Blue ocean strategy part2

The science of making competition irrelevant
Blue Ocean Strategy – Part 2
Formulation & Implementation

Red Ocean Vs. Blue Ocean
Compete in existing market space Create uncontested / New market space
Segment existing customers Attract noncustomers
Beat the competition Make the competition irrelevant
Blue Ocean StrategyRed Ocean Strategy
Competitive Advantage Value Innovation
Exploit existing demand Create and capture new demand
Create a value – cost trade off Break the value-cost trade off

Value Innovation
Price
Value/
product
features
Price
Value/ product
features
Value Innovation –
Simultaneous pursuit
of high value & Low cost
Traditional Companies Blue Ocean Companies
Eliminate
Reduce
Raise
Create
DIVERGENCE: The shape of the
value curve diverges from those
of other players.
Compelling Tag line : The value
curve can be translated into a
clear, strong, truthful and
compelling TAGLINE.
FOCUS: Not to diffuse efforts
across all key factors of
competition.
Characteristics of a good Value innovation Strategy

The Four Actions Framework
Create A
New
Value
Curve
Factors that the industry
takes for granted and need
to be eliminated
Factors that the industry
has never created
Factors that should be well
below the industry
Standard
Factors that should be
raised above the industry
standard
REDUCE
ELIMINATE CREATE
RAISE

The Strategy Canvas Concept
High
Medium
Low
Price
Time Savings/
Faster Travel
Flexibility &
Reliability
Hassle free
Travel
Jet Ownership In Flight Service
Dead head
Costs
NETJETS
Business / 1st
Class Travel
Commercial
Airline Industry
NETJETS Commercial Airline
Industry
Business / 1st
Class Travel
Attributes of Industry & Competitors
RelevanceScale
• The strategy canvas is the central diagnostic and action framework for building a compelling blue
ocean strategy.
• The Strategy canvas serves two purposes:
– It captures the current state of play in the known market space. This allows you to know where you
are viz competition
– It propels you to action by reorienting your focus:
• From competitors to alternatives
• From customers to non customers of the industry.

Strategic Questions before NetJets
– How to enter into the Aviation Space when the market was dominated by the big Airline groups? -
1983
The Blue Ocean
• Identified that Business Travelers are the most frequent and regular flyers
• NETJETS offered Business Travelers “ The convenience of a private Jet at the price of a Airline Ticket”
• NETJETS also provided fractional 1/16 ownership of the aircraft – With no hassles Aircraft Maintenance
• Private Aircraft made available to corporate at 4 hours notice ( much less than flight booking)
• No Hassles or responsibilities of Aircraft Maintenance
• Customized in flight services – Only for the traveler
The Red Ocean
•Over 20 domestic And international Airlines competing in the space
•All of them attracted Business Travelers, Holiday travelers and Casual Travelers
•Corporates spent millions on executive travel every year
•All travelers had to go through the long check ins, security checks, hectic flight transfers, congested airports,
Baggage claims ….
•Business Travelers only have the option of Business Class/ First class or corporate Jet
Created a B2B industry when the entire industry was still B2C

1) Indochino.com does not compete in any of the
segment
2) Indochino.com does not get affected by the industry
factors
3) Indochino.com built its brand reputation by delivering
Value
4) Indochino.com outsources all suits to quality and
reputed local and tailor network of Shanghai
Created and Captured a new Market
Demand by focusing on Buyer Utility
• Industry divided into five segments
Haute Couture, Luxury, Affordable Luxury, Mainstream
& Discount
• The Traditional companies competed among each other
on the factor like : No of stores, Location of stores –
Premium stores , Premium brand, Range or no of Lines
offered, Hi Fashion Vs customization Vs price Tradeoff
• Marketing & Brand reputation
( Top brands associated with Designer Labels)
•High Customization costs
Indochino.comTraditional Apparel / Suit Companies
The Story Of Indochino.com
• World’s first Self Service Virtual Suit company
• Customers can choose the fabric, design style and accessories - Online
• Buttons, Lapels, linings, pockets, cuff signature – everything is customizable
• Customers measure themselves and provide fitting details online with video tutorial
• Delivery within 3 weeks (
• If order is less than perfect, Indochino pays for local tailoring or remake sthe suit for free
• Most suits priced under $500 ( Whereas cheap suits cost around $200 and the designer ones around $1500)

