Recent trends in Business strategy-Dr.Kabaly P Subramanian
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Recent trends in Business strategy-Dr.Kabaly P Subramanian

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Recent trends in Business strategy-Dr.Kabaly P Subramanian Recent trends in Business strategy-Dr.Kabaly P Subramanian Presentation Transcript

  • Recent Trends in Business Strategy By Dr. Kabaly P Subramanian Department of Business Studies Arab Open University Sultanate of Oman
  • Why do you need to sit through this presentation?    Today’s Challenge : Building organizations that can grow in the world of relentless change and ferocious competition Survival vs. Growth This presentation presents some thoughts
  • Strategy  “Strategy is not just a tool for outwitting the competition, it is the most powerful means a leader has for shaping a company itself” Cynthia A. Montgomery Harvard Business School Author “The Strategist”
  • About Blue Ocean Strategy (BOS)     This is a program for managers in search of a practical roadmap to tackle strategic innovation in a systematic way. New thinking in strategy ,which helps you to grow the firm Easy to understand and apply Organizations, Nations and Individuals
  • Structure of this presentation     Common understanding on Business Strategy Video case : 1 To understand the traditional approach to strategy. Video case : 2 To understand the new approach to strategy Explanation of this new thinking using Blue Ocean Strategy ( BOS ) principles ,tools and frameworks
  • Strategy Sustainable Competitive Advantage  Strategy is about organizational change “A set of decisions and actions leading to sustainable competitive advantage of organizations/firms/businesses”. 
  • Traditional approach to Strategy making       analyzing the industry or environmental conditions in which they operate. assess the strengths and weaknesses of the players they are up against. With these industry and competitive analyses in mind, they set out to carve a distinctive strategic position where they can outperform their rivals by building a competitive advantage chooses either to differentiate itself from the competition for a premium price or to pursue low costs aligns its value chain accordingly, creating manufacturing, marketing, and human resource strategies in the process. On the basis of these strategies, financial targets and budget allocations are set.
  • Logic behind this traditional approach    company’s strategic options are bounded by the environment Structure shapes strategy This “structuralist” approach, which has its roots in the structure-conduct -performance paradigm of industrial organization economics . (See Industrial Market Structure and Economic Performance, F. M. Sherer ,Chicago:Rand McNally, 1970)
  • Essence of Traditional approach to 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 choice of differentiation or low cost.
  • Result     Stiff Competition Thin Margin Low growth Surviving
  • 11 Red Ocean markets.... Blue Ocean Strategy Regional Centre 11
  • Business History   Business history reveals plenty of cases in which firms’ strategies shaped industry structure, from Ford’s Model T to Nintendo’s Wii. Blue ocean strategy (a new theory of strategy) reflects the fact that a company’s performance is not necessarily determined by an industry’s competitive environment.
  • Roots of Blue Ocean Strategy    The Blue ocean strategy framework can help companies systematically reconstruct their industries and reverse the structure-strategy sequence in their favor. Blue ocean strategy has its roots in the emerging school of economics called endogenous growth whose central paradigm posits that the ideas and actions of individual players can shape the economic and industrial landscape. In other words, strategy can shape structure We call this approach “reconstructionist.”
  • Reconstructionist approach   Reconstructionist : based on endogenous growth, which traces back to Joseph A Schumpeter's initial observation that the forces that change economic structure and industry landscapes can come from within the system. Schumpeter argues that innovation can happen endogenously and the main source is the creative entrepreneur. (Steve Jobs, Karsanbhai Patel, C.K.Rajkumar, Jeff Bezos, Mark Zuckerberg, Henry Ford, Herb Kelleher, Anita Roddick, Akio Morito,Mohammed Yunus,…)
  • Red Ocean markets.... 15 Blue Ocean Strategy Regional Centre Blue Ocean markets....
  • Structuralist vs Reconstructionist   While the structuralist approach is valuable and relevant, the reconstructionist approach is more appropriate in certain economic and industry settings. today’s economic difficulties have heightened the need for a reconstructionist alternative.
  • How to approach?   The first task of an organization’s leadership, therefore, is to choose the appropriate strategic approach in light of the challenges the organization faces. need to make sure that their organizations are aligned behind it to produce sustainable performance
  • What is the right approach for you? There are three factors that determine the right approach:  structural conditions in which an organization operates,  its resources and capabilities,  and its strategic mind-set.
