To win in the future New Market Space, companies must stop competing with each other. Because the only way to beat the competition is to stop trying to beat the competition. To understand this idea, imagine a market universe composed to two sorts of oceans: -red oceans and -blue oceans.
Red oceans represent all the industries in existence today. This is the known market space. Blue oceans denote all the industries not in existence today. This is the unknown 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 existing demand. As the market space gets crowed, prospects for profits and growth are reduced. Products become commodities, and cutthroat competition turns the red ocean bloody. Blue Oceans , in contrast, are defined by untapped market space, demand creation, and the opportunity for highly profitable growth. Although some blue oceans are created well beyond existing industry boundaries, most are created from within red oceans by expanding existing industry boundaries. In blue oceans competition is irrelevant because the rules of the game are waiting to be set. Logic of Blue Ocean Strategy is so called value innovation and is the cornerstone of Blue Ocean Strategy Value innovation places equal emphasis on value and innovation. It is a new way of thinking about and executing strategy that results in the creation of a blue ocean and a break from the competition. Importantly, value innovation defies one of the most commonly accepted dogmas of competition-based strategy: The value-cost trade-off. It is conventionally believed that companies can either create greater value to the customers at higher cost or create reasonable value at a lower cost. Here strategy is seen as making a choice between differentiation and low cost. In contrast , those that seek to create blue oceans pursue differentiation and low cost simultaneously. Now turn the clock back only thirty years, How many industries of today's industries were then unknown? Mutual funds, cell phones, gas-fired electricity plants, biotechnology, discount retail, snowboards and coffee bars to name a few.
There are a clear pattern for creating blue oceans, with six basics approaches to remarking market boundaries: The six paths framework In the first path companies in the red ocean define their industry similarly and focus on being the best within it. But to create new market space companies must look across alternative industries because a company competes not only with the other firms in its own industry, but also with companies in those other industries that produce alternative products and services. The second path: The next boundary is the strategic group. A strategic group is companies within an industry that pursue a similar strategy. The key in creating new market space is to understand what factors determine buyers´ decision to switch from one strategic group to another. The third path: In most industries, competitors converge on the definition of the target buyer. In the reality, though, there is a chain of buyer who directly or indirectly involved in the buying decision: the purchaser, the user, for example. But by looking across buyer groups, companies can gain new insights into how to redesign their value curves to focus on a previously overlooked set of buyers. The fourth path: In the red ocean: few products and services are used in a vacuum. In most cases, other products and services affect their value. But companies can create new market space by focusing on the complements that detract from the value of their product or service. The fifth path: Competition in an industry tends to converge around two bases of appeal: -Some industries compete principally on price and function, their appeal is rational. Other industries compete largely on feelings, their appeal is emotional. Companies can find new market spaces when they are willing to challenge the functional-emotional orientation of their industry. The sixth path: All industries are subject to external trends that affect their business over time. Firms tend to pace their own thinking to keep up with the development of the trends they are tracking. By finding insights trends that are observable today, firms can unlock innovation that creates new market spaces.
Instead of concentration on customers, they need to look to noncustomers. And instead of focusing on customer differences, they need to build on powerful commonalities in what buyers value. That allows companies to reach beyond existing demand to unlock a new mass of customers that did not exist before. There are three types of noncustomer that can be transformed into customers. They differ in their relative distance from the market. -The first of noncustomers is closest to the market. They are buyers who nominally purchase an industry's offering out of necessity, but are mentally noncustomers of the industry. -The second type of noncustomers is people who refuse to use the industry's offerings. These are buyers who have seen the industry's offerings as an option to fulfill their needs but have voted against them. -The third type of noncustomers is farthest from the market. They are noncustomers who have never thought of the market´s offerings as an option. You must look at each of the three types of noncustomers to understand how you can attract them and expand the own blue ocean.
Strategic Management - Setting Strategic Direction (c) 2002 Hudson Strategic Group - Henry Whitlow 404-202-6464 www.hudgroup.com 18
Blue ocean strategy pp education (short version)
*Blue Ocean Strategy (BOS)Understanding and Development *Adapted from the book Blue Ocean Strategy by W. Chan Kim and Renée Mauborgne. Enterprise Architects Helping You Build a Better Business
Value Creation—The OfferLoop and Perception Map Offer Loop A Presentation of the Hudson Strategic Group 2
Perception Map A Presentation of the Hudson Strategic Group 3
Changing Perception A Presentation of the Hudson Strategic Group 4
Agenda • What is Blue Ocean? • Why do it? • How to do it? – Strategy Canvas Exercises A Presentation of the Hudson Strategic Group 5
Blue Ocean Strategy – There are Two worlds … A Presentation of the Hudson Strategic Group 6
Blue Ocean Strategy • Achieve strategic and planning success by developing and aligning the three strategy propositions: Value Proposition, Profit Proposition, and People Proposition. • Strategically transform your organization quickly and at low cost by focusing in disproportionate influence factors. • Make the competition irrelevant by using this approach to create breakthroughs in value for both your customers and your organization A Presentation of the Hudson Strategic Group 7
Two worlds … Red Ocean Strategy Blue Ocean Strategy Compete in existing market Create uncontested market space. 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 Align the whole system of a strategic firms activities with firms activities in pursuit of its choice of differentiation or differentiation and low cost. low cost. VALUE INNOVATION A Presentation of the Hudson Strategic Group 8
