Blue Ocean Innovation and Strategy


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Blue Ocean Innovation - From Market-Taker to Market-Maker. This presentation discusses formulating new opportunities for your business or others in a new, refreshing way. Providing you some skills and a toolkit to "arm" you. Helping you become an integrator.

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Blue Ocean Innovation and Strategy

  1. 2. Today’s Agenda <ul><li>What this presentation is and is not </li></ul><ul><li>Critical takeaways </li></ul><ul><li>Big thinkers and their concepts </li></ul><ul><li>Applied theory </li></ul>
  2. 3. This is not : <ul><li>Going to pay homage to Blue Ocean Strategy </li></ul><ul><li>Promote the hero worship of strategy gurus </li></ul><ul><li>A definitive work in any way </li></ul>
  3. 4. What I hope this promotes: <ul><li>Formulating new opportunities for your business or others in a new, refreshing way </li></ul><ul><li>Providing you some skills and a toolkit to “arm” you </li></ul><ul><li>Helping you become an integrator </li></ul><ul><li>A gathering of information that helps you appear really smart at the cocktail party </li></ul><ul><li>FUN! </li></ul>
  4. 5. Critical Takeaways <ul><li>Free markets work – despite what the media monolith tells us </li></ul><ul><ul><li>Nothing drives more innovation and value than rational self-interest </li></ul></ul><ul><ul><li>Assets always seek their highest-valued use </li></ul></ul><ul><ul><li>The Theory of the Firm is fundamental, foundational, and immutable </li></ul></ul><ul><ul><li>Entrepreneurs drive the economy </li></ul></ul>
  5. 6. Critical Takeaways <ul><li>While not perfect, BOS does identify the fallacy of the firm as deity – we have a proven track record of diminishing marginal returns among firms </li></ul><ul><li>BOS is critical of thinkers that ordain companies </li></ul><ul><li>BOS focuses on strategies and emphasizes the risks of complacency, and the oft-times fleeting success of firms – firms need to always look to blue oceans! </li></ul>
  6. 7. Turbulent Competition in a World of Volatility 1975 2000 It’s hard for companies to stay on top! 2009 Value Innovation Associates Fortune 500 70% Replaced Fortune 500
  7. 8. Critical Takeaways <ul><li>Innovation comes from the people that use the products and is promoted by people that understand that – not themselves! </li></ul>All college drop-outs ! <ul><ul><li>Bill Gates </li></ul></ul><ul><ul><li>Steve Jobs </li></ul></ul><ul><ul><li>Michael Dell </li></ul></ul><ul><ul><li>Jake Nickell </li></ul></ul>
  8. 9. Critical Takeaways <ul><li>Half this stuff is BS , but there is real value is developing a skeptical, analytical approach to evaluating your firm, your industry, and your opportunities </li></ul>
  9. 10. Market-Making <ul><li>Market-taking is so Red Ocean ! </li></ul><ul><ul><li>Competing for crumbs </li></ul></ul><ul><li>It takes a unique strategy to become a market-maker! </li></ul><ul><ul><li>Supply and demand tells it all </li></ul></ul>
  10. 11. Big Thinkers and Their Concepts <ul><li>Michael Porter </li></ul><ul><ul><li>Porter 5 Forces </li></ul></ul><ul><ul><li>Generic Strategies </li></ul></ul><ul><ul><ul><li>Cost leadership </li></ul></ul></ul><ul><ul><ul><ul><li>Low cost producer, same or better quality </li></ul></ul></ul></ul><ul><ul><ul><li>Differentiation </li></ul></ul></ul><ul><ul><ul><ul><li>Being perceived as unique and having brand loyalty </li></ul></ul></ul></ul><ul><ul><ul><li>Focus/niche </li></ul></ul></ul><ul><ul><ul><ul><li>Select target market, effectiveness rather than efficiency </li></ul></ul></ul></ul>
  11. 13. Big Thinkers and Their Concepts <ul><li>Jim Collins </li></ul><ul><ul><li>Level-5 leader </li></ul></ul><ul><ul><li>The right people on the bus </li></ul></ul><ul><ul><li>The Three Circles of the Hedgehog Concept </li></ul></ul>
  12. 14. 3 Circles
  13. 15. Big Thinkers and Their Concepts <ul><li>Clayton Christensen </li></ul><ul><ul><li>Disruptive Innovations </li></ul></ul><ul><ul><ul><li>Create new markets of non-customers </li></ul></ul></ul><ul><ul><ul><li>Target an incumbent’s worst customers and compete at the “low end” </li></ul></ul></ul><ul><ul><ul><li>Many firms “overbuild” at a price not worth the premium for the average buyer </li></ul></ul></ul>
  14. 16. The Disruptive Innovation Model Disruptive Innovations Performance Time Performance That Customers Can Utilize or Absorb Sustaining Innovations Disruptive Technology
