin Atlantic sought to reduce the market segments it was serving; as such, instead of focusing on offering services to both the first-class travellers and business-class travellers, it reduced its market focus to just one market segment, i.e. the business traveller. Next, Virgin Atlantic sought to raise the value of service offered to the business travellers who were now the main target market. As such, the company introduced the “larger, reclining sleeper seats”, which raised the seat comfort for business travellers beyond levels ever experienced in the airline industry (Kim & Mauborgne, 1997, p. 111). Finally, Virgin Atlantic created a new trend in service provision where its customers were ferried by limos or motorbikes to the airport, and later, the creation of lounges that had different facilities meant to meet the needs of the business traveller. Overall, Virgin Atlantic succeeded in creating innovative service offers, which placed it at a unique competitive market position compared to its rivals. Question 5: “Barriers to imitation are rarely needed to appropriate value for innovation” Barriers that entrepreneurs use to protect their innovations According to Baron and Shane (2005, p. 246), entrepreneurs use four main barrier to protect their innovations: they include “obtaining control of resources”; “obtaining a legal monopoly”; “establishing a reputation”; and “innovation”. All the four identified barriers are essential if an entrepreneur can no longer shield the trade secret, the causal ambiguity or the tacit knowledge regarding the innovation from leaking to his competitors (Baron & Shane, 2005 p. 243-244). The brand Virgin in Australia has been one of the innovative products which either through default or design protected their innovations through two of the four barriers identified above. To start with, and as noted by Lloyd (2005), the Virgin Group which is owned by Sir Richard Branson has upheld an innovative trend, which though copied by some competitors, always manages to keep the group ahead of the competition. As indicated by Lloyd (2005, p. 45), “Virgin Blue reinvented the entire Australian domestic airline industry” through inventions such as virgin mobile phones and virgin credit cards among others. Notably, this type of barrier has earned the Virgin Group trust among consumers, and as Lloyd (2005) indicates, the innovation leaves the consumer market anticipating for the next product release. The Virgin Group has also utilised the art of establishing a reputation for itself as a barrier that protects its innovations. As indicated (though implicitly) by Lloyd (2005, p. 45), Branson’s personality and entrepreneurial attitude have been greatly publicised in Australia. Specifically, the business mogul appears in Virgin Group advertisements and this only serves to enhance his appeal to the consumers. In a society that cherishes hard working entrepreneurs, it is obvious that Branson has used his personality positively to create barriers that hinder competitors from benefiting overtly from his company’s innovations. As indicated by Baron and Shane (2005, p. 246) “by creating goodwill among customers, an entrepreneur can keep customers from shifting their allegiance to other firms and this keep the profit from exploiting the opportunity to themselves”. Evidently, Branson and the Virgin Group have arguably been successful in creating goodwill among Australians, most especially those who love for people who dare to challenge the norm and the ‘big guns’. Notably, and as indicated by Lloyd (2005, p. 45) Branson has managed to create a brand whose innovations, even though imitated by rival companies still have a unique image and value proposition that is not easily replicated by others. Asked what makes an innovative business, Branson answered that is the ability to live and breathe “outside the box” (Tidd , Bessant & Pavitt, 2005, p. 2). Additionally, he stated that whilst the good ideas are important, an instinctive understanding of what the customer needs and keeping staff motivated are key ingredients to enhancing motivation in the business (Tidd et al., 2005, p. 2). This could be interpreted to mean that as an entrepreneur, Branson is well aware that barriers to innovations, through unique strategies like motivating the employees and using instinct to understand what customers need and want are essential to succeeding in competitive markets. Based on the above, the question on whether barriers to innovation are ever necessary is best answered in the affirmative. In other words, although barriers to imitation may not prevent competitors from copying one’s innovation, they position the innovator uniquely in the minds and eyes of the consumer hence mellowing the negative effects that could have been generated by the imitators. For example, by establishing a reputation as a company that innovates and presents its customers with unique value propositions, the virgin Group through its card was able to create the perception that it was the bona fide initiator of the virgin credit cards in the Australian market. In the minds of Australians therefore, other airlines that introduced credit cards for issuance to customers was only secondary to Virgin. To answer the question therefore, it appears that the barriers to innovation are necessary since they enable the innovator to benefit from his inventions, while restricting the benefits that the imitators can access from the innovation to just a fraction of what the innovator can attain from the innovation. Interpreted, this could mean that the barriers act as an incentive to encourage more entrepreneurs to innovativeness. History indicates that several innovators have lost their innovations to imitators, who not only perfected the innovation, but also managed to pass the same as their own through technical and legal appropriation, and having the complimentary assets needed to take the innovation forward. For exam, the diet cola was RC Cola’s innovation, but Coca-cola and Pepsi were the imitators who enjoyed the returns of the innovation (Ceccagnoli & Rothaermel, 2008, p. 12). The same case applies to De Havilland being the innovator of the commercial jet but Boeing being the imitator who has made good business sense from the same and enjoyed the returns on the innovation (Ibid.). The two examples given here are just two among many, which indicate the necessity of protecting innovations from imitators if only to appropriate returns to innovations that the business may have invested times and resources into. References Baron & Shane 2005, Entrepreneurship: a process perspective. Pp. 239-266. Ceccagnoli, M. & Rothaermel, F. T 2008, ‘Appropriating the returns from innovation’, Technological Innovation, vol. 18, pp. 11-34. Dearlove, D. & Crainer, S 2003, ‘Flouting conventional wisdom’, Chief Executive, vol. 188, May, pp. 1-3. Hargadon, A 2003, How breakthroughs happen: the surprising truth about how companies innovate, Harvard Business School Press, Boston, MA. Kim, C. & Mauborgne, R 1997, Value innovation: the strategic logic of high growth. Harvard Business Review, January-February, pp. 103-112 Kim, C. & Mauborgne, R 2005, ‘Value innovation: a leap into the blue ocean’, Journal of Business Strategy, vol. 26, no. 4, pp. 22-28. Kim, S., in, H.P., Baik, J., Kazman, R. & Han, K 2008, ‘VIRE: sailing a blue ocean with value-innovative requirements’, IEEE Computer Society, pp. 80-87. Llyod, S 2005, ‘Branded a winner’, Aim agenda _BRW, p. 45. Michalko, M 2006, Thinkertoys: a handbook of creative-thinking techniques, (2nd Ed.), Ten Speed Press, Berkley, CA. Tidd, J., Bessant, J. R., & Pavitt, K 2005 Managing innovation: integrating technological, market and organisational change, (3rd Ed.), Wiley & Sons, Hoboken, NJ. Hills, S.B. & Sarin, S 2003, ‘From Market driven to market driving: an alternative paradigm for marketing in high technology industries’, Journal of Marketing Theory & practice, vol. 11, no. 3, pp. 13-24. Read More