BOS Logic: Reconstruct market boundaries Boundaries of Head-to-Head Creating Competition Competition New Market Space Focuses on rivals within its Looks across alternative Industry industries industry Focuses on competitive position Looks across strategic groups Strategic Group within its industry within strategic group Focuses on better serving the Redefines the buyer group of the Buyer Group industry buyer group Scope of Product Focuses on maximizing the value Looks across to complementary and Service of product and service offerings product and service offerings that Offerings within the bounds of its industry go beyond the bounds of its industry Focuses on improving price- Rethinks the functional-emotionalFunctional-emotional performance with the functional- orientation of its industry Orientation of an emotional orientation of this Industry industry Focuses on adapting to external Participation in shaping external Time/Trends trends over time trends as they occur A Presentation of the Hudson Strategic Group 9
Value Proposition • Is created in the region where an organization’s actions favorably affect it’s cost structure and it’s value proposition to buyers. Cost savings are made by eliminating and reducing the factors an industry competes on. Buyer value is lifted by raisin and creating elements the industry has never offered. A Presentation of the Hudson Strategic Group 10
Profit Proposition • Financial success of an idea is created where exceptional buyer utility, price accessibility for the masses, and cost targeting meet. • Exceptional buyer utility identifies a compelling reason for the mass of people to purchase or use • Price accessibility attracts the mass of target buyers or users in a way that they have a compelling ability to pay for the offering • Cost targeting identifies the necessary streamlining, partnering, and pricing innovation that can be leveraged to produce a healthy profit margin A Presentation of the Hudson Strategic Group 11
People Proposition • Strategy implementation success requires engaging employees, business partners, and the general public about the idea. • Overcoming awareness, resource, motivational, and political hurdles to innovation through engagement facilitates smooth adoption of the idea. A Presentation of the Hudson Strategic Group 12
BOS Logic: Reach beyond existing demand Core Customer Noncostumer Soon-to-be-NC Refusing Customer A Presentation of the Hudson Strategic Group 13
Buying Behavior is Driven by theThree Laws of Performance1. How people perform correlates to how situations occur to them – Market Leaders have a say, and give others a say, in how situations occur2. How a situation occurs arises in language – Market Leaders master the conversational environment3. Future-based language transforms how situations occur to people – Market Leaders listen for the future of their organizationSteve Zaffron and Dave Logan – Three Laws of Performance A Presentation of the Hudson Strategic Group 14
Six Principles of Blue Ocean StrategyFormulation Principles2. Reconstruct market boundaries3. Focus on the big picture, not the numbers4. Reach beyond existing demand5. Get the strategic sequence rightExecution Principles7. Overcome key organizational hurdles8. Build execution into strategy A Presentation of the Hudson Strategic Group 16
The Business Model – Focus onMarketing Execute Clear Enhance Sales Communications Training Improve Leadership Skills Work CNFG Environment Objectives Implement Marketing Improve Application Establish Processing Measurement System 17 A Presentation of the Hudson Strategic Group
Blue Ocean Development – “As-Is”• Value Curve - "As-is" – Where is current investment? What are the factors you and the industry compete on? What do customers receive from market offerings?• Value Curve - "As-is" – What are the offering levels buyers receive across all the key competing factors from you and the industry? (Rows: Competing factors. Columns: client, industry) A Presentation of the Hudson Strategic Group 18
Blue Ocean Development – “To-Be”• Market Boundaries – What are the alternatives, strategic groups, chain of buyers, complements, appeals, and trends in your industry?• Value Curve - "To-be" – What factors should be created that the industry has never offered?• Value Curve - "To-be" – Which factors should be eliminated, reduced well below the industry standard, raised well above the industry standard, or created? (Rows: new offerings. Columns: Eliminate, reduce, raise, create)• Portfolio – What are your current and future portfolio offerings?• Portfolio Map – Assess the potential for growth and profit by identifying the offerings that have a divergent value curve, improved value, or industry value curve. (Rows: Portfolio offerings. Columns: Pioneers, Migratory, Settlers) A Presentation of the Hudson Strategic Group 19
The Four ActionsFramework It is an analytic that reconstructs buyer value elements in crafting a new value curve. • Four key questions that challenge the industry’s strategic logic and business model: • Which of the factors that the industry takes for granted should be eliminated? • Which factors should be reduced well below the industry’s standard? • Which factors should be raised well above the industry’s standard? • Which factors should be created that the industry has never offered? A Presentation of the Hudson Strategic Group 20
Blue Ocean Development – Value Innovation• Beyond Existing Demand – What are the key reasons for purchasers to leave your industry, non- purchasers refusal to use your products and services, and non- purchasers not being thought of as potential customers?• Prioritized Non-customer Reasons – Rank the key reasons for being non-customers according to population size.• Buyer Utility Map – Does your new product or service offer a compelling reason for the mass of people to buy it? (Rows: Customer Productivity, Simplicity, Convenience, Risk, Fun and Image, Environmental Friendliness. Columns: Purchase, Delivery, Use, Supplements, Maintenance, Disposal) A Presentation of the Hudson Strategic Group 21
Barriers to Non Customers• Fear of Marketing / Prospecting to Non Customers• No relationship (No access to information)• Lack of Leadership Skills• Fear of repeating bad experiences• Lack of Education• Perceived Affordability A Presentation of the Hudson Strategic Group 22
Address Implementation Hurdles with a FairProcess• Hurdles come in 4 forms . . .Cognitive , limited resources, motivation, politics The Execution Consequences of the Presence and Absence of Fair Process in Strategy Making Voluntary Intellectual Trust and Cooperation in Fair Process and Emotional Commitment Strategy Recognition Execution Intellectual Refusal to Violation of Distrust and and Emotional Execute Fair Process Resentment Indignation Strategy A Presentation of the Hudson Strategic Group 23
Hudson Strategic Group A Presentation of the Hudson Strategic Group 24