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Flevy.com - Blue Ocean Strategy Primer

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A great complement to the best selling book "Blue Ocean Strategy." Each chapter is summarized in one printer-friendly slide. Points that require more in-depth explanation are developed into additional slides. Save time and get a quick refresh with this primer for you to enjoy.

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  • 1. Blue Ocean Strategy | Primer The soul never thinks without an image Aristotle A Primer to Blue Ocean Strategy - 1 -
  • 2. THE ONE PAGER ON BLUE OCEAN STRATEGYRed vs. Blue - In red oceans, our efforts are focused on the conventional logic that we must outpace the competition with a better solution to a given problem. Blue ocean strategy invites usto redefine the problem itself. It does so by breaking the value-cost trade-off in view of creating new uncontested market places. Places where no one has been and where we would be theone defining the rules!Analytical Tools & Frameworks - The strategy canvas is both the start and the end point of a blue ocean strategy formulation. An initial value curve depicts where the industry competeson and invests in. It is then transformed via the eliminate-reduce-raise-create actions framework. The resulting value curve shows a focused effort that diverges from existing marketofferings and can be easily translated into a compelling tagline.Underlying principles - Venturing beyond an existing industry space implies a series of risks. The blue ocean strategy approach to strategy is based on six principles that cater for themajor risks of a new market creation project: search risk, planning risk, scale risk, business model risk, organizational risk and management risk. Together, they define the underlyingphilosophy of blue oceans.Six paths to reconstruct market boundaries - The six paths framework challenges the fundamental assumptions underlying many companies’ strategies. It encourages to look atalternative industries, strategic groups, chain of buyers, complementary offerings, functional and emotional appeal, and time.Strategic planning focused on the big picture - Building on the six paths framework, we can depict our “as-is", “alternative” and “best to-be” strategy canvases. To do so, there are foursuggested steps that will help us create a visual representation of our strategy: visual awakening, visual exploration, visual strategy fair, and visual communication.Reaching beyond existing demand - Non-customers tend to offer us far more insight into how to unlock and grow a blue ocean than do relatively content existing customers. Beyond ourcurrent market are “soon to be”, “refusing”, and “unexplored” non-customers, representing untapped demand waiting to be released.Getting the strategic sequence right - We should not let costs drive prices. Nor should we scale down utility because high costs block our ability to profit at a strategic price that is easilyaccessible to the mass of target buyers. The right sequence for creating value innovation is (1) buyer utility, (2) price, (2b) profit, (3) costs, and (4) adoption. 1. Buyer utility - Does our offering unlock exceptional utility? Is there a compelling reason for the mass of people to buy it? By locating our proposed offering on the thirty-six spaces of the buyer utility map, we can clearly see how, and whether, the new idea not only creates a different utility proposition from existing offerings but also removes the biggest blocks to utility that stand in the way of converting non-customers into customers. If our offering falls on the same space or spaces as those of other players, chances are it is not a blue ocean offering. 2. Strategic Price - Is our offering priced to attract the mass of target buyers so that they have a compelling ability to pay for it? 3. Target Cost - Can we produce our offering at the target cost and still earn a healthy profit margin? Can we profit at the price easily accessible to the mass of target buyers? 