Value migration was first described by author Adrian Slywotzky in his 1996 book Value Migration – How to Think Several Moves Ahead of the Competition. Value migration is the transferal of value-creating forces from outdated business models to something better able to satisfy consumer demands.
Aspect
Explanation
Definition
Value Migration is a strategic business concept introduced by Adrian Slywotzky, a consultant and author. It focuses on the reallocation of economic value within an industry over time. The central idea is that value in an industry can shift from one player or business model to another, driven by changes in customer preferences, technological advancements, or other market dynamics. Firms that identify and adapt to these shifts can gain a competitive advantage, while those that fail to recognize them risk losing market share and profitability. Value Migration serves as a framework for understanding how and why businesses must evolve to stay relevant and successful in dynamic markets.
Key Concepts
– Economic Value: The concept revolves around the creation and capture of economic value, which can be in the form of revenue, profit, or market share. – Market Dynamics: Value Migration acknowledges that industries are not static; they evolve due to factors like technological innovation and changing customer preferences. – Customer-Centric Focus: It emphasizes the importance of understanding and meeting evolving customer needs and preferences. – Competitive Advantage: Firms that can anticipate and capitalize on value shifts can gain a competitive advantage. – Business Models: Different business models can capture value at various points in the value chain. Recognizing the right model is crucial.
Characteristics
– Change in Value Flows: Value Migration implies a shift in where value is generated and captured within an industry. – Adaptation: Companies must adapt their strategies, business models, and operations to align with changing market dynamics. – Customer-Centricity: Understanding and satisfying customer needs drive value migration. – Disruption: Value shifts can disrupt established players while creating opportunities for new entrants. – Long-Term Perspective: It takes a long-term view of industry dynamics and competitive advantage.
Implications
– Strategic Planning: Firms need to incorporate value migration analysis into their strategic planning processes. – Innovation: Innovation and the ability to stay ahead of changing customer needs are paramount. – Competitive Positioning: Understanding where value is moving allows for better competitive positioning. – Risk Management: Recognizing potential value shifts helps in risk mitigation. – Resource Allocation: Resource allocation should align with areas of value growth.
Advantages
– Competitive Advantage: Firms that proactively adapt to value migration can gain a competitive edge. – Sustainability: By understanding evolving market dynamics, companies can position themselves for long-term success. – Innovation: It fosters a culture of innovation as companies strive to meet changing customer demands. – Customer Satisfaction: Customer-centric approaches can lead to increased customer satisfaction. – Profitability: Successfully navigating value migration can result in increased profitability.
Drawbacks
– Complexity: Recognizing and predicting value migration can be complex, and errors in assessment can lead to strategic missteps. – Resource Intensity: Preparing for value migration often requires significant resources, which may not guarantee success. – Market Uncertainty: The future path of value migration can be uncertain and challenging to predict accurately. – Competitive Risks: Competitors are also trying to capture value; therefore, the advantage gained may be temporary. – Resistance to Change: Existing business models and organizational inertia can hinder adaptation to value migration.
Applications
– Technology Industry: Constant innovation and evolving customer preferences drive value migration in technology markets. – Automotive Sector: The shift toward electric vehicles and autonomous driving is an example of value migration in the automotive industry. – Retail: E-commerce’s rise is a prominent case of value migration from brick-and-mortar retail to online channels. – Financial Services: Fintech companies have disrupted traditional financial services through value migration. – Healthcare: Telemedicine and digital health platforms represent value migration in healthcare.
Use Cases
– Apple Inc.: Apple’s ability to continuously shift value through new product categories like the iPhone and services demonstrates effective value migration. – Amazon: Amazon’s expansion from an online bookstore to a global e-commerce and cloud computing giant illustrates value migration. – Netflix: Netflix’s transformation from a DVD rental service to a streaming media powerhouse reflects value migration within the entertainment industry. – Tesla: Tesla’s focus on electric vehicles and energy solutions captures value in the automotive and clean energy sectors. – Google: Google’s evolution from a search engine to a diversified tech company showcases value migration strategies.
In marketing, value migration describes the flow of economic value from obsolete business models to models better suited to satisfying consumer priorities.
Value flows in three ways:
Between industries
For example, in-flight entertainment (IFE) transfers value from the airline industry to the entertainment industry.
In India, the value of the rail industry as an affordable means of transport has shifted to the airline industry.
Between companies
For photographers, value is transferred from Adobe Lightroom to Adobe Photoshop during a processing workflow.
Between business designs within a company
A popular example is the transferring of value from IBM mainframe computers to IBM PCs with system integration.
In recent decades, telecom service providers have also seen value migrate from voice to data.
While every organization seeks to satisfy the end-user, Slywotzky argued that the factors determining value are constantly changing.
Therefore, the business that can predict value migration ahead of time is the business that can gain a competitive advantage.
The three stages of value migration
Generally speaking, value migration has three distinct stages:
Value inflow
In the first stage, a company or industry captures value from another company or industry due to a superior value proposition.
The profit margin or market share of the entity expands.
Stability
Growth rates moderate as competitive equilibrium is established. Market share and margins remain stable.
