Blue Ocean Strategy How to create Uncontested Market Space and Make the Competition Irrelevant W. Chan Kim Renee Mauborgne Book Review Larin Sanders Brian Davis Ivan Salazar

Part One Blue Ocean Strategy

Chapter 1: Creating Blue Oceans New Market Space Red oceans- represent all the industries in existence today: the known market space. Blue oceans- denote all the industries not in existence today: the unknown market space. Example- Cirque du Soleil was an “untapped market space”

The Rising Imperative of Creating Blue Oceans Driving forces to creating blue oceans: – Technological advances – Increase in supply and decrease in demand – Globalization Trade Barriers Communications – Increasing price wars and shrinking profit margins – Differentiating products is more difficult

From Company and Industry to Strategic Move Strategic Move, and not the company or the industry, is the best unit of analysis for explaining the creation of blue oceans and sustained high performance. Making a major market-creating business offering is a managerial duty. Blue oceans were achieved by diverse industries, organization, firms, and managers.

Value Innovation: The Cornerstone of Blue Ocean Strategy Instead of focusing on beating the competition, one focuses on making the competition irrelevant by creating a leap in value for buyers and ones company. Affect both its cost structure and its value to buyers. Over time, costs are reduced further as economies of scale kick in.

Chapter 2: Analytical Tools and Frameworks The Strategy Canvas Is both a diagnostic and an action framework Drawing the value curve Value Curve- basic component of the strategy canvas Reorienting strategic focus from competitors to alternatives, and from customers to noncustomers of the industry

The Four Actions Framework Reduce: Which factors should be reduced well below the industry’s standard? Eliminate: Which of the factors that the industry takes for granted should be eliminated? Raise: Which factors should be raised well above the industry’s standard? Create: Which factors should be created that the industry has never offered = A New Value Curve

The Eliminate-Reduce-Raise-Create Grid Eliminate Enological terminology and distinctions Aging qualities Above-the-line marketingReduce Wine complexity Wine range Vineyard prestigeRaise Price versus budget wines Retail store involvementCreate Easy drinking Ease of selection Fun and adventure

Three Characteristics of a Good (Blue Ocean) Strategy Focus: A company’s dedication to its strategy – Examples: Southwest Airlines and [yellowtail] Divergence: The basis of finding a Blue Ocean Compelling Tagline: Simple but crucial – Must deliver a clear message, but offer a truthful message – Strong and authentic Guide for reconstruction to arrive at a breakthrough in value both for buyers and for companies.

Reading the Value Curves Types of Tools and Frameworks Companies Caught in the Red Oceans Overdelivery without Payback An incoherent Strategy Strategic Contradictions An internally Driven Company

Part Two Formulating Blue Ocean Strategy

Chapter 3: Reconstruct Market Boundries The six paths framework to remaking market boundries: 1.Define industry and strive to be the best within it 2.Look at industry through lens of strategic group 3.Focus on same buyer group 4.Define scope of products/service offered 5.Accept industry’s functional or emotional orientation 6.Focus on the same point in time in formulating strategy

How each of these six paths work? Path 1: Look Across Alternative Industries – Different form and function but same purpose Path 2: Look Across Strategic Groups – Group of companies within an industry that pursue a similar strategy Path 3: Look Across the Chain of Buyers – Chain of three buyers directly and indirectly Purchaser, User, and Influencer

How each of these six paths work? Path 4: Look Across Complementary Product and Service Offerings – What happens before, during, and after your product is used? Path 5: Look Across Functional or Emotional Appeal to Buyers – When companies are willing to challenge the functional- emotional orientation of their industry, they often find new market space. Path 6: Look Across Time – Analyzing the external trends all industries are subject to with the right perspective can help create Blue Ocean opportunities.

Visual Awakening Visual Exploration Visual Strategy Fair Visual Communication -Compare your business with your competitors’ by drawing your “as is” strategy canvas -See where your strategy needs to change -Go into the field to explore the six paths to creating blue oceans -Observe the distinctive advantages of alternative products and services -See which factors you should eliminate, create, or change -Draw your “to be” strategy canvas based on insights from field observation -Get feedback on alternative strategy canvases from customers. Competitors’ customers and noncustomers -Use feedback to build the best “to be” future strategy -Distribute your before- and-after strategic profiles on one page for easy comparison -Support only those projects and operational moves that allow your company to c lose the gaps to actualize the new strategy Drawing your Strategy Canvas

European Financial Services

Eliminate Relationship management Raise Ease of use Security Accuracy Speed Market commentary Reduce Account executives Corporate dealers Create Confirmation tracking European Financial Services

