The Value Path
By Peter G.W. Keen, Ronald O. Williams
Embedding Innovation in Everyday Business When the Customer Makes the Rules. The only measure of innovation is the value it creates. The challenge is to generate value today and be able to sustain it when you can't predict change. The starting point is to take a fresh look at "value." It isn't fixed but a moving target that is a function of an expanding choice space for customers and providers.
"Innovate or Die" is the mantra of our times. But can your firm be sure that it will not innovate and die? Why do companies like Amazon, Li & Fung, Google, Bharti Airtel, Apple and Tesco thrive in a changing environment while others like Dell, Nokia, RIM, Sony and Gap, once as much the competitive stars as these, find themselves struggling?
The explanation is deceptively simple; it's all about how firms view and target value. The Value Path reviews companies like Amazon, Google, Tesco, Bharti Airtel, FedEx, Zara, Apple, and Ryanair in detail. We show the common patterns in how such leaders manage their resources that you can apply to your own business to make innovation part of everyday business life rather than special and high investment/high risk initiatives.
These archetypes all have a value architecture built for delivery today and adaptation for tomorrow: (1) a value narrative about how and where it plans to create value both for the customer of today and of tomorrow; (2) a value engine that makes sure it can deliver and balance value for both customers, the company, partners and investors; and (3) an opportunity platform that enables the company to adaptively exploit the forces of change through innovation. Every firm needs such a value architecture, but most have only business models about what they want to be with no clear value path for getting there and moving on beyond the model.
We detected a common set of resource blueprints from these archetypes that we have depicted on the six faces of what we call the Innovation Cube. Effective value architectures keep these in balance.
Branding: they brand the customer experience and add new dimensions of value - something different from competitors, not just better in terms of existing dimensions like price or features. They avoid the Commodity Trap that marks the consumer electronics market and most markets where leading competitors have the same products, technology and prices. Apple brands design, Amazon brands the shopping experience, and FedEX first branded on-time guarantees.
Finance: they focus on capital efficiency and substitute relationships for assets. They avoid the Asset Trap, where companies are locked into their manufacturing, distribution and R&D fixed base. They keep costs low on behalf of the customer; they can then afford the best service at the lowest prices, as Southwest Airlines has done for so long.
Human Capital: they source capabilities rather than just build in-house core competences. They hire the best and focus incentives and metrics to foster innovation centered on creating new dimensions of customer value.
Technology: They build their information technology architecture to provide innovation through interface to a wide range of ecocomplex partners, often frenemies - friends who are also competitors. They adopt standards that allow direct electronic connection as the base for all aspects of their operation today and their innovation opportunities for tomorrow.
Corporate assets: They are asset-smart, owning only what they can be sure they will continue to need. Li & Fung has made continuing very high returns on capital by coordinating the global manufacturer-retailer apparel supply chain. It doesn't need to own factories.
Ecocomplex relationships: Entrepreneurs increasingly build ultrasuccess through partnering. The pharmaceutical industry thrived in the old environment on fixed assets, R&D and market control. That doesn't work and the new priorities are collaboration and coordination in win-win relationships.
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