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Blue Ocean Strategy: Reyes Haircutters

by Anthony Pangilinan

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If you answered yes to a majority of these questions, then your company is stuck in the red ocean. Blue Ocean Strategy offers you a way to swim out of the red ocean filled with sharks. It presents a theory, tools, and frameworks to allow your company to break away from the competition and create a blue ocean of new market space Decades-long study -150 strategic moves - 30 industries over 100 years (1880-2000). Simultaneous pursuit of differentiation and low cost. Creating new market space, blue oceans, making competition irrelevant.
The strategy canvas is the central diagnostic and action framework for building a compelling blue ocean strategy. The horizontal axis captures the range of factors that the industry competes on and invests in, and the vertical axis captures the offering level that buyers receive across all these key competing factors. The strategy canvas serves two purposes. Firstly, it captures the current state of play in the known market space. This allows you to understand where the competition is currently investing and the factors that the industry competes on. Secondly, it propels you to action by reorienting your focus from competitors to alternatives and from customers to noncustomers of the industry. The value curve is the basic component of the strategy canvas. It is a graphic depiction of a company's relative performance across its industry's factors of competition. As you can see on the diagram above, what makes a good value curve is focus, divergence as well as a compelling tagline.
The strategy canvas is the central diagnostic and action framework for building a compelling blue ocean strategy. The horizontal axis captures the range of factors that the industry competes on and invests in, and the vertical axis captures the offering level that buyers receive across all these key competing factors. The strategy canvas serves two purposes. Firstly, it captures the current state of play in the known market space. This allows you to understand where the competition is currently investing and the factors that the industry competes on. Secondly, it propels you to action by reorienting your focus from competitors to alternatives and from customers to noncustomers of the industry. The value curve is the basic component of the strategy canvas. It is a graphic depiction of a company's relative performance across its industry's factors of competition. As you can see on the diagram above, what makes a good value curve is focus, divergence as well as a compelling tagline.
A useful exercise for a corporate management team pursuing profitable growth is to plot the company's current and planned portfolios on the pioneer-migrator-settler (PMS) map . For the purpose of the exercise, settlers are defined as me-too businesses, migrators are business offerings better than most in the marketplace, and a company's pioneers are the businesses that offer unprecedented value. These are your blue ocean strategies, and are the most powerful sources of profitable growth. They are the only ones with a mass following of customers. If both the current portfolio and the planned offerings consist mainly of settlers, the company has a low growth trajectory, is largely confined to red oceans, and needs to push for value innovation. Although the company might be profitable today as its settlers are still making money, it may well have fallen into the trap of competitive benchmarking, imitation, and intense price competition. If current and planned offerings consist of a lot of migrators, reasonable growth can be expected. But the company is not exploiting its potential for growth, and risks being marginalized by a company that value-innovates. In our experience the more an industry is populated by settlers, the greater the opportunity to value-innovate and create a blue ocean of new market space. This exercise is especially valuable for managers who want to see beyond today's performance. Revenue, profitability, market share, and customer satisfaction are all measures of a company's current position. Contrary to what conventional strategic thinking suggests, those measures cannot point the way to the future; changes in the environment are too rapid. Today's market share is a reflection of how well a business has performed historically. Clearly, what companies should be doing is shifting the balance of their future portfolio toward pioneers. That is the path to profitable growth. The PMS map above depicts this trajectory, showing the scatter plot of a company's portfolio of businesses, where the gravity of its current portfolio of twelve businesses, expressed as twelve dots, shifts from a preponderance of settlers to a stronger balance of migrators and pioneers.
Typically, to grow their share of a market, companies strive to retain and expand existing customers. This often leads to finer segmentation and greater tailoring of offerings to better meet customer preferences. The more intense the competition is, the greater, on average, is the resulting customization of offerings. As companies compete to embrace customer preferences through finer segmentation, they often risk creating too-small target markets. 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. That allows companies to reach beyond existing demand to unlock a new mass of customers that did not exist before. Although the universe of noncustomers typically offers big blue ocean opportunities, few companies have keen insight into who noncustomers are and how to unlock them. To convert this huge latent demand into real demand in the form of thriving new customers, companies need to deepen their understanding of the universe of noncustomers. There are three tiers of noncustomers that can be transformed into customers. They differ in their relative distance from your market. The first tier of noncustomers is closest to your market. They sit on the edge of the market. They are buyers who minimally purchase an industry’s offering out of necessity but are mentally noncustomers of the industry. They are waiting to jump ship and leave the industry as soon as the opportunity presents itself. However, if offered a leap in value, not only would they stay, but also their frequency of purchases would multiply, unlocking enormous latent demand. The second tier of noncustomers is people who refuse to use your industry’s offerings. These are buyers who have seen your industry’s offerings as an option to fulfill their needs but have voted against them. The third tier of noncustomers is farthest from your market. They are noncustomers who have never thought of your market’s offerings as an option. By focusing on key commonalities across these noncustomers and existing customers, companies can understand how to pull them into their new market.
Companies need to build their blue ocean strategy in the sequence of Buyer Utility, Price, Cost, then Adoption
Once a company has developed a blue ocean strategy with a profitable business model, it must execute it. The challenge of execution exists, of course, for any strategy. Companies, like individuals, often have a tough time translating thought into action whether in red or blue oceans. The challenges managers face are steep. They face four hurdles: A cognitive hurdle. waking employees up to the need for a strategic shift. Red oceans may not be the paths to future profitable growth, but they feel comfortable to people and may have even served an organization well until now, so why rock the boat? Limited resources. The greater the shift in strategy, the greater it is assumed are the resources needed to execute it. But many companies find resources in notoriously short supply Motivation. How do you motivate key players to move fast and tenaciously to carry out a break from the status quo? Politics. As one manager put it, “In our organization you get shot down before you stand up.”
The conventional theory of organizational change rests on transforming the mass. So change efforts are focused on moving the mass, requiring steep resources and long time frames — luxuries few executives can afford.
Tipping point leadership, by contrast, takes a reverse course. To change the mass it focuses on transforming the extremes: the people, acts, and activities that exercise a disproportionate influence on performance. By transforming the extremes, tipping point leaders are able to change the core fast and at low cost to execute their new strategy.

