Blue Ocean Strategy Summarized by Vanessa Yang Aug 9, 2010
About the Authors W. Chan Kim is The Boston Consulting Group Bruce D. Henderson Chair Professor of Strategy and International Management at INSEAD. Renee Mauborgneis the INSEAD Distinguished Fellow and a professor of strategy and management at INSEAD in Fontainebleau, France, and Fellow of the World Economic Forum.
How to survive in the bloody “red ocean” of rivals fighting over a shrinking profit pool? In today’s head-to-head competition…… And overcrowded industries…
Creating “blue oceans” of uncontested market space ripe for growth.
Creating Blue Oceans
Value Innovation: The Cornerstone of Blue Ocean Strategy Costs Value Innovation Buyer Value
Red Ocean Versus Blue Ocean Strategy
The Six Principles of Blue Ocean Strategy
Analytical Tools and Frameworks
The Strategy Canvas High Low Wine range Above-the-line marketing Vineyard prestige and legacy Price Use of enological terminology Aging quality Wine complexity
The Four Actions Framework Reduce Which factors should be reduced well below the industry’s standard? Eliminate Create A New Value Curve Which of the factors that the industry takes for granted should be eliminated? Which factors should be created that the industry has never offered? Raise Which factors should be raised well above the industry’s standard?
The Eliminate-Reduce-Raise-Create Grid: The Case of [yellow tail]
Three Characteristics of a Good Strategy Focus Divergence Compelling Tagline 3 Characteristics of a good strategy
Six Paths to Create Blue Ocean Path 6 Look Across Time Path 5 Look Across Functional or Emotional Appeal to Buyers Path 4 Look Across Complementary Product and Service Offerings Path 3 Look Across the Chain of Buyers Path 2 Look Across Strategic Groups within Industries Path 1 Look Across Alternative Industries
From Head-to-Head Competition to Blue Ocean Creation
Focus on the Big Picture, Not the Numbers Formulating Executing
The Four Steps of Visualizing Strategy Visual Awakening Visual Exploration Visual Strategy Fair Visual Communications
Compare your business with your competitors’ 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, create, or change.
Draw your “to be” strategy canvas based on insights from field observations.
Get feedback on alternative strategy canvases from customers, competitors’ customers, and noncustomers.
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 Pioneer-Migrator-Setting (PMS) Map Pioneers Migrators Settlers Today Tomorrow
Get the Strategic Sequence Right Formulating Executing
The Sequence of Blue Ocean Strategy No – Rethink Yes No – Rethink Yes No – Rethink Yes A Commercially Viable Blue Ocean Idea Yes
Testing for Exceptional Utility 1 - The Buyer Utility Map The Six Stages of the Buyer Experience Cycle The Six Utility Levers
Testing for Exceptional Utility 2 - The Buyer Experience Cycle Purchase How long does it take 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? Delivery How long does it take to get the product delivered? How difficult is it to unpack and install the new product? Do buyers have to arrange delivery themselves? If yes, how costly and difficult is this? Use Does the product require training or expert assistance? Is the product easy to store when not in use? How effective are the product’s features and functions? Does the product or service deliver far more power or options than required by the average user? Is in overcharged with bells and whistles? Supplements Do you need other products and services to make this product work? If so, how costly are they? How much time do they take? How easy are they to obtain? Maintenance Does the product require external maintenance? How easy is it to maintain and upgrade the product? How costly is maintenance? Disposal Does use of the product create waste items? How easy is it to dispose of the product? Are there legal or environmental issues in disposing of the product safely? How costly is disposal?
Testing for Exceptional Utility 3 - Uncovering the Blocks to Buyer Utility
Strategic Pricing – the Price Corridor of the Mass Step 1: Identify the price corridor of the mass. Step 2: Specify a price level within the price corridor. