A Primer to Blue Ocean Strategy - 1 -
Blue Ocean Strategy | Primer
The soul never thinks without an image
Aristotle
A Primer to Blue Ocean Strategy - 4 -
Introduction ⎥ Key concepts underlying blue ocean strategies
THE DIFFERENCE BETWEEN ...
A Primer to Blue Ocean Strategy - 7 -
1. Reconstruct market boundaries
The six paths framework challenges the fundamental ...
A Primer to Blue Ocean Strategy - 10 -
ADOPTION
Identify the bandwidth
that captures the largest
group of target buyers
wh...
A Primer to Blue Ocean Strategy - 13 -
4. Get the strategic sequence right ⎥ 3. TARGET COST
Can we produce our offering at...
A Primer to Blue Ocean Strategy - 16 -
6. Build execution into strategy
Our company will (continue to) stand apart as a gr...
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  • This is very informative read about how Blue Ocean Strategy helps increase the success of any company.
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  • The presentation is quite impressive. I would try to reread the Blue Ocean Strategy notes every now to be reminded. Good one.
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  • This is the complete guide for those who want to learn about Blue Ocean Strategy from scratch. I recommend users to go for it at any cost.
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  • It's really a superb idea and I like it very much. I really appreciate the strategy about you because it will increase companies success and wealth in the future.
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  • i appreciate the philosophy of breaking down market barriers to establish better connection between industries, if only more companies had this in mind when building networks, we would have a more prosperous nation.
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Blue Ocean Strategy Primer

  1. 1. A Primer to Blue Ocean Strategy - 1 - Blue Ocean Strategy | Primer The soul never thinks without an image Aristotle
  2. 2. A Primer to Blue Ocean Strategy - 4 - Introduction ⎥ Key concepts underlying blue ocean strategies THE DIFFERENCE BETWEEN RED AND BLUE OCEANS In red oceans, industry boundaries are defined and accepted. The competitive rules of the game are known. Companies try to outperform their rivals in order to increase their share of the existing demand. As the market space gets crowded, profit and growth opportunities are reduced. Products become commodities, and cutthroat competition turns the ocean bloody, i.e. red. Blue oceans are defined by untapped market space, demand creation, and the opportunity for highly profitable growth. Some blue oceans are created well beyond existing industry boundaries. Most are created within red oceans, by expanding industry boundaries. In blue oceans, competition is irrelevant because the rules of the game are yet to be set as we create a new market space. Red oceans will always matter. Traditional competitive strategy will continue to be a point of reference for growing and maintaining revenues at acceptable profit levels. But once supply exceeds demand, competing for a share of an existing market will not be sufficient to sustain high performance. This is when we also need to go beyond competing. This is when, in order to seize new profit and growth opportunities, we also need to create blue oceans. Each ocean has its own approach to strategy. Red oceans call for building a defensible position within an existing industry. They focus on value creation, i.e. an incremental approach to delivering value to the existing customers of an industry. Blue oceans follow a different strategic logic called value innovation. VALUE INNOVATION: THE HEART OF BLUE OCEAN STRATEGY Value without innovation tends to focus on value creation on an incremental scale, i.e. something that improves value but is not sufficient to make us really stand out in the marketplace. Innovation without value tends to be technology-driven, market pioneering, or futuristic, often shooting beyond what buyers are ready to accept and pay for. Value innovation occurs only if we align innovation with utility, price, and cost positions. The focus here is not time-to-market, bleeding- edge technology or best practices. It is the ambition to break one of the most commonly accepted dogmas of competition-based strategy: the value-cost trade-off. It is conventionally believed that companies can either create greater value to customers at a higher cost, or create reasonable value at a lower cost. Here strategy is seen as making a choice between differentiation and cost. In contrast, to create blue oceans, we need to pursue differentiation and low cost simultaneously, by looking within and beyond our industry boundaries and redefining a market altogether. Instead of focusing on beating the competition, value innovation focuses on making the competition irrelevant by creating a leap in value for buyers and our company, thereby opening up new and uncontested market space. The objective here is not to increase our competitiveness in the market as we know it. Rather, it is to create a whole new market where the rules of the games are yet to be created, by us! 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 us to 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 the one defining the rules! This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/blue-ocean-strategy-primer-113
