Value Innovation: How To Win In Crowded Markets By Ignoring Competitors - Frontera

🌈 Abstract

The article discusses how Rolls-Royce, a smaller aircraft engine manufacturer, was able to gain a dominant position in the booming commercial aviation industry of the 1960s by innovating on value rather than competing on traditional factors like price, speed, or efficiency.

🙋 Q&A

[01] Rolls-Royce's Value Innovation

1. What was the key problem that Rolls-Royce identified for airlines, and how did they solve it?

• The article states that the business model for aircraft engine sales created problems for airlines, as they had to pay unpredictable repair fees and ground aircraft during maintenance, which was critical for their low-margin businesses.
• Rolls-Royce solved this by offering a "Power by the Hour" program, where airlines only had to pay a fixed fee per flight hour. Rolls-Royce then handled all regular engine maintenance and unexpected repairs, aligning their incentives with the airlines.

2. How did Rolls-Royce's approach differ from the traditional competition in the industry?

• Instead of competing on price, efficiency, or speed like other manufacturers, Rolls-Royce focused on solving the biggest problem for airlines - unpredictable engine maintenance costs.
• They avoided competing on the same factors as the competition and changed the game by offering a new value proposition that no other competitor provided.

3. What were the key steps Rolls-Royce took to innovate on value?

• They eliminated the risk of unexpected repair costs for airlines.
• They reduced the costs of sporadic repairs and maintenance through predictive maintenance and economies of scale.
• They raised the importance of predictable engine maintenance costs, which truly mattered to airlines.
• They created a new business model with the "Power by the Hour" program, which was something the industry had never offered before.

[02] Lessons on Value Innovation

1. What are the four steps to value innovation outlined in the article?

1. Eliminate the unwanted factors that the industry takes for granted.
2. Reduce the unnecessary factors that increase costs without providing value.
3. Raise the factors that truly matter to customers, even if they are costly.
4. Create new factors that the industry has never offered before.

2. How does value innovation differ from traditional competition?

• Traditional competition focuses on incremental improvements to the same factors that the industry competes on, like price, features, and efficiency.
• Value innovation breaks this cycle by finding new ways to deliver value that competitors have not considered, rather than just trying to be slightly better on the same factors.

3. What are some examples of companies that have used value innovation successfully?

• Rolls-Royce with the "Power by the Hour" program for airlines
• Salesforce by providing CRM software in the cloud
• Dell by eliminating the need for intermediaries and selling computers directly to customers
• Zara by introducing fast fashion with new collections every season