A strategy success case

iRobot was founded in 1990 by Massachusetts Institute of Technology roboticists with the vision of making practical robots a reality. Their tagline is to designs and builds robots that make a difference.

In 2011, iRobot generated more than $465 million in revenue andRoomba employed more than 600 of the robot industry’s top professionals, including mechanical, electrical and software engineers and related support staff. e.g., www.irobot.com/us.

In 2002 they introduced the Roomba, a series of autonomous robotic vacuum cleaners. As of February 2011, iRobot claims that over 6 million units have been sold. Previously robots where used only for government and industrial purposes. With the introduction of the Roomba, iRobot redefined the robot industry boundaries opening a new market for robotic products, and as a result, this meant that there was no competition. Their entry into this market therefore gives them ‘attacker’s advantage’ ahead of other who may want to enter the market. This move into a new market reduced the competition they faced (to nothing in the beginning) and allowed them to deliver a level of value to the consumer not previously seen within the market. All of this without having to particularly care about other vacuum high competitive market key factors to differentiate from other competitors.

Instead, to differentiate into a high competitive market, a company has to add value to products (increasing in the production costs) dealing with well known key factors. This is due to the fact that, to beat the competitors without value innovation, there are a limited set of options. Most of the competitors know these options and are willing to use them. In this type of market, companies will be forced to move within a strict value-cost trade-off to compete. To differentiate their products/services companies will have to add value, with higher production costs, or, on the other end, to lower the street price or apply both strategies. In any case they will end up with a lower profitability.

In an attempt to move away from this fierce competition many firms look to tailor their products to better meet a subset of customers. This practice add value to products but often results in increasingly small target markets with a consequent higher risk related to environmental changes. Moreover, having to deal with a subset of customers means higher production costs since the company will not benefit from large scale production. Again the company is forced to move within a strict value-cost trade-off.

Instead of focusing on the differences that separate customers, wouldn’t it be better to look for commonalities? Searching ways to aggregate new demand was the strategist goal achieved with the Roomba project. Looking for commonalities across robots noncustomers, new demand was unlocked, minimizing scale risk. Opening a new market means to be able to add high value for customers through the offer of elements that competitors have never offered before. To attract customers the company will not need any more to include all of the traditional key competing factors, due to the high value included in newly added key factors. This way it is possible to break the value-cost trade-off to end up with a highly profitable strategy.

“Value innovation” is relevant here as the company is oriented toward achieving a leap in value for both buyers and themselves.

Instead, “innovation” may, for example, lower the production cost without changing the buyer perceived value. Innovation usually involves only a part of the company, like the production chain introducing automation in the assembly line, while all parts of the company are involved to achieve a “value innovation”. Here the firm reduces costs, which they may not pass on to the consumers, since customers deemed added value from the product or service itself.

Author: Carlo Olmi

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