Blue Ocean Strategy W. Chan Kim and Renee Maubourgne Edited by Chitchai P.

GJI, 2 Agenda 1.Blue Ocean Strategy (BOS)  Creating Blue Ocean  Analytical Tools and Frameworks 2.Formulating Blue Ocean Strategy  Reconstruct Market Boundaries  Focus on Big Picture  Reach Beyond Existing Demand  Get Strategic Sequence Right 3.Executing Blue Ocean Strategy  Overcome Key Organization Hurdles  Build Execution into Strategy  Conclusion

GJI, 3 Agenda 1.Blue Ocean Strategy (BOS)  Creating Blue Ocean  Analytical Tools and Frameworks 2.Formulating Blue Ocean Strategy  Reconstruct Market Boundaries  Focus on Big Picture  Reach Beyond Existing Demand  Get Strategic Sequence Right 3.Executing Blue Ocean Strategy  Overcome Key Organization Hurdles  Build Execution into Strategy  Conclusion 1.Blue Ocean Strategy (BOS)

GJI, 4 Creating Blue Ocean New Market Space The Continuing Creation of Blue Oceans The Impact and Imperative of Crating Blue Oceans From Company and Industry to Strategic Move Value Innovation: The Cornerstone of BOS The Six Principles of BOS

GJI, 5 Impact of Creating Blue Oceans Profit and Growth Consequence Figure (TBA)

GJI, 6 Value Innovation: The Cornerstone of BOS Costs Buyer Value Value Innovation The Simultaneous Pursuit of Differentiation and Low Cost

GJI, 7 Red Ocean vs. Blue Ocean Strategy Red Ocean Strategy Compete in existing market space Beat the competition Exploit existing demand Make the value-cost trade-off Align the whole system of a firm’s activities with its strategic choices of differentiation or low cost Focuses on adapting to external trends as they occur Create uncontested market space Make the competition irrelevant Create and capture untapped demand Break the value-cost trade-off Align the whole system of a firm’s activities in pursuit of differentiation and low cost Participates in shaping external trends over time Blue Ocean Strategy

GJI, 8 The Six Principles of BOS Execution Principles Overcome key organization hurdles Build execution into strategy Risk Factor Each Principle Attenuates ↓ Organization risk ↓ Management risk Formulating Principles Reconstruct market boundaries Focus on the big picture, not the numbers Reach beyond existing demand Get the strategic sequence right Risk Factor Each Principle Attenuates ↓ Search risk ↓ Planning risk ↓ Scale risk ↓ Business model risk

GJI, 9 Analytical Tools and Frameworks Strategy Canvas Four Actions Framework Eliminate-Reduce-Raise-Create Grid Three Characteristics of a Good Strategy

GJI, 10 Strategy Canvas US Wine Industry in the late 1990s High Price Low Premium Wines Budget Wines Wine range Wine complexity Vineyard prestige Aging quality Above-the-line marketing Use of enological terminology and distinctions in wine communication

GJI, 11 Four Actions Framework REDUCE Which factors should be reduced well below the industry’s standards? CREATE Which factors should be created that the industry has never offered? ELIMINATE Which of the factors that the industry take for granted should be eliminated? RAISE Which factors should be raised well above the industry’s standard? A New ValueCurve

GJI, 12 Eliminate-Reduce-Raise-Create Grid Case Study: Yellow Tail Reduce Wine complexity Wine range Vineyard prestige Create Easy drinking Ease of selection Fun and adventure Eliminate Enological Terminology Aging qualities Above-the-line MarketingRaise Price versus budget wines Retail stores involvement

GJI, 13 A New Value Curve – Strategy Canvas of Yellow Tail High Price Easy drinking Ease of selection Low Premium Wines [yellow tail] Budget Wines Fun and adventure Wine range Wine complexity Vineyard prestige Aging quality Above-the-line marketing Use of enological terminology and distinctions in wine communication CREATE REDUCE ELIMINATE RAISE

