Team #1 Andrew McDaniel Brad Schaefer Brandon Christian Robert Pace Ryan Schafer

Barriers to Imitation Value Innovation goes against a companies conventional logic BOS may conflict with other companies brand image Natural Monopoly: No market support for 2 nd Player Patents or legal permits block imitation

Barriers to Imitation High volume gives cost advantage to the innovator which discourages imitators. Network externalities discourage imitation Imitation often requires political, cultural and operational changes Companies that value-innovate earn loyal customers off their brand buzz

When to Value-Innovate Again Monitor Value curves for when to innovate again Continue to progress in your blue ocean to stay ahead of imitators as long as possible. When supply exceeds demand, rivalries will intensify

Common Patterns amongst three industries There is no permanently excellent industry. The attractiveness of all industries rose and fell over the study period. There are no permanently excellent companies. They all rose all fell over time. Company’s prosperity and growth was the strategic move of the blue ocean creation.

Common Patterns amongst three industries (cont.) Blue oceans were created by both industry and incumbents and new entrants, challenging the lore that start ups have natural advantages over established companies in creating new market space. The creation of the blue ocean was not about technology per se. But rather, the key defining feature was innovation that was linked to buyer value.

Automobile Industry Autombiles have been around since 1893 The Duryea brothers launched the first one-cylinder auto The average cost of an automobile was $1500 and was considered a luxury item Only the extremely wealthy could afford them.

Model T 1908 Launch of the Model T developed by Henry Ford. Called the car “for the great multitude, constructed of the best materials.” Was reliable, durable, easy to fix and priced so the majority of Americans could afford one.

General Motors GM introduced a car for every purse and purpose in Created a fun, exciting, comfortable, and fashionable car. Had many different colors unlike Model T’s solid black.

Small, Fuel-Efficient Japanese Cars 1970 they changed the trend from “ the bigger the better” to creating a smaller more efficient car. This spurred from the oil crisis of the 1970’s

Chrysler’s Minivan 1984 Chrysler unveiled the minivan Broke the boundary between car and van Was exactly what the average family need to hold the entire family, dogs, and other necessities. Drove like a car but had room of a truck/van Lead to the SUV boom of the 1990’s

Compaq PC Servers ProSignia Grew PC server industry to $3.8 billion

Dell Direct sales to customers 40% less than IBM 4 day delivery Customer customization

Movie Theatre Industry Kinetoscope Nickelodeons Palace Theatre Megaplex

Appendix B – Value Innovation Strategies need to be related to specific industry structure Two basic strategic views here: Structuralist view deals with strategy changes based on external factors to the company’s structure, buyer and seller conduct, and end performance Reconstructionist view theorizes that economic structure can be changed by forces internal to the organization

Reconstructionist View If your strategy is molded from within your organization, you need to replicate not others ideas, but their innovative techniques. New Growth Strategy This internal mind-set is essential for firms that want to enter Blue Oceans and have new, different customer demands

Optimal Strategy View? Structuralist vs. Reconstructionist views Blue Ocean seekers use Reconstructionist view tend to focus on buyer value elements in products, not strategies based on operations, cost or technology advancement. This view ignores that there are boundaries of the structure of an industry which creates a blue ocean of new market space

The Market Dynamics of Value Innovation Increases the appeal of a good (D1 to D2) Increases quantity sold (Q1 to Q2) Reduces costs in the long run Increases Buyer Value (yellow to Green) Huge profit growth (red to blue) Must set prices strategically (P1 to P2)

Graphed D1 D2D2 P1 P2 Markets Dynamics of Value Innovation

Traditional Monopolies Set high prices Have high costs Consume more resources Society, consumers, and the company

Perfect competition to a Monopoly AB C P1 P2 Q1Q2

QUESTIONS?