Blue Ocean Planning & Execution: 8 Tools for ReDesigning Business Models & Making Better Decisions

BLUE OCEAN PLANNING & EXECUTION8 Tools for Redesigning Business Models & Making Better Decisions Dr. Rod Kingrodkuhnking@sbcglobal.net & http://businessmodels.ning.comhttp://twitter.com/RodKuhnKing

WHY REDESIGN EXISTING BUSINESS MODELS?”Greater Competition, Digitalization, and Globalization are Creating Bloody ‘Red Oceans’ for Businesses”

To Exponentially Increase Business Growth and Profitability
To Exponentially Increase the Value Quotient for Core, Peripheral, and Remote Customers As Well As Non-customers
To Swim Out of the ‘Red Ocean’ and Make the Competition Irrelevant
To Significantly Deliver More Value for Customers’ Jobs
To Facilitate Mergers and Acquisitions
To Respond to Competitive Pressures Including Commoditization
To Take Advantage of Emerging Opportunities and Technology
To Capture Greater Value (Profit) in the Value Chain and Network
To Provide a More Sustainable and Defensible Competitive Advantage

HIGHLY SUCCESSFUL REDESIGNS OF CONVENTIONAL BUSINESS MODELSBusinesses With High Value Quotient (VQ)

WHAT IS THE VALUE QUOTIENT?A Universal Metric of Success and Zoomable Decision-making
Ideal VQ Strategy
Everyone to continuously maximize benefit while minimizing cost throughout the value chain
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Note
Value Quotient
= Advantage/Disadvantage
= Benefit/Cost
= Revenue/Cost
= Strength/Weakness
= Opportunity/Threat
= Reward/Risk
= Relevant Content/Noise
= Positives/Negatives
= Delight/Pain
= Good/Bad

CUSTOMER JOBS COMPASS: What Jobs Must You Facilitate or Do In a Hierarchy of Customer Needs or ‘Jobs’?
Google Search
ELEMENTS OF LONG TERM-BUSINESS MODEL:
Long-term Competitive Advantage Scenarios

Increase performance of/develop/acquire software applications that customers hireto do ‘Physical Jobs’
Increase performance of/develop/acquire software applications that customers hire to do ‘Emotional/Social Jobs’
Increase performance of/develop/acquire software applications that customers hire to do ‘Intellectual Jobs’
(Increase performance of/develop/acquire software applications that customers hire to do ‘Spiritual Jobs’???)

Long-term Value Proposition

‘Total Happiness’ For All Customer Jobs on the Internet

Targeted Customer Segments (Niches)

‘Short and Long Tail’ of Users on the Internet

Existing Impact of Google Search on Total Jobs

Average Impact of Google on Total Jobs =

(6 + 2 + 5.5 + 2)/4 = 4.3
Impact of Ideal Software on Total Jobs
Impact of Ideal Software on Total Jobs =
‘Perfect 10’
(for Developing Tools to Make Customers Happier As Well As for Determining What ‘Jobs’ or Niche(s) of Total Happiness to Focus on)

8 Tools for Redesigning Business Models & Making Better Decisions
BLUE OCEAN RADAR: 200,000ft

Illustration of Ideal Business Result
Illustration of “Cost vs. Benefit” Trade-offs (Contradictions) & Trends
Basic Elements of Value Quotient

BLUE OCEAN MAP: Global View

Illustration of Current and Desired Positions of You & Your Competitors
Illustration of IVQ and Market Seg-ments Including Red and Blue Oceans

BOND: 100,000ft
Ways to Reduce Obstacles to Goal:

Facilitation of Decision-making
Visualization of Strategy
Modeling and Testing of Strategy

BLUE OCEAN COMPASS: 60,000ft

Visualization of Shape as well as Trends of Competing, Desired, and Ideal Business Results (Models)

TOOLS FOR REDESIGNING BUSINESS MODELS & MAKING BETTER DECSIONS
STRATEGY RADAR: 40,000ft

Illustration of Detailed Shape of Competing, Desired, and Ideal Business Results (Models)
Design of Value Proposition

