Blue ocean strategy

BLUE OCEANSTRATEGY

The ´How to´ book

No. 2,3 & 7 in Amazon.de (Foreign language books)

No. 1,1 & 8 in Amazon.com

(relevant categories)

Peter Berends

W.Chan Kim Renée Mauborgne

Introduction

• What is Blue Ocean Strategy?

• Background?

• What are the steps prescribed?

• How does it relate to practice?

• Difficulties and appraisal

Background

• Based on a study of 150 strategic moves spanning more than 100 years and 30 industries.

• BOS is the simultaneous pursuit of differentiation and low cost.

• The aim of BOS is not to out-perform the competition in the existing industry, but to create new market space or a blue ocean, thereby making the competitionirrelevant.

• BOS claims to offer systematic and reproducible methodologies and processes in pursuit of value innovation by both new and existing firms.

What is Blue Ocean Strategy?

• Blue Ocean Strategy is a preconceived way to maximise the chances to open newcompetition-free markets that boost firm income (and thus survival).

• Red oceans are competition intensive markets where firms ´struggle´ to survive(the oceans are red from the blood of fish biting each other)

Red Ocean Strategy Blue Ocean Strategy

Compete in existing market space Create uncontested market space

Beat the competition Make the competition irrelevant

Exploit existing demand Create and capture new demand

Make the value-cost trade off Break the value-cost trade off

Focus on ´normal´ strategic choices Focus on ´both-and´ choices

Value innovation as cornerstone• Value innovation places equal emphasis on value and innovation.

• Value innovation is a new way of thinking about and executing strategy that results in the creation of a blue ocean.

• The creation of blue oceans is about driving costs down while simultaneously driving value up for buyers.

The 6 Principles of a Blue Ocean Strategy

Formulation principles:

• Reconstruct market boundaries

• Focus on the big picture

• Reach beyond existing demand

• Get the strategic sequence right

Execution principles:

• Overcome the four key organizational hurdles

• Build execution into strategy

Analytical tools and frameworks

• The strategy canvas

• The four actions framework and grid (Eliminate, Reduce, Raise, Create)

• The three characterisics of a good strategy

The strategy canvas: Benefits

Industry profile byshowing the factors

that affectcompetition among

the players.

Shows the strategic profile forincumbents, identifying which

factors they invest in.

Shows thecompany´s strategic

profile and how itinvests in the

competitive factors, and possible futurefactors to create a

BOS.

The Strategy Canvas: ComponentsComponent Graphical depiction Description

Key competive factors Horizontal axis 1. Factors the industryinvests in (red), and2. Factors that are added(to create a blue oceanstrategy)

Level ofinvestment/Value

Vertical axis Captures the offeringlevels buyers receiveacross all the competitivefacors

Strategic profile Value curve Visualises the strategicposition vis à vis thecompetition

The power of visualization: perceptualbandwith:• taste: 1.000 b/s

• smell: 100 kb/s

• hearing: 100 kb/s

• touch: 1Mb/s

• sight: 10 Mb/s

(That´s why a picture tells more than a thousand words.)

Value innovation

Reduce

Raise

Create

Eliminate

The ERRC framework

A consistent way toanalyse factors that couldincrease value for thecustomer

In a later stage to helpsetting the price right.

1. Reconstructing Market Boundaries: The 6 Paths

• Path 1. Look across alternative industries

• Path 2. Look across strategic groupswithin industries

• Path 3. Look across the chain ofbuyers

• Path 4. Look across complementaryproduct and service offerings

• Path 5. Look across functional oremotional appeal to buyers

• Path 6. Look across time

Path Head to headCompetition

Blue OceanCreation

1 Industry Focuses on rivals within the industry Looks across alternative industries

2 Strategic Group Focuses on competitive position withinstrategic groups

Across strategic groups

3 Buyer Group Focuses on better serving the buyergroup

Redefines the buyer group

4 Product-ServiceScope

Maximizing the value of product andservice offerings within the bounds ofthe industry

Complementary product and serviceofferings

5 Functional-emotionalorientation

Improving price-performance within thefunctional-emotional orientation of itsindustry

Rethinks

6 Time Adapting to trends Co-creates trends over time

2. Focus on the big picture, not the numbers(aligning the strategy process)• Visualize

• Awakening

• Exploration

• Strategy fair

• Communication

3. Reach beyond existing demandThree groups (tiers) of non-customers

1. Soon to be customers

2. Refusing customers

3. unexplored customers

Expansion instead of

segmentation.

4. Get the strategic sequence right

Decision tree:

1. Buyer utility? (Buyer utility map)

then

2. Price? (Price corridor)

then

3. Cost? (target costing)

then

4. Adoption hurdles? (educating the fearful)

Viable Blue Ocean Strategy

Characteristics of a BOS

• Focus

• Divergence

• Catching Tagline

EXECUTING BLUE OCEAN STRATEGY

5. Overcoming key organization hurdles• Tipping point leadership

• Hurdles:• cognitive

• resource

• motivational

• political

6. Build execution into strategy

• Take the process in consideration• Procedural fairness:

• Engagement

• Explanation

• Expectation clarity

• Take the people you´re working with seriously

Examples

1. Philips Senseo2. Nestlé Nespresso

THT Constanttaste

Brandloyalty

Price Ease of use Disposal Variety `espressofeel´

Senseo Coffee

Senseo Coffee Nespresso

Central ideas

• Value for customers

• The customer doesn`t knowwhat he wants

• Visualise

• Dialogue

• looking for leverage points

• Challenge conventionalwisdom

Challengebusiness/firmparadigmsThe main challenge is thusmore entrepreneurial in nature.

Appraisal

• Puts forward the focus of value innovation: what can we do to increase customervalue in a divergent way (not only cost or diversification).

• Blue Ocean Strategy is a well written account of what creative entrepreneurs andvalue innovation can accomplish.

• It offers templates and procedures of which the strategy canvas and the ERRC gridare an addition to the literature.

Difficulties

• They describe cases and promise success (success bias). From descriptive theoryto prescriptive (pretty common in economic sciences).

• Little is known of firms that consciously addapted BOS –AND were successful.

• Finding and appraising the strategic values is the hard work that asks for out of thebox thinking. Mostly market entrants shake up the industry rules, not theincumbents.

• For the execution of strategy and accompanying change, better books areavailable.

Conclusion

• The strategy canvas and ERRC Grid are valuable tools for analysis, visualisationand communication.

• It´s difficult to see what we cannot see (paradigms and mental models)

• The customer doesn´t know on forehand what he wants –what is it that weenvision?

• The customer is the central focus: how to increase value.

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