Using value innovation to identify and capture new growth opportunities

Using value innovation to identify and capture new growth opportunities

Gary Hourselt

Auto-industry manufacturers know that growth can bring security and – if managed properly – increasingly favourable profit margins. But as with most manufacturers, their growth strategies focus on juggling growth-related variables such as currency fluctuations, product revisions or alterations, Government regulations, price volatility, etc. Consequently, new product innovation advances in steps rather than leaps. This is unfortunate because making leaps in customer value is a proven strategy for sustainable growth.

To be able to take such leaps, auto-sector companies must exceed these incremental steps in new product development. Through our client relationships, observations and other research, TBM Consulting Group has concluded that — growth for long-term sustainability requires a well-planned strategy based on customer analysis that is both deep and continuous, and is supported by purposeful and constantly improving processes.

Many manufacturing executives believe continuous process improvement will automatically yield more revenue by freeing up cash, which it can do on a short-term basis. But process improvement alone won’t identify and capture meaningful growth opportunities. For this, companies must be market-driven, as well as demand-driven.

In this article, I will elaborate on what it means to be market-driven, and introduce concepts and tools that can help automakers identify and capture meaningful growth opportunities through new product development.

Market-driven companies use the same discipline that manufacturers have used for internal process management to find growth opportunities. They gather relevant customer information and apply proven analytical tools to uncover new, exclusive knowledge about their markets and customers, articulate this knowledge into a need, and create unique products and services to fulfil that need. This requires an investment in time and resources, and thus a staunch commitment from corporate leadership.
By contrast, the nature of managing operations in mature, low-margin markets frequently pressures leaders to push short-term goals, which depresses sustainable growth in favour of quick gains, i.e., cost reductions and/or incremental product changes. I have seen this often in:

· Companies that don’t know how to segment industrial markets or analyse their customers’ challenges.
· Top and middle managers who don’t know how to apply an industrial growth strategy to their company and so commit to a strategy that is inconsistent with the company’s core values, causing confusion and weak performance.

· Organisations that have the knowledge to feed innovation but lack commitment to decisions and actions that turn innovation into value; often, this happens because there are too many initiatives and not enough resources.

· To change, executives need to commit to a radically different approach to product innovation and support that commitment with a newly transformed growth strategy and adequate resources.

Redefining Value Through LeanStrategy Transformation

In their book Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant, authors W Chan Kim and Renee Mauborgne use the metaphors of blue oceans and red oceans to portray the importance of planning new product development differently than competitors do. If a company limits innovation to increments of what already exists, it is swimming in waters bloodied by competition; but if a company can identify an unfulfilled need and respond with a unique solution, it creates its own blue ocean that is free of competition. When this is done with upfront consideration to price and cost, the authors call this value innovation.

‘Value innovation is a new way of thinking about and executing strategy that result in the creation of a blue ocean and a break from the competition. Importantly, value-innovation defies one of the most commonly accepted dogmas of competition-based strategy: the value-cost