Blue Ocean Strategy

Blue

OCEAN Strategy

MAKE COMPETITION IRRELEVANT

Agenda

Blue Ocean Strategy Over view

- What is the strategic logic that allows companies to create uncontested market space and make the competition irrelevant?

Blue Ocean Strategy Formulation and Execution

- What are the paths and analytical frameworks that allow companies to formulate and execute Blue Ocean Strategy?

Focus on the future

- How companies move from thought to action in actualizing Blue Ocean Strategy?- BOS exercises

Blue Ocean Strategy

Go where profits & growth are – and the competition isn’t

An Overview of the History of Blue Ocean Creations

• 150 Blue Ocean Creations in more than 30 industries -Hotel, Cinema, Retailing, Airline, Energy, Computer, Broadcasting, Construction, Home, Automobile, Steel manufacturing, Chemicals, Cosmetics, Software etc.

• Variables considered: industrial, organizational, strategic

86% 14%62% 38%

39% 61%

Business Launch

Revenue Impact

Profit Impact

Known & Unknown Market Space

Known Market Space Unknown Market Space

Industry A Industry

C

Industry B

Creating Blue Oceans within and beyond Existing Market Boundaries

Industry A

Industry BIndustry C

Industry D Industry E

VALUE INNOVATIONThe Cornerstone of Blue Ocean strategy

COSTS

VALUES

Blue Ocean

Pushing for a quantum leap in buyer value

Pushing for a sharp drop in the industry’s cost structure

While :

BOS in a NutshellStrategic Alignment of the three Propositions

Value Proposition( Utility – Price )

Profit Proposition( Price – cost )

People Proposition( employees, Partners, Buyers )

CASE 1

NINTENDO WII

NINTENDO WII :RESULTS

• HAS BEEN SELLING AT THE RATE OF ONE UNIT PER SECOND SINCE ITS LAUNCH ON 19TH NOVEMBER, 2006.

• ZIPPED PAST SONY IN MARKET VALUE IN JUNE 2007 AND BECAME ONE OF JAPAN’S TOP 10 COMPANIES FOR THE FIRST TIME.

• PROFITS REACHED ALOMOST $1.5 BILLION, OR $442,000 PER EMPLOYEE IN 2007, COMPARED WITH MICROSOFT’S $177,000 AND GOOGLE’S $288,000.

Red Ocean vs. Blue Ocean

Red Ocean strategy Blue Ocean Strategy

Compete in exiting market spaceIncrease Market Share

Fight for existing Demand

Create uncontested market spaceIncrease market, Create new demand

Exploit existing DemandGet bigger share of customers

Create and capture new demandLook for non-customers

Either differentiation OR low cost Differentiation AND low costSimultaneous pursuit – value Innovation

Segment the marketFocus on special needs

De-segment the marketLook for widely shared needs

Execution follows formulationAlignment across differentiation or low cost

Strategic alignmentValue, Profit, and People Proposition

How Blue is Your Strategy

Exceptionally high value at drastically low cost?Creating new demand instead of striving to do better than competitors?Looking for noncustomers and reconstructing industry and market boundaries?Challenging assumptions and reconstructing industry and market boundaries?Perusing de-segmentation instead of finer segmentation?Focused on widely shared needs instead of differentiating needs?Voluntarily participating self-initiated teams?Executing strategies while conserving time and resources?

CASE 2

ORCHESTRA

From Thought to ActionFormulating and executing

Blue Ocean Strategy

Formulation Principle Formulation Risk Focus on big picture, not the numbers

Planning risk

Reconstruct market boundaries Search risk

Reach beyond existing demand Scale risk

Get the strategic sequence right Business model risk

Execution principles Execution riskOvercome key organizational hurdles Organizational risk

Build execution into strategy Management risk

The Six Principles of Blue Ocean Strategy

1. Minimizing Planning Risk

Focusing on big picture with the Strategy CanvasPresent

As-IsFutureTo-be

Diagnostic Tool

Action Frame work

Wealth of Strategic Knowledge

AS-IS STRATEGY CANVASINSTRUCTIONS

1. Identify the dominant customer group your industry focuses on. Label this on your Strategy Canvas.

2. Identify the key competitive factors your industry competes on to capture this dominant customer group. There should be no less than five factors and no more than twelve. Price is always included in your key competitive factors.

3. Rate the relative offering of each factor on the vertical axis. Price is always an absolute figure; a high price should be plotted high, while a low price should be plotted low.

4. Connect the dots to create your “AS-IS” value curve.5. repeat this process for your “best competitor” . Do not plot more

than one competitors on one strategy canvas, as it becomes too cluttered.

AS-IS STRATEGY CANVASINSTRUCTIONS

IDENTIFYING KEY COMPETING VALUESKey Buyer Group:_______________________________

Competing Factors

You Competitor 1 Competitor 2

1

2

3

4

5

6

7

8

9

10

AS-IS STRATEGY CANVASFor

YOUTUBEINSTRUCTIONS

FOUR ACTIONS FRAMEWORK

Four Actions Framework and ERRC GridsINTRUCTIONS

Identify a noncustomer Group. For their perspective, answer the following questions,

1. Which of the factors that the industry takes for granted should be eliminated?2. Which factors should be reduced well below the industry’s standard?3. Which factors should be raised well above the industry’s standard?4. Which factors should be created that the industry has never offered?

Discuss the individual impact each of these four actions will have on your identified noncustomer group. Will it dramatically raise noncustomer utility? What are the cost implication?

Repeat for one other noncustomer groups. Use a new ERRC grid for each noncustomer group.