4. Adoption - Almost by definition, a blue ocean idea threatens the status quo. As a result, it may provoke resistance among employees, partners and the general public. Often underestimated or put aside because of its cost, educating the “fearful” can have a make or break impact on our new idea. Identifying threats to employees and third parties and openly discussing issues upfront helps minimize risks and defuse negative opinions that would be much more costly to address later on.Mobilizing the organization to overcome key organization hurdles - We all know that strategy execution is at least as important as, if not more important than, strategy definition. Thechanges underlying a blue ocean strategy make execution even more delicate. This is why carefully addressing four key organizational hurdles can make or break our initiative, no matterhow strong is our business case.Building execution into strategy via a fair process - Our company will (continue to) stand apart as a great and consistent executor when our people embrace our new strategy with theirminds and hearts. When of their own accord they will be willing to go beyond compulsory execution to voluntary cooperation. When trust and commitment will align attitudes and behavior tothe spirit of our strategy, not to its letter. Adopting a fair process to strategy execution will help us achieve this goal deep into all the ranks of our company, across teams and departments. A Primer to Blue Ocean Strategy - 3 -
  • 3. Ch. 2Introduction ⎥ Analytical tools and frameworks The strategy canvas is both the start and the end point of a blue ocean strategy formulation. An initial value curve depicts where the industry competes on and invests in. It is then transformed via the eliminate-reduce-raise-create actions framework. The resulting value curve shows a focused effort that diverges from existing market offerings and can be easily translated into a compelling tagline. THE STRATEGY CANVAS THE FOUR ACTIONS FRAMEWORK NEW VALUE CURVEIt facilitates the capture of the current state of play in the The four actions framework is used to reconstruct the buyer Our new value curve willknown market space. It visually plots a value curve that value elements that will define our future value curve. depict a viable strategy if itallows us to understand where the competition is currently First, we should ask ourselves which factors our company should has three characteristics:investing, the factors the industry currently competes on, eliminate. Often, these are factors the industry has longand what customers receive from the existing competitive competed on. They are based on implicit assumptions that have (1) FOCUS: it shows that weofferings in the market. been taken for granted even though they no longer have value, or do not diffuse our efforts may even reduce value. across all key factors of Then we look at whether products or services have been competition.To fundamentally shift the strategy canvas of our industry,we must begin by reorienting our strategic focus from overdesigned in the race to match and beat the competition. This (2) DIVERGENCE: the shapecompetitors to alternatives, and from customers to non- forces us to reduce those elements that over-serve customers, of our curve diverges fromcustomers of the industry. As we shift our focus, we gain and that increase our cost structure for no gain. those of other players.insight into how we can redefine the problem the industry At the same time, we should look at factors that are based on afocuses on and how we can reconstruct buyer value “compromise” within the industry and potentially raise them for (3) The curve can be easilyelements. As a result, we can decide how to reshape our greater customer appeal and satisfaction. translated into a clear,positioning and related offerings to serve both existing Finally, we can discover entirely new sources of value for buyers strong, truthful andcustomers and non-customers of an industry. and create new factors that generate demand and change the compelling TAGLINE. strategic pricing of the industry.THE INITIAL VALUE CURVE IS TRANSFORMED THROUGH… … THE ELIMINATE-REDUCE-RAISE-CREATE GRID, TO CREATE A… … NEW, FOCUSED, DIVERGING VALUE CURVE WITH A high // COMPELLING TAGLINE RELATIVE COSTSPOSITIONING Which of the factors Which factors should be // Eliminate that the industry takes Reduce OF PLAYERS for granted should be reduced well below the industry’s standard? eliminated? AND/OR PLAYERS // VALUE GROUPS INNOVATION low // Which factors should be Which factors should be created that the Create industry has never raised well above the Raise industry’s standard? Factor (a) Factor (b) Factor (c) Factor (n) offered? BUYER VALUE FACTORS THE INDUSTRY COMPETES ON AND INVESTS IN Design new factors of competition A Primer to Blue Ocean Strategy - 5 -
