1. 12/7/20151 Foundations of Strategy PSU MGMT #511 Dave Garten daveoutside@alum.mit.edu Week # 5 Blue Ocean, Wrap-Up

2. Creativity in Strategy Development 1. Conceive of the external environment as “design space” in which you develop/adapt your business model 2. Market forces, industry forces, key trends and macroeconomic forces – take stock, and apply to the business model. Very inquiry focused. 3. Overlay of SWOT to assess the business model – a long series of evaluation questions. 4. Blue Ocean lens to evaluate business model canvas – what are you reducing or eliminating? What are you raising or introducing? Start with the Cost, value proposition and Customer Impact portions of the canvas. 12/7/2015Dave Garten - Business Strategy2

3. 12/7/2015Dave Garten - Business Strategy3 Strategy Formulation Derived from Blue Ocean Strategy by W. Chan Kim and Renee Mauborgne, HBS, 2004 Red OceanBlue Ocean Known boundariesUncontested market space Increasing competition for existing demand Redefine the value proposition (“leap in value for the buyer”) Globalization reducing niche/protected opportunities… Competition becomes “irrelevant” Bloody …Pull in a whole new group of customers Examples: Model T, Southwest, Cirque de Soliel, eBay

4. 12/7/2015Dave Garten - Business Strategy4 Strategy Formulation Study of business launches in 108 companies… “Blue Ocean” “Red Ocean”

5. 12/7/2015Dave Garten - Business Strategy5 Look across:Examples Alternative industries Chain of buyers Complementary products & services Functional/emotional appeal of buyers Time Strategy Formulation Netjets Home Depot Insulin Bloomberg Movies & babysitting Swatch Starbucks Cisco Reshaping boundaries  value innovation

6. 12/7/2015Dave Garten - Business Strategy6 Strategy Formulation Lower Cost Increase Value What can be eliminated? What can be reduced below industry levels? What can be created? What can be raised above industry levels?

7. 12/7/2015Dave Garten - Business Strategy7 Strategy Formulation Redefine target toward new market space Simultaneously pursue differentiation & low cost to achieve a leap in value (utility) Challenge deep reliance on: Existing customers Finer and finer segmentation Focus on non-customers Edge of market Unexplored non-customers Derived from Blue Ocean Strategy by W. Chan Kim and Renee Mauborgne, HBS, 2004 Buyer value Costs Value Innovation

8. 12/7/2015Dave Garten - Business Strategy8 Strategy Formulation: Mapping High Low Car SWA Major Airline