  15. 17. Some Christensen Examples <ul><li>Disruptive innovators </li></ul><ul><ul><li>Blackberry </li></ul></ul><ul><ul><li>Starbucks </li></ul></ul><ul><ul><li>Ebay </li></ul></ul>
  16. 18. Big Thinkers and Their Concepts <ul><li>C.K. Prahalad </li></ul><ul><ul><li>Fortune at the Bottom of the Pyramid – more than 4 billion people live on less than $2 per day </li></ul></ul><ul><ul><li>Building a framework for alleviation of poverty using markets and the Theory of the Firm to “raise all ships” </li></ul></ul><ul><ul><li>Economic development AND social transformation </li></ul></ul>
  17. 19. Grameen and Cemex <ul><li>Grameen Bank </li></ul><ul><li>Muhammad Yunus created the micro-finance industry 1978 by lending $27 USD to 42 women in Bangladesh. </li></ul><ul><li>By 2004: Grameen had 3.2 million borrowers and </li></ul><ul><li>$3B USD in assets. </li></ul><ul><li>The industry today? </li></ul><ul><li>50% growth 2003-2008 </li></ul><ul><li>Market size: $300B USD </li></ul><ul><li>Current Market Supply: JUST $4B USD </li></ul>
  18. 20. Grameen Bank: How They Forged the Blue Ocean © Kim & Mauborgne 2006 Commercial Banks Grameen Bank Collateralized lending No collateral Lend to mostly men 95% lending to females, women only traditionally receive 1% of commercial loans Lend mostly in towns Lend mostly in villages Lend on proof of repayment Lend on entrepreneurial potential Maximize profits Maximize social benefit and profits
  19. 21. Cemex: Mastering the Functional/Emotional Product Orientation <ul><li>Opportunity </li></ul><ul><ul><li>Cement Market: 85% Do-it-yourself </li></ul></ul><ul><ul><li>Market could reach $600 million </li></ul></ul><ul><li>Challenge </li></ul><ul><ul><li>Poor had insufficient discretionary funds to purchase cement </li></ul></ul><ul><li>Solution </li></ul><ul><ul><li>Patrimonio Hoy Program: shifted cement from a functional to emotional purchase. </li></ul></ul><ul><ul><li>Utilized a traditional savings program, with part of the payout coming in the cement and construction classes. </li></ul></ul><ul><li>Results </li></ul><ul><ul><li>DIY cement consumption tripled </li></ul></ul><ul><ul><li>Cemex enjoys 15% monthly growth & now sells at a higher price </li></ul></ul>
  20. 22. CEMEX
  21. 23. Big Thinkers and Their Concepts <ul><li>Regina Herzlinger </li></ul><ul><ul><li>Focused Factories - horizontal integration and scale focus creates dramatic process and outcomes improvement </li></ul></ul>
  22. 24. Focused Factories <ul><li>Shouldice </li></ul><ul><li>MedCath </li></ul><ul><li>What would you expect the reaction from the medical community to be? </li></ul><ul><li>Dabbawala </li></ul>
  23. 25. Dabbawala <ul><li> </li></ul>
  24. 26. Big Thinkers and Their Concepts <ul><li>Kim/Mauborgne </li></ul><ul><ul><li>Reconstruct market boundaries </li></ul></ul><ul><ul><li>Selling to the non-customer: </li></ul></ul><ul><ul><ul><li>Buyers who minimally purchase out of necessity </li></ul></ul></ul><ul><ul><ul><li>Buyers who refuse industry offerings </li></ul></ul></ul><ul><ul><ul><li>Non-customers who haven’t thought of the offering as an option </li></ul></ul></ul>
  25. 27. Red Ocean vs. Blue Ocean Strategy © Kim & Mauborgne 2006 Red Ocean Strategy Blue Ocean Strategy Compete in existing market space Create uncontested market space Beat the competition Make the competition irrelevant Differentiation or low cost Differentiation and low cost Competitive Advantage Value Innovation Segment existing customers Attract noncustomers Exploit existing demand Create and capture new demand
  26. 28. Key Points <ul><li>Competing in uncontested market space can generate higher performance than in overcrowded industries </li></ul><ul><li>Engine of growth in most economies </li></ul><ul><li>Seldom about technological innovation: more on new value propositions </li></ul><ul><li>Selling to non-customers </li></ul>
  27. 29. Substantially Higher Returns from Investments in Blue Oceans Business Launch Revenue Impact Profit Impact © Kim & Mauborgne 2006 Red Oceans Market-Competing Business Launches Blue Oceans Market-Creating Business Launches
  28. 30. Defining Economics <ul><li>Blue Ocean breaks the trade-off between value and cost, creating a leap in value for buyers and company itself </li></ul>Cost Buyer Value Value Innovation
  29. 31. Pueblo or Puebla?