  • 4. Ch. 3 Blue ocean strategy principles ⎥ Strategy Formulation1. Reconstruct market boundariesThe six paths framework challenges the fundamental assumptions underlying many companies’ strategies. It encourages to look atalternative industries, strategic groups, chain of buyers, complementary offerings, functional and emotional appeal, and time. LOOK ACROSS LOOK ACROSS STRATEGIC GROUPS LOOK ACROSS 1 ALTERNATIVE INDUSTRIES 2 WITHIN INDUSTRIES 3 THE CHAIN OF BUYERS Focus on the purpose of a product or service and consider alternatives, not substitutes. We should always consider the multiple players directly or In most industries you can capture the fundamental Substitutes are those that have a different form but offer indirectly involved in the buying decision: the purchasers differences among players within a small number of the same functionality. (who pay for the product or service); the users; and the strategic groups (i.e. group of companies pursuing a Alternatives are those that have different functions and influencers. Although these groups may overlap, they similar strategy). forms but fulfill the same purpose. often differ and hold different definitions of value. As a minimum, you can generally rank them on the basis Challenging our industry’s conventional beliefs about • What are the alternative industries to our of price and performance. which buyer group should be targeted can lead to the industry? When looking for a blue ocean, the key is to break out of discovery of new, locked values. For this, we should look a strategic group and understand which factors drive • How do customers make trade-offs across them? across buyer groups to gain new insight and draft new customers’ decisions to trade up or down among groups. • What makes them jump from an industry to value curves. • What are the strategic groups in our industry? • What is the chain of buyers in our industry? another? • Why do customers trade up for the higher group? • Which buyer group does our industry focus on? Focus on the key factors that lead buyers to trade across • If we shifted the attention to another buyer group alternative industries and eliminate or reduce everything • Why do they trade down for the lower one? of our industry, how could we unlock new value? else. SIX PATHS TO RECONSTRUCT MARKET BOUNDARIES, BREAK FROM COMPETITION AND CREATE BLUE OCEANS LOOK ACROSS COMPLEMENTARY LOOK ACROSS FUNCTIONAL OR 4 PRODUCT & SERVICE OFFERINGS 5 EMOTIONAL APPEAL TO BUYERS 6 LOOK ACROSS TIME The total solution buyers seek when they choose a Blue ocean strategies rarely come out from projecting Competition in an industry tends to converge not only on product or service may be composed of hidden industry trends. Instead, they arise from business insights the scope of product and services, but also in terms of complementary products and services. into how trends will change value to customers and functional /rational and feeling/emotional appeal. Yet the A way to define the total solution is to explore what impact the company’s business model. appeal of most products or services is rarely one or the happens before, during and after our product or service is The idea is to look across time: the value a market other. used. delivers today, vs. the value it might deliver tomorrow. We should thus ask ourselves: • Does our industry compete on functionality or on When looking at trends, we must focus on those that are • What is the context in which our product or emotional appeal? decisive to our business, that are irreversible and have a service is used? • If we compete on emotional appeal, what elements clear trajectory. Having identified these trends, we can • What happens before, during and after? can we strip out to make it functional? look across time at what the market would look like if they • Can we identify the pain points? were taken to their logical conclusion. Working back, we • If we compete on functionality, what elements can • Can we eliminate these pain points through a can identify what must be changed today to unlock a new be added to make it emotional? complementary product or service offering? blue ocean. A Primer to Blue Ocean Strategy - 7 -
  • 5. Ch. 5 Blue ocean strategy principles ⎥ Strategy Formulation3. Reach beyond existing demandNon-customers tend to offer us far more insight into how to unlock and grow a blue ocean than do relatively content existingcustomers. Beyond our current market are “soon to be”, “refusing”, and “unexplored” non-customers, representing untappeddemand waiting to be released. DE-SEGMENTING MARKETS, AGGREGATING COMMONALITIES AND MAXIMIZING THE NEW MARKET This is the farthest away tier of non-customers from our industry’s existing customers. Typically, these Unexplored unexplored non-customers have not been targeted or thought of as potential customers by any player in our industry. That’s because their needs and the business opportunities associated with them have Non-customers who are in THIRD somehow always been assumed to belong to other markets. markets distant from ours Can we reach beyond existing customers and look across multiple markets to aggregate commonalities TIER into a new market? Refusing Refusing non-customers are people who either do not use or cannot afford to use the current market offerings because they find them