Eliminate Raise

Reduce Create

Eliminate-Reduce-Raise-Create Grid

ERRC GRID for TESLA MOTORS ROADSTEREliminate Raise

•Gasoline usage•Carbon emissions•Messy maintenance-no need for motor oils, oil filters, air filter, steering oil fluid etc.

•Energy efficiency compared to gasoline and hybrid motors•Driving range compared to other electric vehicles•Acceleration rate compared to other sports cars.

Reduce Create

•Vehicle options•Servicing requirements•Battery charge time compared to other electric vehicles

•A beautiful, stylish, high performance electric sports car that is fun to drive.•Built in battery charging system that can plug into any charging outlet.

Minimizing Planning Risk

Focusing on big picture with the Strategy CanvasPresent

As-IsFutureTo-be

Diagnostic Tool

Action Frame work

Wealth of Strategic Knowledge

READING THE VALUE CURVES1) A company is caught in the Red Ocean when a company’ value curve converges with its

competitors. In this situation, the company usually competes with its competitors on the basis of cost or quality.

2) A company is over delivering without payback when its value curve on the strategy canvas is shown to deliver high levels across all factors. If the market share or profitability is not increasing, then it signals that the company may be oversupplying its customers, offering too much of those elements that add incremental value to the customers.

3) A company is following an incoherent strategy when its value curve looks like a zigzag with no rhyme and reason. its strategy is based on independent sub strategies, these individually may make sense but collectively they do a little to distinguish the company from its competitors.

4) A company contradicts strategically when there are areas when the company is offering a high level on one competing factor while ignoring the others that support that factor.

5) A company is internally driven if it uses operational jargons instead of words that buyers can understand in strategy canvas competing factors.

Formulation Principle Formulation Risk Focus on big picture, not the numbers

Planning risk

Reconstruct market boundaries Search risk

Reach beyond existing demand Scale risk

Get the strategic sequence right Business model risk

Execution principles Execution riskOvercome key organizational hurdles Organizational risk

Build execution into strategy Management risk

The Six Principles of Blue Ocean Strategy

Minimizing Search RiskReconstructuring Boundaries with the Six Path Framework1. Industries

2. Strategic Groups

3. Buyer Groups

4. Scope of Product & Services

5. Functional Emotional Appeal of the Industry

6. Time

From Competing

Within

To Creating

Across

1. LOOK ACROSS ALTERNATIVE INDUSTRIES

1. Alternatives vs. Substitutes Cinemas & Restaurants Cars & Public Transport

Minimizing Planning RiskUncovering blocks to buyer utility with Buyer Utility Map The Six Stages of Buyer Experience Cycle

1. Purchase

2.Delivery

3.Use

4.Supplements

5.Maintenance

6.Disposal

The

Six

Utility Levers

Customer Productivity

Simplicity

Convenience

Risk

Fun & Image

Environmental friendliness

Minimizing Planning RiskFocusing on big picture with the PMS-MapPioneers

Blue Oceans

MigratorsIncremental Improvements

SettlersMe-too Businesses

Today Tomorrow

Minimizing Scale RiskReaching beyond existing demand with Three Tiers of Noncustomers Model

3

Your Market

1st TierNoncustomers

2nd TierNoncustomers

3rd TierNoncustomers

1st TierSoon-to-be Noncustomers

2nd TierRefusing Noncustomers

3rd TierUnexplored Customers

Minimizing Business Model Risk Get the strategic sequence right with Blue Ocean Strategy Business ModelBuyer Utility

Is there exceptional buyer utility in your business idea?

Price

Are you addressing adoption hurdles upfront?

A Commercially viable Blue Ocean Idea

Adoption

Can you attain your cost target to profit at your strategic price?

Cost

Is your price easily accessible to the mass of the buyers?

Yes

Yes

Yes

Yes

No-Rethink

No-Rethink

No-Rethink

No-Rethink

Minimizing Business Model Risk Get the strategic sequence right with Blue Ocean Strategy Business Model

Mass of Employees

Conventional Wisdom •.Transform the mass•Heavy resources•Long time frames

•Focus on the extremes•Low cost•Fast response

Tipping Point Leadership

Extremes Extremes

Minimizing Business Model Risk Get the strategic sequence right with Blue Ocean Strategy Business Model Cont…

Cognitive

An organization wedded to status quo

Resource

Limited Resources

Political

Opposition from powerful interests

Motivational

Unmotivated Staff

Minimizing Management Risk

Building execution into strategy by practicing Fair ProcessEngagement Explanation Expectation Clarity

Fair Process

Voluntary Cooperation“ I’ll go beyond the call of

duty”

Trust & Commitment“ I feel my opinion counts”

Exceeds expectationsSelf-initiated

Strategy Formulation

Attitudes

Behavior

Strategy Execution

Blue Ocean Strategy

Getting Started…..

BUYER UTILITY MAPINSTRUCTIONS

1. Consider each of 36 blocks of Buyer Utility Map to identify areas that your industry currently focuses on. Mark these in red.

2. Then identify areas that represent biggest gaps in buyer utility when looking across the six phases of buyer experience cycle along the six utility levers. These areas are not served by any company in your industry.

3. Mark these blocks in blue as potential blue ocean opportunity areas.

The Six Stages of Buyer Experience Cycle

1. Purchase

2.Delivery

3.Use

4.Supplements

5.Maintenance

6.Disposal

The

Six

Utility Levers

Customer Productivity

Simplicity

Convenience

Risk

Fun & Image

Environmental friendliness

BUYER UTILITY MAPINSTRUCTIONS Continued…

BUYER UTILITY MAP FOR ONLINE BANKING