IDEAL VALUE CHAIN: Tactical View

Visualization of Ideal Value Chain (Business Model) for IVQ Strategy
Flows of Information (Cost and Revenue) & Resources Within a Value Chain or Business Model

BLUE OCEAN STRATEGIC PLAN

Elements and Resources for Pursuing Goal of Ideal Value Quotient (Blue Ocean), Achieving Blue Ocean Plan, and Totally Engaging Employees and Other Stakeholders

WHEEL OF OBSTACLES

Illustration of Internal Obstacles and Constraints to Achieving the Ideal Value Quotient for the Value Chain or Business Model

BLUE OCEAN MAP: Global View of the Value Quotient
for Determining Where You and Your Competitors Currently Are & Where You Must Go
IDEAL VALUE QUOTIENT (BLUE OCEAN)
Fractal Market Segmentation (Niches) of Search Engine Market
∞
Highly differentiated and premium-priced/free value chain
BLUE OCEAN Google Search
Value Quotient (VQ)
Blue Ocean Plan
(+):
DELIGHT
Lowly differentiated and low-cost value chain
RED OCEAN * “Me Too” Search Engine
Strategic Choice
Red Ocean Plan
(-): PAIN
(Uncontested Experience, Market Space, or New Category)
No. of Competitors

BLUE OCEAN RADAR: 200,000ft View of the Value Quotientfor Comparing, Evaluating, and Redesigning Business Models As Well As Products and Services
Ideal Value Quotient(Blue Ocean)
Object/Core Job: ………………………………..…….
(cf. Goal of IVQ to Moore’s Law & “Singularity”)
Desired VQ = 8/2= 4
Existing VQ = 2/6= 0.33 < 1
(Free)
COST
Value Quotient (VQ) = Benefit/Cost = Revenue/Cost =
Revenue to Cost Ratio = Slope of Value Quotient Line
Ideal Value Quotient (Blue Ocean) Ideal Final Result of Continuously Implementing IVQ Decisions Job To Be Done (JBTD) at No Cost & With No Negative Effect

Moore’s Law As A Special Case of Law of Increasing Value Quotient “The number of transistors on an integrated circuit roughly doubles every two years”
Ideal Value Quotient (Blue Ocean or “Singularity”)
Object/Core Job: Integrated Circuit Board
(cf. Goal of IVQ to Moore’s Law & “Singularity”)
VQ = 8/1= 8
VQ = 4/1= 4
VQ = 2/1= 2
(Free)
COST
(Size)

Using the Blue Ocean Radar to Illustrate Trends in the Evolution of Technology “The Ideal Object Uses Its Internal and “Free” Resources to Instantly Do Its Job at No Cost and Without Any Negative Effect”
Ideal Value Quotient (INTERNET or “Singularity”)
Object/Core Job: Computer/Storage Devices
IVQ –Problem Solving Look within and across industries as well as in nature for similar or analogous resolution of trade-off
Desktop Computer
Mini-computer
Laptop Computer
Palmtop Computer
Old Mainframe Computer
(Free)
COST
(Size)

Using the Blue Ocean Radar to Illustrate Trends in the Evolution of Technology “The Ideal Object Uses Its Internal and “Free” Resources to Instantly Do Its Job at No Cost and Without Any Negative Effect”
Ideal Value Quotient (LIGHT or Blue Ocean)
Object/Core Job: Vehicles
Rocket
Aircraft
Train
Car
Bicycle
Ship
(Free)
COST
(Size)

Using the Blue Ocean Radar to Creatively Resolve Trade-offs “Someone, Somewhere May Have Already Resolved Your Trade-off or Contradiction”
Ideal Value Quotient (Blue Ocean or “Infinite Genius”)
Object/Core Job: Linear Page
Existing Paradigm (VQ = 6/8 = 0.75)
Breakthrough Paradigm VQ = 8/2 = 4
(Free)
COST
(Processing Time)

Using the Blue Ocean Radar to Creatively Resolve Trade-offs “Someone, Somewhere May Have Already Resolved Your Trade-off or Contradiction”
Ideal Value Quotient (Blue Ocean or “Singularity”)
Object/Core Job: Vehicles
Conventional Thinking VQ = 8/7= 1.1
Optimum VQ = 8/4= 2
Existing VQ = 6/4= 1.5
(Free)
COST

