firm theory blue ocean strategy

8/14/2019 Firm Theory Blue Ocean Strategy

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Firm TheoryKim ValbumRUCMEA

Blue Ocean StrategyW. Chan Kim & Rene Mauborgne


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Make the Competition Irrelevant

Cirque de Soleil is a success by taking in newcustomers, combining cirkus/art/ performance at ahigh price to new customers


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Value Innovationa cornerstone

The Simultaneous Pursuit of Differentiationand Low Cost

Value innovation is created in the region where a companysactions favorably affect both its cost structure and its valueproposition to buyers.

Cost savings are made by eliminating and reducing the factors anindustry competes on. Buyer value is

lifted by raising and creating elements

the industry has never offered.Over time, costs are reduced further as

scale economies kick in due to the high

sales volumes that superior value generates.


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The Six Principles of Blue OceanStrategy

Formulation principles Risk faktor each

principle attenuates

Reconstruct market boundaries \/ Search risk

Focus on the big picture, not the numbers \/ Planning riskReach 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


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The Four Actions Framework


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Eliminate-Reduce-Raise-CreateGrid: The case of Cirque du Soleil

Eliminate RaiseStar performers Unique venue

Animal shows

Aisle concession sales

Multiple show arenas

Reduce CreateFun and humor Theme

Thrill and danger Refined environment

Multiple productions

Artistic music and dance


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Red oceansix assumptions:

Define industry similarly and focus on being best

Look through the lens of accepted strategic groups(luxury cars, family cars etc.) and strive to stand out

Focus on the same buyer group

Define the scope of the products and services offeredby their industry similarly

Accept their industrys functional or emotionalorientation

Focus on the same point in timeand often oncurrent competitive threatsin formulating strategy


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Blue Oceanpath 1Look Across Alternative Industries

A company competes not only with the otherfirms in its own industry but also withcompanies in those other industries that

produce alternative products or servicesProducts and services that have differentforms but offer the same functionality areoften substitutes for each other

Alternatives include products or services thathave different functions and forms but thesame purpose


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Blue Oceanpath 2Look Across Strategic Groups Within Industries

Blue oceans can often be created by lookingacross alternative industries, so can they beunlocked by looking across strategic groups.

In most industries , the fundamental strategicdifferences among industry players arecaptured by a small number of strategicgroups

The key to creating a blue ocean acrossexisting strategic groups is to break out ofthe narrow tunnel vision by understandingwhich factor determine customers decisionsto trade up or down fron one group to

another


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Blue Oceanpath 3Look Across the Chain of Buyers

In most industries competitors convergearound commen definitionsbuyers (which

involve purchasers, users, influencers etc.)and target customer segmentslarge vs.small customers etc.

By looking across buyer groups, companies

can gain new insights into how to redesigntheir value curves to focus on a previouslyoverlooked set of buyers.


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Blue Oceanpath 4Look Across Complementary

Product and Service Offerings Few products and services are used in a vacuum. In most

cases other products and services affect their value

But in most industries, rivals converge within the bounds oftheir industrys product and service offerings

Untapped value is often hidden in complementaryproducts and services. The key is to define the total

solution buyers seek when they choose a product orservice. A simple way to do so is to think about whathappens before, during, and after your product isused.


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Competition tends to converge on an accepted notion and on few possible

bases of appeal

Some industries compete on rational appeal and some on emotional appeal

Over time, functionally oriented industries become more functionally oriented;

emotional industries become more emotional oriented

Industries have trained customers in what to expectand they answer morefor less

Emotionally oriented industries offer many extras that add price, but not

functionalitycustomers would welcome simpler, lower-priced and lower-cost business models

Functionally oriented industries can stimulate new demand by adding a doseof emotion

Blue Oceanpath 5Look Across Functional/Emotional Appeal to Buyers


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Blue Oeceanpath 6Look Across Time

All industries are subject to external trends that affecttheir businesses

Looking at these trends with the right perspective canshow how to create blue ocean opportunities

Insights into blue ocean strategy arise from businessinsights into how the trend will change value tocustomers

Three principals are critical to assessing trends acrosstime and to form the basis of a blue ocean strategy:

1. These trends must be decisive to your business2. These trends must be irreversible3. These trends must have a clear trajectory


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From Head-to-head Competitionto Blue Ocean Creation

Head-to-Head Competition Blue Ocean Creation

Industry Focuses on rivals within its industry -> Looks across alternative industries

Strategic group Focuses on competitive position -> Looks across strategic groups

within strategic group within industry

Buyer group Focuses on better serving the -> Redefines the industry buyerbuyer group group

Scope of product Focuses on maximizing the value -> Looks across to complementary

or service of product and service offerings product and service offerings

offering within the bounds of its industry

Functional- Focuses on improving price -> Rethinks the functional-emotionalEmotional performance within the functional- orientation of its industry

orientation emotional orientation of its industry

Time Focuses on adapting to external -> Participate in shaping external

trends as they occur trends over time


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The Four Steps of VisualizingStrategy

1. VisualAwakening

2. VisualExploration

3. Visual StrategyFair

4. VisualCommunication

Compare yourbusiness with yourcompetitiors bydrawing your as isstrategy canvas

See where yourstrategy needs tochange

Go into the fieldto explore the six

paths to creatingblue oceans

Observe thedistinctiveadvantages ofalternative products

and servicesSee which factors

you shouldeliminate, create, orchange

Draw your to bestrategy canvas

based on insightsfrom fieldobservations

Get feedback onalternative strategycanvases from

customers,competitorscustomers, andnoncustomers

Use feedback tobuild the best tobe future strategy

Distribute yourbefore-and-after

strategic profiles onone page for easycomparison

Support only thoseprojects andoperational moves

that allow yourcompany to closethe gaps toactualize the newstrategy


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Testing the Growth Potential of aPortfolio of Businesses


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First Tier: Soon-to-be noncustomers

who are on the edge of your market,

waiting to jump ship

Second Tier: Refusing noncustomers

who consciously choose against your

market

Third Tier: Unexplored noncustomers who are in marketsdistant from yours

The Three Tiers of Noncustomers

Yourmarket

FirstTier

SecondTier

ThirdTier


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The Sequence of Blue OceanStrategy


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The Buyer Experience Cycle


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The Price Corridor of the Mass


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The Profit Model of Blue OceanStrategy

The Strategic Price

The Target Profit

The Target Cost

Streamlining and Partnering

Cost Innovations

Pricing Innovation


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Blue Ocean Idea (BOI) Index

PhilipsCD-i

MotorolaIridium

DoCoMoi-modeJapan

Utility Is there exceptional utility?

Are there compellingreasons to buy youroffering?

- - +

Price Is your price easilyaccessible to the mass ofbuyers?

- - +

Cost Does your cost structuremeet the target cost?

- - +

Adopt

ion

Have you addressedadoption hurdles up front?

- +/- +


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The Four Organizational Hurdlesto Strategy Execution

Cognitive Hurdle

An organization wedded

to the status quo

Ressource Hurdle Political HurdleLimited resources Opposition from

powerful vested

interests

Motivational Hurdle

Unmotivated staff


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Conventional Wisdom vs. TippingPoint Leadership


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How Fair Process Affects PeoplesAttitudes and Behavior

Strategy Fair Process

Formulation Engagement

Process Explanation

Expectation clarity

Attitudes Trust and Commitment

I feel my opinion counts

Behavior Voluntary Cooperation

Ill go beyond the call of duty

Strategy Execution Exceeds Expectation

Self-initiated


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The Execution Consequences of the Presence

and Absence of Fair Process in Strategy Making

Fair Process Intellectual andEmotionalRecognition

Trust andCommitment

VoluntaryCooperation inStrategyExecution

Violation of FairProcess

Intellectual andEmotional

Indignation

Distrust andResentment

Refusal toExecute

Strategy


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Imitation Barriers to Blue OceanStrategy

Value innovation does not make sense to a companysconventional logicBlue ocean strategy may conflict with other companies brandimage

Natural monopoly: The market often cannot support a secondplayerPatents or legal permits block imitationHigh volume leads to rapid cost advantage for the valueinnovator, discouraging followers from entering the marketNetwork externalities discourage imitation

Imitation often requires significant political, operational, andcultural changesCompanies that value-innovate earn brand buzz and a loyalcustomer following that tends to shun imitators


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Blue Ocean Strategy

Dont Compete

with Rivals

Make ThemIrrelevant

firm theory blue ocean strategy

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