What are some aspects of a firm’s strategy for dealing with change when it considers Creating New Markets?

A scholarly article by Kim and Renee (2015) describes how the Four Actions Framework asks four key questions about an industry’s strategic logic to give a revealing new look at old perceived truths. Gallagher (2007) describes that products and services have dominant designs which meet the requirements of many classes of buyers (Gallagher, 2007). Likewise, industry standards include the interface format that creates a single network of compatible users (Gallagher, 2007). Being said, the Four Actions Framework can give insight into necessary changes needed to meet the standards of the dominant group or a specific niche. The first consideration is to eliminate factors that companies have competed with but are now being taken for granted, no longer are considered valuable by buyers, or distract from the value (Kim & Renee, 2005). Next, a firm should ask which factors of products or services should be reduced below the industry standard because they have been overdesigned or customers have been over-served in the race to match and beat the competition (Kim & Renee, 2005). The eliminating and reducing considerations help a company gain insight into how to reduce its cost structure compared to competitors (Kim & Renee, 2005). Furthermore, these factors give a company insight into how to reconstruct buyer value elements and offer buyers a new experience while keeping costs low (Kim & Renee, 2005). The third consideration when creating new markets is to eliminate the compromises an industry forces customers to make by raising factors above industry standards (Kim & Renee, 2005). Lastly, a firm must discover entirely new sources of value for buyers which will result in the creation of new demand and a shift in the strategic pricing of the industry (Kim & Renee, 2005).

How can the Value Curve be used to anticipate change?

According to Kim and Renee (2015), the value curve is a graphic representation of a company’s relative performance across its industry’s factors of competition. The value curve helps managers imagine how new disruptions might be targeted and allows for plotting of how major groups of firms are competing which leads to underlying assumptions that firms make about the market and their customers and how they are positioning their products (Carpenter & Sanders, 2008). A scholarly article by Sheehan and Bruni-Bossio (2015) describes that the value curve can be utilized to anticipate change by performing a strategic value curve analysis because it will illustrate if value propositions firms are promising to customers are fulfilling customer value propositions. Sheehan and Bruni-Bossio (2015) note that firms are underperforming because they properly execute the wrong value proposition’s deliver, or fail to properly execute the right customer value propositions’ delivery. To identify these differences, the horizontal axis of the value curve should include each of the attributes that target customers use to make their purchase decisions, starting with the most important (Sheehan & Bruni-Bossio, 2015). Next, the value curve should have the promised value proposition ranking for each of the listed attributes (Sheehan & Bruni-Bossio, 2015). Lastly, the value curve should have a ranking of each attribute for what the firm currently delivers to its customers (Sheehan & Bruni-Bossio, 2015).

The differences between the promised value proposition and the delivered value proposition represent execution gaps and if the firm wants to live up to promises made to customers, the firm must invest in improving the delivery of attributes where there are negative gaps (Sheehan & Bruni-Bossio, 2015). In fact, Jaruzelski, Staack, & Goehle (2014) find in a 10-year analysis that the number one focus and frequency of innovation is to align the innovation portfolio with customer needs and wants. Being said, those companies that are a better-aligned business in innovation strategies have a significantly higher operating income growth and higher shareholder returns (Sheehan & Bruni-Bossio, 2015). Prior to the alignments, there were negative gaps between the promised value proposition and the delivered value proposition. Therefore, when negative gaps are present, it’s likely that change and innovation are on the horizon.

REFERENCES

Carpenter, M. A., & Sanders, W. M. (2008). Strategic Management: A Dynamic Perspective – Integrated StraitSim Simulation Experience. Upper Saddle River, NJ: Pearson Prentice Hall.

Gallagher, S. (2007, May). The Complementary Role of Dominant Designs and Industry Standards. IEEE Transactions on Engineering Management, 54(2), 371-379.

Jaruzelski, B., Staack, V., & Goehle, B. (2014). Proven Paths to Innovation Success – Ten years of research reveal the best R&D strategies for the decade ahead. Strategy + Business(77), 1-17.

Kim, C. W., & Renee, M. (2005). Blue Ocean Strategy: FROM THEORY TO PRACTICE.California Management Review, 47(3), 105-121.

Sheehan, N. T., & Bruni-Bossio, V. (2015, May-June). Strategic value curve analysis: Diagnosing and improving customer value propositions. Business Horizons, 58(3), 317-324.