Blue Ocean Strategy (BOS)

Blue Ocean Strategy W. Chan Kim and Renee Maubourgne Edited by Chitchai P.

Agenda
Blue Ocean Strategy (BOS)
Creating Blue Ocean
Analytical Tools and Frameworks
Formulating Blue Ocean Strategy
Reconstruct Market Boundaries
Focus on Big Picture
Reach Beyond Existing Demand
Get Strategic Sequence Right
Executing Blue Ocean Strategy
Overcome Key Organization Hurdles
Build Execution into Strategy
Conclusion

Agenda
Creating Blue Ocean
Conclusion

Creating Blue Ocean
New Market Space
The Continuing Creation of Blue Oceans
The Impact and Imperative of Crating Blue Oceans
From Company and Industry to Strategic Move
Value Innovation: The Cornerstone of BOS
The Six Principles of BOS

Impact of Creating Blue Oceans
Profit and Growth Consequence Figure (TBA)

Value Innovation: The Cornerstone of BOS Costs Buyer Value Value Innovation The Simultaneous Pursuit of Differentiation and Low Cost

Red Ocean vs. Blue Ocean Strategy Red Ocean Strategy Compete in existing market space Beat the competition Exploit existing demand Make the value-cost trade-off Align the whole system of a firm’s activities with its strategic choices of differentiation or low cost Focuses on adapting to external trends as they occur Create uncontested market space Make the competition irrelevant Create and capture untapped demand Break the value-cost trade-off Align the whole system of a firm’s activities in pursuit of differentiation and low cost Participates in shaping external trends over time Blue Ocean Strategy

The Six Principles of BOS
Execution Principles
Overcome key organization hurdles
Build execution into strategy
Risk Factor Each Principle Attenuates
Organization risk
Management risk
Formulating Principles
Reconstruct market boundaries
Focus on the big picture, not the numbers
Reach beyond existing demand
Get the strategic sequence right
Risk Factor Each Principle Attenuates
Search risk
Planning risk
Scale risk
Business model risk

Strategy Canvas
Four Actions Framework
Eliminate-Reduce-Raise-Create Grid
Three Characteristics of a Good Strategy

Strategy Canvas US Wine Industry in the late 1990s High Price Low Premium Wines Budget Wines Wine range Wine complexity Vineyard prestige Aging quality Above-the-line marketing Use of enological terminology and distinctions in wine communication

Four Actions Framework REDUCE Which factors should be reduced well below the industry’s standards? CREATE Which factors should be created that the industry has never offered? ELIMINATE Which of the factors that the industry take for granted should be eliminated? RAISE Which factors should be raised well above the industry’s standard? A New Value Curve

Eliminate-Reduce-Raise-Create Grid Case Study : Yellow Tail Reduce Wine complexity Wine range Vineyard prestige Create Easy drinking Ease of selection Fun and adventure Eliminate Enological Terminology Aging qualities Above-the-line Marketing Raise Price versus budget wines Retail stores involvement

A New Value Curve – Strategy Canvas of Yellow Tail High Price Easy drinking Ease of selection Low Premium Wines [yellow tail] Budget Wines Fun and adventure Wine range Wine complexity Vineyard prestige Aging quality Above-the-line marketing Use of enological terminology and distinctions in wine communication CREATE REDUCE ELIMINATE RAISE

Strategy Canvas: Southwest Airlines High Price Meals Lounges Seating class choice Hub connectivity Friendly Service Speed Frequent Pint-to-point departure Low Average Airlines Southwest Airlines Car Transport

Strategy Canvas: Cirque du Soleil High Price Star performers Animal shows Multiple show arena Fun and humor Thrill and challenge Unique venue Theme Low Ringling Bros. & Barnum & Bailey Cirque du Soliel Smaller Regional Circuses Refined watching environment Multiple Production Artistic music and dance Aisle concessions

Three Characteristics of a Good Strategy
Focus
Divergence
Compelling Tagline

Agenda
Creating Blue Ocean
Conclusion

Path 1: Look Across Alternative Industries
Path 2: Look Across Strategic Groups within Industries
Path 3: Look Across Chain of Buyers
Path 4: Look Across Complementary Products and Service Offerings
Path 5: Look Across Functional or Emotional Appeal to Buyers
Path 6: Look Across Time

Strategy Canvas: NetJets Path1: Alternative Industry High Price (fixed purchase + variable price per flight) Need for customer to manage aircraft (Aircraft M&A) Deadhead costs Speed of total travel time Ease of travel (include. Check-in, customs, etc. Flexibility and reliability In-flight service Low Private Jet Corporate travel NetJet’s Value Curve Commercial Airlines First and Business-Classes travel

Strategy Canvas: QuickFit Path2: Strategic Group High Price Amenities Workout equipment (treadmill, weights, etc) Workout time Availability of instructors Environment encouraging discipline and motivation in exercise Nonthreatening same-sex Environ- ment Convenience Low Traditional health clubs Curves Home Exercise Program Womanly fun atmos-phere

Strategy Canvas: NovoPen Path3: Buyer Group

Strategy Canvas: NABI Path4: Scope of Product/Service Offerings High Initial purchase price Corrosion Maintenance cost Fuel consumption Environmental friendliness Aesthetic design Customer friendliness Low Average US Transit Bus NABI Hungarian Municipal Bus Company Life-Cycle Cost

