Blue Ocean Strategy - An overview for TEC Members


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This presentation has been developed for members and guests of The Executive Connection in Australia and New Zealand.

This is an introduction to Blue Ocean Strategy and focuses on the core phases of the overall process - in an easy to digest format.

This presentation includes content from the Australian Blue Ocean Strategy licensee

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Blue Ocean Strategy - An overview for TEC Members

  1. 1. Blue Ocean Strategy An Introduction Mark Parker© 2011 Smart Selling International Pty Ltd
  2. 2. About Me • TEC-24 • TEC member for 8 years • 5-year focus on social media • Social business • Social CRM • Social Community • Smart Selling • Smartpen – utilised Blue Ocean Strategy to define uncontested market space • Smart Social Media© 2011 Smart Selling International –
  3. 3. Today’s Objectives • Part 1 – Introducing Blue Ocean Strategy • Part 2 – The Core of BOS • Questions – the more the better!© 2011 Smart Selling International –
  4. 4. What is Strategy • Three aligned propositions: Value People Profit© 2011 Smart Selling International –
  5. 5. Red Ocean Versus Blue Ocean Strategy In the red ocean, differentiation costs because firms compete with the same best-practice principle. Here, the strategic choices for firms are to pursue either differentiation or low cost. In the reconstructionist world, however, the strategic aim is to create new best- practice rules by breaking the existing value-cost trade-off and thereby creating blue ocean. Red Ocean Strategy Blue Ocean Strategy Compete in existing market space. Create uncontested market space. Beat the competition. Make the competition irrelevant. Exploit existing demand. Create and capture new demand. Make the value-cost trade-off. Break the value-cost trade-off. Align the whole system of a firm’s Align the whole system of a firm’s activities with its strategic choice of activities in pursuit of differentiation differentiation or low cost. and low cost.© 2011 Smart Selling International –
  6. 6. Value Innovation Value innovation is created in the region where a company’s actions favorably affect both its cost structure and its value proposition to buyers. Costs Cost savings are Buyer value is lifted made by by raising and eliminating and creating elements reducing the the industry has factors an industry Value never offered. Over competes on. Innovation time, costs are reduced further as scale economies kick in due to the high sales volumes that superior value Buyer Value generates.© 2011 Smart Selling International –
  7. 7. Three Key Perspectives© 2011 Smart Selling International –
  8. 8. Four Steps of Visualising Strategy The four steps of visualizing strategy builds on the six paths of creating blue oceans and involves a lot of visual stimulation in order to unlock people’s creativity. The four steps include visual awakening, visual exploration, visual strategy creation, and visual communication. 1. Visual Awakening 2. Visual Exploration 3. Visual Strategy 4. Visual Creation Communication •Compare your business •Go into the field to explore •Draw your “to be” strategy •Distribute your before-and- with your competitors’ by the six paths to creating canvas based on insights from after strategic profiles on one drawing your “as is” blue oceans. field observations. page for easy comparison. strategy canvas. •Observe the distinctive •Get feedback on alternative •Support only those projects •See where your strategy advantages of alternative strategy canvases from and operational moves that needs to change products and services. customers, competitors’ allow your company to close customers, and noncustomers. the gaps to actualize the new •See which factors you strategy. should eliminate, create, or •Use feedback to build the best change. “to be” future strategy.© 2011 Smart Selling International –
  9. 9. Part 1 Visual Awakening© 2011 Smart Selling International Pty Ltd
  10. 10. Visual Awakening Definition The Visual Awakening serves as a wake-up call for companies to challenge their existing strategy. The key tool used here is the “Strategy Canvas” The strategy canvas is both a diagnostic and an action framework for building a compelling blue ocean strategy. It captures the current state of play in the known market space. This allows you to understand where the competition is currently investing, the factors the industry currently competes on in products, service, and delivery, and what customers receive from the existing competitive offerings on the market.© 2011 Smart Selling International –
