BLUE OCEAN STRATEGY How to Create Uncontested Market Space and Make the Competition Irrelevant Made by Mrs. Kavita Yogesh Bansal
Creating Blue OceansNew Market Space The universe is composed of two sorts ofoceans- Red Oceans and Blue Oceans.Red Oceans-All the industries in existencetoday.Blue Oceans-All the industries not inexistence today i.e. unknown marketspace
Blue Oceans are defined by untappedmarket space, demand creation, and theopportunity for highly profitable growth.In red oceans industry boundaries aredefined and accepted, and the competitiverules of the game are known.In blue oceans, competition is irrelevantbecause the rules of the game are waitingto be set.
The Continuing Creation of Blue OceansAlthough the term blue oceans is new, their existence is not. Companies which never existed 50 years back are on zoom today. Similarly, companies which are not in existence today may exist after a few years & we should think about those.
The Impact of Creating Blue Oceans The profit and growth consequences of creating blue oceans.Business launch 86% 14%Revenue Impact 62% 38%Profit Impact 39% 61% Launches within red oceans Launches for creating blue oceans
From Company & Industry to Strategic MoveThe study shows that the strategic move,and not the company or the industry, is theright unit of analysis for explaining thecreation of blue oceans and sustainedhigh performance.A strategic move is the set of managerialactions and decisions involved in makinga major market creating business offering.
Value Innovation: The cornerstone of Blue Ocean strategyValue innovation places equal emphasison value and innovation. Value withoutinnovation tends to focus on valuecreation on an incremental scale,something that improves value but is notsufficient to make you stand out in themarket place.
Innovation without value tends to betechnology-driven, market pioneering, orfuturistic, often shooting beyond whatbuyers are ready to accept and pay for.Value innovation occurs only whencompanies align innovation with utility,price, and cost positions.People who seek to create blue oceanspursue differentiation and low costsimultaneously.
Red Ocean Strategy Blue Ocean StrategyCompete in existing Create uncontestedmarket space. market space.Exploit existing demand. Create and capture new demand.Make the value-cost Break the value-costtrade-off. trade-off.Align the whole system Align the whole systemof a firm’s activities with of a firm’s activities inits strategic choice of pursuit of differentiationdifferentiation or low and low cost.cost.
Formulation Principles Risk factors each principle attenuates Reconstruct market Reduces search riskboundaries Focus on the big picture, not Reduces planning riskthe numbers Reach beyond existing Reduces scale riskdemand Reduces business model Get the strategic sequence riskright Execution Principles Risk factors each principle attenuates Overcome key Reduces organizational riskorganizational hurdles Build execution into strategy Reduces management risk
Analytical Tools and FrameworksEffective blue ocean strategy should beabout risk minimization and not risk taking.
The Strategy CanvasThe strategy canvas is both a diagnosticand an action framework for building acompelling blue ocean strategy.First it captures the current state of play inthe known market space.This allows you to understand where thecompetition is currently investing, thefactors the industry currently competes onin products, service, & delivery, & whatcustomers receive from the existingcompetitive offerings in the market.
Reduce Which factors should be reduced well below the industry’s standard? Eliminate CreateWhich of the factors that A new Which factors should be the industry takes for value curve created that the granted should be industry has eliminated? never offered? Raise Which factors should be raised well above the industry’s standard?
The Eliminate-Reduce-Raise- Create Grid Eg. [yellow tail]
Eliminate Raise Enological terminology Price versus budget and winesdistinctions Retail store Aging qualities involvement Above the linemarketing Reduce Create Wine complexity Easy drinking Wine range Ease of selection Vineyard prestige Fun and adventure
Three Characteristics of a Good Strategy1. Focus: Every great strategy has focus, and a company’s strategic profile, or value curve, should clearly show it.
2. Divergence: When a company’s strategy is for me d rea ctiv ely as it
3. Compelling tagline: A good strategy has a clear-cut and compelling tagline.Eg. Tagline of SouthWest Airlines“The speed of a plane at the price of a car- whenever you need it.”
Some factors showing a company caught in the Red OceanOverdelivery without paybackAn Incoherent StrategyStrategic ContradictionsAn internally driven company
Companies trapped in red oceanstend to do the following: Define their industry similarly and focus on being the best within it. Look at their industries through the lens of generally accepted strategic groups (such as luxury automobiles, economy cars, and family vehicles), and strive to stand out in the strategic group they play in. Focus on the same buyer group, be it the purchaser (as in office equipment industry), the user ( as in clothing industry), or the influencer (as in pharmaceutical industry).
Define the scope of the products andservices offered by their industry similarly.Accept their industry’s functional oremotional orientation.Focus on the same point in time-and oftenon current competitive threats-informulating strategy.
Six Paths Framework(Pattern for Creating Blue Ocean Strategy)
Path 1: Look Across Alternative Industries.Path 2: Look Across Strategic Groups Within Industries.Path 3: Look Across the Chain of Buyers.Path 4: Look Across Complementary Product and Service Offerings.Path 5: Look Across Functional or Emotional Appeal to Buyers.Path 6: Look Across Time.