Strategy Canvas: QB House Path5: Functional/Emotional Orientation High Price Reservation desk Extra services (other than haircutting) Range of hair treatments Hygiene Time savings on waiting Time savings on haircut High performance”air wash” system Low Average Japanese Barbershop QB House

Strategy Canvas: iTunes/Cisco Path6: Time

Summary: Conceiving New Market Space Head-to-Head Competition Industry Strategic Group Buyer Group Scope of Product or Service Offering Functional Emotional Orientation Time Focuses on rivals within its industry Focuses on competitive position within strategic group Focuses on better serving the buyer group Focuses on maximizing the value of product and service offering within the bounds of its industry Focuses on improving price performance within the functional-emotional orientation of its industry Focuses on adapting to external trends as they occur Looks across alternative industries Looks across strategic groups within industry Redefines the industry buyer group Looks across to complementary product and service offerings Rethinks the functional-emotional orientation of to industry Participates in shaping external trends over time Blue Ocean Creation

Four Steps of Visualizing Strategy
The Pioneer-Migrator-Settler Map

Four Steps of Visualizing Strategy Visual Awakening Visual Exploration Visual Strategy Fair Visual Communication
Compare your business with your competitor’s by drawing your “as is” strategy canvas.
See where your strategy needs to change.
Go into the field to explore the six paths to creating blue oceans.
Observe the distinctive advantages of alternative products and services.
See which factors you should Eliminate, Raise, Create, or Change.
Draw your ‘to be” strategy canvas based on insights from field observations.
Get feedback on alternative strategy canvases from customers, competitor's customer, and non-customers.
Use feedback to build the best “to be” future strategy.
Distribute your before-and-after strategic profiles on one page for easy comparison.
Support only those projects and operational moves that allow your company to close the gaps to actualize the new strategy.

The PMS Map Pioneers Migrators Settlers Today Tomorrow

First Tier: “Soon-to-be” non-customers who are on the edge of your market, waiting to jump ship
Second Tier: “Refusing non-customers who consciously choose against your market.
Third Tier: “Unexplored” non customers who are in markets distant from yours.
First Tier Second Tier Third Tier Your Market

Get the Strategic Sequence Right Buyer Utility Price Cost Adoption Commercially Viable Blue Ocean Idea NO Is there exceptional buyer utility in your business idea? Is your price easily accessible to the mass of buyers? NO Can you attain your cost target to profit at your strategic price? NO What are adoption hurdles in actualizing your business idea? Are you addressing them up front? NO

Buyer Utility Map The Six Utility Levels The Six Stages of the Buyer Experience Cycle How long to find the product you need? Is the place of purchase attractive and accessible? How secure is the transaction environment? How rapidly can you make a purchase? How long to get the product delivered? How difficult to unpack and install the new product? Do buyers have to arrange delivery themselves? If yes, how costly and difficult is this Training or expertise assistance required? Easy to store when not in used? How effective are features and functions? Overcharged with bell and whistles? Need other products to make it work? If so, how costly are they? How much time do they take? How much pain do they cause? How easy are they to obtain? Require external ME How easy to maintain and upgrade? How costly? Create waist items? How easy to dispose? Legal or environmental issue of the product disposal? How costly? Customer Productivity Environmental Friendliness Fun and Image Risk Convenience Simplicity 6 Disposal 5 Maintenance 4 Supplement 3 Use 2 Delivery 1 Purchase

Price Corridor of the Mass
Identify the Price Corridor of the mass
Specify a Price Level within the Price Corridor
Three alternative product/service types: Price Corridor of the Mass High degree of legal and resource protection Difficult to Imitate Some degree of legal and resource protection Low degree of legal protection Easy to Imitate Size of circle is proportion to number of buyers that product/service attracts Different Form and Function, Same Objective Different Form Same Function Same Form Upper-level pricing Mid-level pricing Low-level pricing

Profit Model of BOS The Target Profit The Strategic Price The Target Cost Pricing Innovation Streamlining and Cost Innovative Partnering

Adoption
Employees
Partners
General Public

Agenda
Creating Blue Ocean
Conclusion

Cognitive – Wedded to status quo
Political – Opposition from powerful vested interest
Motivational – Unmotivated
Resource – Limited resource

Build Execution into Strategy Fair Process Engagement Explanation Expectation clarity Trust &Commitment “ I feel my opinion counts.” Volunteer Cooperation “ I’ll go beyond the call of duty.” Exceeds Expectation Self-Initiated Strategy Formulation Process Attitude Behavior Strategy Execution

Conclusion Sustainability and Renewal of Blue Ocean Strategy
Imitation Barriers to BOS
Value Innovation does not make sense to a company’s conventional logic.
Blue Ocean Strategy may conflict with companies’ brand image.
Natural monopoly: The market often cannot support a second player.
Patents or legal permits block imitation.
High volume leads to rapid cost advantage for the value innovator, discouraging followers from entering the market.
Network Externalities discourage imitation.
Imitation often require significant political, operational, and cultural changes.
Companies that value-innovate earn brand buzz and a loyal customer following that tends to shun imitators.

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Blue Ocean Strategy (BOS)

by Chitchai Pornchaloempong on Feb 09, 2008

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