Blue Ocean Network Diagram (BOND)for Quickly Making Better Decisions, Goals, and Strategies in Business (Projects)
“Exponentially increase the business’s Value Quotient (= Benefit/Cost)”
BENEFIT
Quality
24x7 Personalization/ Customization
CUSTOMERS (Sales/Revenue)
COST (Price)
Differentiation (Simplicity/Brand/ Novelty)
Business Action …

Blue Ocean Network Diagram (BOND)for Visualizing Blue Ocean Goals & Strategy: Case of Google Search
BENEFIT
Quality (Speed):
INCREASE
24x7 Personalization: INCREASE
COST (Price): REDUCE
Differentiation (Simplicity/Brand): INCREASE
Business Action …

Blue Ocean Network Diagram (BOND)for Modeling Blue Ocean Strategy and Assumptions: Case of Google Search
Quality (Speed)
+
?
+
+
+
+
-
24x7 Personalization/ Customization
COST (Price)
+
+
+
-
+
+
+
+
-
+
Differentiation (Simplicity/Brand/ Novelty)
+
Business Action …
+
+

Blue Ocean Network Diagram (BOND)for Scoring Elements of the Value Quotient for a Business (Project)
BENEFIT
Quality:
(1-10)
24x7 Personalization:
(1-10)
COST (Price):
(1-10)
Differentiation (Simplicity/Brand):(1-10)
Business Action …

How to Quickly Develop an IVQ Strategy and Value Quotient
Obtain, from customer interviews or questionnaires, scores for the existing performance of each element or “value quotientfactor” on the Blue Ocean Network Diagram (BOND) and for the surveyed or “Red Ocean” company.
Score each element of Value Quotient using a scale from 1 (low) to 10 (high):

Quality: (1-10)
Cost: (1-10)
Differentiation: (1-10)
Personalization (Customization): (1-10)

Plot, on a Blue Ocean Compass, the average score for each element. Then, draw the profile or radar chart for the existing performance of the surveyed company.
Explore scenarios for desired or futureprofilesthat are strongly differentiated from “Red Ocean” profiles as well as lie closer to the “ideal” Blue Ocean.
Choose the Blue Ocean profile with the highest Value Quotient (VQ). Then, derive corresponding IVQ (Blue Ocean) strategies for competitive advantage and value propositions for segments (“niches”) of customers.

BLUE OCEAN COMPASS: 60,000ft View of the Value Quotient
Google Search
4 ELEMENTS OF BUSINESS MODEL:
Competitive Advantage Strategies

Increase quality (speed) to level 9
Maintain cost at free: level 1
Increase differentiation (simplicity/relevance/ brand/novelty) to level 8
Increase on-demand; 24x7/(personalization; customization) services to level 8

Value Propositions (Innovative Processes)

Higher quality (speed) and greater simplicity
Higher differentiation (simplicity/relevance/ brand/novelty) at no additional cost
Higher 24x7 personalization (for advertisers/ affiliates: AdWords; AdRank; AdSense)

Students/Researchers/Internet Users who directly and quickly want information
Early adopter/innovator; Non-customers
Low cost-Advertisers
Website Owners/Content Providers

Value Quotient (VQ)

Benefit = Quality + Differentiation + Personalization = (9 + 8 + 8)/3 = 25/3 = 8.3
Cost = 1
Value Quotient (VQ) = 8.3/1 = 8.3

(for Generally Redesigning a Business Model & Value Proposition)

STRATEGY RADAR: 40,000ft View of the Value Quotient
Southwest Airlines
4 ELEMENTS OF BUSINESS MODEL:
Competitive Advantage Strategies
Quality (Q)

Increase speed to level 9

Cost ( C )

Reduce ticket price to level 1.3

Differentiation (D)

Reduce lounges to level 1.2
Reduce meals to level 2.1
Increase friendly service to level 8.8

Personalization (P)

Reduce personalization to level 1

Value Propositions (Innovative Processes)

Higher speed at lower cost
Friendlier service at lower cost

Frequent/Low-cost traveler
Early adopter/innovator; Non-customers

Value Quotient (VQ)

