Blue Ocean Strategy Analytical Tools and Frameworks June 2, 2009

Blue Ocean StrategyAnalytical Tools and

Frameworks

June 2, 2009

Introduction

Effective blue ocean strategy should be about risk minimization, not risk taking.

Looks closely at US wine industry

US Wine Industry

Intense Competition 75% of US wine is produced by top 8

companies Leaves last 25% to be produced by remaining

1600 wineries Mounting price pressure Increasing bargaining power by retailers,

distributors Flat demand

Critical Questions

Two critical questions remain with wine market How do you break out of the bloody

competition? How do you open up and capture a blue

ocean? The Answer

Analytical tools and frameworks

Overview

The Strategy Canvas The Four Actions Framework The Eliminate-Reduce-Raise-Create Grid 3 Characteristics of a Good Strategy Reading the Value Curves

The Strategy Canvas

The Strategy Canvas

Both a Diagnostic and Action framework Wine Example Value Curve

The Four Actions Framework

RaiseWhich factors should be raised well above the industry’s standard?

EliminateWhich of the factors that the industry takes for granted should be eliminated?

CreateWhich factors should be created that the industry has never offered?

ReduceWhich factors should be reduced well below the industry’s standard?

The Four Actions Framework

A New Value Curve

[yellow tail]

[yellow tail]

Created three new factors in the wine industry – easy drinking, easy to select, fun and adventure

Eliminated and Reduced factors the wine industry long competed on – tannins, oak, complexity, and aging

Raised price versus budget wines and retail involvement

The Four Actions Framework: Ipod

Which of the factors that the industry takes for granted should be eliminated? The need for cds/ cassette tapes The need for batteries

Which factors should be reduced well below the industry’s standard? The size of music players

The Four Actions Framework: Ipod

Which factors should be created that the industry has never offered? The transfer of music from multiple sources Portability: cars, stereos, headphones,

computers, shoes, jackets Which factors should be raised well above

the industry’s standard? Mass storage capacity Quality in sound

Eliminate-Reduce-Raise-Create Grid

Eliminate-Reduce-Raise-Create GridYellow Tail

Eliminate Enological terminology

and distinctions Aging qualities Above-the-line

marketing

Reduce Wine complexity Wine range Vineyard prestige

Raise Price versus budget

wines Retail store

involvement

Create

Easy drinking Ease of selection Fun and adventure

Eliminate Star performers Animal shows Aisle concession sales Multiple show arenas

Reduce Fun and humor Thrill and danger

Eliminate-Reduce-Raise-Create GridCirque du Soleil

Raise Unique venue

Create Theme Refined environment Multiple productions Artistic music and dance

3 Characteristics of a Good Strategy

Three Characteristics of a Good (Blue Ocean) Strategy

Focus Divergence Compelling Tagline

Focus

A company’s conviction to its strategy Example: Southwest Airlines

Strategy: competing more with the car than with other airlines

Without focus, investments would have strayed to mirror those of established airlines

Example: [yellowtail] Strategy was to sell to average consumer Focus allowed company to dismiss critics from wine

community

Divergence

The basis of finding a Blue Ocean Retroactively forming a strategy throws

companies right into Red Oceans Benchmarking is widely used in the business

community, but perpetuates the same cycles

Divergence Examples Southwest Airlines

Common practices of other airlines?-Meals-Lounges-Seating class choices

Common practices of Southwest?-Friendly Service-Speed-Frequent point-to-point departure

New ideas born from four actions of eliminating, reducing, raising, and creating

[yellow tail] Diverge from prestige of wine drinking to create easy

drinking product

Compelling Tagline

Simple but crucial Must deliver a clear, truthful message Should highlight divergent characteristics

Example: Southwest Airlines Taglines change with advertising campaigns However, one thing remains the same

- Southwest always highlights its different culture

Example: [yellowtail] “a fun and simple wine to be enjoyed everyday” Highlights strategic profile

Reading the Value Curves

Types of Tools and Frameworks

Companies Caught in the Red Ocean Overdelivery without Payback An Incoherent Strategy Strategic Contradictions An Internally Driven Company

Companies Caught in Red Ocean

When Value Curves Converge Company is caught in the Red Ocean Strategy is trying to outdo its competitors

Overdelivery Without Payback

Does the company’s market share and profitability reflect these investments? If not, the company might be oversupplying its

customers

An Incoherent Strategy

Inconsistency with growth and decline Reflects an organization with divisional and

functional silos The strategy is based on independent sub

strategies that do not distinguish the company or provide a clear strategic vision

Strategic Contradictions

Are there strategic contradictions? Offering a high level on one competing factor

while ignoring others that support that factor Example:

• Investing heavily in a web site that is very user-friendly, but not improving the speed of the site’s operation

An Internally Driven Company

Is the strategic vision of the company built on an “outside-in” perspective, which is driven by demand

Or an “inside-out” perspective, which is driven by operations

Sum It Up!

ConclusionAnalytical Tools & Frameworks: Strategy Canvas:

- drawing the value curve Four Actions Framework:

- breaking trade-off between differentiation and low cost and creating a new value curve

Eliminate-Reduce-Raise-Create Grid: - pushes companies to act

3 Characteristics of a Good Strategy: - Focus, Divergence, & Compelling Tagline

Reading the Value Curves: - Caught in the Red Ocean, Overdelivery without Payback, an Incoherent Strategy, Strategic Contradictions, and an Internally Driven Company

Take Aways

The point where these analytic techniques and the six principles of creating blue ocean meet is the point where a company begins to break out of their red ocean and into a blue ocean.