Value innovation and how to successfully incubate “blue ocean” initiatives

“The creators of blue oceans, surprisingly, didn’t use the competition as their benchmark. Instead, they followed a different strategic logic that we call value innovation… instead of focusing on beating the competition, you focus on making the competition irrelevant by creating a leap in value for buyers and your company, thereby opening up new and uncontested market space.” – Kim and Mauborgne (2005)[1]

“In Blue Ocean Shift, people and our human spirit are put on an equal plane with a tested process and market-creating tools to move you, your team and your organization from red oceans in a way that people own and drive the process to succeed.” – Kim and Mauborgne (2017)[2]

The publication of Michael Porter’s Competitive Strategy in 1980 marked a watershed in the history of the strategy field, and the period since has been marked by the flowering of three major perspectives, each with its own set of tools and frameworks, which taken together have greatly advanced our capacity for strategic analysis and strategy development. Two of the three are “strategic positioning” (Porter) and “core competency” (C.K. Prahalad and Gary Hamel).[3] Both were primarily concerned with sustainable competitive advantage and how to develop it.[4]

Value innovation and its three main variants

The emergence of the third perspective, “value innovation,” is arguably the most exciting development in the strategy field in the last two decades. There have been at least three major variations on this theme to date: “blue ocean strategy” (Chan Kim and Renee Mauborgne), “disruptive innovation” (Clayton Christensen) and “value co-creation” (C.K. Prahalad and Venkat Ramaswamy).[5] The three share some common characteristics that distinguish the value innovation perspective from an approach that seeks to sustain an established position. These are:

• Viewing the basic strategy challenge as how to create and capture new demand.

• Shifting the primary emphasis in strategy development back onto the customer rather than the competition.

• Recognizing major new demand potential in current “non-consumption” and ways to overcome it.

• Aiming for a “value breakthrough” (or leap in value), usually through business model innovation – changing the game.

Where: $$\text{Value\hspace{0.17em}}=\frac{\text{Customer\hspace{0.17em}benefits}}{\text{Cost}}$$

The three approaches highlight somewhat different types of new market space opportunities. Blue ocean strategy tends to focus on value innovation that uncovers new...