The Blue Ocean Strategy FG


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How make the competition irrelevant? For further information see the innovative approach of the authors Kim and Mauborane!

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The Blue Ocean Strategy FG

  1. 1. The Blue Ocean Strategy
  2. 2. Premise The basic premise of the authors Kim and Mauborgne is that many companies that win in the marketplace do so in ways that make their competition irrelevant. if managers focus only to competition are likely to don’t see blue oceans…
  3. 3. Red Ocean The Red Oceans represent the fiercely competitive arena where most companies compete. Red Oceans are all the industries in existence today—the known market space In the red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Here companies try to outperform their rivals to grab a greater share of product or service demand. As the market space gets crowded, prospects for profits and growth are reduced.
  4. 4. Blue Ocean The Blue Oceans are open and not filled with competitors, uncontested market space! Blue oceans, in contrast, denote all the industries not in existence today— the unknown market space, untainted by competition. In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set. Blue ocean is market space not yet explored.
  5. 5. Red Ocean Vs Blue Ocean Difference between two oceans:
  6. 6. Value innovation The corner-stone of Blue Ocean Strategy is “Value Innovation“. The Company must: Reduce or eliminate features or services that are less valued by the current or future market. Create value simultaneously for both the buyer and the company.
  7. 7. Value innovation 1. A blue ocean is created when a company achieves value innovation that creates value simultaneously for both the buyer and the company. 2. The innovation (in product, service, or delivery) must raise and create value for the market, while simultaneously reducing or eliminating features or services that are less valued by the current or future market. 3. Instead, they propose finding value that crosses conventional market segmentation and offering value and lower cost. Cirque du Soleil - an example of creating a new market space, by blending opera and ballet with the circus format while eliminating star performer and animals
  8. 8. Value innovation Instead, they propose finding value that crosses conventional market segmentation and offering value and lower cost. What factors can be eliminated that the industry has taken for granted? What factors can be reduced well below the industry’s standard? What factors can be raised well above the industry’s standard? What factors can be created that the industry has never offered?
  9. 9. Apple’s value innovations So, what has Apple done in the last decade?
  10. 10. Build a Blue Ocean
  11. 11. Value Curve The horizontal axis captures the range of factors that the industry competes on and invests in, and the vertical axis captures the offering level that buyers receive across all these key competing factors.
  12. 12. The strategy canvas serves two purposes: • Firstly, it captures the current state of play in the known market space. This allows you to understand where the competition is currently investing and the factors that the industry competes on. • Secondly, it propels you to action by reorienting your focus from competitors to alternatives and from customers to noncustomers of the industry. The value curve is the basic component of the strategy canvas. It is a graphic depiction of a company's relative performance across its industry's factors of competition. As you can see on the diagram above, what makes a good value curve is focus, divergence as well as a compelling tagline. Strategy Canvas
  13. 13. Value Curve - Yellow Tail Wine Australian Casella wines created a blue ocean strategy that, in just two years, caused its [yellow tail] wine to become the fastest growing brand in the histories of both the Australian and the U.S. wine industries and the number one imported wine into the United States, surpassing the wines of France and Italy. Eliminate: Casella Wines recognized that most wineries touted aging and tannin qualities, two factors that intimidated customers. Casella decided to focus their efforts on different qualities. Reduce: To avoid customer confusion, Casella Wines limited their offerings to just one white wine and one red wine. Raise: Casella Wines raised the involvement of retailers with [yellow tail]’s success by giving retail employees Australian outback clothing that made [yellow tail} seem friendly instead intimidating like other wines. Create: Casella wines created new customer experiences for wine drinking: easy drinking, ease of selection, and a sense of fun and adventure.
  14. 14. Create a new value curve To reconstruct buyer value elements in crafting a new value curve, we use the Four Actions Framework. As shown in the diagram, to break the trade-off between differentiation and low cost and to create a new value curve, there are four key questions to challenge an industry's strategic logic and business model. The Eliminate-Reduce-Raise- Create Grid (ERRC) is complementary with the four actions framework. 4 Actions Framework
