Blue Ocean Strategy Team 4

Create New Markets Stop trying to beat the competition Red Oceans vs. Blue Oceans Red Oceans Defined boundaries Accepted rules Blue Oceans Untapped market space High growth opportunity The only way to beat the competition is to stop trying to beat the competition. Red Oceans: All the industries in existence today. Blue Oceans: All the industries not in existence today. Red Oceans have clear defined boundaries and accepted rules. Companies try to outperform each other. Markets get crowded Blue oceans are needed to get new profit and grow. You need analytical frameworks to create blue oceans.

Red vs. Blue Red Ocean Strategy Blue Ocean Strategy Compete in existing market space. Create uncontested market space. Beat the competition. Make the competition irrelevant. Exploit existing demand. Create and capture new demand. Make the value-cost trade-off. Break the value-cost trade-off. Align the whole system of a firm’s activities with its strategic choice of differentiation or low cost. Align the whole system of a firm’s activities in pursuit of differentiation and low cost.

Value Innovation The cornerstone of blue ocean strategy. What is value innovation? Make the competition irrelevant. Create a leap in value. Place equal emphasis on value and innovation. Value innovation occurs when companies align innovation with utility, price, and cost positions. Value innovation is a new way of thinking about and executing strategy that results in the creation of a blue ocean and break from the competition. Instead of focusing on beating the competition you focus on making the competition irrelevant by creating a leap in value for buyers and your company, thereby opening up new and uncontested market space. Value without innovation tends to focus on value creation on an incremental scale, which improves value but isn't enough to make you stand out. Innovation without value tends to be technology driven and shoots beyond what buyers are ready for. Based on the view that market boundaries can be reconstructed and industry structure is not given.

The Strategy Canvas Captures the current state of play in the known market space. Propels you to action by reorienting your focus from competitors to alternatives and from customers to noncustomers. Allows you to understand where the competition is currently investing, the factors the industry currently competes on in products, service, and delivery, and what customers receive from the existing competitive offerings on the market.

Wine Strategy Canvas Horizontal axis capture the range of factors the industry competes on and invests in. Vertical axis captures the offering level that buyers receive across all these key competing factors. Value curve is the basic component of the strategy canvas, a grpahic depiction of a company’s relative performance across its industry’s factors of competition.

Four Actions Framework Used to reconstruct buyer value elements in crafting a new value curve. Eliminate: Forces you to consider eliminating factors that companies in your industry have long competed on. Reduce: Forces you to determine whether products or services have been overdesigned in the race to match and beat the competition. These 2 questions help you gain insight on how to drop your cost structure in relation to competitors. Raise: Pushes you to uncover and eliminate the compromises your industry forces customers to make. Create: Helps you discover entirely new sources of value for buyers and to create new demand and shift strategic pricing of the industry. These 2 questions provide you with insight into how to lift buyer value and create new demand.

Eliminate-Reduce-Raise-Create Grid Yellow Tail Supplementary to the four actions framework. Pushes companies to answer and act on the four questions to create a new value curve.

Three Characteristics of a Good Strategy Focus Divergence Compelling Tagline Want to focus on your value curve Want to differentiate yourself from competitors, make your value curve stand apart. Deliver a clear message and advertise an offering truthfully.

Reach Beyond Existing Demand Companies need to deepen their understanding of the universe of noncustomers. This offers big blue ocean opportunities Three Tiers of Noncustomers Soon-to-be noncustomers Refusing noncustomers Unexplored noncustomers

First Tier These are the “soon-to-be” noncustomers They are labeled as being on the edge of your market waiting to jump ship. They minimally use the current market offerings to get by as they search for better They will eagerly jump ship The first tier of noncustomers is an ocean of untapped demand waiting to be released

Second Tier Refusing noncustomers People who either do not use or can’t afford to use the current market offerings Their needs are either dealt with by other means or just ignored

Third Tier “Unexplored” noncustomers They are usually the farthest away from an industry’s existing customers Have not been targeted or thought of as potential customers by any player in the industry. They belong to other markets.

Go for the Biggest Catchment Focusing on existing customers is good to gain a competitive advantage, but it is not likely to produce a blue ocean that expands the market Don’t focus on any specific tier Look across the tiers Focus on the tier that represents the biggest catchment

Get the Strategic Sequence Right Companies need to build their blue ocean strategy in the sequence of Buyer Utility-Is there exceptional buyer utility in your business idea? Price-Is your price easily accessible to the mass of buyers? Cost-Can you attain your cost target to profit at your strategic price? Adoption-What are your adoption hurdles in actualizing your business idea?

Six Utility Levers Customer Productivity, simplicity, convenience, risk, fun and image, and environmental friendliness In each lever you want to find which stage of the buyer experience model has the biggest blocks. The buyer experience model consists of: Purchase Delivery Use Supplements Maintenance Disposal

Blue Ocean Index Companies should build their blue ocean strategy in the sequence of utility, price, cost, and adoption. The BOI provides a simple but robust test of this system This system help to show where they went wrong with respect to the four criteria

Where did they go wrong Philips CD-i- Did not create buyer utility, priced out of reach from the mass of buyers, took more than 30 minutes to explain to customers, left no incentive for sales clerks to sell Motorola Iridium-Unreasonably expensive, high production costs. Provided no attractive utility. Had a poor sales and marketing team. NTT DoCoMo i-mode- (They did right) Ignored the technology race and brought the internet to cell phones. Offered exceptional buyer utility with an affordable low price

Reconstructing Market Boundaries The first principle of blue ocean strategy is to reconstruct market boundaries to break from competition and create blue oceans. Six Paths of Framework: Look across Alternative Industries Look across strategic groups within industries Look across the chain of buyers Look across complementary product and service offerings Look across functional or emotional appeal to buyers Look across time

Personal and Beauty House and Home Health and Wellness Baby and Family Pet Care and Nutrition

By thinking across conventional boundaries of competition, you can see how to make strategic moves that reconstruct established market boundaries and create blue oceans. Diversifying the company’s horizons can lead to uncontested market space and making the competition irrelevant.

