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. Red vs. Blue. Value Innovation.
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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
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.
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.
Three Characteristics of a Good Strategy Focus Divergence Compelling Tagline
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 DoCoMoi-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.
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
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