Chapter 1

1Chapter 1 Red Ocean Highly competitive markets, where market space is crowded Chances for profit and growth are reduced. Blue OceanMarkets with many opportunities for highly profitable growth. Created from within red oceans by extending industry boundaries.VS.

Red - Products becomes commodities and cutthroat competition turns the red ocean bloody.Blue - Competition is irrelevant because the rules of the game are waiting to be established. The reality is that industries never stand still. They continuously evolve. Operations improve, and markets expand

2Break AwayDefine the basic unit of analysisUnderstand the roots of high performanceLasting excellenceBecome a visionary

Ex. Hewlett-Packard (HP)

How can company break out of the red ocean of bloody competition? How can it create a blue ocean?HP (Built to Last) sought out successful habits of visionary companies by outperforming the market over the long term, but in reality while HP outperformed the market, so did the entire computer-hardware industry. The strategic move, and not the company or industry, is the right unit of analysis for explaining the creation of blue oceans and sustaining high performance. 3Value Makes WinnersApproach to strategyBenchmark the BestValue InnovationFocus on making the competition irrelevant by creating a leap in value for buyers and your companyEx. Cirque du Soleil We Reinvent the Circus

The companies caught in the red ocean followed conventional approach, racing to beat the competition by building a defensible position within the existing industry order. Tried to apply a technique known asValue Cost Trade Off Red Ocean Companies believed in Greater value to the customer at higher price or low value at a low cost. Blue Oceans dont make the choice they provide differentiation and low cost simultaneouslyCirque du Soleil Marketed towards Adults and Business Professionals enabling them to charge 3 times the prices4Red Ocean StrategyCompete in existing market spaceBeat the competitionExploit existing demandMake the value-cost trade-offAlign the whole system of a firms activities with its strategic choice of differentiation or low cost.

Blue Ocean StrategyCreate uncontested market spaceMake the competition irrelevantCreate and capture new demandBreak the value-cost trade-offAlign the whole system of a firms activities in pursuit of differentiation and low cost.

Summarizes the first chapter in the difference in strategies by Red Oceans and Blue Oceans5Chapter 2 - Analytical Tools And FrameworksStrategy Canvas - Captures the current state of play in the known marketplace and helps create a different strategic profileThe Value Curve - Companys relative performance across its industrys factors of competition Fig. 2.1Ex. Yellow Tail Wine

Strategy Canvas Allows you to understand where the competition is currently investing, the factors the industry currently competes on in products, services, and delivery.Shift in Strategy - Focus on alternatives instead of competitors and from customers to non-customers. Enables you to redefine the problem and reconstruct buyer value elementsYellow Tail Wine came up with the idea of wine being fun for everyone to drink and made it easy and conventional for all of its customers.

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7Four Actions FrameworkEliminate - Which of the factors that the industry takes for granted should be eliminated?Reduce - Which factors should be reduced well below the industry standard?Raise - Which factors should be raised well above the industrys standard?Create - Which factors should be created that the industry has never offered?

Eliminate Sometime there is a fundamental change in what buyers value so if companies are focused solely on benchmarking the competition, they will miss out on capitalizing on these changes.Reduce (Overdesigned, Overproduced, Overfunded) Sometimes companies will over serve their customers which will tend to increase costs, while gains and profits stay the same.Raise - This pushes the company to find out and eliminate the compromises that the industry forces customers to make while using the product/serviceCreate - This helps to discover new sources of value, create new demand and shift the strategic pricing of the industry

8Three Characteristics of a Good StrategyFocus Set your own agenda, Excel in a few key aspects, Dont invest across the board

Divergence Act Dont react, Stand Apart

Compelling Tagline Have a true and clear cut tagline

Focus - Set your own agenda, dont let the competition set the agenda. Excel in a couple of key aspects of the value line that your competition does not. Dont invest across the board. Divergence - When a company has to act reactively they lose their uniqueness by generally having the same strategic profile as their competitors. Using this divergent strategy can put your company in a blue oceanCompelling Tagline - Effective taglines are easier to come by when your company has a blue ocean strategy, because you are competing on something different than your other competitors

9Chapter 3 Six Paths Framework Path 1: Look Across Alternative IndustriesPath 2: Look Across Strategic Groups Within IndustriesPath 3: Look Across the Chain of BuyersPath 4: Look Across Complementary Product and Service OfferingsPath 5: Looking Across Functional or Emotional Appeals to BuyersPath 6: Look Across Time1. Define their industry with similarities and focus on being the best within it2. Strategic Groups Refers to a group of companies within an industry that pursue a similar strategy3. Purchasers, Users, Influencers The group or person that has an adverse affect on the purchasing decision.4. Thinking outside of the defined boundaries to define a total solution which buyers seek5. Difference between the two are industries that compete principally on price and function largely on calculations of utility; Their appeal is rational. Other industries compete on feelings and their appeal is emotional.6. Some principles to assessing trends over time - Decisive to your business, Must be irreversible, Must have a clear trajectory