Focus on the Big Picture, not the numbers

Instead of a planning strategy which is mainly done by preparing documents, its better to draw it on a Strategy Canvas in order to become a blue ocean company. By building a company’s strategic planning process around a strategy canvas, a company and its managers focus their main attention to the big picture rather than becoming immersed in numbers and jargon and getting caught up in operational details.

Use the four steps of visualizing strategy to help accomplish creating a strategy canvas. Using the Pioneer-Migrator-Settler (PMS) Map at the corporate level to help visualize strategy. All the details will fall into place more easily if the managers start with the big picture of how to break away from the competition.

Strategic planning is one of the most important business exercises because it keeps the company moving in a positive direction. The Big Picture process allows managers and employees to look at their business from a much larger, more strategic way than focusing on just the details Could very well be the basis of a company’s industry strategy, based on the fact it helps shape a persons image of what kinds of businesses do they want to be in

Executing Blue Ocean Strategy

Four hurdles to strategy execution: Cognitive: red oceans are comfortable, but may not be path to future profitable growth Limited resources: resources are being cut Motivation: motivate key players to break from status quo – this takes time that managers don’t have Politics: internal and external resistance to change

Tipping Point Leadership Flip conventional wisdom by using tipping point leadership Allows you to overcome 4 hurdles fast and at low cost, and wins employees’ backing for change to break from status quo Example: NYPD Builds on reality that there are people, acts, and activities that exercise a disproportionate influence on performance

Break Through Cognitive Hurdle Ride the “Electric Sewer” Come face-to-face with worst operational problems Meet with Disgruntled Customers Get managers out of office to see operational horror; listen to customers firsthand

Jump the Resource Hurdle Redistribute Resources to Your Hot Spots Reallocate staff to where the work is needed Redirect Resources from Your Cold Spots Engage in Horse Trading Trade resources you don’t need for those you do need

Jump the Motivational Hurdle Zoom in on Kingpins Focus efforts of change on key influencers in the organization – natural leaders who are well respected and persuasive Place Kingpins in a Fishbowl Shine spotlight on actions in repeated and highly visible way Actions and inaction are made transparent so that everyone can see who is shining and who is lagging Atomize to Get the Organization to Change Itself Relates to framing of the strategic challenge People need to believe that strategic challenge is attainable

Knock Over the Political Hurdle Secure a Consigliere on Your Top Management Team Along with strong functional skills such as marketing, operations, and finance, tipping point leaders also engage a consigliere Leverage Your Angels and Silence Your Devils Don’t fight alone; create a win-win outcome for both detractors and supporters Challenge Conventional Wisdom Tipping point leadership changes mass by focusing on extremes: people, acts, and activities

Sixth principle of blue ocean strategy To build people’s trust and commitment deep in the ranks and inspire their voluntary cooperation, companies need to build execution into strategy from the start. Allows companies to minimize management risk of distrust, noncooperation, and sabotage. Poor process can ruin strategy execution

The Power of Fair Process When fair process is exercised in strategy-making process, people trust that a level playing field exists. Three E Principles of Fair Process Engagement Explanation Expectation clarity Why does fair process matter? Intellectual and emotional recognition Individuals seek recognition of their value as human beings They seek recognition that their ideas are sought after and given thoughtful reflection

Fair Process and Blue Ocean Commitment, trust, and voluntary cooperation are intangible capital, not merely attitudes or behaviors When there is trust, there is heightened confidence in one another’s intentions and actions When there is commitment, people are willing to override personal self-interest in the interests of the company

Barriers to Imitation Some are operational, some are cognitive More often than not, blue ocean strategy will go without credible challenges for 10-15 years Ex: Cirque de Soleil, Southwest Airlines, FedEx, Home Depot Types of barriers: Innovation does not make sense on conventional strategic logic Brand image conflict Natural monopoly – size of market cannot support another player Patents or legal permits High volume generated by value innovation leads to rapid cost advantages, placing imitators at ongoing cost disadvantage Network externalities Politics resisting change When company offers leap in value, it creates brand buzz that competitors can rarely overcome

When to Value-Innovate Again Eventually almost every BOS will be imitated To avoid trap of competing, monitor value curves on strategy canvas When company’s value curve still has focus, divergence, and compelling tagline, RESIST temptation to value-innovate again and focus on lengthening, widening, and deepening your rent stream through operational and geographical expansion As rivalry intensifies and total supply exceeds demand, and competitors’ value curves begin to converge with yours, reach out for a new blue ocean

Takeaways 6 principles of blue ocean strategy in this book should serve as essential pointers for every company thinking about its future strategy Because companies already understand how to compete in a red ocean, they need to learn how to make competition irrelevant Creating blue oceans is not a static achievement but a dynamic process