Blue Ocean Strategy: Reyes Haircutters Presentation Transcript

How Blue are You?
- Is your company facing fiercer competition from local and international rivals?
- Are you increasingly tempted to offer lower prices to close sales?
- Do you sense that your product/services are fast becoming “commodities”?
- Do you sense slow growth due to intense competition and market slowdown?
- Are your key competitive factors largely the same as that of your competitors?
- What is Blue Ocean Strategy?
Go where the profits and growth are - and where competition isn’t (Authors : W. Chan Kim & Renee Mauborgne)
Red Ocean vs. Blue Ocean
Value Innovation The Cornerstone of BOS Costs Buyer Value Value Innovation The Simultaneous Pursuit of Differentiation and Low Cost
- Reconstruct Market Boundaries
- The Six-Paths Framework
Key BOS Principle No.1
Draw “AS IS” Strategy Canvass
Four Action Framework Eliminate Reduce Raise Create Which of the factors that the industry takes for granted should be eliminated? Which factors should be reduced well below the industry’s standard? Which factors should be created that the industry has never offered? Which factors should be raised well above the industry’s standard? NON-VALUE- ADDING FACTORS VALUE-ADDING FACTORS
Draw “TO BE” Strategy Canvass
A New Value Curve : Strategy Canvas of Yellow Tail Premium Wines [yellow tail] Budget Wines CREATE ELIMINATE REDUCE RAISE Price Easy drinking Ease of selection Fun and adventure Wine range Wine complexity Vineyard prestige Aging quality Above-the-line marketing Use of enological terminology and distinctions in wine communication High Medium Low
- Focus on the Big Picture, not the Numbers
- Visual Awakening: PMS, Six-Paths Framework, Identify Pain Points, Unlocking Buyer Utility
Key BOS Principle No. 2
The PMS Map
The 6 conventional market boundaries to spot Blue Ocean Opportunities Industry Buyer Group Strategic Group Functional/Emo Orientation Scope of Product Offering Time/Trend Red Ocean (competing within) Blue Ocean (competing across)
Lounges Meals, Newspaper Seating choices Four Action Framework: of Cebu Pacific Eliminate Price Reduce Friendly service Speed Safety (new planes) Raise Frequent point-to- point departures Create Lower Cost Differentiate
- Reach Beyond Existing Demand
- Buyer Experience Cycle, Pain Points
Key BOS Principle No.3
3 Tiers of Non-Customers
Buyer Experience Cycle
Buyer Experience Cycle In the buyer’s experience, what are the BIGGEST PAIN POINTS, fears, risks, obstacles, in each stage and for each utility lever (which makes him choose not to buy, or not to buy more from you)?
Explore Along Six-Paths From where do NON-CUSTOMERS derive or acquire the BENEFITS your product or service could give? What are the PAIN POINTS and/ or reasons why NON-CUSTOMERS prefer those products, substitutes, services, or industries, rather than yours? What exceptional value or buyer utilities can we offer, given these insights?
- Get the Strategy Sequence Right
- Executing a Commercially Viable BOS Business
Key BOS Principle No.4
BOS Viability Sequence Buyer UTILITY Exceptional? Does your idea offer exceptional value or BUYER UTILITY, or a compelling reason for this target mass of buyers to buy it? Target PRICE Affordable? COSTS low enough to be profitable? ADOPTION Issues Addressed? A Commercially Viable Blue Ocean Strategy IDEA! Yes? Yes? Yes? Yes? Is your TARGET PRICE affordable to this target mass of buyers? Can you contain your COSTS to make money, or profit, given your target price? Can you prevent or overcome the obstacles to ADOPTION of your idea or strategic move? No? No?
- Overcome Existing Adoption Hurdles
- Executing a Commercially Viable BOS Business
Key BOS Principle No.5
Four Hurdles of BOS Execution
Tipping Point Leadership Normal Curve
Tipping Point Leadership Normal Curve
- Focus on extremes
- Feed hot spot, starve cold spots
- Silence devils, court Angels
In Summary

Blue Ocean Strategy: Reyes Haircutters

by Anthony Pangilinan

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Blue Ocean Strategy: Reyes Haircutters Presentation Transcript

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