Blue Ocean Strategy

Blue Ocean Strategy Team 4

The Three Characteristics of a Good Strategy • Create a unique and exceptional value curve to unlock a blue ocean • Utilize focus, divergence, and a compelling tagline • Southwest Airlines

Focus • Friendly service, speed, and frequent point-to-point departures • No extra investments in meals, lounges, and seating choices • Hard to match their prices

Divergence • When a company’s strategy is formed reactively to keep up with competition, it loses uniqueness • Eliminating, reducing, raising, creating to differentiate • Point-to-point travel between mid sized cities instead of hub-and-spoke system

Compelling Tagline • Deliver a clear message • Be truthful • The strength of a strategy can be seen from a strong and authentic tagline

Compelling Tagline – Best Buy • “making technology work for you” • “not only tired, it is a death sentence that is bland, old, worn, uninspired and not reflective of a single strand of your customer’s aspirations” – David Brier, brand specialist

Reach beyond Existing Demand • Best Buy started as audio specialty store • Very popular and successful • Saw potential other customers • Moved into all electronics • Ability to satisfy more people = more customers • Did well and thrived with great customer service • By 2008 had 1,000 store • Existing demand gave them this opportunity

The new Growth • Seemed great and profitability was there • Unaccounted competitors • Small single owned electronic stores • Ability to not charge as much and more personable • Online help and ordering • Could order any parts for cheaper and do it yourself • Not only service kept Best Buy going (sales as well) • Such companies like Amazon took became too easy • Best Buy top sellers were being sold on-line • Adv. never even leave the house

Best Buy did not see these as competitors • Soon realized the threat they offered • Need for new customers • Tried joint with Carphone Warehouse 2010 • Financial struggles led to closure in Europe • Geek Squad was their answer for new customers • this created their store-within-a-store • However closed 50 stores in U.S. • The attempt was to build stable customer service and relationships with previous as well as new customers

Overcome Key Organizational Hurdles • Cognitive, limited resources, motivation, politics • Small but viable is the fact that customers got mad about reserved parking for quick customers (hard enough to find parking as is) • One example of many things that has went wrong • Law suites were used to settle this dispute $200,000 • Pricing errors are recorded • Ex selling a smart phone for $100 cheaper

One thing Best Buy did do to improve their image environmentally was become more “green” • Increased energy efficiency in products • Reduced customer waste • More recyclable packaging, proper disposal of certain electronics components, etc • To make up for past years the company introduced they introduced a recycling program • These are just a few examples where Best Buy has improved and can continue to do more

Reconstructing Market Boundaries • The first principle of blue ocean strategy is to reconstruct market boundaries to break from the competition and create blue oceans.

Chapter Goals • Are there systematic patterns? • Are these patterns applicable across all types of industry sectors? • Six Paths of remaking market boundaries

Six Paths • Path 1: Look Across Alternative Industries • Path 2: Look Across Strategic Groups • Path 3: Look Across the Chain of Buyers • Path 4: Look Across Complimentary Product and Service Offerings • Path 5: Look Across Functional or Emotional Appeal to Buyers • Path 6: Look Across Time

Best Buy BE S T B U Y

Competing on what you know! • Most prestigious companies compete on what they did in the past. • Behavior affects buyer’s expectations • Market research rarely reveals new insights into what attracts customers.

Conceiving New Market Space • Recording market realities in a new way: • Reconstructing existing market elements across industry and market boundaries, leading them to free themselves from head-to-head competition in the red ocean • Now reframe strategy planning process to focus on the big picture and apply these paths in forming your blue ocean strategy!

Accessing Trends Across Time • To form the basis of Blue Ocean Strategy….. • Must be decisive to your business • Must be irreversible • Must have clear trajectory • Ex: discontinuing technology, rise of new lifestyle, change in environment (regulatory or social)

Strategy Execution • Create a culture of trust and commitment • Do employees trust management? • Must align hearts and minds • Require people to step outside of comfort zone • Do employees think outside of the norm • Inspire voluntary cooperation • Quick to grasp new strategy? Strategy must be forced onto them?

Poor Process Can Ruin Strategy Execution • Failure to explain a strategy can halt the execution • Trust must be built with employees to begin to accept the new strategy

The Power of Fair Process • What is fair process? • Engagement • Explanation • Expectation clarity • How does it allow companies to build execution into strategy?

The Three E Principles of Fair Process • Engagement- Involving individuals in the strategic decisions that affect them by asking for their input. • Communicates management’s respect • Better strategic decisions • Greater commitment from those involved • Explanation- Making sure everyone involved and affected should understand why final strategic decisions are made. • Establish confidence in managers • Allows employees to trust managers • Powerful feedback loop • Expectation clarity- Stating clearly the new rules of the game after a strategy is set. • Understood standards to be held by • Strategy can be executed rapidly

Fairness/Justice Cont. • When fair process is exercised, it is believed that a level playing field exists • Inspires employees to voluntarily cooperate in executing the new strategy • Involves going beyond the call of duty

Why Does Fair Process Matter? • Intellectually • Recognition and reflection of individual’s ideas • Emotionally • Individual recognition of value • It all comes down to intellectual and emotional recognition.

Fair Process and Blue Ocean Strategy • Commitment, trust, and voluntary cooperation are intangible capital • Allows companies to stand apart in the speed, quality, and consistency of their execution and to implement strategic shifts fast at low cost • When people have trust, they have heightened confidence in others intentions and actions • When people have commitment, they are willing to override personal self-interest in the interests of the company

Fair Process and Blue Ocean Strategy (Continued) • Intangible Capital is directly related to success or failure in executing blue ocean strategies • How do companies create trust, commitment, and voluntary cooperation? • Incentives of money and power • Exercise of fair process

Fair Process and Blue Ocean Strategy • By organizing the strategy formulation process around the principles of fair process, you can build execution into strategy making from the start • Compromises and sacrifices are necessary in building a strong company