  3. 3. A Primer to Blue Ocean Strategy - 7 - 1. Reconstruct market boundaries The six paths framework challenges the fundamental assumptions underlying many companies’ strategies. It encourages to look at alternative industries, strategic groups, chain of buyers, complementary offerings, functional and emotional appeal, and time. Focus on the purpose of a product or service and consider alternatives, not substitutes. Substitutes are those that have a different form but offer the same functionality. Alternatives are those that have different functions and forms but fulfill the same purpose. • What are the alternative industries to our industry? • How do customers make trade-offs across them? • What makes them jump from an industry to another? Focus on the key factors that lead buyers to trade across alternative industries and eliminate or reduce everything else. LOOK ACROSS ALTERNATIVE INDUSTRIES 1 In most industries you can capture the fundamental differences among players within a small number of strategic groups (i.e. group of companies pursuing a similar strategy). As a minimum, you can generally rank them on the basis of price and performance. When looking for a blue ocean, the key is to break out of a strategic group and understand which factors drive customers’ decisions to trade up or down among groups. • What are the strategic groups in our industry? • Why do customers trade up for the higher group? • Why do they trade down for the lower one? LOOK ACROSS STRATEGIC GROUPS WITHIN INDUSTRIES 2 We should always consider the multiple players directly or indirectly involved in the buying decision: the purchasers (who pay for the product or service); the users; and the influencers. Although these groups may overlap, they often differ and hold different definitions of value. Challenging our industry’s conventional beliefs about which buyer group should be targeted can lead to the discovery of new, locked values. For this, we should look across buyer groups to gain new insight and draft new value curves. • What is the chain of buyers in our industry? • Which buyer group does our industry focus on? • If we shifted the attention to another buyer group of our industry, how could we unlock new value? LOOK ACROSS THE CHAIN OF BUYERS 3 The total solution buyers seek when they choose a product or service may be composed of hidden complementary products and services. A way to define the total solution is to explore what happens before, during and after our product or service is used. We should thus ask ourselves: • What is the context in which our product or service is used? • What happens before, during and after? • Can we identify the pain points? • Can we eliminate these pain points through a complementary product or service offering? LOOK ACROSS COMPLEMENTARY PRODUCT & SERVICE OFFERINGS 4 Competition in an industry tends to converge not only on the scope of product and services, but also in terms of functional /rational and feeling/emotional appeal. Yet the appeal of most products or services is rarely one or the other. • Does our industry compete on functionality or on emotional appeal? • If we compete on emotional appeal, what elements can we strip out to make it functional? • If we compete on functionality, what elements can be added to make it emotional? LOOK ACROSS FUNCTIONAL OR EMOTIONAL APPEAL TO BUYERS 5 Blue ocean strategies rarely come out from projecting industry trends. Instead, they arise from business insights into how trends will change value to customers and impact the company’s business model. The idea is to look across time: the value a market delivers today, vs. the value it might deliver tomorrow. When looking at trends, we must focus on those that are decisive to our business, that are irreversible and have a clear trajectory. Having identified these trends, we can look across time at what the market would look like if they were taken to their logical conclusion. Working back, we can identify what must be changed today to unlock a new blue ocean. LOOK ACROSS TIME6 SIX PATHS TO RECONSTRUCT MARKET BOUNDARIES, BREAK FROM COMPETITION AND CREATE BLUE OCEANS Blue ocean strategy principles ⎥ Strategy Formulation This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/blue-ocean-strategy-primer-113
  4. 4. A Primer to Blue Ocean Strategy - 10 - ADOPTION Identify the bandwidth that captures the largest group of target buyers while making it difficult for our competitors to imitate us. Stick to to the logic that our strategic price drives our target profit that drives our target cost. Hit target costing via streamlining, partnering and/or pricing innovation. Educate the fearful: employees, business partners and public opinion at large. Openly discuss to solve issues upfront and get maximum buy in. Look at the six stages of the buyer’s experience cycle and identify blocks to buyer’s utility. Identify the value proposition that removes the biggest blocks allowing us to turn non-customers into customers. 4. Get 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 easily accessible to the mass of target buyers. The right sequence for creating value innovation is (1) buyer utility, (2) price, (3) profit, (4) costs, and (5) adoption. A COMMERCIALL Y VIABLE BLUE OCEAN IDEA Does our offering unlock exceptional utility? Is there a compelling reason for the mass of people to buy it? Is our offering priced to attract the mass of target buyers so that they have a compelling ability to pay for it? 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? What are the adoption hurdles in actualizing our business idea? Are we addressing them up front? Create a leap in Net Buyer Value Creation of Value Innovation and capturing of healthy profits No, rethink No, rethink No, rethink COSTPRICEBUYER UTILITY 321 4 Blue ocean strategy principles ⎥ Strategy Formulation Each step is further detailed in the pages hereafter. This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/blue-ocean-strategy-primer-113
