blue ocean strategy w. chan kim and renee maubourgne edited by chitchai p

Blue Ocean StrategyBlue Ocean Strategy

W. Chan Kim and Renee W. Chan Kim and Renee MaubourgneMaubourgne

Edited by Chitchai P.Edited by Chitchai P.

GJI, [email protected] 2

AgendaAgenda

1. Blue Ocean Strategy (BOS) Creating Blue Ocean Analytical Tools and Frameworks

2. Formulating Blue Ocean Strategy Reconstruct Market Boundaries Focus on Big Picture Reach Beyond Existing Demand Get Strategic Sequence Right

3. Executing Blue Ocean Strategy Overcome Key Organization Hurdles Build Execution into Strategy Conclusion


AgendaAgenda




1. Blue Ocean Strategy (BOS)


Creating Blue OceanCreating Blue Ocean

New Market SpaceThe Continuing Creation of Blue OceansThe Impact and Imperative of Crating Blue

OceansFrom Company and Industry to Strategic

MoveValue Innovation: The Cornerstone of BOSThe Six Principles of BOS


Value Innovation:Value Innovation:The Cornerstone of BOSThe Cornerstone of BOS

Costs

Buyer Value

Value Value InnovationInnovation

The Simultaneous Pursuit of Differentiation and Low Cost


Red Ocean vs. Blue Ocean Red Ocean vs. Blue Ocean StrategyStrategy

Red Ocean Strategy

Compete in existing market space

Beat the competition

Exploit existing demand

Make the value-cost trade-off

Align the whole system of a firm’s activities with its strategic choices of differentiation or low cost

Focuses on adapting to external trends as they occur

Create uncontested market space

Make the competition irrelevant

Create and capture untapped demand

Break the value-cost trade-off

Align the whole system of a firm’s activities in pursuit of differentiation and low cost

Participates in shaping external trends over time

Blue Ocean Strategy


The Six Principles of BOSThe Six Principles of BOS

Execution PrinciplesExecution Principles

Overcome key organization hurdles Build execution into strategy

Risk Factor Each Risk Factor Each Principle AttenuatesPrinciple Attenuates

↓ Organization risk↓ Management risk

Formulating PrinciplesFormulating Principles

Reconstruct market boundaries Focus on the big picture, not the numbers Reach beyond existing demand Get the strategic sequence right

Risk Factor Each Risk Factor Each Principle AttenuatesPrinciple Attenuates

↓ Search risk↓ Planning risk↓ Scale risk↓ Business model risk


Analytical Tools and Analytical Tools and FrameworksFrameworks

Strategy CanvasFour Actions FrameworkEliminate-Reduce-Raise-Create GridThree Characteristics of a Good Strategy


Strategy CanvasStrategy CanvasUS Wine Industry in the late 1990sUS Wine Industry in the late 1990s

High

Price

Low

Premium Wines

Budget Wines

Winerange

Wine complexity

Vineyard prestige

Agingquality

Above-the-line marketing

Use of enological terminology and distinctions

in wine communication


Four Actions FrameworkFour Actions Framework

REDUCEREDUCEWhich factors should be

reduced well below the industry’s standards?

CREATECREATEWhich factors should be created that the industry

has never offered?

ELIMINATEELIMINATEWhich of the factors that

the industry take for grantedshould be eliminated?

RAISERAISEWhich factors should be

raised well above the industry’s standard?

A New A New Value Value CurveCurve


Eliminate-Reduce-Raise-Create Grid Eliminate-Reduce-Raise-Create Grid

Case StudyCase Study : : Yellow TailYellow Tail

ReduceReduce

Wine complexityWine range

Vineyard prestige

CreateCreate

Easy drinkingEase of selection

Fun and adventure

EliminateEliminate

Enological TerminologyAging qualities

Above-the-line Marketing

RaiseRaise

Price versus budget winesRetail stores involvement


A New Value Curve –A New Value Curve –Strategy Canvas of Yellow TailStrategy Canvas of Yellow Tail

High

Price

Easy drinking

Ease of selection

Low

Premium Wines

[yellow tail]