  30. 32. Medical Tourism <ul><li> </li></ul>
  31. 33. Grupo Christus Muguerza <ul><li>Drop in some stats </li></ul><ul><ul><li>Joint Commission International accreditation </li></ul></ul><ul><li>Focus on Medical Tourism </li></ul><ul><li>Global partnership – mission oriented – disruptive </li></ul><ul><ul><li>Care delivery </li></ul></ul><ul><ul><li>Workforce partnerships </li></ul></ul>
  32. 34. Strategy Canvas <ul><li>A strategy canvas is a picture that clearly depicts: </li></ul><ul><li>a) The factors that affect competition </li></ul><ul><li>among industry players </li></ul><ul><li>b) The strategic profile of current and </li></ul><ul><li>potential competitors </li></ul><ul><li>c) The organization’s strategic profile or value curve </li></ul>
  33. 35. Four Actions Framework Reduce Which factors should be reduced well below industry standards? Create Which factors should be created that the industry has never offered? Raise Which factors should be raised well above the industry’s standard? Eliminate Which of the factors that the industry takes for granted should be eliminated ? A New Value Curve
  34. 36. The Strategy Canvas of Cirque du Soleil Hi Offering Level Lo Price Fun & Humor Unique Venue Aisle Concessions Multiple Show Arenas Thrills & Danger Animal Shows Star Performers © Kim & Mauborgne 2006
  35. 37. The Strategy Canvas of Cirque du Soleil Hi Offering Level Lo Price Fun & Humor Unique Venue Aisle Concessions Multiple Show Arenas Thrills & Danger Animal Shows Star Performers © Kim & Mauborgne 2006 Ringling Brothers Smaller Regional Circus Reduce Raise Create
  36. 38. Cirque de Soleil <ul><li> </li></ul>
  37. 39. <ul><li>It’s a real community </li></ul><ul><li>It’s playful </li></ul><ul><li>It promotes a DIY attitude </li></ul><ul><li>Quality is really important </li></ul><ul><li>Customers are really important </li></ul><ul><li>It’s a real business: </li></ul><ul><ul><li>“ There’s no “build an audience and figure out how to monetize it later” stuff here. Threadless sold $6.2 million worth of merch last year and has pretty much quadrupled in size each year for the past four years. This year’s target = $18-$20 million.” </li></ul></ul><ul><ul><li>Drives consistent 30% margins </li></ul></ul><ul><ul><li>Creates a free labor force </li></ul></ul>
  38. 40. <ul><li>The “People’s Car” </li></ul><ul><li>Seats up to 5 passengers </li></ul><ul><li>Half the price of the cheapest cars on the market today </li></ul><ul><li>Projected demand of one million Nanos </li></ul><ul><li>Exceeds current safety and environmental regulations </li></ul>
  39. 41. <ul><li> </li></ul>
  40. 42. Visualizing Strategy – The Nano <ul><li>Draw the Strategy Canvas for the auto industry, drawing value curves for: </li></ul><ul><ul><li>Luxury cars </li></ul></ul><ul><ul><li>Economy cars </li></ul></ul><ul><ul><li>The Nano </li></ul></ul><ul><li>2. When considering the Nano, apply the Four Actions framework </li></ul><ul><li>3. Consider other alternative value curves </li></ul><ul><li>4. Be prepared to discuss the implications – will the Nano be successful? Why and what are the implications. </li></ul>
  41. 43. Thank you! <ul><li>Don McDaniel, President and CEO </li></ul><ul><li>Sage Growth Partners </li></ul><ul><li>O (410) 534.1161 </li></ul><ul><li>C (443) 904.2882 </li></ul><ul><li>[email_address] </li></ul><ul><li> </li></ul>