Value outflow
At some point, value begins to migrate toward companies meeting evolving consumer needs.
The original company or industry experiences a decline in market share with contracting margins and a reversal in growth.
Anticipating value migration
In the introduction, we noted that competitive advantage could be secured by the early identification of value migration.
This can be anticipated in several ways:
Understanding the customer
Are there observable shifts in the composition of the target audience?
Are customer priorities changing due to regulation, increased purchasing power, or technological innovation?
Indeed, are customers becoming more powerful or discerning?
Understanding the business design
The organization should understand how flexible its business design is.
In other words, can it serve different customer priorities?
Does it have the ability to provide value for both the customer and the company?
What are the chances the design will become obsolete?
Avoiding commoditization
How can the business avoid a scenario where its goods or services become devalued commodities?
Building a strong brand and avoiding heavy, bulk discounting is a good place to start.
But commoditized products are often the result of rigid, undifferentiated business design.
In this case, the business must revitalize its product offering with a focus on delivering higher value.
Case Studies
Apple Inc.:
Value Migration: Apple migrated value by introducing groundbreaking products that addressed evolving consumer needs and preferences. This involved:
Identifying emerging trends: Apple recognized the increasing demand for portable digital devices and intuitive user interfaces.
Developing innovative products: The iPod, iPhone, iPad, and App Store represented disruptive innovations that captured value by offering superior functionality and user experience.
Expanding into new markets: Apple diversified its product portfolio and entered new markets, such as smartphones, tablets, and digital content distribution.
Disruptive Innovation: Apple disrupted traditional industries by:
Offering affordable and accessible products: The company made cutting-edge technology more accessible to mainstream consumers, challenging established players.
Embracing ecosystem integration: Apple created a seamless ecosystem of hardware, software, and services, enhancing customer loyalty and retention.
Continuously iterating and improving: Apple maintained its competitive edge by consistently innovating and iterating its products based on customer feedback and technological advancements.
Netflix:
Value Migration: Netflix shifted value by:
Recognizing changing consumer behavior: The company identified the shift towards digital streaming and on-demand content consumption.
Investing in streaming technology: Netflix developed a robust streaming platform that delivered high-quality content to subscribers across multiple devices.
Disrupting traditional distribution models: By offering a subscription-based streaming service, Netflix challenged the dominance of cable television and DVD rental stores.
Disruptive Innovation: Netflix disrupted the entertainment industry by:
Democratizing content distribution: Netflix democratized access to premium content by offering a vast library of movies and TV shows at an affordable monthly subscription fee.
Personalizing the user experience: The company leveraged data analytics to recommend personalized content to subscribers, enhancing engagement and retention.
Producing original content: Netflix pioneered the production of original content, creating critically acclaimed series and films that attracted subscribers and differentiated its platform from competitors.
Tesla:
Value Migration: Tesla reshaped the automotive industry by:
Addressing environmental concerns: The company identified the growing demand for sustainable transportation solutions and developed electric vehicles powered by renewable energy.
Innovating in design and technology: Tesla introduced cutting-edge electric vehicles with long-range capabilities, advanced autopilot features, and over-the-air software updates.
Disrupting traditional sales models: Tesla adopted a direct-to-consumer sales model and bypassed traditional dealerships, offering a seamless and transparent purchasing experience.
Disruptive Innovation: Tesla disrupted the automotive market by:
Redefining performance and efficiency: Tesla’s electric vehicles offered superior performance, efficiency, and driving experience compared to traditional gasoline-powered cars.
Building a network of charging infrastructure: The company invested in a global network of Superchargers, enabling long-distance travel and alleviating range anxiety among electric vehicle owners.
Accelerating the transition to sustainable transportation: Tesla’s success catalyzed the adoption of electric vehicles and accelerated the shift towards renewable energy and clean transportation.
Amazon:
Value Migration: Amazon captured value by:
Leveraging e-commerce technology: The company embraced e-commerce technology to offer a vast selection of products and services to customers worldwide.
Focusing on customer convenience: Amazon prioritized customer convenience through features such as one-click ordering, fast shipping, and hassle-free returns.
Disrupting traditional retail models: Amazon disrupted brick-and-mortar retail by offering competitive prices, extensive product variety, and personalized recommendations.
Disruptive Innovation: Amazon disrupted the retail industry by:
Pioneering online shopping: Amazon pioneered online shopping and transformed the retail landscape by providing a convenient and efficient alternative to traditional stores.
Investing in logistics and infrastructure: The company invested heavily in logistics infrastructure, fulfillment centers, and transportation networks to ensure fast and reliable delivery of orders.
Expanding into new business verticals: Amazon diversified its business portfolio by entering adjacent industries such as cloud computing (Amazon Web Services) and digital content streaming (Amazon Prime Video), further expanding its reach and value proposition.
Google:
Value Migration: Google captured value by:
Dominating online search: The company established itself as the leading search engine, capturing value through targeted advertising and data-driven monetization strategies.
