Chapter 10: Renew Blue Oceans By: Gloria Solorzano and Luis Hernandez, Robert Smith PepsiCo

Barriers to Imitation When a company achieves a blue ocean, soon imitators will begin to appear A blue Ocean strategy bring with it considerable barrier to imitation that effectively prolong sustainability Imitation Barriers to Blue Ocean strategy: Alignment Barrier Cognitive and Organizational Barrier Brand Barrier Economic and Legal Barrier

Alignment Barrier Alignment of the value, profit, and people propositions around both differentiation and low cost builds sustainability and hence formidable barrier to imitation The 3 essential Propositions: Value: developing an offer that attracts the buyer Profit: creating a business model that allows the company to make money through it’s offering People: motivating the people that work with or for the company to execute the strategy

Cognitive and Organizational Barrier Value innovation does not make sense to a company’s conventional logic Imitation often requires significant organizational change, delaying their commitment to their blue ocean strategy Changes occur throughout years, could potentially cost overwhelming amounts of money, time and effort

The Brand Barrier Blue Ocean strategy may conflict with other companies brands image Companies that value- innovation earn brand buzz and a loyal customer following that tends to shun imitators Even strong marketing tactics by imitators rarely have strength to overshadow the innovators

The Economic and Legal Barrier Natural monopoly: THe market often cannot support a second player HIgh volume leads to rapid cost advantage for the value innovator, discouraging followers from entering the market Network externalities discourage imitation Patents or legal permits block imitation

PepsiCo Imitation Barriers PepsiCo definitely deals with the inevitable overflow of imitators However, the PepsiCo is able to keep competitive advantage within its imitators by having brand barriers, legal barriers and alignment barriers PepsiCo was able to expand and take priority advantage to consumers worldwide PepsiCo is able to keep loyal customers by holding the beloved brand, Pepsi, Frito-Lay, Quaker, etc. It also constantly stay competitive with price and in control of its value to the customer

Renewal Understanding the process of renewal is key to ensure that the creation of blue ocean is not a one-off occurrence but is a repeatable process in the company Almost every blue ocean will be imitated Implementing offenses to defend it’s hard worked customer base Monitoring value curves to see when renewal is needed Renewal is needed to avoid the trap of competing and to keep the company from going into a red ocean

Renewal at the Individual Business Level When a company's value curve still had focus, divergence and a compelling tagline it should resist the temptation to value- innovate the business again Instead company should focus on lengthening, widening and deepening the company Focus on Operational improvements and geographical expansion in order to achieve maximum economies of scale and market coverage Dominate blue ocean imitators as long as possible

Renewal at the Corporate Level for a Multibusiness Firm For companies that have a portfolio of offerings as opposed to a single business offering the pioneer-migrator-settler (PMS) map helps with the renewal of those business portfolios. Chapter 4. Pioneers value innovation, Migrators value improvements, Settlers value imitation or are me-too businesses. By using the PMS map, executives can see how their current portfolio of the business is doing, how it’s shifted over time, and when it is time to create a new blue ocean to renew. Maximizing growth prospect. This is done by having a balance between pioneers for future growth and migrators and settlers for cash flow. When pioneers become migrators and then settlers. Strong profitable growth is maintained when a company has a new blue ocean ready to launch.

Apple’s portfolio of businesses Blue ocean strategic moves made apple America’s most admired and valuable company within a decade. iMac, iPod, iTunes Store, iPhone, and iPad were all created by different business units within the company but shared the same strategic goal. To reconstruct the existing market and create new demand. Maintained strong profitable growth by having a successful balance between their pioneers, migrators, and settlers.

Apple’s portfolio of businesses In 1998 profitable growth increased when they simplified their Macintosh product range and launched their value-innovative iMac. First colorful and friendly desktop computer. Followed this up with the launch of the iPod. Which revolutionized the digital music market and created a new blue ocean. Two years later iTunes Music Store was launched along with the iPhone and iPad. When the iPod or any other apple product started to become imitated, Apple would rapidly increase a range of iPod varients. iPod mini, shuffle, nano, touch. Kept a competitive advantage.

Apple’s PMS Map Pioneers Migrators Settlers 1997 2003 2008 2014 iPod 1997 2003 2008 2014 iPod iTunes Store App Store iPhone iTunes Store iPad App Store iTunes Macintosh Macintosh iPod Macintosh iPhone Ipod

Pepsi Co. Started with an individual level mindset. Soon became corporate level with a wider portfolio. Created new blue oceans throughout the years.