Benefit = Quality + Differentiation + Customization = (9 + 1.2 + 2.1 + 8.8 + 1)/5 = 22.1/5 = 4.42
Cost = 1.3
Value Quotient (VQ) = 4.52/1.3 = 3.4

(for More Specifically Redesigning a Business Model & Value Proposition)

BLUE OCEAN STRATEGIC PLAN: Strategic View of the Business
for FacilitatingIVQ Strategy Execution, Organizational Alignment, and Total Employee Engagement
INDUSTRY/BUSINESS

Industry: Computer (Software); Advertising
Niche: Internet Search; Online Ads
Model: Business to Consumer (B2C); Business to Business (B2B); Platform

COMPANY BACKGROUND

Location: Mountain View, California
Founder(s): Sergey Brin; Larry Page
Revenue: US$21.79 billion (2008)
No. of Direct Competitors:

PRODUCTS/SERVICES

Internet Search Engine: Google Search
Online Bidding Platform:Adwords
Online Syndicated Ads: Adsense
Complementary Apps: Maps, etc.

CUSTOMER VALUE PROPOSITION

Uncluttered, fast, free, accurate search engine results and experience
Monetization of web page/site
Targeted, measurable, cost-effective, and relevant online advertising

BLUE OCEAN STRATEGIC PLAN FOR: GOOGLE SEARCH
CUSTOMER BENEFITS/EXPERIENCE

Simple interface/Easy to use
Fast, accurate, and relevant results
Free search service
Unobtrusive ads; Site monetization
Targeted ads based on page’s content

VISION (“Future Headline”)

Search engine platform; Software-as-a-Service (platform)
Advertising platform
Gateway to world’s knowledge-base

MAIN GOAL/OBJECTIVE/STRATEGY
Blue Ocean Strategic Plan for providing an unprecedented customer experience

(See Blue Ocean Compass & Blue Ocean Map; Blue Ocean PAD; Value Chain Model; Blue Ocean Dashboard)

MISSION/CORE VALUES

“To organize the world's information and make it universally accessible and useful”
“Don’t Be Evil”

Ideal Value Chain (Business Model): Tactical View
“Perfect, Free, Simple, and Personalized (PFSP)”
E: EMPLOYEES/KNOWLEDGE ASSETS/ CULTURE

Highly Productive/Creative workers
(Experienced) Management
Patented PageRank Algorithm
Android: Operating System
Software Development Kits (SDK)

S: SUPPLIERS/MATERIALS

Computers
Servers
Other Items

M: MACHINERY/EQUIPMENT/ FACILITY
External

Efficient Data Centers/Scalable Architecture/Server Farms
WiFi Infrastructure
Satellite

E: ENVIRONMENT

Competitors: Yahoo; AOL; MSN; etc.
Non-customers/Non-consumers
Partners/Complementors
Investors/Board of Directors
Gov./Community (Open Source)/Env.

GOOGLE’S VALUE CHAIN (Business Model)
P: PROCESSES/STRATEGIES

Procurement; HR Mngt; Operations
Technology/R & D/Innovn/Production
Marketing/Branding/PR/Sales
Distribution/Logistics/Partnering
Customer Service (Relationship Mngt)

“PFSP”
R: RETAILERS/DISTRIBUTORS/ CHANNELS

Website Owners
Content Providers: Individuals/ Corporations (Portals)
Affiliates; Partners: OEMs; Browsers

C: CUSTOMERS/CONSUMERS

Web Users/Searchers: Desktop/Mobile
Website Owners
Advertisers - > Revenue
Enterprises (Search) -> Revenue
Software/API Developers

O: OUTPUTS/PRODUCT/SERVICE

Google Search Engine/Search platform
Bidding & Advertising Platform: AdWords; AdSense; AdRank
Other Products/Apps such as Google Appliance

KEY
Revenue (Information Flow)
Cost(Information Flow)
Strategic Question: What is the Value Quotient (VQ) of elements of the value chain as well as the entire value chain?