GJI, 14 Strategy Canvas: Southwest Airlines High PriceMealsLounges Seating class choice Hub connectivity Friendly Service SpeedFrequent Pint-to- point departure Low Average Airlines Southwest Airlines Car Transport

GJI, 15 Strategy Canvas: Cirque du Soleil High Price Star performers Animal shows Multiple show arena Fun and humor Thrill and challenge Unique venue Theme Low Ringling Bros. & Barnum & Bailey Cirque du Soliel Smaller Regional Circuses Refined watching environment Multiple Production Artistic music and dance Aisle concessions

GJI, 16 Three Characteristics of a Good Strategy Focus Divergence Compelling Tagline

GJI, 17 Agenda 1.Blue Ocean Strategy (BOS)  Creating Blue Ocean  Analytical Tools and Frameworks 2.Formulating Blue Ocean Strategy  Reconstruct Market Boundaries  Focus on Big Picture  Reach Beyond Existing Demand  Get Strategic Sequence Right 3.Executing Blue Ocean Strategy  Overcome Key Organization Hurdles  Build Execution into Strategy  Conclusion 2.Formulating Blue Ocean Strategy

GJI, 18 Reconstruct Market Boundaries Path 1: Look Across Alternative Industries Path 2: Look Across Strategic Groups within Industries Path 3: Look Across Chain of Buyers Path 4: Look Across Complementary Products and Service Offerings Path 5: Look Across Functional or Emotional Appeal to Buyers Path 6: Look Across Time

GJI, 19 Strategy Canvas: NetJets Path1: Alternative Industry High Price (fixed purchase + variable price per flight) Need for customer to manage aircraft (Aircraft M&A) Deadhead costs Speed of total travel time Ease of travel (include. Check-in, customs, etc. Flexibility and reliability In-flight service Low Private Jet Corporate travel NetJet’s Value Curve Commercial Airlines First and Business-Classes travel

GJI, 20 Strategy Canvas: QuickFit Path2: Strategic Group High Price Amenities Workout equipment (treadmill, weights, etc) Workout time Availability of instructors Environment encouraging discipline and motivation in exercise Nonthreatening same-sex Environ- ment Convenience Low Traditional health clubs Curves Home Exercise Program Womanly fun atmos- phere

GJI, 21 Strategy Canvas: NovoPen Path3: Buyer Group

GJI, 22 Strategy Canvas: NABI Path4: Scope of Product/Service Offerings High Initial purchase price Corrosion Maintenance cost Fuel consumption Environmental friendliness Aesthetic design Customer friendliness Low Average US Transit Bus NABI Hungarian Municipal Bus Company Life-Cycle Cost

GJI, 23 Strategy Canvas: QB House Path5: Functional/Emotional Orientation High PriceReservation desk Extra services (other than haircutting) Range of hair treatments HygieneTime savings on waiting Time savings on haircut High performance ”air wash” system Low Average Japanese Barbershop QB House

GJI, 24 Strategy Canvas: iTunes/Cisco Path6: Time

GJI, 25 Summary: Conceiving New Market Space Head-to-Head Competition Industry Strategic Group Buyer Group Scope of Product or Service Offering Functional Emotional Orientation Time Focuses on rivals within its industry Focuses on competitive position within strategic group Focuses on better serving the buyer group Focuses on maximizing the value of product and service offering within the bounds of its industry Focuses on improving price performance within the functional- emotional orientation of its industry Focuses on adapting to external trends as they occur Looks across alternative industries Looks across strategic groups within industry Redefines the industry buyer group Looks across to complementary product and service offerings Rethinks the functional-emotional orientation of to industry Participates in shaping external trends over time Blue Ocean Creation

GJI, 26 Focus on Big Picture Four Steps of Visualizing Strategy The Pioneer-Migrator-Settler Map

GJI, 27 Four Steps of Visualizing Strategy Visual Awakening Visual Exploration Visual Strategy Fair Visual Communication Compare your business with your competitor’s 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, Raise, Create, or Change. Draw your ‘to be” strategy canvas based on insights from field observations. Get feedback on alternative strategy canvases from customers, competitor's customer, and non- customers. 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 close the gaps to actualize the new strategy.

