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Blue Ocean Strategy: Innovating in a Down Economy
IMCNE Annual Conference “A Recession is a Terrible Thing to Waste”
May 5, 2009
Jennifer von BriesenOwner & PrincipalFrontier Strategy, LLC
Source: Blue Ocean Strategy by W. Chan Kim & Renée Mauborgne ©2005
Strategy Over the YearsStrengths and Weakness analysis, SWOT (HBS, late 60s)
Portfolio approaches (GE, McKinsey, BCG 60-70s)
Shareholder value, EVA (80s-90s),
Michael Porter (mid 80s)
Core Competence, Strategic Intent (Hamel, Prahalad, early 90s)
Profit Zone (Adrian Slywotzky, et al)
Disruptive technologies (Clay Christensen, late 90s)
Value Innovation (Chan Kim, Renée Mauborgne, late 90s).
So what’s new about Value Innovation/Blue Ocean Strategy?
What Is A Blue Ocean?
• New market space• Companies expand or go
across industry boundaries• Competition is irrelevant in
the blue uncharted water• Significant opportunity for
profitable growth
• Existing market space• Industry boundaries are defined
and accepted• Cutthroat competition means
the water is bloody red• Growth and profits are
restricted
Red Ocean Blue Ocean
Source: Blue Ocean Strategy by W. Chan Kim & Renée Mauborgne ©2005
Core Concept
The Simultaneous
Pursuit of Differentiation (Superior
Buyer Value) and Low Cost
• Buyer value is increased by raising and creating elements the industry has never offered.
• Cost Structure Is lowered through eliminating and reducing factors the industry competes on but buyers do not value highly
• High sales volume creates scale economies and further cost reduction
Source: Blue Ocean Strategy by W. Chan Kim & Renée Mauborgne ©2005
Key Principle: Reach Beyond Existing DemandEngage the Three Tiers of Non-Customers
Tier 1• Soon-to-be non-customers.
• In search of better solutions.
Tier 2•Are aware of but don’t use your industry’s offerings.
Tier 3•Have never thought of your market’s offerings as an option.
• “Unexplored” customers who have not been targeted or thought of as potential customers by any player in the industry.
Source: Blue Ocean Strategy by W. Chan Kim & Renée Mauborgne ©2005
Benchmarking Focuses On Beating The Competition
Rather than competing for a share of a contracting market, Value Innovators stimulate the demand side of the economy.
“World’s Friendliest Driver”
• Callaway did not focus on competitors
• Launched “Big Bertha” in 1991
• Dominated the market by capturing share from rivals and expanding the total golf club market
• e.g., attracted non golf playing sports enthusiasts
86%
Why It’s ImportantThe Sources of Profitable Growth
Source: Blue Ocean Strategy by W. Chan Kim & Renée Mauborgne ©2005
When Should Blue Ocean Strategy(BOS) Be Used?Best Situations
Leadership is committed to investing in innovation for profitable growth and significant cost structure reduction
Core business or organization is performing well Strategic, future-focused opportunities are not sacrificed to short-
term prioritiesLeadership embraces new approaches and non-incremental
thinkingLeadership believes in the need for a well balanced portfolio of
offerings/businesses tied to different growth strategies including Pioneers, not just Settlers and Migrators
Will BOS be of value to your clients?Frontier Strategy takes clients through an initial audit/
questionnaire
Using BOS for Business DevelopmentThink differently about how you position your services in this
downturn BOS helps position your functional expertise and services more
strategicallyC-level introductions and conversationsAppeal to multiple functions and decision-makers
Use Innovation positioning to increase appeal and demand for new project workCorporate innovation isn’t just about new products and top-line
revenues, it’s about cost structure and building capabilities tooCompanies who invest now can make a break from competitors who
are hunkering down
Plus, connect what you do to a popular, recognized approach for added credibility
Using the BOS Toolkit During Projects BOS Methodology includes unique tools that relate to and can be
applied to projects in a variety of areas, e.g., Current situation assessment/auditNew product/service development
Customer research Competitive analysis Branding Pricing
Performance improvement work e.g., Process re-engineering
Organizational transformation Restructuring/new staffing models, etc.
Systems and infrastructureNew operations and business models
Four-Step Blue Ocean Strategy Process1. Visual
Awakening2. Visual
Exploration3. Visual
Strategy Fair4. Visual
Communication• Compare your
business with your competitors’ by drawing your “as is” strategy canvas
• See where your strategy needs to change
• Go into the field to explore the six paths to creating blue oceans
• Observe the distinctive advantages of alternative products and services
• See which factors you should eliminate, create, or change
• Draw your “to be” strategy canvas based on insights from field observations
• Get feedback on alternative strategy canvases from customers, non-customers, and competitors’ customers
• Use feedback to build the best “to be” future strategy
• Distribute your before-and-after strategic profiles on one page for easy comparison
• Support only those projects and operational moves that allow your company to close the gaps to actualize the new strategy.