  11. 11. The “As-Is” Strategy Canvas The horizontal axis captures the range of factors the industry competes on an invests in. The vertical axis captures the offering level that buyers receive across all these key competing factors. The value curve then provides a graphic depiction of a company’s relative performance across its industry’s factors of competition.© 2011 Smart Selling International –
  12. 12. The “As-Is” Strategy Canvas© 2011 Smart Selling International –
  13. 13. The “As-Is” Strategy Canvas – Consoles High Microsoft Xbox Sony PS2 Nintendo Game Cube Low© 2011 Smart Selling International –
  14. 14. The “As-Is” Strategy Canvas - Exercise 1. Identify the dominant customer group your industry focuses on. Label your Strategy Canvas. 2. Identify the key competitive factors your industry competes on to capture this dominant customer group. Your perspective is your industry’s. • There should be five to twelve factors. Price is always the first factor. 3. Rate your relative offering of each factor. Price is Price, not Value - an absolute figure; a high price is plotted high, a low price is low. 4. Connect the dots to create your “As Is” Value Curve. 5. Identify your dominant competitors in the industry. Repeat the process. Do not plot against more than three competitors, preferably only two – it becomes too cluttered to read.© 2011 Smart Selling International –
  15. 15. Buyer Experience Cycle A buyer’s experience can usually be broken into a cycle of six stages, running more or less sequentially from purchase to disposal. Each stage encompasses a wide variety of specific experiences. At each stage, managers can ask a set of questions to gauge the quality of buyer’s experience. Purchase Delivery Use Supplements Maintenance Disposal How long does it How long does Does the product Do you need other Does the product Does use of the take to find the it take to get require training or products and require external product create product you the product expert assistance? services to make maintenance? waste items? need? delivered? this product work? Is the product easy to How easy is it to How easy is it to Is the place of How difficult is store when not in If so, how costly are maintain and dispose of the purchase it to unpack use? they? upgrade the product? attractive and and install the product? How effective are the How much time do Are there legal accessible? new product? product’s features they take? How costly is or How secure is Do buyers and functions? maintenance? environmental How easy are they the transaction have to issues in Does the product or to obtain? environment? arrange disposing of the service deliver far delivery product safely? How rapidly can more power or themselves? If you make a options than required How costly is yes, how costly purchase? by the average user? disposal? and difficult is Is in overcharged with this? bells and whistles?© 2011 Smart Selling International –
  16. 16. Buyer Utility Map The buyer utility map helps managers look at this issue from the right perspective. It outlines all the levers companies can pull to deliver exceptional utility to buyers as well as the various experiences buyers can have with a product or service. The Six Stages of the Buyer Experience Cycle 1. 2. 3. 4. 5. 6. Purchase Delivery Use Supplements Maintenance Disposal Customer Productivity The Six Utility Levers Simplicity Convenience Risk Fun and Image Environmental friendliness© 2011 Smart Selling International –
  17. 17. Example – teachers in remote areas The Six Stages of the Buyer Experience Cycle 1. 2. 3. 4. 5. 6. Purchase Delivery Use Supplements Maintenance Disposal No or Will it save What is What is Product life Customer Productivity limited time required required The Six Utility Levers retail; Where to How long How to Simplicity start install Don’t have Deliver to Easy to hold Where to Connecting Convenience credit card remote get to DET towns consumables Risk Damage in Damage Availability Lose the pen transit or pads Fun and How to use Do the Image well accessories look good Environmental friendliness Paper use Lith-Ion battery© 2011 Smart Selling International –
  18. 18. Uncovering Blocks to Buyer Utility Uncovering blocks to buyer utility can identify the most compelling hot spots to unlock exceptional utility. By locating your proposed offering on the thirty-six space of the buyer utility map, you 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 noncustomers into customers. Purchase Delivery Use Supplements Maintenance Disposal Customer Productivity: In which stage are the biggest blocks to customer productivity? Simplicity: In which stages 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? Environmental In which stage are the biggest blocks to environmental friendliness? Friendliness:© 2011 Smart Selling International –
