15-Value migration model

What makes innovation, especially in today’s markets, so vital for the firm, calling attention to value migration and business model transparency?

BUSINESS MODEL PERFORMANCE

Innovation adds distinctive value to the buying and using experience of customers. Invention merely constitutes a new way of doing something.

Several new dimensions of innovation have emerged, including accelerating pace of invention, more powerful ways of collaborating with customers, and the fusion of marketing and innovation into the alloy of customer engagement.

The new technologies supporting the customer engagement cycle will incite innovation of many fronts, adding distinctive value to customers and erecting competitive barriers.

A new arms race has begun. Customer loyalty and advocacy remains the prize. The “how” of creating and maintaining loyalty and advocacy of customers will continue evolving with each new innovation in a firm’s ability to respond to the market and customer requirements.

The pace of innovation across an expanding frontier of customer engagement will render it all but impossible for marketing leadership to track, intercept, interpret, integrate, and execute all likely strategic innovations.

Strategic innovation not only adds significant new value to customers; strategic innovation expands existing markets, creates new markets, and reduces the cycle times of creating new revenue channels and markets.

The figure below depicts the second most important aspect of innovation: the financial performance of a business model and the combined contributions of innovation and marketing to the business.

First introduced by Adrian Slywotzky in the pioneering book Value Migration, the term value migration indicates that over time in competitive markets, the relative value of competing firms change.

This simple but bold formulation states that a firm’s relative share of total market capitalization (within a sector of comprised of it main competition) quantifies that firm’s ability to capture value.

In the case of personal computers, some firms such as Dell has lost many tens of billions of dollars in its relative share of market capitalization.

Some firms such as HP have maintained their relative shares (when subtracting their superior performance in other areas of their business).

Finally, some firms such as Apple have capture many tens of billions in relative share of market capitalization, supporting the claim that Apple has deployed a more efficient business model.

Apple has used a superior business model that captures value from its strategic innovations: iPods, iMacs, and iPhones.

Thus, innovation when coupled with the right business model creates new wealth.

It then follows that innovating more efficient business models—operational capabilities of customer engagement—must become the dominant priority for executive leadership.

MARKET FORCES DRIVING VALUE MIGRATION

Innovation arrives unevenly distributed at the doorsteps, factory floors, and Internet-connected devices.

Innovation, like chance, favors the prepared the mind and suggests a strategy for coping with hyper-innovation across an expanding frontier of customer engagement: embrace it.

Innovation leadership entails deploying fast, failing fast, learning fast, and applying lessons learned fast. It also means not repeating past failures.

Elsewhere in this site, we examined a number of disruptive innovations, including four large themes:

• Socially networked consumers self-identify with closely-knit best-friend pods; whose members use their cognitive diversity and ability to process tremendous amounts of information to identify new trends, make hyper-savvy purchase decisions, and refute “bogus” claims of value by marketers.
• Twelve web destinations represent 95 percent of all time spent online by networked consumers, defining 12 initial brand touchpoints and a first engagement with new customers. Thus, success in this new marketplace of ideas demands a new philosophy of marketing: engagement, discourse, and argumentation as originally demonstrated by Socrates and Aristotle.
• Marketing operations must transform themselves into full-fledged IT service delivery organizations capable of specifying, sourcing, and integrating a burgeoning array of hosted or on-demand capabilities from a global business ecosystem.
• Regulatory compliance for financial reporting now compels all publicly listed firms in United States to publish the financial data to the Web using the XML Business Reporting Language (XBRL), creating near complete transparency for all firms within an industry sector and enabling real-time tracking of business model performance.

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