The Story Of Zynga
ZyngaTraditional Gaming Companies
Zynga’s Farm Ville
1) Zynga did not compete in any of the segment or market
player dominance
2) Zynga’s (Farm Ville) did not get affected by the industry
factors
3) Zynga built its brand reputation by sharing and word of
mouth connect
4) Zynga caterered to all – children, parents, professionals …
5) Zynga created a new genre of education / simulation games
Created and captured a new market demand by
focusing on Non Customers
1) Industry divided into four segments
• Console based games, Online Games, Mobile Games &
Flash Games
2) Console based games dominated the marketplace with 75%
of the revenues.
3) The big three of the gaming dominated 95% of the console
marketplace (sony, Nintendo, Xbox ..)
4) The Traditional gaming companies competed among each
other on the following factors:
Consoles – Type speed, capabilities, No of titles in each genre, Speed
of Title Release – weekly, monthly, Hi end real time graphics, Hi end
accessories
5) Catered only to gamers – Teenage boys to professional
gamers
6) Addictive and had lot of side effects – Too much violence,
addiction, Lack of exercise, not mind stimulating
7) Parents usually did not recommend / buy
•Founded Zynga in April 2007 with a mission “Connect the world through games”
•Has over 3000 Employees and 270 million customers, 60 mn daily active users
•Largest Social games developer of Facebook
•Now provides games in multiple platforms like:
•Facebook, Myspace, Android, ipad, iphone, yahoo & Farmville.com

Story Of Khan Academy
Khan AcademyTraditional Education Companies
1) Khanacademy filled the gaps existing in traditional brick
& mortar school learning
• Videos & Exercises to be used as a teaching aid and not
replacement for teacher
• Use analytics and technology to figure out the Strengths
& weakness of students
2) Learning is centered around students, teachers and parents
3) Everybody gets equal opportunity / attention/ Learning
4) Unique Pedagogy -
• Stop, rewind, understand and then play
5) Analytics drive the understanding of each students strengths
& Weakness
Created and captured a new market demand by focusing on
functionality & emotional appeal
1) Industry divided into 2 segments
• Brick & mortar Learning – Schools/ Colleges
• Online learning
2) Learning was centered around students
3) The factors the industry was competing on:
• Student teacher ratio
• Class room Interaction
• Cost of learning / Education
• Interactive Learning
4) Smart kids get more attention than other kids
5) Focused pedagogy – Teacher talks – Students listen –
Therefore Students learn
6) Teachers Judge student’s strength / weakness
•A non-profiteducational organization created in 2006 by Salman Khan- A MIT & Harvard Business School Alumni
•Free online collection of more than 3,300 micro lectures
•Most viewed online courses and lectures in the world – Over 172 million total views.
• Over 177 million lessons delivered till date
• Close to quarter billion dollars in donation
• Team size of just 20 people
• Amongst the 100 most influential people of the world

Moving Forward
Discovering the Principles of Blue
Ocean Strategy

Principles Of Blue Ocean Strategy
Formulation Risks
Execution Risks
Search Risk
Planning Risk
Scale Risk
Business Model Risk
Organizational Risk
Management Risk
Core/Formulation Principles
Reconstruct market boundaries
Reach beyond existing demand
Get the strategic sequence right
Execution Principles
Focus on the big picture, not the numbers
Overcome key organizational hurdles
Build execution into strategy
The formulation principles and execution Principles, work in tandem to minimize risks and maximizing
opportunities.

