blue ocean strategy
TRANSCRIPT
Blue Ocean
Strategy
Summarized by Vanessa YangAug 9, 2010
In today’s head-to-head competition……And overcrowded industries…
How to survive in the bloody “red ocean” of rivals fighting over a shrinking profit pool?
Creating “blue oceans” of uncontested market space ripe for growth.
Creating Blue Oceans
Value Innovation: The Cornerstone of Blue Ocean Strategy
Costs
Buyer Value
Value
Innovation
Red Ocean Versus Blue Ocean Strategy
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.
Align the whole system of a firm’s activities with its strategic choice of differentiation or low cost.
Align the whole system of a firm’s activities in pursuit of differentiation and low cost.
The Six Principles of Blue Ocean Strategy
Formulation Principles Risk factor each principle attenuates
Reconstruct market boundaries ↓ Search risk
Focus on the big picture, not the numbers ↓ Planning risk
Reach beyond existing demand ↓ Scale risk
Get the strategic sequence right ↓ Business model risk
Execution principles Risk factor each principle attenuates
Overcome key organizational hurdles ↓ Organizational risk
Build execution into strategy ↓ Management risk
Analytical Tools and Frameworks
The Strategy Canvas
High
LowPrice Use of
enological terminology
Above-the-line marketing Aging
quality
Vineyard prestige and legacy Wine
complexity
Wine range
The Four Actions Framework
ReduceWhich factors should
be reduced well below the industry’s
standard?
A New Value Curve
RaiseWhich factors should be raised well above
the industry’s standard?
EliminateWhich of the factors
that the industry takes for granted should be
eliminated?
CreateWhich factors should be created that the industry has never
offered?
The Eliminate-Reduce-Raise-Create Grid:The Case of [yellow tail]
Eliminate
Enological terminology and distinctions
Aging qualitiesAbove-the-line marketing
Raise
Price versus budget winesRetail Store involvement
Reduce
Wine complexityWine range
Vineyard prestige
Create
Easy drinkingEase of selection
Fun and adventure
Three Characteristics of a Good Strategy
Divergence Focu
s
Compelling
Tagli
ne
3 Characteristics of a good strategy
A Blue Ocean Strategy
A Company Caught in the
Red Ocean
Overdelivery Without Payback
An Incoherent Strategy
Strategy Contradictions
An Internally Driven
Company
Reading the Value Curves
Formulating Executing
Reconstruct Market Boundaries
Six Paths to Create Blue Ocean
Look Across Alternative Industries
Look Across Strategic Groups within
Industries
Look Across the Chain of Buyers
Look Across Compleme
ntary Product
and Service Offerings
Look Across Functional
or Emotional Appeal to
Buyers
Look Across Time
Path 1
Path 2
Path 6
Path 5
Path 4
Path 3
Head-to-Head Competition Blue Ocean Creation
Industry Focuses on rivals within its industry
Looks across alternative industries
Strategic group Focuses on competitive position within strategic group
Looks across strategic groups within industry
Buyer group Focuses on better serving the buyer group
Redefines the industry buyer group
Scope of product or service offering
Focuses on maximizing the value of product and service offerings within the bounds of its industry
Looks across to complementary product and service offerings
Functional-emotional orientation
Focuses on improving price performance within the functional-emotional orientation of its industry
Rethinks the functional-emotional orientation of its industry
Time Focuses on adapting to external trends as they occur
Participates in shaping external trends over time
From Head-to-Head Competition to Blue Ocean Creation
Formulating Executing
Focus on the Big Picture,Not the Numbers
The Four Steps of Visualizing Strategy
Visual Awakening
Visual Exploration
Visual Strategy Fair
Visual Communications
• 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, competitors’ customers, and noncustomers.
• 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.
The Pioneer-Migrator-Setting (PMS) Map
Pioneers
Migrators
Settlers
Today Tomorrow
Formulating Executing
Reach Beyond Existing Demand
The Three Tiers of Noncustomers
Your Market
First Tier
Second Tier
Third Tier
1st
Tier2rd
Tier3rd
Tier
“soon-to-be” noncustomers
“refusing” noncustomers
“unexplored” noncustomers
Noncustomers
Formulating Executing
Get the Strategic Sequence Right
The Sequence of Blue Ocean Strategy
Buyer utility
Is there exceptional buyer utility in your business idea?
Price
Is your price easily accessible to the mass of buyers?
Cost
Can you attain your cost target to profit at your strategic price?
Adoption
What are the adoption hurdles in actualizing your business idea? Are you addressing them up front?
A Commercially Viable Blue Ocean Idea
Yes
Yes
Yes
Yes
No – Rethink
No – Rethink
No – Rethink
1. Purchase
2. Delivery
3. Use
4. Supplements
5. Maintenance
6. Disposal
Customer Productivity
Simplicity
Convenience
Risk
Fun and Image
Environmental Friendliness
Testing for Exceptional Utility 1- The Buyer Utility Map
The Six Stages of the Buyer Experience Cycle
The
Six
Util
ity L
ever
s
Purchase
How long does it take to find the product you need?
