Outcomes of BOS The outcome will be sustainable competitive advantage through uncontested market space. Your blue ocean strategy will be characterized by a focus on: - Keeping current customers and attracting non or underserved customers -Creating mass appeal opportunities - Defining hard to copy opportunities - Achieving high value and low costs

What is Strategy? Six Assumptions Define the industry similarly and focus on being the best within it. Strive to stand out in a selected, generally accepted industry group. Focus on same buyer group and influencers. Define scope of products and services offered by their industry similarly. Accept their industry’s functional and emotional orientation. Focus on the same point in time; often on current competitive threats. We had agreed in our meeting to add a definition of the word tactic. Also note: M. Baldrige quotes are in participant materials. 123 cont’d

What is Strategy? Critical Drivers of Success Innovation and sustainable differentiation Execution Internal evolution for long term impact We had agreed in our meeting to add a definition of the word tactic. Also note: M. Baldrige quotes are in participant materials.

Strategy Comparison Red Ocean Strategies Blue Ocean Strategies Work the fixed/defined market Reconstruct / redefine market boundaries Beat the competition Make the competition irrelevant Stay within existing industry order Create a leap in value for buyers Compete for same customers Open new and uncontested markets Make value/cost tradeoffs Break value / cost tradeoffs Choose between differentiation and low cost to buyers Aggressively pursue differentiation and low cost Increase features / increase costs to produce and deliver product or service Increase value and decrease costs There should be significant differences in strategies if you plan to live in the Red Ocean vs. the Blue Ocean. Ex of red ocean strategy: Maintain competitive leadership through product enhancements. Ex of blue ocean strategy: Research the customer experience and identify non-customers and their requirements/needs. 132

Blue Ocean Introduction Head to Head Competition Blue Ocean Creation Industry Focus on rivals within industry Looks across alternative industries Strategic Group Focus on competitive position within strategic group Looks across strategic groups within industry Buyer Group Focus on better serving the buyer group Redefines the industry buyer group Scope of product or service offered Focus on maximizing the value of product/service offerings within the industry Looks across complementary product and service offerings Functional- Emotional Orientation Focus on improving price performance within functional emotional orientation of industry Rethinks the functional emotional orientation of its industry Time Focus on adapting to external trends as they occur Participates in shaping external trends over time 131

SMP Map Introduction Purpose: Sustainability analysis to test our strategic potential. Business products or services can be divided into 3 categories: Pioneers –These are the “bleeding edge” products, that open up new and uncontested markets. (Value Innovation) The only ones with a mass following. Migrators - The best in the crowd. Settlers that have been improved. (Value Improvement) Settlers - Me-too products and services. Commodity market. (Value Imitator) Q: Why is this tool an example of strategic thinking? A: Because it is a futuring tool that can tell you a great deal about your potential for sustainability if status quo is maintained. Of equal importance, it helps to drive home the criticality of “value innovation”. Value up! Costs down!  - W. Chan Kim & Renee Mauborgne, Blue Ocean Strategy 133

Testing Strategic Potential –SMP Map Company A Company B Pioneers ? Pioneers Migrators Migrators Settlers Settlers Do they value innovate? Does your organization believe that innovation builds margins or that innovation has a lengthy ROI cycle? Is your innovation tied to sound research? Is innovation a ‘process’ in your company? Is it a stable, repeatable process? Note: The blue and red combinations can be used. The PMS is the tool used to: 1) succinctly illustrate a company’s current industry landscape, and identify where its portfolio stands in relation to the competition, and; 2) see beyond today's performance and identify the growth potential of current and future businesses. 134

Strategy Canvas “The strategy canvas is both a diagnostic and an action framework for building a compelling blue ocean strategy. It serves two purposes. First, it captures the current state of play in the known market space. This 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.” - W. Chan Kim & Renee Mauborgne, Blue Ocean Strategy 136

Exercise-As Is Strategy Canvas 1. Select one of your businesses or products/services. Indentify the dominant customer group your industry focuses on. Label this information on your Strategy Canvas. Identify the key competitive factors your industry competes on/invests in to capture this dominant customer group. No less than 5, no more than 12. Price is always included in your key competitive factors. Rate your relative offering level of each factor on the horizontal axis. A relatively low offering level should be plotted lower, high offerings should be higher. Price is always an absolute figure; a high price is plotted high, etc. Now connect the dots to create your “As Is” canvas. Repeat this process for your “best competitor”. Analyze the results using the questions provided. 140