Reconstructing Market Boundaries
Focus on Big Picture – Not Numbers
Reach Beyond Existing Demand
Getting The Strategic Sequence Right
Overcoming Organizational Challenges
Building Execution Into Strategy

6 Paths Framework
• Blue oceans can be created by exploring outside of industry boundaries
• Break out of the traditional boundaries of the industry to unlock value
• “out of the boundaries” thinking framework for unlocking value
Competitors in Industry
Creating
value across
From competing
within
Conventional boundaries in a
competitive marketplace
Blue
ocean
Strategy
Better serving existing Buyer
Groups
Maximizing value with
existing Product
More functions more price /
premium
Adapting to trends & Time
value
Competitive Position among
Strategic Groups
Look across Alternative
Industries
Looks across strategic groups
Redefines Buyer Groups
Looks at Complementary
product / service offerings
Rethinks Functional
Orientation of Industry
Shapes External trends over
time

6 PATHS: Exploration Outside of Traditional Boundaries
Path 6 – Looking across Time value of business
What trends have a high probability of impacting your industry, are
irreversible, and evolving in a clear trajectory? How will these trends
impact your industry? Given this, how can you open up unprecedented
customer utility?
Apple Music, Cisco Systems, CNN,
HBO’s “Sex and the City”
Path 1 - Looking across Alternate Industry
What are the alternative industries to your industry?
Why do buyers trade across to them?
NTT DoCoMo, Federal Express, Southwest Airlines, NetJets
Path 2 – looking across Strategic Groups
What are the strategic groups in your industry?
Why do buyers trade up for the higher group, and why do
they trade down for the lower one?
Polo Ralph Lauren, Curves, Sony Walkman, Toyota Lexus
Path 3 - Looking across chain of buyers
What is the chain of buyers in your industry?
Which buyer group does your industry typically focus on?
If you shifted the buyer group of your industry,
how can you unlock new value?
Novo Nordisk, Bloomberg Terminals, Canon Copiers, Philips Alto
Path 4 – looking across complementary product / service offering
What is the context in which your product or service is used? What
happens before, during, and after? Can you identify the pain points?
How can you eliminate these pain points through a complementary
product or service offering?
Barnes & Noble, Dyson Vacuum Cleaners, Kinépolis Kiné-kids, Zenick
Salick’s Cancer Centers
Path 5 – Looking across Functional-emotional appeal to buyers
Does your industry focus on functionality or emotional appeal? If you
compete on emotional appeal, what elements can you strip out to make it
functional? If you compete on functionality, what elements can be added
to make it more emotional?
Starbucks, QB House, Direct Line Group, Pfizer’s Viagra

Here
CEOs
Managers
Here
Staff
Ok
•A Typical Strategic plan in an organization today is so very red ocean
• Because Managers formulate the strategy based on current industry, current customers and current
challenges.
• Managers spend majority of their time thinking about profitability, projections, market shares,
segments and revenues based on current industry facts / assumptions.
• Managers are pulled in all directions by their superiors based on limited information & perceptions
•By building a company’s strategic planning process around a strategy canvas, the company can
focus their main attention on the big picture rather than getting immersed in numbers and
jargons.

Four Steps of Visualizing Strategy
Visual
Awakening
Visual
Exploration
Visual Strategy
Fair
Visual
Communication
• Compare your business
with your competitor’s by
drawing your “as is”
strategy canvas.
• See where your strategy
needs to change.
• Go into the field to
explore the six paths to
creating blue oceans.
• Observe the distinctive
advantages of alternative
products and services.
• See which factors you
should Eliminate, Raise,
Create, or Change.
•DO NOT USE MARKET
RESEARCH
• Draw your ‘to be”
strategy canvas based on
insights from field
observations.
• Get feedback on
alternative strategy
canvases from customers,
competitor's customer,
and non-customers.
• Use feedback to build
the best “to be” future
strategy.
• 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.
EXPLANATION
EXPECTATION : CLARITY
The four steps that pushes a company’s strategy canvas to blue oceans
• This approach mitigates planning risks by investing time & effort to develop a compelling strategy canvas
that is Focused, Divergent & that has a compelling tagline.
• Compares the current business attributes with your competitors’ by drawing your “as is” strategy canvas,
and then evaluating where the strategy needs to change.

