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Fun With False Choices

| On 16, Sep 2007

Cass PursellFalse choices have aways been around in business, and they have always been frustrating to deal with, primarily because they are self-perpetuating. Raise your hand if you have heard a co-worker or, worse, someone in a leadership position, point out that strategies based on optimizing quality and those based on lowering cost are mutually exclusive. It is a position that is impossible to defend factually, and yet it is commonly accepted as accurate, leaving anyone who is invested in arguing the point in the position of disproving an obviously false assertion. Frustrating, yes, and apparently time-wasting as well. But putting in the necessary effort to refute the logic of false choices wherever they are encountered is not the Sisyphean task it may seem. It may even lead to a breakthrough idea.

Take, for example, the value-cost trade off. This dogma, one of the most commonly accepted false choices in business, states with absurd confidence that companies can either create greater value to their customers at a higher cost or create reasonable value at a lower cost. This belief has forced many a company to make a strategic decision between differentiation and low cost. Unnecessarily, as it turns out. W. Chan Kim and Renee Mauborgne are the authors of the 2005 book Blue Ocean Strategy, in which they followed a logical and data-driven methodology that led to the refutation of the value-cost trade-off and to a breakthrough in their thinking about the use of innovation to gain strategic advantage.

The idea behind blue ocean strategy is a focus on what the authors refer to as value innovation, in which companies create strategic moves by making their competition irrelevant, thereby creating a leap in value. Most companies with innovation intentions do not differentiate in any meaningful way between types of innovation, but blue ocean strategy encourages leaders to place an equal emphasis on value and innovation. In the absence of an innovation intention, companies can of course create value, but only incrementally, and not enough to differentiate themselves in the marketplace. Pursuing innovation strategies without focusing on value, on the other hand, leads companies to focus on adopting technology-driven, market pioneering, or futuristic innovations that are often ahead of the demand curve. Companies that have followed a value innovation strategy have defied the value-cost trade-off and have successfully pursued differentiation and low cost simultaneously. These strategies have led companies to define new markets, and pursue winning innovation-based strategies that are anchored in the creation of value. While it’s always fun to shoot down an argument based on false choices, Kim and Maurborgne remind us that it can be hugely profitable as well.