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Chapter 4: Focus on the Bigger Picture, Not the Numbers11Focusing on the Big PictureThe bigger picture starts with visualizing strategy and drawing a strategy canvas

Visual awakening Executives are often reluctant to accept the need for change takes a level 5 leader to see the need for changeEFS brought together top managers to reformulate the strategy canvas and evaluate the value curve.Visual exploration Taking action and visualizing the goals of the company from the POV of the managers themselves, not outsourcing like so many companies do. Painters dont paint from somebody elses memory, they look at the situation at hand and make their own interpretation.After problems are hashed out, put solutions in place for those you serve, not implementing plans which dont entice the end user.Visual Strategy Fair Critical evaluation by those who are unbiased. EFS used noncustomers, customers of competitors and high level EFS customers. Outside sources of criticism are those most likely to be honest and accurate due to the fact they have the least to gain.Visual communication Post strategy formulation analysis - once the strategy canvas had been painted, a clear, precise picture of future goals is at hand and easy to follow.12

Pioneer Business that offers unprecedented value . These are your blue ocean strategists and they are the most powerful sources of profitable growth. Mass following of customersMigrators Those who lie in between of the red and blue ocean markets. Higher value offered, but not innovativeSettlers Business whose value curves conform to the basic shape of the industries. Satisficing with being a competitor in a red ocean.Pioneers, Migrators, Settlers

The main point to take away from chapter 3 is that taking a birds eye view of current business activities, then creating a unique business model derived by the old one which incorporates core needs of the customer and the firm, with specific regards to off the balance sheet objectives, creates satisfaction not only for the firm, but for shareholders and customers alike.13Chapter 5: Reach Beyond Existing Demand

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Noncustomers = Possible Future CustomersBlue ocean firms please and retain existing customers, and find ways to reach new segments.Callaway golf People who didnt play golf saw ball as too hard to hit with small club. Essentially, Callaway made a giant club head for those previously shitty at golf to be able to hit the ball, although they are probably still shitty, Callaway blue ocean marketing has opened the gates to a new segment of customers.

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Three Tiers of Noncustomers

First Tier PRET British born fast food Healthy solution to fast food. Caters to the needs of business men and women alike who dont have the time to sit and eat, or even go through fast food lines. Average time spent in store is 90 seconds.Noncustomers tend to offer far more insight into how to unlock and grow a blue ocean than do relatively content existing customers.Second tier JCDecaux outdoor advertising redefined. Increased outdoor advertising demand by placing ads on benches in 1964. Redefined outdoor advertising to include more than billboards and buses. Created a blue ocean in B2B world and secured customers previously restricted to inferior means of outdoor advertising.Third Tier - Lockheed & Martin engineered a fighter jet to cater to the needs of all military branches as opposed to specialized planes for each division. Reduced overall cost of each fighter jet by centralizing needs and eliminating unnecessary attributes. Conclusion the summary of CH 5 in a nutshell is that In order to maximize the scale of your blue ocean you should first reach beyond existing demand to noncustomers and de-segmentation opportunities as you formulate future strategies. Thinking outside the box. It is not enough to maximize the size of the blue ocean you are creating you must profit from it to create a sustainable win-win outcome by broadening the firms horizons in terms of target segment.16Chapter 6: Get the Strategic Sequence RightBuyer Utility is there a compelling reason for the mass of people to buy it.Price Is your price easily accessible to the bass 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, and are you addressing them up front?If the answer is YES to all of these BAM, you have a commercially viable blue ocean idea

Utility does your product/service offer something that makes the buyers lives dramatically simpler, more convenient, more productive, less risky, more fun or more fashionable, if yes, then you have of the strategic sequence working in favor of a blue ocean strategy.Price Enticing the customer, at the right price for profit as wall as creating perceived value in their eyes, while not stripping their pockets. Companies are leaning towards revenue created by volume rather than profits created by a large margin on few products. Wal-marts margin is only 3.54%, however, 3.54% on several hundred billion dollars is still a hefty sum.Cost Setting a target price for the product based on value to the customer then arriving at a cost structure that is both profitable and hard for competitors to match. Partnering is a strategic move which can lead to immense cost reductions.Adoption Informing employees of important decisions. Getting the right partners on the bus and keeping them happy. Educating the general public with just enough of the correct information to keep them happy, without withholding harmful information, informed customers are happy customers.17BOI Index for Sucess

Chapter 6 is summarized by this graph. If your company can ask all of these questions and have an emphatic YES answer, then a blue ocean opportunity awaits.

18Chapter 7 Overcome Key Organizational Hurdles

In Life, Business, or Rock & Roll, failure is not an option.