  5. 5. A Primer to Blue Ocean Strategy - 13 - 4. Get the strategic sequence right ⎥ 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? STRATEGIC PRICE TARGET PROFIT STREAMLINING AND COST INNOVATIONS PARTNERING PRICING INNOVATION If you are to arrive at a cost structure that is both profitable and hard for potential followers to match, you must tackle the price equation as price-minus costing, not cost-plus pricing. Three levers to hit the cost target■ Can the service’s or product’s raw materials be replaced by unconventional, less expensive ones? ■ Can high-cost, low-value added activities in our value chain be significantly eliminated, reduced or outsourced? ■ Can the physical location of our product or service be shifted from prime real estate locations to lower-cost locations? ■ Can we truncate the number of parts of steps used in production by shifting the way things are made? ■ Can we digitize activities to reduce costs? ■ In bringing a new product or service to market, many companies mistakenly try to carry out all the production and distribution activities themselves. ■ Partnering provides a way for companies to secure needed capabilities fast and effectively while dropping their cost structure. It allows a company to leverage other companies’ expertise and economies of scale. ■ Partnering includes closing gaps in capabilities through making small acquisitions when doing so is faster and cheaper, providing access to expertise that has already been mastered. 1 2 3 ■ If streamlining and cost innovation and/or partnering does not bring us to the desired target cost, is changing the pricing model of the industry a viable alternative? ■ The aim is not to compromise on the strategic price, but to hit the target through a new price model, e.g. renting/leasing vs. selling, equity interest in the customer’s business, etc. TARGET COST Blue ocean strategy principles ⎥ Strategy Formulation This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/blue-ocean-strategy-primer-113
  6. 6. A Primer to Blue Ocean Strategy - 16 - 6. Build execution into strategy Our company will (continue to) stand apart as a great and consistent executor when our people embrace our new strategy with their minds 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 to the 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. Emotional recognition: Our colleagues want to be appreciated for their value, for their individual worth, regardless of the hierarchical level. They are not “resources”, “labor factor” or “personnel”. They are human beings who want to and should be treated with full respect and dignity. Intellectual recognition: Our colleagues may have brilliant ideas and new points of view. We must leverage their willingness to be consulted and show that their perspective is appreciated and given thoughtful reflection. INTELLECTUAL AND EMOTIONAL RECOGNITION TRUST & COMMITMENT VOLUNTARY COOPERATION IN STRATEGY EXECUTION EXCEED EXPECTATIONS Building such an intrinsic and extrinsic motivation within our colleagues can help us pull together our collective wisdom and generate brilliant new ideas, processes and tricks to make us achieve our goals. People will be almost in an auto-pilot mode because they will understand what we are aiming for, they are emotionally bound to the result, they are being valued for their intelligence and skills and trust that this is done in a clear and equal way in the best interest of all of us. Potentially, such a momentum can be further fuelled by a transcendent motivation, one that goes beyond the goals of the individual and of our company. For example, a goal that is linked to a humanitarian cause linked to our project, to the well being of customers beyond our products and services, or, to the extent our products and services allow us to, to the improvement of the society we live in. FAIR PROCESS: ENGAGEMENT, EXPLANATION, EXPECTATION CLARITY ENGAGEMENT: We make sure that we involve our colleagues in the strategic decisions that affect them. We do so by asking for their input and by allowing them to refute the merits of one another’s ideas and assumptions. Our teams show respect for individuals and for their ideas; they encourage refutation in order to sharpen our thinking and leverage collective wisdom. EXPLANATION: We want every employee involved and affected by our strategy to understand why final strategic decisions are made as they are. By sharing the thinking underlying our decisions, our colleagues will be confident that we have considered all options and opinions, and that decisions have been made impartially in the best interest of the company. EXPECTATION CLARITY: Once our strategy is set, we must clearly set the new rules of the game. Goals, targets and milestones must be clearly communicated. So must responsibilities and rewards. As a result, political jockeying and favoritism should be killed, letting our people focus on executing strategy rapidly. Blue ocean strategy principles ⎥ Strategy Implementation Our employees care as much about the justice of the process through which our outcome will be produced as they do about the outcome itself! It is only through actions, not words, that we will gain the trust and commitment of all involved parties. We must walk our talk and make others walk their talk. Indeed, we must create an environment of trust towards those leading the new initiative as well as among those participating to it and being affected by it, directly or indirectly. Recognition and feedback will allow us to build a strong sense of commitment. Ideally it will drive ourselves and our colleagues to override personal self- interest. When you and I are being considered, valued and feeling recognized, we want to share. Recognizing our intellectual worth inspires us and makes us want to impress and confirm the expectations of those who trust us and in whom we trust. Additionally, if there is an emotional component to the recognition, we feel emotionally tied to the strategy and the end result. We are much more willing to go the extra mile and give all we’ve got. Open & collaborative strategic planning Positive and optimistic attitude Proactive and determined behavior This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/blue-ocean-strategy-primer-113
  7. 7. 1 Flevy (www.flevy.com) is the marketplace for premium documents. These documents can range from Business Frameworks to Financial Models to PowerPoint Templates. Flevy was founded under the principle that companies waste a lot of time and money recreating the same foundational business documents. Our vision is for Flevy to become a comprehensive knowledge base of business documents. All organizations, from startups to large enterprises, can use Flevy— whether it's to jumpstart projects, to find reference or comparison materials, or just to learn. Contact Us Please contact us with any questions you may have about our company. • General Inquiries support@flevy.com • Media/PR press@flevy.com • Billing billing@flevy.com

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