  • Choosing the right approach A structuralist approach is a good fit when A reconstructionist approach is a good fit when Structural conditions are attractive and the organization has the resources and capabilities to build a distinctive position Structural conditions are attractive but players are well-entrenched and the organization lacks the resources or capabilities to outperform them Structural conditions are less than attractive but the organization has the resources and capabilities to outperform competitors Structural conditions are unattractive and they work against an organization irrespective of its resources and capabilities The organization has a bias toward defending current strategic positions and a reluctance to venture into unfamiliar territory The organization has an orientation toward innovation and a willingness to pursue new opportunities
  • Why should we consider “Blue Ocean Strategy”?       Many companies finds it useful (Samsung) Countries like Malaysia, Singapore uses this approach for planning their future. Many strategy experts accepts BOS as an innovative approach (Walter Kiechel ,2010) Blue-ocean strategy ,work of Kim and Mauborgne is probably the leading contender for Biggest New Idea in Strategy (Walter Kiechel,2010). The Authors figure in the 2nd place : 2011 Thinkers 50 Research evidence
  • Origin of Blue Ocean Strategy  15 years of research, 150 strategic moves spanning 100 years, thirty industries (Kim and Mauborgne,2005)
  •  ENTERTAINMENT SECTOR
  • Entertainment Sector (1984) CIRCUS VIDEO GAMES THEATRE TELEVISION BEACHES PARKS LIVE BANDS MUSIC SHOWS GAMES BALLET MOVIES ? THEME PARKS SHOPPING MALLS ?
  • Circus Industry (1980’s) Ringling Brothers Barnum and Bailey Small time circus3 Small time circus1 Small time circus2 ?
  • Small time circus
  • Big time circus ( Ringling Brothers)
  • Video:1
  • Is it easy?  Is it easy to achieve sustainable high performance?
  • It is not…     Stiff competition Costs escalates Thin profit margin Low growth
  • Capturing existing strategy of competitors hi offering level Ringling Brothers Smaller Regional Circus lo Price Animal Shows Star Performers Aisle Concessions Multiple Show Arenas Thrills & Danger Fun & Humor Unique Venue © Kim & Mauborgne 2006
  •  What is the approach behind this strategy?
  • It is all in “Thinking” (Industry Mindset)     Circus is for Children Circus should offer animal act Increase the value (more animal shows, more popular performers,..) Decrease the value (less animal shows, less popular perfomers)
  • Cirque Du Soleil (CDS)
  • Cirque Du Soleil (CDS)    Started in 1984 by a group of street performers. 40 million people,90 countries In less than 20 years CDS has achieved a level of revenues that took Ringling brothers (the global champion of circus industry) more than one hundred years to attain.
  • Cirque Du Soleil’s (CDS) offering (Video 2)
  • How CDS identified and captured Blue Ocean?
  • Deciding to Move from Known to Unknown market space Known Market Space : Circus ( 1984 ) Ringling Brothers Barnum and Bailey Small time circus-3 Small time circus-1 Small time circus-2 ? Unknown Market Space : To be named ( 1984 ) Cirque Du Soleil (CDS)
  • Capturing the existing strategy of competitors hi offering level Ringling Brothers Smaller Regional Circus lo Price Animal Shows Star Performers Aisle Concessions Multiple Show Arenas Thrills & Danger Fun & Humor Unique Venue © Kim & Mauborgne 2006
  • Looking across alternative industries    Theatre Ballet Music
  • Looking across the Customer to Non-Customers   From children to adults to corporate customers Segmentation to counter segmentation
  • Value Innovation Eliminate Star performers Animal shows Aisle concession sales Multiple show arenas Reduce Fun and humor Thrill and danger Raise Unique venue Create Theme Refined environment Multiple productions Artistic music and dance
  • Strategy of CDS hi Ringling Brothers offering level Cirque du Soleil Smaller Regional Circus lo Price Animal Shows Star Performers Aisle Concessions Multiple Show Arenas Thrills & Danger Fun & Humor Unique Venue Theme Multiple Productions Refined Viewing Environment Artistic Music & Dance © Kim & Mauborgne 2006
  • Finally, Innovated for Value
  • Research Finding  Yamamura et al.’s (2005) study of surviving motorcycle manufacturers emphasized innovation as a key driver. However, they also highlighted the market-oriented approach of the surviving firms, such as their emphasis on product quality. Quality aspects lead to another often emphasized principle of enduring success: customer centricity.
