2LEARNING OBJECTIVES What is strategy? What is an innovation strategy? What is value innovation?How can this be applied to understanding the circus industry?What is a disruptive technology/innovation?Prep readings:S. Anthony, M. Eyring, L. Gibson. “Mapping Your Innovation Strategy”. Harvard Business Review, May W.C. Kim, R. Mauborgne. “Creating New Market Space.” Harvard Business Review, Jan-Feb 1999: pp CASE: Evolution of the circus industry (A). M. Williamson, W.C. Kim, R. Mauborgne & B.M. Bensaou , Case 06/ : INSEAD (6 pages).Questions:1. What were the factors the traditional circus competing on? What did you like or dislike about the traditional circus? 2. Is it possible to find new market space in the circus industry?Handouts needed for this class:Even a clown can do it (B), INSEAD Case by M. WilliamsonBlue Ocean strategy, HBR Ost 2004 by W.C. Kim, R. Mauborgne
3STRATEGY?A strategy is the way in which an organization chooses to meet its goals and objectives.A strategy defines appropriate decisions and actions.Strategy: the way a company achieves it’s objectives.
4INNOVATION STRATEGY?Innovation strategy determines to what degree and in what way a firm attempts to use innovation to execute its business strategy and improve its performance.What does an innovation strategy include?Target: What market?Ideation: What innovations?Conversion: How to plan, select and develop innovations?Diffusion: How to commercialize?An innovation strategy: how will you achieve innovation in your organization?Pick the market:Where will you play? What is your market? Why is this the right market for you? What opportunities and threats exist in this market? Is this the same market you always target? What does this market want/need?Example – does Harvard Summer School target the same market as Harvard Business School or Medical School? What advantages does Harvard achieve by serving the extension market?Pick the innovation (ideation)What will work – for you and the market? What are the options?Plan, select and develop (conversion)Criteria? Testing? Motivation for employees? Who decides?Commercialize (diffusion)Analyze the results, reassess your criteria, test and launch.This paper takes the Hansen & Birkinshaw Innovation value chain of idea generation, conversion and diffusion and applies to to finding non-obvious opportunities based on non-traditional assumptions.
5Typology of Strategies (James Gardner ) Play-to-win strategyPlay-not-to-lose strategyExplorationExpectation of a significant competitive advantageRelies on semi-radical and radical innovationsNew technologies and business models for breakthrough innovationsLead the competitionExploitationMaintaining existing competitive advantageIncremental innovation to strengthen existing productsKeeping up with the competition
6An example of internal process innovation in PNTL Strategy
7Example of Amazon, PTWComplete redesign of business model for delivery of books from publisher to consumerHeavy reliance on technologyResponsibility for shipping with publisherRequired heavy up front investmentNow has expanded beyond booksChallenge was that it took 10 years to turn a profit.
8VALUE INNOVATION Kim & Mauborgne Research showed that managers of high-growth companies think in terms of value innovation while managers of less successful companies think in terms of conventional strategic choices. And…Represent…Incremental InnovationsRadical Innovations% of launches..86%14%% of revenue..62%38%% of profits…39%61%Examples provided of Formule 1 Hotels that minimize the perks and maximize convenience, and Kinepolis movie theatres that super-sized the movie theater experience.
9VALUE INNOVATIONCreating products or services for which there are no direct competitors – and use those offerings to stake out and dominate new market space.Examples:Quicken Software from IntuitStarbucksHome Depot
10Traditional Circus Industry How would you assess the attractiveness of the circus industry in the early 1980’s? What would you conclude from your industry analysis?What were the factors the traditional circus companies competed on? What do you like or dislike about the traditional circus?How would you assess the attractiveness of the circus industry in the early 1980’s? What would you conclude from your industry analysis?RivalrySupplier bargaining power – acts provided by individual ‘subcontractors’, some very famous. Star acts can demand significant salaries and top billing.Barriers to entry in little league very low but in big league very high.Threat from substitutes – video games, professional sporting events, theater, etc.Buyer bargaining powerWhat were the factors the traditional circus companies competed on? What do you like or dislike about the traditional circus?Demand side – demand shrinking.Frustrations:Debilitating huckster reputationFeels unprofessionalCold, uncomfortable3 rings, can’t see everythingKids upset if they don’t get the expensive stuffEven clowns look sadAnimals used for human entertainment, they look sadSuspicion about animal (and employee) treatmentAnimals’ smellBenefitsMagicWorld of amazement and exceptional strength/skillsWonder and illusionReal action and movementLive entertainment outsideSense of danger and riskFun and light entertainmentFamily eventRealities:
11Origins of the Circus Classic circus: Equestrian acts Clowns Acrobats JugglersCreated by Philip Astley in 1768
12Evolved to the 19th & 20th Century Ringling Brothers and Barnum & Bailey’s Circus Three-ring formatEmphasis on spectacleMobile circusTypical clownsStar performers such asTom Mix, Rodeo RiderClyde Beatty, wild animal trainerRevenue based on ticket sales and concessions (80/20)
13Challenges Logistical requirements of tearing down and setting up Core workforce supplemented with local hiresItinerant nature makes estimating ticket sales difficultMarketing and publicity usually happens when the circus arrives in townVenue: tent, civic arenasLocations: towns & citiesLogistics:local help plus core workforce plus star performersset up and tear downpermanent tourssimultaneous, subcontracted actsleased animalsValue: spectacular, spectacle, exotic, novelty (once/year)Business model: ticket sales = 80%; concessions = 20%; unpredictable incomeMarketing – advance teams, entrance performanceIn 1997 – 90 US travelling circuses; revenue = from $50,000 to $1 million/year; performers
14Current State Ringling Brothers Modernizes But who is their target market?In 1984 a new option is bornWho is the audience for the “non Circus”, Cirque du Soleil?What is different?Even a Clown can do it!Cirque du Soleil video on Organizational Behavior CD, disc one – 10 mins
15QuestionsWhen you compare Cirque du Soleil with the conventional circus, which are the factors kept by Le Cirque? Which ones were downplayed and which ones were played up?Which factors were eliminated by Cirque du Soleil? What are the operational and financial implications?What factors were created by Cirque du Soleil? Where did the idea come from?
16Cirque du Soleil challenged the assumptions of the industry: Traditional CircusCirque du Soleil3 RingStar PerformersSeasonalOne ShowChild AudienceAnimalsUnrelated ActsNo Music/DanceLow PriceHigh Push for concession salesEmphasis on fun/thrillsFunctional watching environmentOne ringNon-star PerformersYearlyMultiple productionsAdult audienceNo animalsStory/themeIndividualized Music/DanceHigh priceProfits from ticketsEmphasis on artisteryRefined watching environment
17BLUE OCEAN STRATEGY W. Chan Kim, Renée Mauborgne Create uncontested market spaces where the competition is irrelevant.Invent and capture new demand, and offer customers a leap in value while streamlining costs.As opposed to red ocean strategies which represent all industries in existence – the known market space. Industry boundaries are defined and accepted, and the competitive rules of the game are well understood.
18“We reinvent the circus” Cirque du Soleil invented a new industry that combined elements from traditional circus with elements drawn from sophisticated theater.
19Red Ocean Versus Blue Ocean Strategy Red Ocean StrategyBlue Ocean StrategyCompete in existing market space.Beat the competition.Exploit existing demand.Make the value/cost trade-off.Align the whole system of a company’s activities with its strategic choice of differentiation or low cost.Create uncontested market space.Make the competition irrelevant.Create and capture new demand.Break the value/cost trade-off.Align the whole system of a company’s activities in pursuit of differentiation and low cost.