Chapter 2: Analytical Tools and Framework By: Aguinaldo Sebastiao, Carlos Becerra, Ryan Gaddy, Paulo Santos

Blue Ocean Strategy A set of analytical tools and frameworks Fill a central void in the field of strategy Illustrated by the USA wine industry

The USA wine industry was intensely competitive in the late 1990s: Large number of national producers Foreign producers entering the market The demand remained stagnated How to breakout of this red ocean of bloody competition to make the competition irrelevant? How to open up and capture a blue ocean of uncontested market space? Solution: The Strategy Canvas

Strategy Canvas elements: A diagnostic tool An action framework for building a compelling blue ocean strategy. Strategy Canvas application to the USA wine industry Diagnostic: companies were competing on price, aging quality, vineyard prestige and legacy, wine complexity. Based on this scenario firms have to: Shift from focusing on competition to alternatives Shift from focusing on customers to noncustomers

Based on these principles Casella Wines: Focused on non customers and found out that complexite of the flavor was a challenge for average consumers. With this insight Casella was able to create a blue ocean strategy for the USA wine market.

The Four Actions Framework

Application to a Real-world Example: Apple Which factors that the industry takes for granted should be eliminated? Keyboard Which factors should be reduced well below the industry standard? Number of physical buttons. Which factors should be raised well above the industry standard? User interface Ease of use & Simplicity Which factor should be created that the industry has never offered? Wireless charger Apple pay

The Eliminate-Reduce-Raise-Create Grid

Example: Yellow Tail Eliminate Raise Reduce Create Enological terminology and distinctions Above-the-line marketing Aging qualities Price versus budget wines Reduce Create Vineyard prestige and legacy Wine complexity Wine range Easy drinking Ease of selection including retail store support Fun and adventure

Benefits of “The Grid” Must pursue differentiation and low costs Stops over-engineering Easily understood Forces company to robustly scrutinize their business-model

Example: Cirque du Soleil Eliminate Raise Price Unique venue Star performers Animal shows Aisle concession sales Multiple show arenas Reduce Create Fun and humor Thrill and danger Theme Refined environment Multiple productions Artistic music and dance

Three Characteristics of a Good Strategy Focus Setting your own agenda, don’t let the competition set the agenda Divergence Act don’t react; Stand Apart Compelling Tagline Honesty and clear-cut

Focus - Apple Set your own agenda Apple is customer oriented Determined in producing high quality products Apple designs Macs, the best personal computers in the world, along with OS X, iLife,iWork and professional software. Apple leads the digital music revolution with its iPods and iTunes online store. Apple has reinvented the mobile phone with its revolutionary iPhone and App Store, and is defining the future of mobile media and computing devices with iPad.

Divergence - Apple When a company’s strategy is formed reactively, it loses its uniqueness. Reactive Strategies tend to share the same strategic profiles. What makes Apple stand apart from its competitors? Closed Systems

Compelling Tagline - Apple Honest and clear-cut tagline A good tagline must not only deliver a clear message but also advertise an offering truthfully, or else customers will lose trust and interest. “Think Different” Apple Music, Apple Pay, Apple TV and Apple Watch

Reading the Value Curves If the company meets the three criterias of Focus, Divergence, and a Compelling Tagline, then the company is on the right track. If the company lacks any of these qualities it will never reach full potential for growth.

A Company Caught in the Red Sea Overdelivery without Payback Oversupplying its customers Needs to cut back productions Strategic Contradictions Heavily Investing Internally Driven Company Driven by Demand vs. Operationally Driven