Budget Wines

Fun and adventure

Winerange

Wine complexity

Vineyard prestige

Agingquality

Above-the-line marketing

Use of enological terminology and

distinctions in wine communication

CREATE

REDUCEELIMINATE

RAISE


Strategy Canvas: Southwest Strategy Canvas: Southwest AirlinesAirlines

High

Price Meals Lounges Seating class choice

Hub connectivity

Friendly Service

Speed Frequent Pint-to-point

departure

Low

Average Airlines

Southwest Airlines

Car Transport


Strategy Canvas: Cirque du Strategy Canvas: Cirque du SoleilSoleil

High

Price

Star performers

Animal shows

Multiple show arena Fun

and humor

Thrill and challenge

Unique venue

Theme

Low

Ringling Bros. & Barnum & Bailey

Cirque du Soliel

Smaller Regional Circuses

Refined watching

environment

Multiple Production

Artistic music and

dance

Aisle concessions


Three Characteristics of a Good Three Characteristics of a Good StrategyStrategy

FocusDivergenceCompelling Tagline


AgendaAgenda




2. Formulating Blue Ocean Strategy


Reconstruct Market BoundariesReconstruct Market Boundaries

Path 1: Look Across Alternative IndustriesPath 2: Look Across Strategic Groups within

IndustriesPath 3: Look Across Chain of BuyersPath 4: Look Across Complementary

Products and Service OfferingsPath 5: Look Across Functional or

Emotional Appeal to BuyersPath 6: Look Across Time


Strategy Canvas: NetJetsStrategy Canvas: NetJetsPath1: Alternative IndustryPath1: Alternative Industry

High

Price (fixed purchase +

variable price per flight)

Need for customer to

manage aircraft (Aircraft M&A)

Deadhead costs

Speed of total travel time

Ease of travel (include. Check-in,

customs, etc.

Flexibility and reliability

In-flight service

Low

Private JetCorporate travel

NetJet’s Value Curve

Commercial AirlinesFirst and Business-Classes travel


Strategy Canvas: QuickFitStrategy Canvas: QuickFitPath2: Strategic GroupPath2: Strategic Group

High

Price

Amenities

Workout equipment (treadmill, weights,

etc)

Workout time

Availability of instructors

Environment encouraging

discipline and motivation in

exercise

Nonthreatening same-sexEnviron-

ment

Convenience

Low

Traditionalhealth clubs

Curves

Home Exercise Program

Womanly fun atmos-

phere


Strategy Canvas: NABIStrategy Canvas: NABIPath4: Scope of Product/Service OfferingsPath4: Scope of Product/Service Offerings

High

Initial purchase

price

Corrosion Maintenance cost

Fuel consumption

Environmental friendliness

Aesthetic design

Customer friendliness

Low

Average US Transit Bus

NABIHungarian Municipal

Bus Company

Life-Cycle Cost


Strategy Canvas: QB HouseStrategy Canvas: QB HousePath5: Functional/Emotional OrientationPath5: Functional/Emotional Orientation

High

Price Reservation desk

Extra services

(other than haircutting)

Range of hair

treatments

Hygiene Time savings on

waiting

Time savings on

haircut

High performance”air wash”

system

Low

Average Japanese Barbershop

QB House


Summary:Summary:Conceiving New Market SpaceConceiving New Market Space

Head-to-Head Competition

Industry

Strategic Group

Buyer Group

Scope of Product or Service Offering

FunctionalEmotional Orientation

Time

Focuses on rivals within its industry

Focuses on competitive position within strategic group

Focuses on better serving the buyer group

Focuses on maximizing the value of product and service offering within the bounds of its industry

Focuses on improving price performance within the functional-emotional orientation of its industry

Focuses on adapting to external trends as they occur

Looks across alternative industries

Looks across strategic groups within industry

Redefines the industry buyer group

Looks across to complementary product and service offerings

Rethinks the functional-emotional orientation of to industry

Participates in shaping external trends over time

Blue Ocean Creation


Focus on Big PictureFocus on Big Picture

Four Steps of Visualizing StrategyThe Pioneer-Migrator-Settler Map


Four Steps of Visualizing Four Steps of Visualizing StrategyStrategy

VisualAwakening

VisualExploration

VisualStrategy Fair

VisualCommunication

• Compare your business with your competitor’s 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, Raise, Create, or Change.

