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

Value Chain Analysis - What is Value Chain Analysis?

The value chain is a systematic approach to examining the development of competitive advantage. It was created by M. E. Porter in his book, Competitive Advantage (1980). The chain consists of a series of activities that create and build value. They culminate in the total value delivered by an organisation. The 'margin' depicted in the diagram is the same as added value. The organisation is split into 'primary activities' and 'support activities.'

Primary Activities.

Inbound Logistics.

Here goods are received from a company's suppliers. They are stored until they are needed on the production/assembly line. Goods are moved around the organisation.

Operations.

This is where goods are manufactured or assembled. Individual operations could include room service in an hotel, packing of books/videos/games by an online retailer, or the final tune for a new car's engine.

Outbound Logistics.

The goods are now finished, and they need to be sent along the supply chain to wholesalers, retailers or the final consumer.

Marketing and Sales.

In true customer orientated fashion, at this stage the organisation prepares the offering to meet the needs of targeted customers. This area focuses strongly upon marketing communications and the promotions mix.

Service.

This includes all areas of service such as installation, after-sales service, complaints handling, training and so on.

Support Activities.

Procurement.

This function is responsible for all purchasing of goods, services and materials. The aim is to secure the lowest possible price for purchases of the highest possible quality. They will be responsible for outsourcing (components or operations that would normally be done in-house are done by other organisations), and ePurchasing (using IT and web-based technologies to achieve procurement aims).

Technology Development.

Technology is an important source of competitive advantage. Companies need to innovate to reduce costs and to protect and sustain competitive advantage. This could include production technology, Internet marketing activities, lean manufacturing, Customer Relationship Management (CRM), and many other technological developments.

Human Resource Management (HRM).

Employees are an expensive and vital resource. An organisation would manage recruitment and s election, training and development, and rewards and remuneration. The mission and objectives of the organisation would be driving force behind the HRM strategy.

Firm Infrastructure.

This activity includes and is driven by corporate or strategic planning. It includes the Management Information System (MIS), and other mechanisms for planning and control such as the accounting department.

by Mkt Teachers