Blue Ocean Strategy-Intro [Compatibility Mode]

7/24/2019 Blue Ocean Strategy-Intro [Compatibility Mode]

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Creating Blue Oceans

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The Book and the Authors

Prof ReneeMauborgne

JOHNABBOTT

Prof Chan Kim

JOHNABBOTT

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AccoladesOver 2 million copies sold

Translated into over 41 foreignlanguages a world record

Taught as the major theory o f strategy at

leading business schools

Gives insights to CEOs, Executives,

Heads of State and Prime Ministers

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New Market Space

Red oceans and blue oceans make up market

universeRedoceans: all industries in existence

= known market space

Blueoceans: all industries not in existence

= unknown market space

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Red Oceans vs. Blue OceansRed oceans

Industry boundaries defined and accepted

Competitive rules of game known

Companies try to outperform rivals; cutthroat competition

As market space gets crowded, prospects for profit and

growth reducedProducts become commodities

Red ocean strategy is a market-competing strategy

Blue oceans

Undefined market space, demand creation, opportunity forhighly profitable growth

Most are created from within red oceans by expandingexisting industry boundaries

Rules of game waiting to be set

Competition irrelevant

Blue ocean strategy is a market-creating strategy

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The Rising Imperative of

Creating Blue OceansSupply is exceeding demand in most industries

global competition is intensifying

Problems:

Accelerated commodization of products andservices

Increasing price wars

Shrinking profit margins

Red oceans becoming bloodier, need to beconcerned with creating blue oceans


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The Continuing Creationof Blue Oceans

Blue oceans have been around for some time;

a feature of business lifeIndustries never stand still, constantly evolving

Significant expansion of blue oceans overyears

So why the focus on red ocean strategy?

Corporate strategy influenced by military strategy

Need to create new market space that is uncontested

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The Impact of Creating Blue Oceans

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From Company and Industry

to Strategic MoveAre there lasting visionary companies that

continuously outperform the market andcreate blue oceans?

Found success of these model companies wasa result of industry sector performance, notcompanies themselves

Strategic move used as unit of analysis (ratherthan company or industry)

Strategic move: the set of managerial actionsand decisions involved in making a majormarket-creating business offering

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Value Innovation: The

Cornerstone of Blue Ocean Strategy

Creators of blue oceansfollow value innovation

Value InnovationEqual emphasis on value andinnovation

Defies value-cost trade-offof competition-based strategy

Successful value innovation:Drives down costs whiledriving up buyers value

Uses a whole-system approach

Follows reconstructionist view


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RedOceanVs. BlueOcean

Compete in existingmarket space

Beat the competition

Exploit existing demand

Make the value-costtrade-off

Align the whole systemof a firms activities withits strategic choice ofdifferentiation or low cost

Create uncontestedmarket space

Make the competitionirrelevant

Create and capture newdemand

Break the value-costtrade-off

Align the whole system ofa firms activities inpursuit of differentiationand low cost

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Formulating and ExecutingBlue Ocean Strategy

Six Principles of Blue Ocean Strategy

Reconstruct market boundariesFocus on the big picture, not the numbers

Reach beyond existing demand

Get the strategic sequence right

Overcome key organizational hurtles

Build execution into strategy

The remaining chapters will give you theprinciples and generalized frameworks tosucceed in blue oceans

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Take Aways

Redocean strategy is a market-competing

strategy, while blue ocean strategy is amarket-creating strategy

As red oceans are becoming bloodier, we

need to create more blue oceans

The only way to beat the competition is to

stop trying to beat the competition!

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The Six Principles of Blue Ocean Strategy

Formulation Principles Risk factor each princi ple

attenuates

Reconstruct market boundariesFocus on the big picture, not the

numbers

Reach beyond existing demand

Get the strategic sequence right

Search riskPlanning risk

Scale risk

Business model risk

Evaluation princip les Risk factor each princi ple

attenuates

Overcome key organizational hurdles

Build execution into strategy

Organizational risk

Management risk

This figure highlights the six principles drivi ng the successf ul formulation andexecution of blue ocean strategy and the risks that these principles attenuate.


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Points of view

Business often look at the industry from astructuralist (supply) point of view

What if we looked at the industry from areconstructionist (demand) point of view?