From Head to Head Competition to Blue Ocean Creation
Head-to-Head Blue Ocean Competition CreationIndustry Focuses on rivals Look across within its industry alternative industriesStrategic Group Focuses on Looks across competitive position strategic groups within strategic within industry groupBuyer Group Focuses on better Redefines the serving the buyer industry buyer group group
Head-to-Head Blue Ocean Competition CreationScope of product/ Focuses on Looks across toservice offering maximizing the complementary value of product & product and service service offerings offerings within the bounds of its industryFunctional- Focuses on Rethinks the feo ofemotional improving price its industryorientation (feo) performance within the feo of its industryTime Focuses on Participates in adapting to external shaping external trends as they trends over time occur
Drawing Your Strategy Canvas The Four Steps of Visualizing Strategy
1.Visual 2. Visual 3. Visual 4. VisualAwakening Exploration Strategy Fair Communication Compare your Go into the Draw your “to Distribute yourbusiness with field to explore be” strategy before-and-afteryour the six paths to canvas based strategic profilescompetitors’ by creating blue on insights from on one page fordrawing your oceans. field easy”as is” strategy Observe the observations. comparisoncanvas. distinctive Get feedback advantages of on alternative Support only See where alternative strategy those projectsyour strategy products and canvases from and operationalneeds to services customers, moves thatchange See which competitors’ allow your factors you customers, & company to should non customers. close the gaps eliminate, create Use feedback to actualize the or change to build the best new strategy. “to be” future strategy.
Reach Beyond Existing DemandThe three tiers of Noncustomers First tier Third Second Your market tier tierFirst tier-”soon to be” noncustomers who areon the edge, waiting to jump ship.Second tier-’’Refusing’’ noncustomers whoconsciously choose against your marketThird tier: ‘’Unexplored’’ noncustomers who arein markets distant from yours
Buyer utilityIs there exceptional buyer utility No-rethinkin your business idea? Yes PriceIs your price easily accessible to No-rethinkthe mass of buyers? Yes CostCan you attain your cost target No-Rethinkto profit at your strategic price? Yes AdoptionWhat are the adoption hurdles inactualizing your business idea? No-RethinkAre you addresing them up front? Yes A commercially viable Blue ocean idea
Testing for Exceptional Utility The Buyer Utility Map
The Six Stages of the Buyer Experience Cycle 1. 2. 3. 4. 5. 6. Purchase Delivery Use Suplemnts mainte Disposal nanceCustomerProductivitySimplicityConvenienceRiskFun & ImageEnvironmentalfriendliness
Purchase Delivery UseHow long does it How long does Does the product requiretake to find the it take to get the training or expertproduct you product assistance?need? delivered? Is the product easy to storeIs the place of How difficult is it when not in use?purchase to unpack andattractive & install the new How effective are theaccessible product? product’s features and functions?How secure is Do buyers havethe transaction to arrange Does the product orenvironment? delivery service deliver far more themselves? If power or options than yes, how costlyHow rapidly can required by the average and difficult isyou make a user? Is it overcharged this?purchase? with bells and whistles?
Supplements Maintenance DisposalDo you need Does the Does use of theother products product require product create& services to external waste items?make this maintenance?product work? How easy is it How easy is it to dispose ofIf so, how to maintain & the product?costly are they? upgrade the product? Are there legalHow much time ordo they take? How costly is environmental maintenance? issues in disposing of theHow much paindo they cause? product safely?How easy are How costly isthey to obtain? disposal?
Purchase Delivery Use Suppleme Maintena Disposal nts nceCustomer Productivity: in which stages are the biggest blocks to customerproductivity?Simplicity: in which stages are the biggest blocks to simplicity?Convenience: In which stages are the biggest blocks to convenience?Risk: In which stages are the biggest blocks to reducing risks?Fun & Image: In which stages are the biggest blocks to fun & image?Environmental friendliness: In which stages are the biggest blocks toenvironmental friendliness?
From Exceptional Utility to Strategic Planning Step 1: Identify the Price corridor of the Mass Step 2: Specify a Level Within the Price Corridor
From Strategic Pricing to Target Costing The Profit Model of Blue Ocean Strategy
The Strategic Price The Target Profit The Target CostStreamlining & Cost innovations Partnering Pricing Innovations
Adoption Of Blue Ocean IdeaBefore moving further and investing in thenew idea, the company must firstovercome such fears by educating thefollowing people-EmployeesBusiness PartnersThe General Public
Overcome KeyOrganizational Hurdles The Four OrganizationalHurdles to Strategy Execution
Cognitive Hurdle An organization wedded to the status quo Political Hurdle Resource Hurdle Opposition fromLimited resources powerful vested interests Motivational Hurdle Unmotivated Staff
Building Execution into Strategy A company is not only Top Management, nor is it only middle management. A company is everyone from the top to the front lines. The company must create a culture of trust & commitment that motivates people to execute the agreed strategy.
The power of fair process How Fair Process Affects People’s Attitudes and Behavior
Fair Process Strategy Engagement Formulation Explanation Process Expectation clarity Trust andAttitudes Commitment “I feel my opinion counts” Voluntary Co-operation “I’ll go beyond the callBehavior of duty” Exceeds expectations Self- Initiated Strategy execution
The Three E Principles of Fair Process There are three mutually reinforcing elements that define fair process-1. Engagement2. Explanation3. Clarity of Expectation
The execution consequences of the presence and absence Of fair process in strategy making Voluntary Intellectual & Trust & Cooperation in Fair Process Emotional Commitment Strategy Recognition execution Intellectual & Refusal toViolation of Fair Distrust & Emotional Execute Process Resentment Indignation Strategy
Imitation Barriers to Blue Ocean StrategyValue innovation does not make sense toa company’s conventional logic.Blue ocean strategy may conflict withother companies’ brand image.Natural monopoly: The market oftencannot support a second player.Patents or legal permits block imitation.Network externalities discourage imitation.
Imitation Barriers to Blue Ocean Strategy contd…High volume leads to rapid costadvantage for the value innovator,discouraging followers from entering themarket.Imitation often requires significant political,operational, & cultural changes.Companies that value-innovate earnbrand buzz & a loyal customer followingthat tends to shun imitators.
Blue Ocean Strategy Written by W.Chan Kim Renee Mauborgne