~Group 419Four Hurdles to Strategy Organizational Execution

Cognitive - waking employees up to the need for a strategic change.-Dont get comfortable with where you are at. Limited Resources - It is assumed that if you are making an extreme shift you will need more resources.-Not always the case.3. Motivation- How do you motivate key employees to work fast and tenaciously to carry out a break for the status quo? -Good to great says if you have the right people on the bus motivation wont be an issue.4. Politics- How do you get started if you get shot down before you even get started?Show employees first hand what problems the company is facing.Seeing is Believing

20Breaking through the cognitive HurdleTwo Ways of doing thisRide the electric sewerMeet with disgruntled customers

Riding the electric sewer-Putting your employees in the shoes of others to gain insight

Meet with disgruntled customers- Relying on market surveys only scratches the surface of what is expected from your company. Observe the market first hand and meet with your most disgruntled customers to hear their concerns. There is no substitute for meeting and listening to dissatisfied customers directly.21Jumping the resource hurdleDoes your company have the money to spend on necessary changes?Tipping point leaders concentrate on multiplying the value of the resources they already have by observing:Hot spotsCold spotsHorse Trading

Redirecting resources so that your employees are capable of doing their job22Jump the motivational hurdle

How can you motivate the mass of employees fast and at low cost?Traditionally leaders issue grand strategic visions and turn to massive top-down initiatives.Costly and time consumingTipping point leaders follow a reverse course and seek massive concentration.Kingpins Fishbowl Management

Allocate resources to kingpins which are key players in your organization who are natural leaders well respected and persuasive rather than spreading your resources out thinly.

Fishbowl- at the heart of of motivating the kingpins in a sustained and meaningful way is to shine a spotlight on their actions in a repeated and highly visible way. This is to where kingpins actions and inactions are made as transparent to others as fish in a fish bowl.23Knocking Political Hurdles DownThere are always powerful vested interests that will resist the impending strategy changes both internal and externalTo overcome the political forces, tipping point leaders focus on three influence factorsLeveraging anglesSilencing devilsSecure a consigliere on top management

Who are my devils? Who will fight me? Who will lose the most by the future blue ocean strategy?

Who are my angles? Who will align with me? Who will gain the most by the shift?

Dont fight alone. Get the higher and wider voice to fight with you andMove quickly. Know all your devils attack strategies and be ready with facts.24Chapter 8 Build execution into strategy

25A Company is EverybodyFrom top executives to line employees.

When all employees support and are aligned around a strategy, that is when a company can stand apart as great consistent executor.

Trust and commitment must create an environment that motivate people to execute the strategy.

Build execution into strategy from the start.Especially in blue ocean because trepidations builds as people are less involved.

Fair process is key.You must create a culture of trust and commitment that motivates people to execute that motivates people to execute agreed strategy. People hearts and minds must align with the strategy so that at the level of the individual people embrace it for their own accord and willingly go beyond compulsory execution to voluntary cooperation in carrying it out.26The Three E Principles of Fair ProcessEngagement: Involving individuals in the strategic decisions by asking them for their input.

Explanation:Everyone involved and affected should understand why final strategic decisions are made as they are.

Expectation Clarity:After a strategy is set, managers state clearly the new rules of the game.

Engagement- Involving individuals in the strategic decisions by asking them for their input.Builds better collective wisdom.Greater commitment from all involved.

Explanation- Everyone involved and affected should understand why final strategic decisions are made as they are.People know their opinions have been considered.Enhances learning

Expectation clarity-After a strategy is set, managers state clearly the new rules of the game.Political jockeying and favoritism is minimized.New goals and milestones are set.

27Intellectual and Emotional Recognition TheoryWhen individuals feel recognized for their intellectual worth, they are willing to share their knowledge.

Violation of fair process violation of individuals intellectual and emotional worth.

This can lead to sabotage You dont value my ideas. So I dont value your ideas, nor do I trust in or care about the strategic decisions youve reached.28Chap 9Creating Blue Oceans is not a static achievement but a dynamic process.

In this concluding chapter we discuss the issues of the sustainability of the blue ocean strategy.29

Barriers to ImitationValue innovation does not make sense based on conventional strategic logic.Brand image conflictsNatural Monopoly with size of marketPatentsValue innovation leads to cost advantages

A blue ocean strategy brings with it considerable barriers to imitation. Some of these are operational, and others are cognitive. More often than not, a blue ocean strategy will go without credible challenges for ten to fifteen years. This sustainability can be traced to the following imitation barriers rooted in blue ocean stretegy.30

Swimming to the Blue OceanYou should swim as far as possible in the blue ocean making yourself a moving target.As competitors Value curves converge towards yours you should begin reaching out for another value innovation to create a new blue ocean. Coexisting markets make it necessary to know how to compete in both marketsOceans are always changing from blue to red due to new entrants and imitators. People will always try and cash in on your newly discovered market share so you must Distance yourself from your competitors while discouraging them in the process.

Because blue and red oceans have always coexisted, practical reality demands that compannies succeed in both oceans and master the strategies for both. But because companies already know how to compete in red oceans they need to learnto make the competition irrelevent. This aims to help balance the scales so that formulating and executing blue ocean strategy can become as systematic and actionable as competing in the red oceans of known market space.31