GJI, 28 The PMS Map Pioneers Migrators Settlers TodayTomorrow

GJI, 29 Reach Beyond Existing Demand First Tier: “Soon-to-be” non- customers who are on the edge of your market, waiting to jump ship Second Tier: “Refusing non- customers who consciously choose against your market. Third Tier: “Unexplored” non customers who are in markets distant from yours. First Tier Second Tier Third Tier Your Market

GJI, 30 Get the Strategic Sequence Right Buyer Utility PriceCostAdoption Commercially Viable Blue Ocean Idea N O Is there exceptional buyer utility in your business idea? Is your price easily accessible to the mass of buyers? N O Can you attain your cost target to profit at your strategic price? N O What are adoption hurdles in actualizing your business idea? Are you addressing them up front? N O

GJI, 31 Buyer Utility Map 1 Purchase 2 Delivery 3 Use 4 Supplement 5 Maintenance 6 Disposal Customer Productivity Simplicity Convenience Risk Fun and Image Environment al Friendliness The Six Utility Levels The Six Stages of the Buyer Experience Cycle How long to find the product you need? Is the place of purchase attractive and accessible? How secure is the transaction environment? How rapidly can you make a purchase? How long to get the product delivered? How difficult to unpack and install the new product? Do buyers have to arrange delivery themselves? If yes, how costly and difficult is this Training or expertise assistance required? Easy to store when not in used? How effective are features and functions? Overcharged with bell and whistles? Need other products to make it work? If so, how costly are they? How much time do they take? How much pain do they cause? How easy are they to obtain? Require external ME How easy to maintain and upgrade? How costly? Create waist items? How easy to dispose? Legal or environmental issue of the product disposal? How costly?

GJI, 32 Price Corridor of the Mass 1.Identify the Price Corridor of the mass 2.Specify a Price Level within the Price Corridor Three alternative product/service types: Same Form Different Form Same Function Different Form and Function, Same Objective Size of circle is proportion to number of buyers that product/service attracts Upper-level pricing Mid-level pricing Low-level pricing Price Corridor of the Mass High degree of legal and resource protection Difficult to Imitate Some degree of legal and resource protection Low degree of legal protection Easy to Imitate

GJI, 33 Profit Model of BOS The Target Profit The Strategic Price The Target Cost Pricing Innovation Streamlining and Cost Innovative Partnering

GJI, 34 Adoption Employees Partners General Public

GJI, 35 Agenda 1.Blue Ocean Strategy (BOS)  Creating Blue Ocean  Analytical Tools and Frameworks 2.Formulating Blue Ocean Strategy  Reconstruct Market Boundaries  Focus on Big Picture  Reach Beyond Existing Demand  Get Strategic Sequence Right 3.Executing Blue Ocean Strategy  Overcome Key Organization Hurdles  Build Execution into Strategy  Conclusion 3.Executing Blue Ocean Strategy

GJI, 36 Overcome Key Organization Hurdles 1.Cognitive – Wedded to status quo 2.Political – Opposition from powerful vested interest 3.Motivational – Unmotivated 4.Resource – Limited resource

GJI, 37 Build Execution into Strategy Fair Process Engagement Explanation Expectation clarity Trust &Commitment “I feel my opinion counts.” Volunteer Cooperation “I’ll go beyond the call of duty.” Exceeds Expectation Self-Initiated Strategy Formulation Process Attitude Behavior Strategy Execution

GJI, 38 Conclusion Sustainability and Renewal of Blue Ocean Strategy Imitation Barriers to BOS Value Innovation does not make sense to a company’s conventional logic. Blue Ocean Strategy may conflict with companies’ brand image. Natural monopoly: The market often cannot support a second player. Patents or legal permits block imitation. High volume leads to rapid cost advantage for the value innovator, discouraging followers from entering the market. Network Externalities discourage imitation. Imitation often require significant political, operational, and cultural changes. Companies that value-innovate earn brand buzz and a loyal customer following that tends to shun imitators.