unacceptable or beyond their means. Their needs are either dealt with SECOND Non-customers who by other means or ignored. TIER consciously choose against What are the key reasons non-customers refuse to use the products or services of our industry? our market Look for the commonalities across their responses. Focus on these, and not on their differences. Soon-to-be customers are those who minimally use the current market offerings to get by as they search Soon to be for something better. Upon finding any better alternative, they will eagerly jump ship. Locked within these FIRST Non-customers who are on first-tier non-customers is an ocean of untapped demand waiting to be released. What are the key reasons first-tier non-customers want to jump ship and leave our industry? TIER the edge of our market Look for commonalities across their response. Focus on these, and not on the differences among them. waiting to jump ship Look for commonalities across tiers. Our aim is to expand the market Our and create new demand. Market GO FOR THE BIGGEST CATCHMENT A Primer to Blue Ocean Strategy - 9 -
  • 6. Blue ocean strategy principles ⎥ Strategy Formulation4. Get the strategic sequence right ⎥ 1. BUYER UTILITYDoes our offering unlock exceptional utility? Is there a compelling reason for the mass of people to buy it?By locating our proposed offering on the thirty-six spaces of the buyer utility map, we can clearly see how, and whether, the newidea not only creates a different utility proposition from existing offerings but also removes the biggest blocks to utility that stand inthe way of converting non-customers into customers. If our offering falls on the same space or spaces as those of other players,chances are it is not a blue ocean offering. The buyer utility BUYER EXPERIENCE CYCLE ⎥ SIX STAGES OF BUYER EXPERIENCE CYCLE map 1. PURCHASE 2. DELIVERY 3. USE 4. SUPPLEMENTS 5. MAINTENANCE 6. DISPOSAL • How long does it take • How long does it take • Does the product • Do you need other • Does the product • Does the use of the to find the product to get the product require training or products and services require external product create waste you need? delivered? expert assistance? to make this product maintenance? items? • Is the product easy to work? • Is the place of • How difficult is it to store when not in • How easy is it to • How easy is it to purchase attractive “unpack and install” use? • If so, how costly are maintain and upgrade dispose of the and accessible? the new product? • How effective are the they? the product? product? • How secure is the • Do buyers have to product’s features • How much time do • How costly is • Are there legal or transaction arrange delivery and functions? they take? maintenance? environmental issues environment? themselves? • Does the product or in disposing of the If yes, how costly and service deliver far • How much pain do product safely? • How rapidly can you difficult is this? more power or they cause? make a purchase? options than required • How costly is • How easy are they to disposal? by the average user? obtain? Is it overcharged with bells and whistles? CUSTOMER In which stage are the biggest blocks to customer productivity? PRODUCTIVITY BLOCKS TO BUYER UTILITY SIMPLICITY In which stage 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? ENVIRONMENTA In which stage are the biggest blocks to environmental friendliness? L FRIENDLINESS A Primer to Blue Ocean Strategy - 11 -
  • 7. Blue ocean strategy principles ⎥ Strategy Formulation4. Get the strategic sequence right ⎥ 3. TARGET COSTCan we produce our offering at the target cost and still earn a healthy profit margin? Can we profit at the price easily accessible tothe mass of target buyers? If you are to arrive at a cost structure that is STRATEGIC TARGET TARGET both profitable and hard for potential followers PRICE PROFIT COST to match, you must tackle the price equation as price-minus costing, not cost-plus pricing. Three levers to hit ■ Can the service’s or product’s the cost target ■ In bringing a new product or raw materials be replaced by STREAMLINING service to market, many unconventional, less expensive 1 AND COST PARTNERING 2 companies mistakenly try to carry ones? out all the production and INNOVATIONS ■ Can high-cost, low-value added distribution activities themselves. activities in our value chain be ■ Partnering provides a way for significantly eliminated, reduced companies to secure needed or outsourced? capabilities fast and effectively PRICING while dropping their cost ■ Can the physical location of our 3 product or service be shifted from INNOVATION structure. It allows a company to prime real estate locations to leverage other companies’ lower-cost locations? expertise