  15. 15. Settlers: the company has a low growth trajectory, is largely confined to red oceans, and needs to push for value innovation. it may well have fallen into the trap of competitive benchmarking, imitation, and intense price competition. Migrators: They can be strong potential, if you know how to lead them. But the company is not exploiting its potential for growth, and risks being marginalized by a company that value-innovates. A useful exercise for a corporate management team pursuing profitable growth is to plot the company's current and planned portfolios on the pioneer- migrator-settler (PMS) map. Pioneer-Migrator-Settler Map
  16. 16. The more an industry is populated by settlers, the greater the opportunity to value-innovate and create a blue ocean of new market space. This exercise is especially valuable for managers who want to see beyond today's performance. Revenue, profitability, market share, and customer satisfaction are all measures of a company's current position. Pioneer-Migrator-Settler Map Pioneers: They bring what we call “unprecedent value”, while they really create something new, able to seduce consumers, and lead them to new needs, or new ways to feed them. They create value innovation, recognized and valuable by the customers.
  17. 17. Pioneer-Migrator-Settler Map
  18. 18. 3 Tiers of Noncustomers Typically, to grow their share of a market, companies strive to retain and expand existing customers. This often leads to finer segmentation and greater tailoring of offerings to better meet customer preferences. That allows companies to reach beyond existing demand to unlock a new mass of customers that did not exist before. Noncustomers typically offers big blue ocean opportunities, few companies have keen insight into who noncustomers are and how to unlock them.
  19. 19. It outlines all the levers companies can pull to deliver utility to buyers as well as the different experiences buyers can have of a product or service. Managers can clearly see how the new idea creates a different utility proposition from existing products. Buyer Utility Map The six stages of the buyer experience cycle. A buyer’s experience can usually be broken down into a cycle of six distinct stages, running more or less sequentially from purchase to disposal. Each stage encompasses a wide variety of specific experiences. The six utility levers. Cutting across the stages of the buyer’s experience are what we call the utility levers – the ways in which companies unlock utility for their customers.
  20. 20. Companies need to build their Blue Ocean Strategy in the sequence of buyer utility, price, cost, and adoption. Sequence of Blue Ocean Strategy
  21. 21. 4 Hurdles to Execution Cognitive hurdle. waking employees up to the need for a strategic shift. So, why rock the boat? The challenge of execution exists, of course, for any strategy. Companies, like individuals, often have a tough time translating thought into action whether in red or blue oceans. They face four hurdles: Build a Blue Ocean Limited resources. The greater the shift in strategy, the greater it is assumed are the resources needed to execute it. Motivation. How do you motivate key players to move fast and tenaciously to carry out a break from the status quo? Politics. As one manager put it, “In our organization you get shot down before you stand up.”
  22. 22. Fair process builds execution into strategy by creating people's buy-in up front. There are three mutually reinforcing elements that define fair process: engagement, explanation, and clarity of expectation. 3 “E” Principles of Fair Process
  23. 23. To change the mass it focuses on transforming the extremes: the people, acts, and activities that exercise a disproportionate influence on performance. By transforming the extremes, tipping point leaders are able to change the core fast and at low cost to execute their new strategy. By transforming the extremes, tipping point leaders are able to change the core fast and at low cost to execute their new strategy. Tipping Point Leadership
  24. 24. The sharks (competitors) could enter in your Blue Ocean……… ………and the Blue Ocean become a Red Ocean. You must always thinking to create a new Blue Ocean! Build a Blue Ocean
  25. 25. How Blue is your Ocean? • Is your company facing heightened competition from domestic and international rivals? • Do your sales representatives increasingly argue they need to offer deeper and deeper price discounts to make sales? • Are you finding you need to advertise more to get noticed in the marketplace, yet the impact of each advertising money spent is falling? • Is your company focused more on cost cutting, quality control, and brand management at the expense of growth, innovation, and brand creation? • Do you blame your slow growth on your market? • Do you see outsourcing to low cost companies or countries as a principal prerequisite to regain competitiveness? • Are mergers and acquisitions the principal means your company sees to grow? • Is it easier to get funding to match a strategic move made by your competitor than it is to get internal funding to support a strategic move that allows you to break away from the competition? • Is commoditization of offerings a frequent worry of your company? • List your key competitive factors; now list your competition’s. Are they largely the same? If you answered yes to a majority of these questions, then your company is stuck in the red ocean.