The PMS Map
Today Tomorrow
• Pioneers: Businesses that
provide unprecedented value
• Settlers: Their business
conforms to the basic value
curve of the industry or me too
industry
• Migrators: Improved value but
not innovative idea
• Visualizing strategy helps managers to predict and plan company’s future
• This framework can be used to help a company align its internal product portfolios
• Clearly, what companies should be doing is shifting the balance of their future portfolio toward
pioneer
• If current portfolio and the planned offerings consist mainly of settlers then the company has low
growth trajectory
Pioneers
Migrator
Settlers

Reach Beyond Existing Demand
Conventional Strategy of companies needs to be challenged
•Retain and guard existing
customers
•Compete for competitor business
Focus on Existing
Customers
•Create a niche by looking at finer
customer preferences
•Dominate with competitive
advantage in segments
Drive for finer
Segmentation
Creates enhanced
competiveness among
players – leading to higher
cost of customer
acquisition
Creates small
marketplaces that might
not be scalable and
profitable in long run
Conventional Companies

The Three Tiers of Non Customers
Tier 3 Non
Customers
Tier 2 Non
Customers
Tier 1 – Non
Customers
Non
Customers
Tier 3 non customers: “unexplored” non customers who are in markets
distant from yours.
Tier 2 non customers: refusing noncustomers who consciously choose against your market
Tier 1 non customers : “soon-to-be” noncustomers who are on the edge of
your market, waiting to jump ship
Managing the three tiers of Non customers
Tier 1 Non Customers :
Investigate Dissatisfaction
Key commonalities across needs & desires
e.g. PRET A MANGER- British fast food chain
Tier 2 Non Customers:
Eliminate access barriers
Economic, Functional, Education, Geographical
e.g. JCDecaux – street Furniture
Tier 3 Non Customers:
Remove long held assumption on customer needs & behavior
e.g. US Airforce Joint Strike Fighter and Zynga
Go for the Bigger Catchment

How did Zynga effectively utilized this principle?
Tier 1 Non-Customers Tier 2 Non-Customers Tier 3 Non –Customers
Audience
Non Regular players – young
boys & girls bored out of
traditional games
Casual Players - working
men/ women not enough
time to play
Non Player Parents- women/
housewives
Change 1 Changed genres completely –
from shooting, arcade, racing,
to simulation
Cost of acquisition – free Removed violence
Change 2 Made social networking fun
and more exciting
Eliminated hassles of consoles,
game titles, accessories,
hardware & setups
Play with friends and family –
not necessarily together / real
time
Results Fun lasts longer, with reduced
time and effort
Non serious casual play to relax
/ unwind
No winner – no loser
• Zynga looked across non customers and attracted new buyer groups to
create an industry that did not exist earlier

Sequence of
Blue Ocean
Strategy
What are the adoption hurdles in
actualizing your business idea? Are
you addressing them upfront?
Adoption
Yes No
Can you attain your cost target to
profit at your Strategic price?
Cost
Yes No
Is your price easily accessible to the
mass of buyers?
Price
Yes No
Is there exceptional buyer utility in
your Business idea?
Buyer Utility
Yes No
Commercially
Viable Blue
Ocean Strategy
Is there a compelling
reason for the mass to
buy?
Is your strategic price
attractive enough to
attract customers?
Can your costs be
significantly lower
than the current
Industry price?
Are there any
adoption hurdles?
What are the
resistance points?
We will explore the Sequence and the formulation in our
Next webinar using the tools we have explored today
Revenue
Costs
Hurdles

Buyer Utility Map
A buyer’s experience can usually be broken into a cycle of six stages, running from purchase to
disposal. Each stage encompasses a wide variety of specific experiences. At each stage, managers
need to ask a set of questions to gauge the quality of buyer’s experience.
•How long does it
take to find the
product you need?
•Is the place of
purchase
attractive and
accessible?
•How secure is the
transaction
environment?
•How rapidly can
you make a
purchase?
•How long does it
take to get the
product
delivered?
•How difficult is it
to unpack and
install the new
product?
•Do buyers have
to arrange
delivery
themselves?
•Does the
product require
training or
assistance?
•Is the product
easy to store
when not in use?
•How effective
are the product’s
features and
functions?
•Does the
product or
service deliver far
more power or
options than
required by the
average user? Is
in overcharged
with bells and
whistles?
•Do you need
other products
and services to
make this product
work?
•If so, how costly
are they?
•How much time
do they take?
•How easy are
they to obtain?
•Does the
product require
external
maintenance?
•How easy is it to
maintain and
upgrade the
product?
•How costly is
maintenance?
•Does use of the
product create
waste items?
•How easy is it to
dispose of the
product?
•Are there legal
or environmental
issues in
disposing of the
product safely?
•How costly is
disposal?
Purchase Delivery Use Supplements Maintenance Disposal