Three Tiers of Noncustomers First Tier: “Soon-to-be” noncustomers who are on the edge of your market, waiting to jump ship. Second Tier: “Refusing” noncustomers who consciously choose against your market. Third Tier: “Unexplored” noncustomers who are in markets distant from yours. Reach Beyond Existing Demand

Utility Is there exceptional utility? Are there compelling reasons to buy your offer? Price Is your price easily accessible to the mass of the buyers? Cost Does your cost structure meet the target cost? Adoption Have you addressed adoption hurdles up front? Strategy Sequence

Buyer Utility Map

Price

Part Three Executing Blue Ocean Strategy

Chapter 7 Overcome key organizational curves Blue ocean strategies represent a significant departure from the status quo Managers have assured that this challenge is steep and these are their 4 hurdles (1) Cognitive (2) limited resources (3)Motivation (4) Politics

Overcome key organizational hurdles To effectively jump over hurdles managers need to abandon conventional wisdom and use whats called the tipping point leadership Traces its roots to epidemiology and the theory of tipping points Managers should find the people, acts, or activities that exercise a disproportionate influence on performance

Overcome key organizational hurdles Break the Cognitive Hurdle The hardest battle is to make people aware of a strategic shift Most CEOs will point to the numbers to set and achieve better results Tipping point leaders will zoom in on the act of disproportionate influence: making people see and experience harsh reality firsthand. Inspire a fast change in mindset that is internally driven of peoples own accord.

Overcome key organizational hurdles Break the resource hurdle Instead of focusing on getting more resources, tipping point leaders concentrate on multiplying the value of the resources they have. There are 3 factors of disproportionate influence that managers can leverage to dramatically free up resources: hot spots, cold spots, and horse trading Organizations can gain insight into freeing up low- return resources and redirecting them to high-impact areas

Overcome key organizational hurdles Break the motivation hurdle People must not only recognize what needs to be done, but act on that insight in a sustained and meaningful way Believe massive actions are required to create massive reactions Tipping point leaders focus on 3 factors of disproportionate influence in motivating employees (1)Kingpins (2)Fishbowl management (3)atomization

Overcome key organizational hurdles Break the political hurdle Even if the tipping point of execution has been reached, powerfully vested interests will resist change. these interest can be both internal and external, and they can seriously damage any attempt at a new strategy Tipping point leaders therefore focus on three disproportionate influence factors (1)Getting a consigliere on their top mtg. team (2)Leverage angels (3)Silence devils

Chapter 8 Build Execution into Strategy When all members of a company are aligned around a strategy and support it, the company can stand apart as a great and consistent executor a company needs to invoke the attitudes and behavior of its people deep in the organization Execution needs to be built into the strategy from the start

Build Execution into Strategy Companies should reach to fair processes when making/executing a strategy….ex. Court system When fair process is exercised in the strategy-making process, people trust that a level playing field exists. There are 3 mutually reinforcing elements that define a fair process (1)engagement (2)explanation (3) Clarity of expectation

Build Execution into Strategy Why does using a fair process matter? Using fair process in strategy making is strongly linked to both intellectual and emotional recognition Emotionally, individuals seek recognition of their value not as “labor” or “personnel”, but as human beings who are appreciated for their worth Intellectually, individuals seek recognition that their ideas are sought after or given reflection on

Chapter 9 The Sustainability and Renewal of Blue Ocean Strategy Once a company creates a blue ocean and its powerful performance results are known…competitors/imitators will appear on the horizon. The key questions to answer are (1)How soon or late will they arrive? and (2)When should a company reach out to create a new blue ocean?

Sustainability and Renewal of a Blue Ocean Strategy Having a Blue Ocean strategy entails considerable barriers to imitation. These barriers are cognitive and operational. Blue Ocean strategies have been shown to go without credible challenges for 10 to 15 years

Sustainability and Renewal of a Blue Ocean Strategy Barriers to imitation (1) A value innovation move does not make sense based on conventional wisdom. (2) Natural Monopoly is formed (3) Brand Image conflicts (4)Patents or legal permits (5) A value innovation that leads to rapid cost advantages (6) Politics bc changes in business practices (7) Brand buzz and a loyal following

Sustainability and Renewal of a Blue Ocean Strategy Eventually, imitators will try to grab market share in the blue ocean. Over time, the competition, and not the customer will be the focus of your strategy Monitoring value curves signals when to value- innovate and when not to. If a company’s value curve still has focus, divergence, and a tagline, you should resist value-innovating Swim as far into the blue ocean as possible