Template for Ideal Value Chain (Business Model)
Flows & Resources for “Perfect, Free, Simple, and Personalized (PFSP)”
E: EMPLOYEES/KNOWLEDGE ASSETS/ CULTURE
S: SUPPLIERS/MATERIALS
M: MACHINERY/EQUIPMENT/ FACILITY
E: ENVIRONMENT

Competitors
Non-customers/Non-consumers
Partners
Investors
Gov./Community/Society/Environment

IDEAL VALUE CHAIN (BUSINESS MODEL):
Flows & Resources -
“Perfect, Free, Simple, and Personalized”
P: PROCESSES/STRATEGIES

Procurement; HR Mngt; Operations
Technology/R & D/Innovn/Production
Marketing/Branding/PR/Sales
Distribution/Logistics/Partnering
Customer Service (Relationship Mngt)

R: RETAILERS/DISTRIBUTORS/ CHANNELS/INTERFACE
C: CUSTOMERS/CONSUMERS
O: OUTPUTS/PRODUCT/SERVICE
KEY
Revenue (Information Flow)
Cost (Information Flow)
Strategic Question: What is the Value Quotient (VQ) of elements of the value chain as well as the entire value chain?

WHEEL OF OBSTACLES3 Internal Obstacles to Realizing the Ideal Value Quotient (IVQ) or Blue Ocean
AIG
Denver Airport
Enron
Alaska’s Road to Nowhere
“Me Too” Search Engines
Detroit Automakers
Traditional Airlines
Healthcare
“Mom and Pop” Businesses

INNOVATIVE PROCESSES FOR REDESIGNING BUSINESS MODELS & PURSUING THE IDEAL VALUE QUOTIENT
(Achieving apparently impossible business goals, strategies, and value propositions)
EMPLOYEE PROCESSES

Specialization/IP Creation-Protection
Outsourcing/Sub-contracting/Agents
‘Star’ Performers/Top grading/Fun
Wisdom of the Crowd/Co-creation
Cross-functional Teams/Downsizing

GENERAL PROCESSES

Vertical/Horizontal Integration
Extension/Compression/Removal
Open Collaboration/Long Tail (80-20)
Unbundling/De-integration/Bundling
Convergence/Standardization/Self-X

MACHINERY/FACILITY PROCESSES

Franchise/Leasing/Rental
Localization/Substitution/Reversal
Modularization/Standardization
Asymmetry/’Poka Yoke’/Nesting
Attributes Interdependency

ENVIRONMENT/SUPPLIER PROCESSES

Partnering/Complementing/Feedback
Merging/(De)Centralizing/Integration
Networking/Volunteering/Recycling
Convergence/(De)Regulation
Distributorship/Affiliates/Network

INNOVATIVE PROCESSES FOR REDESIGNING BUSINESS MODELS & PURSUING THE IDEAL VALUE QUOTENT
DOMAIN-PROCESSES/FUNCTIONALITY

Digitalization/Idealization/Downsizing
Virtualization/Customization/DIY/JIT
Zero Defect/Lean/Six Sigma/Analytics
Automatic/Outsourcing/Scalability
Restructuring/Inventive Principles

CHANNEL/WHOLESALERS PROCESSES

Multiple Channels/Syndication/Chain
Pyramid/Multi-level Markets/Wheel
Digitalization/Online/Word-of-mouth
Distributorship/Affiliates/Network
Advertising/Auction Platform/Partners

CUSTOMER PROCESSES

Segmentation/Direct Selling/Branding
Cross-subsidy/Hybridized Markets
Subscription/Leasing/After Sale
Auction/Co-creation/Collaboration
Advertising/Freemium/Licensing

PRODUCT/SERVICE PROCESSES

Product/Service-Platform/Package
Service-focus/Servicing/Upgrading
Performance-based Pricing/Discounts
Fixed product (shell) and recurring/ replaceable/upgradeable component

BLUE OCEAN NETWORK DIAGRAM (BOND)What and Why?
What is the Blue Ocean Network Diagram (BOND)?

