Value Innovation, the simultaneous pursuit of differentiation and low cost, is the cornerstone of blue ocean strategy. Value innovation focuses on making the competition irrelevant by creating a leap of value for buyers and for the company, thereby opening up new and uncontested market space. Because value to buyers comes from the offering’s utility minus its price, and because value to the company is generated from the offering’s price minus its cost, value innovation is achieved only when the whole system of utility, price and cost is aligned.
In the blue ocean strategy methodology, the Four Actions framework and ERRC Grid assist managers in breaking the value-cost tradeoff by answering the following questions:
- What factors can be eliminated that the industry has taken for granted?
- What factors can be reduced well below the industry standard?
- What factors can be raised well above the industry standard?
- What factors can be created that the industry has never offered?