  19. 19. Visual Awakening Summary This phase is primarily navel gazing Use a cross section of internal resources so you achieve a real balance of opinion and insight Key Tools Used: 1. Strategy Canvas – the As-Is strategy canvas 2. Buyer Utility Map – complex, but a cornerstone of the next phase of BOS© 2011 Smart Selling International –
  20. 20. Part 2 Visual Exploration© 2011 Smart Selling International Pty Ltd
  21. 21. Visual Exploration Definition During Visual Exploration, teams of managers go out into the field to explore the Six Paths Framework gathering noncustomer insights. Here they are looking to observe the distinct differences of alternative products and services to see which factors should be eliminated, reduced, raised, or created in the companys offerings. Reduce Eliminate Create A New Value Curve Raise© 2011 Smart Selling International –
  22. 22. Visual Exploration – Six Paths Analysis • As we transitioned into the Exploration stage, time was spent on the Six Paths Analysis – looking across alternate industries, groups, products and services • This analysis identified: • Apple stores – how they harness desire and enthusiasm – the tribe • In business, who spends a lot of time taking notes or minutes? • How do the sub groups of educators work and communicate© 2011 Smart Selling International –
  23. 23. Three Tiers 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 customers minimally buy an industry’s offering out of necessity. • The second tier of noncustomers refuse to use your industries offerings. • The third tier are noncustomers who have never thought of your market’s offerings as an option. Third Second Tier Tier First Tier Your Market© 2011 Smart Selling International –
  24. 24. Non-Customer Example • From this study we identified a number of new customer segments (see diagram). • Our focus shifted to what barriers existed for these non- customers© 2011 Smart Selling International –
  25. 25. What Did We Hear from Non-Customers? • What does it do? • I work in a small rural school. How do we buy one? • This is my job. Will it help? • Can I use the pen to create mini tutorials for my students? • I work with students from non-English speaking backgrounds; how will this help? • Will it work with this third party application?© 2011 Smart Selling International –
  26. 26. The ERRC Chart Reduce What should be COST reduced well below the industry’s standard? Eliminate Create What does the A New What should be industry take for C Value created that the granted that should Curve industry has never be eliminated ? offered? Raise What should be VALUE raised well above the industry’s standard?© 2011 Smart Selling International –
  27. 27. The ERRC Chart – Why? The eliminate-reduce-raise-create grid pushes companies not only to ask all four questions in the four actions framework but also to act on all four to create a new value curve. By driving companies to fill in the grid with the actions of eliminating, reducing, raising, and creating, the grid provides four immediate benefits: 1. It pushes them to simultaneously pursue differentiation and low costs; 2. Identifies companies who are only raising and creating thereby raising costs; 3. Makes it easier for managers to understand and comply; and 4. It drives companies to scrutinize every factor the industry competes on.© 2011 Smart Selling International –
  28. 28. The ERRC Grid for Smartpen • Our field research led us to develop the following Four Action Framework Eliminate Raise Above the line advertising Price Product range Post-sales support Reduce Create Social media footprint Purchase order options Multi-channel communications© 2011 Smart Selling International –
  29. 29. The ERRC Grid for Wii • Nintendo created a ERRC grid as follows Eliminate Raise Design aesthetics Game titles Reduce Create Hi-res graphics Motion Non-gaming functionality Fun friendly games Processing power© 2011 Smart Selling International –
  30. 30. Sequence of Blue Ocean Strategy An important part of blue ocean strategy is Buyer utility to “get the strategic sequence right.” Is there exceptional buyer utility in your business idea? No-- Rethink This sequence fleshes out and validates Yes blue ocean ideas to ensure their commercial viability. Price Is your price easily accessible to the This can then reduce business model risk. mass of buyers? No-- Rethink In this model, potential blue ocean ideas Yes must pass through a sequence of buyer utility, price, cost, and adoption. Cost Can you attain your cost target to profit At each step there are only two options: a at your strategic price? No-- Rethink “yes” answer, in which case the idea may pass to the next step, or “no”. If an idea Yes receives a no at any point, the company can Adoption either park the idea or rethink it until you What are the adoption hurdles in get a yes. actualizing your business idea? Are you addressing them up front? No-- Rethink Yes A Commercially Viable Blue Ocean Idea© 2011 Smart Selling International –
