What is Value Curve?

Blue Ocean Strategy

The term value curve appears in three key Harvard Business Review articles by W. Chan Kim and Renee Mauborgne, as well as their 2005 book - Blue Ocean Strategy. The value curve is a tool for strategic managers to see visually how their strategy works in relation to close competitors. It is not the same as a value chain since it does not focus upon internal sources of value, more so what our customers value from our products and services. However value curves and value chains can be used in conjunction - bridging the internal value creation with the external factors of competition valued by our customers.

This lesson is based upon Charting Your Company's Future (Chan Kim and Mauborgne 2002). There is an argument that more traditional strategic planning frameworks work sometimes, whereas on some occasions they don't. A traditional standard planning framework ultimately ends up as a document, having gone through a series of steps. Instead managers decide upon a strategy canvas - which has three stages. Firstly managers decide upon the critical factors that affect the nature of competition in an industry. Secondly managers consider how current (and potential) competitors invest in their strategy. Finally, a value curve is drawn up which paints a picture of how your company invests in factors of competition now and in the future.
So to draw your own value curve you should brainstorm the factors of competition and list them along the horizontal axis. Then mark along the vertical axis the extent to which the business invests in each factor of competition. Then map your own business and the business of your close competitors. Once strategy is crafted, you need to consider the three complementary qualities which characterise an effective strategy according to Chan Kim and Mauborgne - focus, divergence and a compelling tag line.

The authors cite Southwest Airlines as an example of good practices. Here we are going to apply the strategic canvas and the complementary qualities to Ryanair - the Irish low-cost airline which is one of the largest in Europe. Ryanair has a large number of competitive factors - although the most salient factors are as follows:

1. Ancillary services e.g. car hire, hotels, phone cards, coach tickets etc.
2. Low fares
3. Online booking
4. Secondary airports
5. Low cost advertising

 

References

Chan Kim, W. and Mauborgne, R. (2005), Blue Ocean Strategy, Harvard Business School Press.
Chan Kim, W. and Mauborgne, R. (2002), Charting Your Company's Future, Harvard Business Review, June 2002.
Chan Kim, W. and Mauborgne, R. (1999), Creating New Market Space, Harvard Business Review, January - February 1999.
Chan Kim, W. and Mauborgne, R. (1997), Value Innovation: The Strategic Logic of High Growth, Harvard Business Review, January - February 1997.

by Mkt Teachers