Is the place of purchase attractive and accessible?
How secure is the transaction environment?
How rapidly can you make a purchase?
Delivery
How long does it take to get the product delivered?
How difficult is it to unpack and install the new product?
Do buyers have to arrange delivery themselves? If yes, how costly and difficult is this?
Use
Does the product require training or expert assistance?
Is the product easy to store when not in use?
How effective are the product’s features and functions?
Does the product or service deliver far more power or options than required by the average user? Is in overcharged with bells and whistles?
Supplements
Do you need other products and services to make this product work?
If so, how costly are they?
How much time do they take?
How easy are they to obtain?
Maintenance
Does the product require external maintenance?
How easy is it to maintain and upgrade the product?
How costly is maintenance?
Disposal
Does use of the product create waste items?
How easy is it to dispose of the product?
Are there legal or environmental issues in disposing of the product safely?
How costly is disposal?
Testing for Exceptional Utility 2- The Buyer Experience Cycle
Testing for Exceptional Utility 3- Uncovering the Blocks to Buyer Utility
Purchase Delivery Use Supplements Maintenance Disposal
Customer Productivity: In which stage are the biggest blocks to customer productivity?
Simplicity: In which stages are the biggest blocks to simplicity?
Convenience: In which stage are the biggest blocks to convenience?
Risk: In which stage are the biggest blocks to reducing risks?
Fun and Image: In which stage are the biggest blocks to fun and image?
EnvironmentalFriendliness:
In which stage are the biggest blocks to environmental friendliness?
Strategic Pricing – the Price Corridor of the Mass
Step 1: Identify the price corridor of the mass.
Step 2: Specify a price level within the price corridor.
Three alternative product/service types:
Same form
Different form, same function
Different form and function,
same objective
Price Corridor of the Mass
Upper-level pricing
Mid-level pricing
Lower-level pricing
High degree of legal and resource protectionDifficult to imitate
Some degree of legal and resource protection
Low degree of legal and resource protection
Easy to imitate
Target Costing – the Profit Model
The Strategic Price
Streamlining and Cost Innovations
Pricing Innovation
The Target Cost
Partnering
The Target Profit
The General Public
Business Partners
Employees
Adoption
Blue Ocean Idea (BOI) Index
PhilipsCD-i
MotorolaIridium
DoCoMoI-modeJapan
UtilityIs there exceptional utility? Are there compelling reasons to buy your offering?
- - +
Price Is your price easily accessible to the mass of buyers? - - +
Cost Does your cost structure meet the target cost? - - +
Adoption Have you addressed adoption hurdles up front? - +/- +
Formulating Executing
Overcome Key Organizational Hurdles
Cognitive HurdleAn organization
wedded to the status quo
Resources HurdleLimited resources
Motivational HurdleUnmotivated staff
Political HurdleOpposition from powerful vested
interests
Four Organizational Hurdles to Strategy Execution
Challenging Conventional Wisdom
Conventional Wisdom Versus Tipping Point Leadership
Conventional Wisdom
Tipping Point Leadership
Mass of EmployeesCompany
Company
Extremes Extremes
Formulating Executing
Build Execution into Strategy
How Fair Process Affects People’s Attitudes and Behavior
Fair ProcessEngagementExplanation
Expectation Clarity
Trust and Commitment
“I feel my opinion counts.”
Voluntary Cooperation
“I’ll go beyond the call of duty.”
Exceeds ExpectationsSelf-initiated
Strategy Formulation Process
Attitudes
Behavior
Strategy Execution
The Three E Principles of Fair Process
Engagement
Explanation
Expectation clarity
Fair Process and Blue Ocean Strategy
Fair Process
Intellectual and
Emotional Recognition
Trust and Commitment
Voluntary Cooperation in Strategy Execution
Violation of Fair Process
Intellectual and
Emotional Indignation
Distrust and Resentment
Refusal to Execute Strategy
Conclusion: The Sustainability and Renewal of Blue Ocean Strategy
8. Brand buzz and a loyal customer following
7. Imitation requires significant political, operational, and cultural changes.
6. Network externalities
5. High volume leads to rapid cost advantage for the value innovator, discouraging followers
4. Patents or legal permits
3. Natural monopoly
2. Conflict with brand image
1. Conflict with conventional logic
Barriers to Imitation
Monitor value curves on the strategy canvas.
Ensure the strategy has focus, divergence, and a compelling tagline.
Use the six principles to think about future strategy.
When to Value-Innovate Again
Create Uncontested Market Space and Make the Competition Irrelevant.
THANK YOU!