Expanding into digital services: Google diversified its offerings by introducing products and services such as Google Maps, Gmail, YouTube, and Android, capturing value in various digital domains.
Disrupting traditional business models: Google disrupted traditional media and advertising models by offering innovative digital advertising solutions and content distribution platforms.
Disruptive Innovation: Google disrupted the technology industry by:
Innovating in search and information retrieval: Google revolutionized search technology with its PageRank algorithm, providing more accurate and relevant search results to users.
Embracing open platforms: The company embraced open-source software and platforms, fostering innovation and collaboration within the developer community.
Investing in moonshot projects: Google’s parent company, Alphabet, invested in ambitious moonshot projects such as self-driving cars (Waymo), internet-beaming balloons (Project Loon), and life sciences (Verily), aiming to disrupt multiple industries and create long-term value.
Key takeaways
Value migration describes the migration of value from outdated business models to those which are better able to satisfy consumer priorities.
Value migration occurs in three ways: between industries, between companies, and between business designs within the same organization.
Anticipating value migration is the key to maintaining or securing a competitive advantage. A deep understanding of the customer and business design reduces the odds that a product becomes devalued through commoditization.
Key Highlights
Definition and Origin: Disruptive innovation was termed by Clayton M. Christensen. It’s a process wherein a product or service starts at the lower end of the market and eventually displaces established competitors. Christensen is an influential management thinker known for this concept.
Types of Technologies: Christensen classified technologies into sustainable and disruptive categories. Sustainable technologies improve performance predictably, while disruptive technologies are less predictable and can reshape industry dynamics.
Process of Disruption: Disruptive innovation occurs as a product gains traction in the lower market segment. It’s often more accessible and affordable compared to existing sophisticated products.
Not Breakthrough Technologies: Disruptive innovations differ from breakthrough technologies. Instead of making great products even better, they focus on making products or services more affordable and accessible.
Causes of Disruption: Companies often innovate faster than customer needs evolve. This can lead to products becoming too advanced or expensive for the majority, opening up opportunities for disruptive innovators to cater to the underserved lower market.
Ingredients for Disruption: Three crucial factors for a new company to be a disruptive innovator:
Enabling Technology: A transformative technology that changes how consumers operate.
Coherent Value Network: All stakeholders, including suppliers and partners, should benefit from the technology.
Innovative Business Model: A model targeting the lower market with affordable and user-friendly solutions.
Examples of Disruption:
Academia: Wikipedia’s free digital encyclopedia displaced Encyclopedia Britannica.
Media Entertainment: Netflix disrupted Blockbuster by embracing streaming trends.
Photography: Digital cameras displaced Kodak’s film dominance.
Transportation: Concorde faced retirement due to costs, while affordable private jets became alternatives.
Business model innovation is about increasing the success of an organization with existing products and technologies by crafting a compelling value proposition able to propel a new business model to scale up customers and create a lasting competitive advantage. And it all starts by mastering the key customers.
The innovation loop is a methodology/framework derived from the Bell Labs, which produced innovation at scale throughout the 20th century. They learned how to leverage a hybrid innovation management model based on science, invention, engineering, and manufacturing at scale. By leveraging individual genius, creativity, and small/large groups.
According to how well defined is the problem and how well defined the domain, we have four main types of innovations: basic research (problem and domain or not well defined); breakthrough innovation (domain is not well defined, the problem is well defined); sustaining innovation (both problem and domain are well defined); and disruptive innovation (domain is well defined, the problem is not well defined).
That is a process that requires a continuous feedback loop to develop a valuable product and build a viable business model. Continuous innovation is a mindset where products and services are designed and delivered to tune them around the customers’ problem and not the technical solution of its founders.
Disruptive innovation as a term was first described by Clayton M. Christensen, an American academic and business consultant whom The Economist called “the most influential management thinker of his time.” Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances.
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.
Sociologist E.M Rogers developed the Diffusion of Innovation Theory in 1962 with the premise that with enough time, tech products are adopted by wider society as a whole. People adopting those technologies are divided according to their psychologic profiles in five groups: innovators, early adopters, early majority, late majority, and laggards.
In the TED talk entitled “creative problem-solving in the face of extreme limits” Navi Radjou defined frugal innovation as “the ability to create more economic and social value using fewer resources. Frugal innovation is not about making do; it’s about making things better.” Indian people call it Jugaad, a Hindi word that means finding inexpensive solutions based on existing scarce resources to solve problems smartly.
A consumer brand company like Procter & Gamble (P&G) defines “Constructive Disruption” as: a willingness to change, adapt, and create new trends and technologies that will shape our industry for the future. According to P&G, it moves around four pillars: lean innovation, brand building, supply chain, and digitalization & data analytics.
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).
An innovation funnel is a tool or process ensuring only the best ideas are executed. In a metaphorical sense, the funnel screens innovative ideas for viability so that only the best products, processes, or business models are launched to the market. An innovation funnel provides a framework for the screening and testing of innovative ideas for viability.
Tim Brown, Executive Chair of IDEO, defined design thinking as “a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.” Therefore, desirability, feasibility, and viability are balanced to solve critical problems.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
