IO012 N NTAT1/10/2 E SE PR TI NG KEMAR BY SADAT FARUQUE
TWO WORLDS Red Ocean Compete in crowded markets Blue Ocean Create and capture new market space
To fight and conquer in all yourbattles is not supreme excellence;supreme excellence consists inbreaking the enemy resistancewithout fightingMaster Sun Tzu in ‘Art of War’
Researching the history of blue ocean creation• Data:150 strategic moves, more than 30 industries, over 100 years (1800-2000)• Variables considered industrial, organizational ands strategic.
Red V/S Blue Red Ocean Strategy Blue Ocean StrategyCompete in existing market space Create uncontested market spaceBeat the competition Market the competition irrelevantExploit existing demand Create and capture new demandMake the value cost trade off Break the value cost trade offAlign the whole system of a Align the whole system of acompany’s activities with its company’s activities in pursue ofstrategic choice of Differentiation differentiation and low costor low cost
Six paths to blue ocean strategy Industry Strategic groupFrom Buyer group To CreatingCompeting Scope of product or service AcrossWithin offering Functional emotional Orientation of an industry Time
Four actions framework Reduce Which factors should be reduced well below the industry’s standard ? Eliminate Create A NewWhich of factors that Which factors shouldThe industry takes for Value Curve be created That theGranted should be Industry has nevereliminated ? offered ? Raise Which factors should be raised well above the industry’s standard ?
Minimizing risks & maximizing opportunities informulation & executing blue ocean creation Formulation Principles Formulation RisksReconstruct market boundaries Search RiskFocus on the big picture, not Planning Riskthe numbersReach beyond existing demand Scale RiskGet the strategic sequence right Business Model Risk Execution Principles Execution RisksOvercome key organizational Organizational RiskhurdlesBuild execution into strategy Management Risk
Value InnovationRegion where a company’s actionfavorably affect both it’s cost structureand its value proportion to the Buyers.- Cost savings by eliminating and reducing the factors an COST industry competes on- Buyers values is lifted by raising & creating elements VALUE the industry has ever offered INNOVATION- Over time, costs are reduced further as scale economics kicked in BUYER’S VALUE
Careful, the trickyou’re about to enjoyis extremely hot.
Blue Ocean Strategy : Starbucks• Starbucks sold a retailing concept: the coffee bar, offering relaxation and conversation, and drinks made with quality beans, frothy and flavored milks, creams, syrups and ices. While $3 for a cup of Starbucks coffee is outrageous compared with the cost of a cup of instant coffee at home, consumers did not see it that way. They judged Starbucks as an indulgence, so the steep price appeared good value for money. Starbucks turned the coffee industry on its head by shifting its focus from commodity coffee sales to the emotional atmosphere in which customers enjoy their coffee. With almost no advertising, Starbucks became an international brand with margins roughly five times the industry average.
Starbucks did not take away from its competitors or make coffee go away. It simply made it more popular !!! !• Starbucks began in 1971 when three academics—English teacher Jerry Baldwin, history teacher Zev Siegel, and writer Gordon Bowker—opened a store called Starbucks Coffee, Tea, and Spice in the touristy Pikes Place Market in Seattle. Starbucks has since then increased to over 13,000 stores nationwide.
How has Starbucks been so successful?• The primary reason Starbucks has experienced such great success is their business model that is all about people worldwide. From customer service to employee benefits their business model focuses on the people.• They have their own coffee farmers and harvesters, their own roasters, and carefully followed recipes that are just their own, including the Frapaccino. They offer the best payment plans and benefits packages available to all of their farmers (something that many of these people have gone without for generations), they have great payment plans and benefits packages for their local employees including fantastic benefits for their part time employees (something that doesn’t happen very often), and with this idea of people they have worked hard to please those that work hard to please their customers.
How has Starbucks been so successful?• Customer service has always been a high priority with Starbucks. It is why a manager or assistant manager at a Starbucks receives at least 80 hours of training and a barista receives 40 hours of training before they are allowed to make drinks without supervision.• CEO, Howard Schultz, figured out how to attract, motivate, and reward store employees in a manner that would make Starbucks a company that people would want to work for and that would result in higher levels of performance. Moreover, Schultz wanted to cement the trust that had been building between management and the company’s workforce. In 1995, Starbucks implemented an employee stock purchase plan. Eligible employees could contribute up to 10 percent of their base earnings to quarterly purchases of the company’s common stock at 85 percent of the going stock price. The total number of shares that could be issued under the plan was 4 million. After the plan’s creation, nearly 200,000 shares were issued; just over 2,500 of the 14,600 eligible employees participated.
How has Starbucks been so successful?• Schultz’s approach to offering employees good compensation and a comprehensive benefits package was driven by his belief that sharing the company’s success with the people who made it happen helped everyone think and act like an owner, build positive long- term relationships with customers, and do things efficiently.• Starbucks’ focus on its employees has lead to great customer service. As a result, Starbucks has achieved elite brand recognition that of Coca Cola.
Starbucks did not take away from its competitors or make coffee go away. It simply made it more popular!• First, Starbucks has great attention to detail in stores. The employees are well-trained and qualified to make specific drink orders. They offer a wide range of types of coffee, drinks, food, etc. Customers who are particular about their orders are confident when they go to a Starbucks.• Second, Starbucks has been able to attract coffee and non-coffee consumers by offering a wide variety of drinks, coffees, food, snacks, mugs and other paraphernalia. Their plethora of products offered complements individuals of a wide range to have an interest in Starbucks.
Starbucks did not take away from its competitors or make coffee go away. It simply made it more popular !!!• Thirdly, Starbucks has transcended traditional coffee houses into a pleasant experience. The well-trained and happy employees provide quality customer service. They are pleasant and consistent in service. Starbucks has also transitioned coffee into a social platform. People gather at Starbucks to relax, read, use the internet, meet for business or chat with friends, etc.• The success of Starbucks has only increased the popularity of coffee and tea amongst consumers. Furthermore, Starbucks has been able to attract the non- customers through there business model of focusing on people. Consequently, Starbucks’ success has experience great success in the coffee industry without destructing competitors.
Kim’s thought about Starbucks’ success• Kim said Starbucks’ success is not entirely because of the coffee sold at its locations. That company took the idea of a “mom and pop” coffee shop and combined it with the comfort of a modern hotel lobby such as a Marriott. While the mom and pop coffee shop might sell good coffee, the patrons who go there are mostly truckers who are not interested in having conversations, he said. But in the lobby of a modern hotel, it is much easier to start a conversation; therefore Starbucks combined good coffee with comfortable, friendly locations to sell coffee, he said. While it is true that Starbucks sells coffee, “what they are really selling is atmosphere,” he said. By changing the atmosphere in which coffee is sold, Starbucks created an uncontested market and made the competition irrelevant, he said. Starbucks “created and captured new demand,” he said.
Skillful leaders subdues the enemy’stroops without fighting; he capturestheir cities without laying siege to them;he overthrows their Kingdom withoutlengthy operations in the fieldMaster Sun Tzu in ‘Art of War’