ENGAGEMENT
EXPLANATION
EXPECTATION CLARITY
Source: Blue Ocean Strategy by W. Chan Kim & Renée Mauborgne ©2005
Blue Ocean Strategy Core Tools(1) Pioneer-Migrator-Settler MapFinding the most promising possibilities for growth across a portfolio of service offerings
(2) Strategy Canvas and Value CurvesGraphically depicting how a company configures its offerings to deliver customer benefits relative to other industry players
(3) Six Paths and Four ActionsFrameworks for discovering new ideas which can lead to future value curves
Source: Blue Ocean Strategy by W. Chan Kim & Renée Mauborgne ©2005
Drawing the Strategy Canvas• Decide the relevant market
and offering scope to draw
• Focus on the buyer/customer
• Put Price as the first factor of competition and rate it on an absolute value basis
• Carefully identify and discuss the factors and agree on definitions
• Try to streamline and simplify for visual clarity
• Group related factors
• Group similar competitors
• Reorder the factors
• Draw multiple potential to-be value curves and test them
Example Strategy Canvas: Curves Customer: Consumer
Four Actions for Creating New Value Curves
Source: Blue Ocean Strategy by W. Chan Kim & Renée Mauborgne ©2005
Example 1: Southwest
Southwest
High
Low
Rel
ativ
e O
fferin
g Le
vel
Key Elements of Product, Service and Delivery
Meals Lounges Friendly Service
Seating Class
Choices
Hub Connectivity
Frequent Point-to-
Point Departures
SpeedPrice
Average Airlines
e.g. US Airways
Car
Southwest’s Value Curve Shows Its Blue Ocean Strategy Characteristics of Focus, Divergence and a Compelling Tagline.
Tagline: “The speed of a
plane at the price of a car – whenever you
need it.”
Source: Blue Ocean Strategy by W. Chan Kim & Renée Mauborgne ©2005
Example 2: NetJets
Focus on the key factors that lead buyers to trade across industries and eliminate or reduce everything else.
High
Low
Rel
ativ
e O
fferin
g Le
vel
Key Elements of Product, Service and Delivery
Need for customers to
manage aircraft (aircraft mgmt.
and admin.)
Deadhead costs
Flexibility and Reliability
Speed of total travel
time
East of travel (incl. check-in, customs, etc.)
In-flight service
Price (fixed purchase
plus variable price per
flight)
Private Jet (Corporate Travel)
Commercial Airlines (First & Business Class)
NetJets
“The convenience of a private jet at the price of a commercial airline ticket.”
Source: Blue Ocean Strategy by W. Chan Kim & Renée Mauborgne ©2005
Example 3: Joint Strike Fighter (F-35)
The JSF Program Offered A Superior Fighter Plane For All Three Branches At A Lower Cost.
High
Low
Rel
ativ
e O
fferin
g Le
vel
Key Elements of Product, Service and Delivery
Design Customization
Weapons customization
StealthMission Customization
Agility DurabilityMaintainabilityPrice
Air Force (F-22)
JSF (F-35)
Counter-measures
STOVL
Source: Blue Ocean Strategy by W. Chan Kim & Renée Mauborgne ©2005
Defense Aerospace IndustryTraditional View: Three Branches With Unique Needs For Planes
Air Force Navy MarinesLightweight Two engines STOVL
(Short Take Off Vertical Landing)
Design customization
Integrated avionics Two seats Lightweight
Stealth Large wings Short wings
Supercruise engine Durability Countermeasures
Long-distance Long-distance
Agility Maintainability
Air-air armaments Large/flexible weapons payloads
Large/flexible weapons payloads
Weapons customization
Fixed internal weapons payload
Air-air and air-ground armaments
Air-ground armaments
Electronic warfare
An aircraft built for every mission
An aircraft built for every mission
An aircraft built for every mission
Mission customization
The JSF eliminated or reduced all existing competing factors other than those shaded yellow. It questioned these differences and found the key commonalities across the three branches.
Source: Blue Ocean Strategy by W. Chan Kim & Renée Mauborgne ©2005
3 Things You Can Do Tomorrow1. Think about non-customers in your business and in your clients’ industries.
• Who are the untapped “soon-to-be”, “refusing”, and “unexplored” non-customers?
• Create at least one hypothesis about their needs that could be a Blue Ocean opportunity.
2. Draw an “As Is” Strategy Canvas for your or your client’s organization (with value curves for you and other industry competitors/alternatives) and assess opportunities and threats. Does your value curve have focus, divergence and a compelling tagline?
3. Start investigating your industry regarding the cost drivers and offering levels on each of the factors of competition that you identified on your Strategy Canvas. What factors can be reduced, eliminated, raised and created to create a new value curve?
[email protected](508) 561-0852
“There exist limitless opportunities in every industry. Where there is an
open mind, there will always be a frontier.”
Charles Kettering