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Value innovation seen as more critical to S'pore's growth

As the Republic strives to shift from value-adding to value-creating, understanding the difference between value innovation and technology innovation is vital.

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The Segway was an engineering marvel, one of the most talked-about technology innovations when it was launched in 2001. But it continued to lose money until it was sold in 2009.

SINGAPORE has achieved a series of economic miracles in the last 50 years since its independence in 1965. Under founding father Lee Kuan Yew, Singapore opened a vast blue ocean of unparalleled economic growth and became the manufacturing hub, and later the regional headquarters, of multinationals across the globe. Its blue ocean combined the best of the East and the West.

Singapore's strategic location, hard-work ethic and low-cost labour were creatively combined with English as the national language, British rule of law, low tax rates, and the government's responsiveness to open up this vast and prosperous blue ocean.

But with neighbouring countries now on Singapore's heels and labour costs high, Singapore must once again shift and reach for a new blue ocean of wealth and prosperity.

Consider the remarks made by the Deputy Prime Minister of Singapore, Tharman Shanmugaratnam, in July 2015 at the Economic Development Board (EDB) Society's 25th anniversary gala dinner. "We have now embarked on a new phase in our nation's economic development . . . We are moving from value-adding to value-creation. It means making innovation pervasive in every industry and for firms small and big - so that we can come up with our own products and services and also to establish Singapore as a leading centre for value creation in the business strategies of foreign companies," he said.

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Technology innovations are not equal to commercial successes

What should it do? Not surprisingly, the rapid growth, rising market valuations and media coverage of companies like Alibaba, Amazon, Google, and Netflix have led many to see technology innovation as the answer. But is it so? Is technology innovation the answer everyone thinks it is for firms that want to go beyond value-adding, create a leap in value, and achieve rapid growth as these giants have and as Singapore now strives to achieve? Our research suggests no.

As we lay out in our book Blue Ocean Shift where we speak to audiences around the world about market creation and innovation, we often begin by asking them to consider Motorola's Iridium satellite phone and Segway's personal transporter. "Were these market-creating moves, technology innovations?" And "were they commercial successes or failures?" Audiences usually answer "yes" to the first question and "failures" to the second.

We then ask another set of questions: "who invented the personal computer?" And "who invented the home videocassette recorder (VCR)?" When it comes to PCs, people most often reply Apple or IBM. As for VCRs, people come up with all sorts of consumer electronics companies, the most common being Sony or JVC.

The right answers, we then tell them, are actually MITS and Ampex, respectively. Most people are not only surprised when they find that out, but also appear to be unfamiliar with either company.

Think about value innovation

Putting these conversations together reveals an important point about creating new markets.

While technology innovators may lay extraordinary eggs, often they are not the ones who ultimately hatch them. The focus of a successful market-creating strategy should not be on how to lay a technology egg per se, but rather on how to ensure that you hatch the egg for its commercial success.

Thus, although MITS invented the first personal computer, it was Apple and IBM, among others, that dominated the new mass market for PCs by adapting the technology to produce a leap in buyer value. Likewise, although Ampex invented video recording technology in the 1950s, companies like Sony and JVC dominated the long-profitable home VCR industry by adopting the technology and making video recorders easy enough to use and affordable for the mass of buyers. In essence, they converted a technology innovation into what we call "value innovation" - a quantum leap in value for buyers.

There's no inherent reason that an organisation can't capitalise on its own inventions, and certainly some companies have succeeded in doing so. Apple certainly did with its iTunes, iPhone, iPad and App store. But history shows that egg laying and egg hatching are often performed by different players. This, we suggest, may be one reason so many people do not even recognise the names of technology innovators that have faded from their markets and instead mistakenly believe the value innovators - the ones that hatch new markets - are the technology pioneers as well.

Apple certainly falls in this category for the average person when it comes to PCs.

The key lesson to remember here is that to shift from existing crowded markets, which are what we think of as red oceans full of sharks, to new markets or blue oceans devoid of competition and characterised by explosive growth, your focus must be on value innovation, not on technology innovation per se.

How technology innovations fail in markets

Motorola's Iridium and Segway's personal transporter suffered by getting this wrong. The Iridium satellite phone was a technological feat that worked in the Gobi desert but not in buildings or cars, where people needed it most.

Likewise, as a prescient article in Time magazine on Dean Kamen, the inventor of the Segway personal transporter, noted at the time of the Segway's launch: "One of the hardest truths for any technologist to hear is that success or failure in business is rarely determined by the quality of the technology." The Segway was an engineering marvel, one of the most talked-about technology innovations of its day when it was launched in 2001. But that did not convince enough people to pay US$4,000 to US$5,000 for a product that left them in a quandary over where to park it, how to take it in a car, whether it could be brought on a bus or a train, and where it could be used - on sidewalks or roads? While the Segway was expected to break even six months after its launch, the company continued to lose money until it was sold in 2009.

When organisations mistakenly assume new market creation hinges on breakthrough technologies, they tend to push for products or services that are either too "out there" - ahead of their time, too esoteric, too complicated - or like the Segway, lacking the complementary ecosystem needed to open up a new market.

In fact, many technology innovations fail to create and capture new markets even as they win accolades for their organisations. Think of TiVo, whose original digital video recorder garnered a lot of fanfare and is in the US Patent and Trademark Office's National Inventors Hall of Fame, but left most people wondering what it did and why they would want it.

Getting value innovation right

Value innovation anchors innovation to the value it gives buyers, not to the newness or cleverness of the technology, and is a cornerstone of market-creating strategy for profitable growth.

To get it right, here are three questions Singapore organisations want to probe:

  • How does our offering make buyers' lives dramatically more simple, productive, convenient, or fun and stylish?
  • How does our offering dramatically reduce buyers' risks? These risks may be financial, physical or emotional (including reputational risk).
  • And how does our offering deliver a leap in environmental friendliness, including social consciousness, that buyers value?

Then you want to make sure that you price your offering so that your targeted buyers will not only want it, but be able to actually afford it. One thing is clear: In today's world of tough competition, there is no doubt that organisations in many industries are in need of value innovation to make the shift from red to blue oceans and new horizons of explosive growth.

As Singapore strives to shift from value-adding to value-creating where innovation is pervasive in every industry, understanding the difference between value innovation and technology innovation is more fundamental than ever. In Blue Ocean Shift, we share how to do precisely that and how other organisations the world over have applied the ideas and tools outlined within to make their shift and seize new growth.

  • W. Chan Kim & Renée Mauborgne are professors of strategy at INSEAD and the authors of the New York Times, #1 Wall Street Journal, and USA Today bestseller Blue Ocean Shift - Beyond Competing: Proven Steps to Inspire Confidence and Seize New Growth.