• Draw your ‘to be” strategy canvas based on insights from field observations.

• Get feedback on alternative strategy canvases from customers, competitor's customer, and non-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.


The PMS MapThe PMS Map

PioneersPioneers

MigratorsMigrators

SettlersSettlers

TodayToday TomorrowTomorrow


Reach Beyond Existing DemandReach Beyond Existing Demand

First Tier: “Soon-to-be” non-customers who are on the edge of your market, waiting to jump ship

Second Tier: “Refusing non-customers who consciously choose against your market.

Third Tier: “Unexplored” non customers who are in markets distant from yours.

FirstTier

SecondTier

ThirdTier

Your Market


Get the Strategic Sequence Get the Strategic Sequence RightRight

BuyerUtility

Price Cost AdoptionCommercially Commercially

Viable Blue Viable Blue Ocean IdeaOcean Idea

NO

Is there exceptional buyer

utility in your business idea?

Is your price easily accessible

to the mass of buyers?

NO

Can you attain your cost target to profit at your strategic price?NO

What are adoption hurdles

in actualizing your business idea? Are you

addressing them up front?

NO


Buyer Utility MapBuyer Utility Map

1

Purchase

2

Delivery

3

Use

4

Supplement

5

Maintenance

6

Disposal

Customer

Productivity

Simplicity

Convenience

Risk

Fun and Image

Environmental

Friendliness

Th

e S

ix U

tilit

y L

eve

ls

The Six Stages of the Buyer Experience Cycle

How long 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?

How long to get the product delivered?

How difficult to unpack and install the new product?

Do buyers have to arrange delivery themselves? If yes, how costly

and difficult is this

Training or expertise

assistance required?

Easy to store when not in used?How effective are

features and functions?

Overcharged with bell and whistles?

Need other products to make

it work?

If so, how costly are they?

How much time do they take?

How much pain do they cause?

How easy are they to obtain?

Require external ME

How easy to maintain and

upgrade?

How costly?

Create waist items?

How easy to dispose?

Legal or environmental

issue of the product disposal?

How costly?


Price Corridor of the MassPrice Corridor of the Mass

1. Identify the Price Corridor of the mass

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

Size of circle is proportion to number of buyers that product/service attracts

Upper-level pricing

Mid-level pricing

Low-level pricing

Price Corridor of the Mass

High degree of legal and resource protection

Difficult to Imitate

Some degree of legal and resource protection

Low degree of legal protection

Easy to Imitate


Profit Model of BOSProfit Model of BOS

The Target Profit

The Strategic Price

The Target Cost

Pricing Innovation

Streamlining and Cost Innovative

Partnering


AdoptionAdoption

EmployeesPartnersGeneral Public


AgendaAgenda




3. Executing Blue Ocean Strategy


Overcome Key Organization Overcome Key Organization HurdlesHurdles

1. Cognitive – Wedded to status quo

2. Political – Opposition from powerful vested interest

3. Motivational – Unmotivated

4. Resource – Limited resource


Build Execution into StrategyBuild Execution into Strategy

Fair ProcessEngagementExplanation

Expectation clarity

Trust &Commitment“I feel my opinion counts.”

VolunteerCooperation“I’ll go beyond

the call of duty.”

Exceeds ExpectationSelf-Initiated

Strategy Formulation Process

Attitude

Behavior

Strategy Execution


ConclusionConclusionSustainability and Renewal of Blue Ocean StrategySustainability and Renewal of Blue Ocean Strategy

Imitation Barriers to BOS Value Innovation does not make sense to a company’s

conventional logic. Blue Ocean Strategy may conflict with companies’ brand image. Natural monopoly: The market often cannot support a second

player. Patents or legal permits block imitation. High volume leads to rapid cost advantage for the value innovator,

discouraging followers from entering the market. Network Externalities discourage imitation. Imitation often require significant political, operational, and cultural

changes. Companies that value-innovate earn brand buzz and a loyal

customer following that tends to shun imitators.

blue ocean strategy w. chan kim and renee maubourgne edited by chitchai p

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