Value innovation is a new way of thinking about and executing strategy that results in the creation of an industry and a break from the competition. Here strategy is seen as making a choice between differentiation and low cost.21 In contrast, those that seek to create blue oceans pursue differentiation and low cost simultaneously. Value innovation is created in the region where a company's actions favorably affect both its cost structure and its value proposition to buyers. Cost savings are made by eliminating and reducing the factors an industry competes on. Buyer value is lifted by raising and creating elements the industry has never offered.
Over time, costs are reduced further as scale economies kick in due to the high sales volumes that superior value generates. This is how a leap in value for both the company and its buyers is achieved. Because buyer value comes from the utility and price that the company offers to buyers and because the value to the company is generated from price and its cost structure, value innovation is achieved only when the system of the company's utility, price, and cost activities is properly aligned. To sustain value innovation, however, people working for and with the company need to support it. For value innovation to be a sustainable strategy, then, the alignment of the company's utility, price, cost, and people is needed. In contrast, innovations such as production innovations can be achieved at the subsystem level without impacting the company's overall strategy.
An innovation in the production process, for example, may lower a company's cost structure to reinforce its existing cost leadership strategy without changing the utility proposition of its offering. Although innovations of this sort may help to secure and even lift a company's position in the existing market space, such a subsystem approach will rarely create a blue ocean of new market space. In this sense, value innovation is a distinct concept. It is about strategy that embraces the entire system of a company's activities.23 Value innovation requires companies to orient the whole system toward achieving a leap in value for both buyers and themselves. We call this the reconstructionist view. Here, the strategic choices for firms are to pursue either differentiation or low cost. Tipping point leadership shows managers how to mobilize an organization to overcome the key organizational hurdles that block the implementation of a blue ocean strategy. It deals with organizational risk. It lays out how leaders and managers alike can surmount the cognitive, resource, motivational, and political hurdles in spite of limited time and resources in executing blue ocean strategy. It deals with management risk associated with people's attitudes and behaviors. People here include both internal and external stakeholders who work for and with an organization.
In the absence of analytics, executives cannot be expected to act on the call to break out of existing competition. Sometimes there is a fundamental change in what buyers value, but companies that are focused on benchmarking one another do not act on, or even perceive, the change. In the broadest sense, a company competes not only with the other firms in its own industry but also with companies in those other industries that produce alternative products or services. Alternatives are broader than substitutes. Products or services that have different forms but offer the same functionality or core utility are often substitutes for each other. On the other hand, alternatives include products or services that have different functions and forms but the same purpose. And nowadays there are also apps that help with this. In contrast, products or services can take different forms and perform different functions but serve the same objective. Most companies focus on improving their competitive position within a strategic group. Neither strategic group, however, pays much heed to what the other is doing because from a supply point of view they do not seem to be competing.