  • How to move into uncontested market space systematically?      Stage 0 : Deciding to move into the uncontested market space Stage 1 : Visual Awakening Stage 2 : Visual Exploration Stage 3 : Visual Strategizing Stage 4 : Visual Communication
  • Stage 0 : Deciding to Move from Known to Unknown market space Known Market Space : Circus ( 1984 ) Ringling Brothers Barnum and Bailey Small time circus-3 Small time circus-1 Small time circus-2 ? Unknown Market Space : To be named ( 1984 ) Cirque Du Soleil (CDS)
  • Stage:1 Visual awakening   Compare your business with your competitors by drawing your “as is” strategy canvas. See where your strategy needs to change
  • Stage : 1 Visual Awakening ( As is Strategy Canvas ) hi offering level Ringling Brothers Smaller Regional Circus lo Price Animal Shows Star Performers Aisle Concessions Multiple Show Arenas Thrills & Danger Fun & Humor Unique Venue © Kim & Mauborgne 2006
  • Stage : 2 Visual exploration    Go into the field to explore the six paths to create blue oceans Observe the distinctive advantages of alternative products and services. See which factors you should eliminate,create,reduce or raise
  • 2 Stage : 2 Visual Exploration challenge the boundaries of your industry using the “Six Paths” framework The “Six Paths” show six systematic patterns for reconstructing market boundaries that have general applicability across industry sectors Industry Strategic group From Competing Within Buyer group Scope of product or service offering To Creating Across Functional-emotional orientation of an industry Time © Kim & Mauborgne; © UCSI Blue Ocean Strategy Regional Centre. All Rights Reserved. 11
  • Four Actions framework Which factors should be reduced well below the industry standard Which of the factors that the industry takes for granted should be eliminated? A new value Which factors should be raised well above the industry’s standard? Which factors should be created that the industry has never offered
  • ERRC Grid (example) Eliminate Star performers Animal shows Aisle concession sales Multiple show arenas Reduce Fun and humor Thrill and danger Raise Unique venue Create Theme Refined environment Multiple productions Artistic music and dance
  • 3.Innovated for Value
  • Stage : 3 Visual Strategizing    Draw your “to be strategy canvas based on insights from field observations Get feedback on alternative strategy canvases from customers,competitiors’ customers and non customers. Use feedback to build the best “to be” future strategy
  • The Strategy Canvas of Cirque du Soleil (To be) hi Ringling Brothers offering level Cirque du Soleil Smaller Regional Circus lo Price Animal Shows Star Performers Aisle Concessions Multiple Show Arenas Thrills & Danger Fun & Humor Unique Venue Theme Multiple Productions Refined Viewing Environment Artistic Music & Dance © Kim & Mauborgne 2006
  • Reaching beyond existing demand is key to create new market space • • To maximize the size of their blue oceans, companies need to take a reverse course: instead of concentrating 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. • Although the universe of noncustomers typically offers big blue ocean opportunities, few companies have good insight into who noncustomers are and how to unlock them. • The Three Tiers of Noncustomers To generate the greatest demand, companies should challenge two conventional company practices: the focus on existing customers and the drive for finer segmentation. To convert this latent demand into a real one, companies need to deepen their understanding of the universe of noncustomers. © Kim & Mauborgne; © UCSI Blue Ocean Strategy Regional Centre. All Rights Reserved. 10
  • Stage 4 : Visual Communication   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
  • How can we be sure of the existence of a Blue Ocean (uncontested market space)?    History Blue ocean opportunities have been out there. As they are explored, market universe has been expanding.
  • Blue Oceans have continuously been created over time… 1920s 1980s 2000s 2010 Palace Theatre (NY 1920) Cirque du soleil [Yellow Tail] Wii (Nintendo) Model T (Ford) Southwest Airlines NTT DoCoMo’i-mode Samsung 3D TV Real-time news (CNN) Curves iPad (Apple) Computing Tabulating Recording Corporation 59 Blue Ocean Strategy Regional Centre
  • § There is no such thing as a permanently great company, nor a permanently great industry. But there are permanently great strategic moves… 60 Blue Ocean Strategy Regional Centre
  • Red Ocean based logic vs. Blue Ocean based logic Red Ocean approach Blue Ocean approach Compete in existing market space. Create uncontested market 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 firm’s activities with its strategic choice of differentiation or low cost. Align the whole system of a firm’s activities in pursuit of differentiation and low cost.
  • Launches with Red versus Blue oceans 39% 86% 62% 61% 38% 14% Business Launch Revenue Impact Profit Impact
  • BOS Tools    Strategy Canvas Four actions framework ERRC grid
  • Benefits of strategy canvas    Capture self and competitors strategy Identify value innovation opportunities Communicate your strategy to your stakeholders.
  • Benefits of Four actions framework  Guiding framework which forces you to determine the value adding and non-value adding activities. Also to help you question the industry assumptions. It provides a compelling reason to innovate.
  • Benefits of ERRC grid   Pushes you to simultaneously pursue differentiation and low costs. Helps in avoiding over engineering products and services.
  • BOS tool set              Value Innovation Strategy Canvas Four Actions framework ERRC Grid Three Characteristics of a good strategy Six paths framework to reconstruct market boundaries Four steps of visualizing strategy PMS Map Three tiers of Noncustomers Buyer utility map Blue Ocean Idea index Tipping point leadership Three E principles of Fair process.
  • Reference    Understanding Strategic Management (2nd edition),Anthony E Henry, Oxford University Press,2011. Blue Ocean Strategy W.Chan Kim and Renee Mauborgne Harvard Business School Press (2005) world wide web
  • Reference   Blue Ocean Strategy W.Chan Kim and Renee Mauborgne world wide web
  • kabaly@aou.edu.com