As Is Strategy Canvas Example Barnum & Bailey/Ringling Brothers Circus High Low The horizontal axis captures the range of factors the industry competes on and invests in. The vertical axis rates the relative offering level of each factor on the horizontal axis. A relatively low offering level should be plotted lower, high offerings should be higher. Price is always an absolute figure; a high price is plotted high, etc. - W. Chan Kim & Renee Mauborgne, Blue Ocean Strategy 137

As Is Strategy Canvas Example The US Wine Industry hi Premium Wines offering level Budget Wines Yellow Tail’s beginning analysis. They could not plot their “As Is” condition because they had not entered the seemingly glutted market. Their targeted non-customer group ended up to be beer drinkers. Note: First say: I’m going to use this example because its not a part of your industry, yet everyone can relate to this product. Also, using this example won’t bias you for creating your own in a little while. I would introduce them to a billboard company that operates in the south called EDBI (Electronic/Digital Billboards, Inc). I create the strategy canvas with them on a flipchart. The factors are: Location, Visibility of Billboard, Traffic, Types of Ads, Size, Price to Install, Creation Costs, Environmental Impact. Plot the red & Blue ocean for the billboard industry on a scale of 1 (lo) to 10 (hi) Red Blue Location – 8 8 or 9 Visibility - 6 9 or 10 Traffic – 7 7 Types of Ads – 6 9 or 10 Size of Ad – 6 ?? You fill out the rest with the class lo Use of enological terminology and distinctions in wine communication Above-the- line marketing Aging quality Vineyard prestige and legacy Price Wine complexity Wine range - W. Chan Kim & Renee Mauborgne, Blue Ocean Strategy 138

Exercise 1. Using your “As Is” Strategy Canvas, create a draft “To Be”. 2. Do this by applying the “four” blue ocean principles – Reduce, Eliminate, Enhance, Create 3. Create a blue ocean graph. 4. What does this tell you about what your strategies should be? 147

Blue Ocean Strategy-ERRC Grid Reduce Which factors should be reduced below industry standards? Create Which factors should be created that the industry has never created? Eliminate Which factors should be eliminated that the industry takes for granted? A New Value Curve Which one do you think is the hardest to analyze? Usually it is the “Eliminate”, people tell me there is nothing to eliminate. We know we have opportunities to eliminate things like: the need to call the Help Desk or Customer Service. If we need to do those things, this means that something is overly complex or not user friendly. Raise Which factors should be raised above industry standards? 144 - W. Chan Kim & Renee Mauborgne, Blue Ocean Strategy

“To Be” Strategy Canvas Drawing your To Be Canvas Analyze each factor in your As is Strategy Canvas, using the Eliminate, Reduce, Raise, Create Grid. If you are using your As Is Strategy Canvas with non-customer groups, use the ERRC Grid for each distinct non-customer group. Plot your To Be Strategy Canvas using the ERRC Grid. Does the strategy canvas meet the three targets of a compelling strategy? A. Is it divergent B. It is focused? C. Is there a tagline that speaks both internally and externally. For First American: There is an exercise after the next couple of samples for them to do. You can also follow the procedure above and do a “blue ocean” graph for EDBI. For Experienced Leader: Unfortunately, this is not an exercise we can do in a one day class. Why? You have completed Steps I-III so you don’t have sufficient data. My favorite taglines: “It’s a good thing” “Sense and sensibility”

“To Be” Strategy Canvas Example Cirque du Soleil’s Strategy Canvas High Low - W. Chan Kim & Renee Mauborgne, Blue Ocean Strategy

Example Strategy Canvas of [yellow tail] [yellow tail] hi Premium Wines [yellow tail] Budget Wines offering level Note: refresh yourself from the book on this one, but Yellow Tail targeted beer drinkers as their non-customer group. lo Use of enological terminology and distinctions in wine communication Above-the- line marketing Price Aging quality Vineyard prestige and legacy Wine complexity Wine range Easy drinking Ease of selection Fun & Adventure - W. Chan Kim & Renee Mauborgne, Blue Ocean Strategy

Four Hurdles to Successful Execution Cognitive: Wedded to the status quo. “This is how we’ve always done it here.” Political: Opposition from powerful vested interests. “NIMBY”/ “Not at our expense.” Complacency. “If it ain’t broke….” Resource/Priorities: “Five signatures to spend $50 on a customer!”

The Role of the Leader in Strategy Requires self and others to think about factors, activities, processes and/or services that are well past their prime Requires self and others to think about how customer values have changed Requires self and others to think about non-customers Provides insight into how the buyer experience works Requires self and others to explore ways to create new demand by thinking outside the status quo Requires self and others to uncover and eliminate some of the compromises we otherwise willingly make