CHAPTER 2ANALYTICAL TOOLS AND FRAMEWORKSPresentation By:

Courtney Karcasinas, Robert Brinkmann, Stephen Gonzalez, Adam Hall & Justin Weden

Objectives

Strategy Canvas

The Four Actions Framework

The Eliminate-Reduce-Raise-Create Grid

Three Characteristics of a Good Strategy

Reading the Value Curves

Creation of Blue Oceans

Importance of Analytics

Focus on risk minimization not risk taking

Don’t compete with rivals

– Make them irrelevant

Critical Questions for Strategists

How do we break out of this red ocean of bloody competition to make the competition irrelevant?

How do we open up and capture a blue ocean of uncontested market space?

Strategy Canvas

Diagnostic and an action framework for building a compelling Blue Ocean Strategy

Horizontal Axis Captures the range of factors the industry competes on

and invests in. Vertical Axis

Captures the offering level that the buyers receive across all these key competing factors.

Value Curve The graphic depiction of a company’s relative

performance across its industry’s factors of competition.

The U.S. Wine Industry

3rd largest aggregate consumption of wine worldwide

$20 billion industry is intensely competitive

The week, poorly run companies are increasingly being swept aside

Intense competition has fueled ongoing industry consolidation

Strategy Canvas of the U.S. Wine Industry in the Late 1990’s

High

Low

Pric

e

Term

inol

ogy

Abov

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e lin

e

mar

ketin

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Agin

g Q

ualit

yPr

estig

e an

d

Lega

cy

Com

plex

ity

Rang

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PremiumWine

Budget Wine

Shifting the Strategy Canvas Reorient the strategic focus

Competitors to Alternatives Customers to Noncustomers

Gain insight How to redefine the problem the industry focuses on Thereby reconstruct buyer value elements that reside across

industry boundaries

Conventional strategic logic Drives you to offer better solutions than rivals to existing

problems defined by the industry

To redraw the strategic profile Four Actions Framework

The Four Actions Framework

Which factors should be eliminated? Which factors should be reduced well

below the company standard? Which factors should be raised above

the industry’s standard? Which factors should be created that the

industry has never offered?

Elimination

Eliminate factors your industry have long competed on. Vineyard prestige and legacy

Factors may longer have value or even detract value. Wine complexity and aging

Reduction

What products or services have been overdesigned? Tannins, oak, complexity, and aging

Gain insight into how to drop your cost structure compared to competitors.

Rarely managers systematically set out to eliminate and reduce factors the industry competes on

Results in mounting cost structures and complex business models

Creation

Discover entirely new sources of value for customers. Fun and Adventure

Create new demand

Shift strategic pricing of the industry

Raise Above

Uncover and eliminate compromises your industry makes.

Provides insight into how to lift buyer value and create new demand.

Offer buyers a new experience while keeping your cost structure low. Easy Drinking

Casella Wines

[yellow tail] Wine as Wine Created a social drink accessible to

everyone Beer drinkers, cocktail drinkers

Within 2 years it was the fastest growing brand of wine and even surpassed Italy and France

By 2003 annual sales over 4.5 million cases

How?

Large wine companies have strong brands

Did not use a promotional campaign, mass media, or consumer advertising.

Steal sales from competitors?

Grew the market

Grew the market

Brought non-wine drinkers into the market.

Novice wine drinkers drank more Jug wine drinkers moved up Expensive wine drinkers moved down to

become consumers of [yellow tail].

Three New Factors

Easy Drinking Soft in taste and primary fruit flavors Kept the palate fresher

Easy to Select Chardonnay and Shiraz

Fun and Adventure

Easy Drinking

[yellow tail] reduced and eliminated traditional factors the industry had long competed with. Tannins, oak, complexity, and aging

Instead they made a simple fruity wine that many customers enjoyed.

Ease of Selection

Instead of over complicating there image with industry awards and jargon, [yellow tail] kept it simple.

Offering only two choices, a Chardonnay and a Shiraz

Fun and Adventure

[yellow tail] enticed retailers by making them ambassadors of [yellow tail] through unique merchandising.

By changing how the product was presented as well as the product itself, the product went from something the public thought was intimidating to something laid back and fun.

[yellow tails] Strategy Canvas

Price

Term

inol

ogy

Above

the

Line

Mark

etin

g

Aging

Qua

lity

Prest

ige

and L

egac

y

Compl

exity

Range

Ease

of D

rinkin

g

Ease

of S

elect

ion

Fun a

nd Adv

entu

reLow

High

Budget Wines

Premium Wines

[yellow tail]

Eliminate-Reduce-Raise-Create

A supplementary analytic to the four actions framework.

This tool forces companies to not only answer all parts of the framework but to act on them as well.

Providing them with four immediate benefits.

Four Benefits

Pushes companies to pursue differentiation and low costs.

Immediately flags companies focused on raising and creating.

Understood by managers at any level. Forces companies to scrutinize every

factor, allowing them to discover the implicit assumptions they make.

The Case of [yellow tail]

Eliminate Raise

Enological terminology and Distinctions

Aging QualitiesAbove-the-line marketing

Price versus Budget Wines

Reduce Create

Wine complexityWine Range

Vineyard Prestige

Easy DrinkingEase of Selection

Fun and Adventure

The Case of Cirque du Soleil

Eliminate Raise

Star PerformersAnimal Shows

Aisle Concession SalesMultiple Show Arenas

Unique Venue

Reduce Create

Fun and HumorThrill and Danger

ThemeRefined EnvironmentMultiple Productions

Artistic Music and Dance

Characteristic of Good Strategy Focus Divergence Compelling Tagline

Southwest Airlines

Focus Friendly Service and Speed

Divergence Point-to-point travel, not hub-and-spoke

system

Compelling Tagline “The speed of a plane at the price of a car –

whenever you need it.”

Lacking a Good Strategy?

No focus - high cost structure and complex business model

No divergence – leads to a “me-too” strategy, won’t stand apart from competition

Poor taglines - motives are internal and not focused on the customers

A Blue Ocean Strategy

If a company or its competitors meet the three BOS criteria FOCUS DIVERGENCE COMPELLING TAGLINE

“Caught in the Red Ocean”

If a company’s value curve converges with competitor chances are it is a red ocean

Strategy lends itself to outdoing competition on cost and quality

Unless industry is independently growing this signals slow growth

“Overdelivery without Payback” Value curve on a strategy canvas shows

high levels on all factors Does company market share and

profitability reflect the investments? If not: company may be oversupplying

customers with these factors

“Incoherent Strategy”

Company’s value curve can be described as “low-high-low-high…”

Signals there is no coherent strategy, rather based on incoherent substrategies

May make sense but does not differentiate the company from competitors

“Strategic Conditions”

Company offers high level on one competing factor while ignoring others

Inconsistencies can also be found between price and offering

“Internally Driven Company” Language used in a company’s strategy

gives insight to how the vision is built Analyzing the language serves as a

timetable for creating industry demand