A tool for redesigning business models, pursuing the Ideal Value Quotient (IVQ), and making better decisions
Universal tool and visual framework for quickly and systematically eliminating 3 critical obstacles to the Ideal Value Quotient (IVQ): poor business decisions; uninspiring business goals and targets; Red Ocean (“Me Too”) strategies & models
Global view of “What customers want” or “Voice of the Customer”

Why Blue Ocean Network Diagram (BOND)?

Facilitates decision-making for management and employees as well as board of directors
Facilitates organizational alignment and engagement especially for employees; everyone is on the same page and using the same metrics
Provides simple framework for visualizing Blue Ocean Strategy and IVQ
Provides simple visual framework for modeling as well as reviewing business strategies, objectives, models, assumptions, trade-offs, and decisions
Provides transparency in the selection and weighting of “value quotient factors” or decision-making criteria for evaluating possible business choices
Facilitates calculation of the value quotient for a business

4 Axioms of the Ideal Value Quotient (VQ)
Every object, which has sustainable growth, generally increases its Value Quotient (VQ) over time. Otherwise, the object declines and eventually dies.
A real-world object exhibits trade-offs or contradictions: advantages accompa-nied by disadvantages; benefits accompanied by costs; positives accompanied by negatives; delight accompanied by pain; good accompanied by evil.
An ideal object has an ideal Value Quotient (VQ), that is, lives in a “Blue Ocean” with no trade-off or contradiction: infinite advantages and no disadvantage; infinite benefits and no cost; infinite positive effects and no negative effect; infinite delight and no pain; good without any bad. The ideal object has zero mass and uses its internal and ‘free’ resources to perfectly do its job at no extra cost, at any time, and without any disadvantage.
Over time, aspecies or an ecosystem of real-world objects evolves towards the ideal object. Otherwise, the species declines and becomes extinct.

Related Concepts of the Ideal Value Quotient (VQ)

Value Quotient (Value Engineering)
Ideal Final Result (IFR); Ideality (TRIZ); SWOT Analysis (Business Planning)
Benefit/Cost Ratio; Revenue to Cost Ratio (Financial Planning)
Moore’s Law (Gordon Moore); Law of Accelerating Returns; Singularity (Ray Kurzweil)
Disruptive Innovation (Clayton Christensen)
Decision Theory: Rationality; Optimality; Satisficing Behavior (Economics)
Invisible Hand; Market Forces (Economics); 80-20 Rule (Vilfredo Pareto)
Theory of Evolution(Charles Darwin)

The Law of Increasing Value Quotient
The Value Quotient (VQ) of a technological device as well as living system tends to follow the shape of an envelope of S-Curves that progresses towards a point of infinite Value Quotient. Otherwise, the technological device or living system declines and dies.
Value Quotient (VQ)
Envelope of S-Curves
Time

Space-Time Template for the Evolution of a System
For Facilitating the Making of Scenarios (for Business/Product) in Space and Time
Environment (Supersystem)
SPACE
PRESENT SYSTEM:
System
Elements
INITIAL ELEMENT
(“SEED”)
Past
Present
Future
TIME
BOBM8. Blue Ocean-Business Models. Copyright 2009. Dr. Rod King. rodkuhnking@sbcglobal.net & http://businessmodels.ning.com

REFERENCES
Battelle, J. (2005) The Search. New York: Portfolio.
Chesbrough, H. (2006) Open Business Models. Boston: Harvard Business School (HBS) Press.
Christensen, C.; Raynor, M.E. (2003) The Innovator’s Solution. Boston: Harvard Business School (HBS) Press.
Jarvis, J. (2009) What Would Google Do?. New York: HarperCollins.
Kim, W.C.; Mauborgne, R. (2005) Blue Ocean Strategy. Boston: Harvard Business School (HBS) Press.
King, R. (2009) The Zoomable Page for Innovative Thinking in Space and Time:How Geniuses
and World-class Innovators Really Think … And How Anyone Can Do So in 1 Minute or Less.
Fresno: Ideal-Solution Management.
7. Shuen, A. (2008) Web 2.0. California: O’Reilly.
Dr. Rod King

Speaker, Consultant, and Trainer on Business Model Analysis, Design, and Innovation
rodkuhnking@sbcglobal.net & http://businessmodels.ning.com
http://twitter.com/RodKuhnKing