Uncovering Blocks to Buyer Utility
Uncovering blocks to buyer utility can identify the biggest blocks to buyer experience that stand in the
way of converting noncustomers into customers.
Customer Productivity: In which stage are the biggest blocks to customer productivity?
Simplicity: In which stages are the biggest blocks to simplicity?
Convenience: In which stage are the biggest blocks to convenience?
Risk: In which stage are the biggest blocks to reducing risks?
Fun and Image: In which stage are the biggest blocks to fun and image?
Environmental
Friendliness:
In which stage are the biggest blocks to environmental friendliness?

Testing the Buyer Utility – with Indochino.com
Is it
Productive for the
buyer?
Does the buyer find it
simple?
Does the buyer find it
Convenient?
Does it reduce buyers'
Risk
Buying Experience
UtilityLeavers
Purchase Delivery Supplements Maintenance
• Buyer Utility Score Blocks– Lower than what is prevalent in the current industry
• Therefore Indochino.com raised the Buyer Utility and Experience
Use Disposal
Does it have a fun
image association?
Does it have
environment friendly
Indochino.com
Traditional Suit industry

Exceptional Utility to Strategic Pricing
• Step 1: Identify the Price Corridor of
the Mass.
Higher degree of Legal & resource
protection
Difficult to imitate
Some degree of legal & resource
protection
Low degree of legal & resource
Protection
Price Corridor
of Masses
Same
Form
Different Form –
Same Function
Different Form &
Function – Same
objective
Mid Level pricing
Ford Model T
Three Alternate product / service Types
• Step 2: Specify the price level within
the price corridor
I phone
Viagra
Air Asi
LycraSAP
• Blue oceans approach to price is not Cost + profit
• Infact it is Strategic Price – Target Cost

Strategic Pricing to Target Costing
• Unlike traditional companies the
price must be determined first not
the costs.
• The costs is determined based on the
target profit intended
• Cost is approached as a target for
reduction
• Target Costs Can be achieved
through:
– Streamlining Operations
• Outsourcing, digitizing, cloud,
• E.g. Apple
– Partnering
• Leverage low cost capabilities and reach of
other companies
• E.g. SAP who partnered with Oracle, Cape
Gemeni , Accenture etc
Strategic Price
Target
Profit
Target Cost
Streamlining &
Cost Innovations
Partnering
Price Innovations
Price ≠ Cost + profit

Overcoming Adoption Hurdles
• Perfect business model doesn’t always
guarantee success of a blue ocean idea
• A new idea threatens the position of
the company, which can provoke fear
among the three main stakeholders:
employees, business partners, and the
public
• Before moving on with a new idea, the
company should communicate the
plan effectively to all stake holders
• Use Blue Ocean Idea Index to test the
system
Employees
Business
Partners
General
Public
•Failure to address the concerns of employees
can be very expensive
•Make an effort to explain the new idea, Work
out the problems so everyone wins
•Possibly more important than
employees
•Resolve by openly discussing the
problem
•Stakeholders need to be confident and know
that there will be no surprises
•Do not let others take charge of your own
debate

Overcoming Key Organizational Hurdles
• Every change in organization is
encounters 4 hurdles viz. Cognitive,
Resource, Motivational & Political
• Conventional wisdom asserts that
the greater the change, the greater
the resources and time you will
need to bring about results.
Leveraging tipping point leadership to
align all with the new strategy.
• Transforming the extremes will transform
the masses.
• Focus on acts of disproportionate
influence.
– People, Acts and Activities
Cognitive Hurdle
An Organization Wedded
with Status Quo
Political Hurdles
Opposition from Powerful
Vested Interests
Motivational
Hurdles
Unmotivated Staff
Resource Hurdles
Limited resources