Market boundaries are not viewed as given,but could be reconstructed to unlock newdemand

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Generic Strategies vs.Value Innovation

High

Low

V1

C1

Cost

Quality

HighHigh

High

LowLow

Low

Quality

Cost

D

LC

V1

C1

Red Ocean Strategy Blue Ocean (VI) Strategy

Structuralist Reconstructionist

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Example:A highly competitive Industry

The American

Wine Industry

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What the industry offersPremium Wines Budget Wines

Massive Choice

Polarised

Strategic Groups


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American Wine Industry3rd largest in world: worth $20 billion

Californian makes 66% - the rest is from Italy,France, Spain, Chile, Argentina, Australia

Exploding number of new wines new vineyardsin Oregon, Washington, New York

Customer base stagnant

31st in the world in per capita consumption !

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American Wine IndustryTop 8 producers had 75% of the market; 1600

had the remaining 25%

$ millions spent in marketing - Titanic battles intense competition

Sever price pressure

The dominant growth strategy was towardspremium wines more complexity, betterimage, more prestigious vineyards, number ofmedals won at wine festivals.

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What wine customers said It is too confusing and complex

Wine descripti ons and terminolo gy

The shopping experience

The lack of clear guidance on what to buy and

drink

Thus, massively intimidating for

noncustomers (the large majority of the US

population who were not wine drinkers)

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What are people

looking for in a wine?


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Segmentation of Market and Brands

LowInvolvement

HighInvolvement

Easy Going Enjoyers Aspi rati onal s Appr eciato rs Connoisseurs

Glass withfriends

Least carechoosing a wine

Not winepreferrers

Price is a stronginfluencer

Everydayenjoyment

To relax/unwindStick with limitedlist of knownbrandsChoose in-storeNot interested inwine language

Influenced bymajor brandadvertising

Image importantWine preferrers(sic)VarietalknowledgeInterested insome winelanguageEnjoy trying newwines

Visit wineries /read wine articles

Want todiscover wine

Knowledge ofwine regionsFrequently buy>$10 winesJoin wine clubsDont stick toknown brands

Ideal wine iscomplex &interesting

Sophisticateddrinker

Discerning winetastesDont decide instoreHave a cellarLess influencedby specials/promotions

Actively pursuewine knowledge

Brand: LindemansRosemount

EstateWolf Blass Penfolds

Demographic: M/F: 50/50 Age:35-49

M/F: 30/70; Age:30-40

M/F: 70/30; Age:35-50

Age: 40+

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Strategy CanvasThe strategy canvas is both a diagnostic and an action fra mework for building acompelling blue oce an strategy. It captures the current state of play in the knownmarket space. This allows you to understand where the competition is curre ntlyinvesting, the factors the industry currently competes on in products, service, and

delivery, and what customers receive from the existing competitive offerings on themarket. The horizontal axis captures the range of factors the industry competes onan invests in. The vertical axis captures the offering level that buyers receive acrossall these key competing factors. The value curve then provides a graphic depictionof a companys relative performance across its industrys fac tors of competition.

High

Low

Price Use ofenological

terminology

Above-the-linemarketing Aging

quality

Vineyard prestigeand legacy Wine

complexity

Wine range

Budget Wines

Premium Wines

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Four Steps of Visualizing

1. Visual

Awakening

2. Visual

Exploration

3. Visual

Strategy Fair

4. Visual

Communication

Compare yourbusiness with your

competitors bydrawing your as iscanvas

See where yourstrategy needs to

change

Go into the field toexplore the six paths

to creating blueoceans

Observe thedistinctive advantagesof alternative products

and services

See which factorsyou should eliminate,

create or change

Draw your to becanvas based on

insights from fieldobservations

Get feedback onalternative strategycanvases from

customers,competitorscustomers, and non-customers

Use feedback to buildthe best to be future

strategy

Distribute yourbefore-and-after

strategic profiles onone page for easycomparison

Support only thoseprojects and

operational movesthat allow yourcompany to closegaps and actualize the

new strategy

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What factorsshould be

eliminated that theindustry has taken

for granted?

Eliminate

What factors

should be reduced

well below theindustry standard?

Reduce

What factors shouldbe created that the

industry has neveroffered?

Create

What factorsshould be raised

well beyond the

industry standard?