  31. 31. Price Corridor of the Mass This tool helps managers find the right price for an irresistible offer, which, by the way, isn’t necessarily the lower price. The tool involves two distinct buy interrelated steps. The first step involves identifying the price corridor of the mass which deals with customer price sensitivity and pricing strategies of products offered outside the group of traditional competitors. The second step deals with specifying a level within the price corridor which factors in legal protection and exclusive assets. Step 1: Identify the price corridor of Step 2: Specify a price level within the price the mass. corridor. Three alternative product/service types: Different form and Same Different function, same form form, same objective function High degree of legal and resource protection Difficult to imitate Some degree of legal and resource Price Corridor of protection Mid-level pricing the Mass Low degree of legal and resource protection Easy to imitate© 2011 Smart Selling International –
  32. 32. Part 3 Visual Strategy Creation© 2011 Smart Selling International Pty Ltd
  33. 33. Visual Strategy Creation The penultimate step is the Visual Strategy Creation. Here teams begin to draw their "to be" strategy canvases based on insights from the Visual Awakening and Visual Exploration stages. The strategy fair invites senior corporate executives, external constituencies―the kinds of people met during the teams field work, including noncustomers and customers of competitors. The objective is for each team to present their various alternative strategy canvases and gain feedback to build the best possible "to be" future strategy canvas.© 2011 Smart Selling International –
  34. 34. Nintendo Wii “To-Be” canvas High Nintendo Wii Sony PS2 Microsoft Xbox Low© 2011 Smart Selling International –
  35. 35. Nintendo “We are not competing against Sony or Microsoft. We are battling the indifference of people who have no interest in video games. We want to appeal to mothers who do not want consoles in their living rooms, and to the elderly and young women.” - Iwata Satoru, Nintendo President, Fortune Magazine 6/11/2007© 2011 Smart Selling International –
  36. 36. Visual Strategy Creation – To-Be Canvas • Through a series of iterations a To Be Strategy Canvas was developed© 2011 Smart Selling International –
  37. 37. Part 4 Execution© 2011 Smart Selling International Pty Ltd
  38. 38. Execution of a Blue Ocean Strategy Blue Ocean Strategy completes the overall strategy process by providing two additional tools to aide execution: • Fair Process - builds execution into strategy by creating peoples buy-in up front. When fair process is exercised in the strategy making process, people trust that a level playing field exists. This inspires them to cooperate voluntarily in executing the resulting strategic decisions. • Tipping Point Leadership - 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.© 2011 Smart Selling International –
  39. 39. Fair Process Principles Engagement Explanation Expectations Clarity© 2011 Smart Selling International –
  40. 40. Execution Consequences Presence of Fair Process Voluntary Intellectual & Trust & Cooperation in Fair Process Emotional Commitment Strategy Recognition Execution Absence of Fair Process Intellectual & Refusal to Violation of Fair Distrust & Emotional Execute Process Resentment Indignation Strategy© 2011 Smart Selling International –
  41. 41. Tipping Point Leadership - Kingpins wielding disproportionate influence - Fishbowl management Motivational Execution Political Failure Cognitive - Consigliere - Experiences, not numbers - Angels & Devils Resource - Hot & Cold Spots - Horse trading© 2011 Smart Selling International –
  42. 42. Summary© 2011 Smart Selling International Pty Ltd
  43. 43. Blue Ocean Strategy - Summary Blue Ocean Strategy completes the overall strategy process by providing two additional tools to aide execution: • Visual Awakening - serves as a wake-up call for companies to challenge their existing strategy. • Visual Exploration – go out into the field to explore the Six Paths Framework gathering noncustomer insights. • Visual Strategy Creation - teams begin to draw their "to be" strategy canvases based on insights from the Visual Awakening and Visual Exploration stages.© 2011 Smart Selling International –
  44. 44. Napster vs iTunes 1999 iTUNES 2003© 2011 Smart Selling International –
  45. 45. Blue Ocean Strategy - Summary iTUNES  Value  Value  Profit  Profit  People  People© 2011 Smart Selling International –
  46. 46. Key Contacts re Blue Ocean Strategy • Blue Ocean Strategy Australia • Andrew Nelson – (0404) 870 305, • • • Robynne Berg – (good friend of Tim Martin) • • BOS LinkedIn Group •© 2011 Smart Selling International –