Overcoming Hurdles with Tipping point leadership
Ride the “Electric Sewer”
(Experience the key challenges yourselves / top
management, before framing the problem)
Meet with Disgruntled Customers
(Ensure you understand the experience of others)
Zoom in on Kingpins (key influencers)
Identify the Natural Leaders, Skilled and
persuasive
Place kingpins on a fishbowl
(Highlight actions and responsibilities of kingpins
in a transparent & fair process)
Atomize to get the organization to change itself
(Breaking up of objectives, by function and role so
that nobody can say it’s a difficult task)
Redistribute resources to your hot spots
(Identify the impactful areas where more
resources are required but not adequate)
Redirect resources from your cold spots
(Identify the non Impactful areas where resources
can be freed)
Engage in horse trading
(Trade resources from others for symbiotic
Who are my devils? Who will fight me? Who will
lose the most
Who are my angels? Who will naturally align with
me? Who will gain the most by the strategic shift?
Cognitive Hurdles Motivational Hurdles
Resource Hurdles Political Hurdles

Building execution into Strategy
• During a Strategy execution that requires offering customers a leap in
value :
– People are required to step out of their comfort zones and change the way they have
performed previously
– People can resent having a strategy thrust upon them
– Poor process can ruin Strategy, leading to distrust, non-cooperation and even sabotage.
Expectation Clarity
Explanation
Engagement
The Three Principles of Fair process
• Involving Individuals in strategic decisions that affect them.
• Asking for their inputs and allowing to refute the merits and
demerits of ideas
• Nullifying the assumptions that anyone may have
•Involves explaining as to why the strategic decisions are made as
they are
• What is the core thinking that underlies the strategy
•What are the new rules of the game and therefore the new
responsibilities
• What are the expectations and standards that each will be
judged upon

How fair Process affects People’s Attitudes & behaviors
• Fair process of Strategy ensures a managerial road map that builds
productivity while executing a strategy
Fair Process
Engagement
Explanation
Expectation Clarity
Trust & Commitment
“ I feel My Opinion Counts”
Voluntary Cooperation
“ I will go beyond the call of
Duty”
Exceeds Expectations
Self Initiated
Strategy
Formulation
Process
Attitudes
Behavior
Strategy
Execution
Intellectual &
Emotional Recognition
Trust & Commitment
Voluntary cooperation
in execution Strategy

Search Risks Planning Risks Scale Risks
Business Model
Risks
Reconstruct
Market
Boundaries
Focus on Big
Picture – Not
Numbers
Reach Beyond
Existing
Demand
Getting the
strategic
Sequence
Right
6 Paths Approach
Strategic
Planning
Market Sizing
Business
Model
Strategy Formulation Strategy Execution
Organizational
Risks
Overcoming
Organization
al hurdles
Mobilization
Management
Risks
Building
Execution
into Strategy
Management
Risks
Plan beyond
incremental
improvements using
a visualization
approach
•Visual Awakening
• Visual Exploitation
• Strategy Fair
• Visual
Communication
•Use PMS map to
identify current &
future orientation of
business
•Alternative
Industries
•Strategic groups
•Buyer Groups
•Complementary
Product offerings
•Functional
Emotional
Orientation
•Time
•Challenge
Conventional
practices
•Consolidate
demand by
focusing on Non
Customers
• Three tiers of
Non Customers
•Sequence the
business Model to
capture newly
created value
•Buyer Utility
Mapping
•Pricing & corridors
of Masses
• Cost Targets
based on margins
desired
• Potential
Adoption obstacles
Tipping Point
leadership to
Tackle
• Cognitive hurdles
•Resource Hurdles
•Motivational
Hurdles
• Political Hurdles
Execution
through:
Engagement
•Explanation
•Clarity of
expectations
BOS Principles Summary

Blue ocean strategy part2

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