Raise

Four Actions to create a Blue Ocean


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Four Actions Framework +Eliminate/Reduce/Raise/Create Grid

The four actions framework offers an techniquethat breaks the trade-off betweendifferentiation and low cost and to create a newvalue curve. It answers the four key questionsof what industry takes for granted and needs tobe eliminated; what fac tors need to be reducedbelow industry standards; what factors need tobe raised above industry standards; and whatshould be created that the industry has neveroffered.

The eliminate-reduce-raise-create grid pushescompanies not only to ask all four questions in thefour actions framework but also to acton all fourto create a new value curve. By drivingcompanies to fill in the grid with the actio ns ofeliminating, reducing, rais ing, and creating, thegrid provides four immediate benefits: it pushesthem to simultaneously pursue differentiation andlow costs; identifies companies who are onlyraising and creating thereby raising costs; makesit easier for managers to understand and comply;and it drives companies to scrutinize every factor

the industry competes on.

Eliminate

Enological terminology and

distinctions

Aging qualities

Above-the-line marketing

Raise

Price versus budget wines

Retail Store involvement

Reduce

Wine complexity

Wine range

Create

Easy drinking

Ease of selection

ANewValueCurve

Reduce

Eliminate Create

Raise

Which factors should bereduced well below

industry standards?

Which factors should becreatedthat the industryhas never offered?

Which factors shouldbe raised well above

the industrys standard?

Which of the factorsthat the industry takes

for granted should beeliminated?

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ERRC Grid yellow tail

The Case of yellow tail

Eliminate

Enological terminology & distractionsAging qualities

Above-the-line marketing

Raise

Price versus budget winesRetain store i nvolvement

Reduce

Wine complexityWine Range

Vineyard prestige

Create

Easy drinkingEase of selectionFun & adventure

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To Be Canvas

Eliminate

Reduce

Raise

Create

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Yellow TailOnly 2 types ini tially Chardonnay and Shiraz

Fruity, soft o n palette, sweet-ish great for those who hadnot drunk wine before

Same bottle for red and white low logistics cos tsSimple vibrant packaging low er case letters/kangaroo

Un-intimidating

They were selling The essence of a great land Aus tra lia ie they wer e not sel ling th e win e

Aus tral ian c lothi ng for the retail staff theyenthusiastic ally promoted a wine they couldunderstand.


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Example: Cirque du Soleil

Each show, like a theater production, had its

own unique theme and storylineThis allowed customers to return to the show

more frequently

They also did away with the traditional high-priced concessions and vendors therebycutting costs

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Example: Cirque du Soleil

Cirque du Soleil effectively combined the best

of both the circus and the theater whileeliminating everything else

This allowed them to achieve bothdifferentiation and low cost

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Eliminate-Reduce-Raise-Create

Eliminate

Star Performers

Animal showsAisle concession sales

Multiple show arenas

Raise

Unique venues

Reduce

Fun and humor

Thrill and danger

Create

Theme

Refined environment

Multiple productions

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The Strategy Canvas

of Cirque du Soleil

hi

offering

level

loPrice

Fun & Humor Unique VenueAisle Concessions

Multiple ShowArenas

Thrills & DangerAnimal Shows

Star Performers

Theme

Refined ViewingEnvironment

MultipleProductions

Artistic Music& Dance

Cirque du Soleil

ReduceEliminate Raise Create

Kim & Mauborgne2006

Ringling Brothers

Smaller Regional Circus


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Key TakeawaysThree tiers of non-customers:

1: buyers who purchase your industry offerings out of necessity;will jump ship if given an opportunity.

2: buyers who purchase alternative offerings that serve the samefunction

3: people who dont consume even the alternatives to yourofferings

Non-customer demand is unlocked by providingnew buyer utilities, at a pricethat attracts amass of buyers, given target costs.

Buyers could be not only end-users, but also otherparticipants in a value chain (e.g. distributors)

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Comparison of approaches

Red Ocean Strategy Blue Ocean Strategy

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Exercise

1. List Factors of

Competition

2. Top 2 or 3 in ERRC

Grid Quadrants

Clearly define the

group of non-

customer that you are

going after.

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Examples


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Exercise

3. Write on

Worksheet:E left, C right

4. Draw As Is

5. Draw To Be

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Examples

Documents

Blue Ocean Strategy-Intro [Compatibility Mode]