and economies of ■ If streamlining and cost innovation and/or partnering does scale. ■ Can we truncate the number of parts of steps used in production not bring us to the desired target cost, is changing the ■ Partnering includes closing gaps by shifting the way things are pricing model of the industry a viable alternative? in capabilities through making made? ■ The aim is not to compromise on the strategic price, but to small acquisitions when doing so hit the target through a new price model, e.g. is faster and cheaper, providing ■ Can we digitize activities to renting/leasing vs. selling, equity interest in the customer’s access to expertise that has reduce costs? business, etc. already been mastered. A Primer to Blue Ocean Strategy - 13 -
  • 8. Ch. 7 Blue ocean strategy principles ⎥ Strategy Implementation5. Key organizational hurdlesWe all know that strategy execution is at least as important as, if not more important than, strategy definition. The changesunderlying a blue ocean strategy make execution even more delicate. This is why carefully addressing four key organizationalhurdles can make or break our initiative, no matter how strong is our business case. COGNITIVE HURDLE POLITICAL HURDLE What are the three most important facts and How do we overcome potential corporate figures that we will use to make people aware politics, intrigue and plotting? of the need for a strategic shift and agree on TIPPING POINT LEADERSHIP APPROACH Who are the possible negative influencers who its causes? can fiercely and vocally oppose the new Identify, focus on and leverage people, acts and activities strategy? Are they only internal? Are they also How can we make people, and especially that exercise disproportionate influence on performance. external to our department, organization, or leadership, see the reality first hand? How can Fundamental changes can happen quickly when the beliefs company? customers or third parties help us? and energies of a critical mass of people create an The Consigliere will help us identify in advance epidemic movement toward an ideal. Key to unlocking an the possible land mines. He/she will profile What are the three most effective and practical epidemic movement is concentration, not those who have the most to win and to lose ways we could leverage to make executives dispersion/diffusion of effort. from the new corporate direction. He will help and employees experience and feel the need us isolate the detractors and discourage them for change? Employees with Employees with before their war starts to get any steam. disproportionate disproportionate influence influence Against Mass of In favor employees KINGPINS: Who are the people inside our HOT SPOTS: Which of our activities are group that are the most respected and currently poorly staffed but have a high persuasive natural leaders and influencers that potential to deliver superior results? have the ability to unlock or block access to “Consigliere” key resources? COLD SPOTS: Which activities do we pursue One of the key factors of our success, no matter how FISHBOWL: Can we motivate the kingpins by today that require a high input of resources but putting them in the spotlight and showing to strong our business case, is to know in advance all the deliver a low impact on our performance? others their actions (and inactions) in a likely angles of attack to our proposal. The Consigliere, a repeated and highly visible way? HORSE TRADING: How could we reshuffle highly respected insider, will help us know whom will fight ATOMIZED CHALLENGE: What are the “bite- our resources allocation for greater impact and us and whom will be naturally interested in aligning size atoms” of our initiative that are individually business performance? him/herself with the new strategy. attainable and collectively allow us to implement our strategy? RESOURCE HURDLE MOTIVATIONAL HURDLE A Primer to Blue Ocean Strategy - 15 -
  • 9. Disclaimer and In this document, no parts of any publication is copied as such. We summarize the key concepts by giving yourecommendation the essentials and the most practical knowledge in simple terms. Sure, you can grasp it all via us, but however good is our material, we encourage you to buy and read the original publication for a full background. You can buy it from any authorized reseller or via our web site. If you already own a publication, our Primers are a great complement, especially if you have read the original a while ago and want a 15 minutes reminder. If you have recently bought the publication and are yet to go through it, our material will help you frame your learning and accelerate its translation into usable ammunition for your next project. A Primer to Blue Ocean Strategy - 17 -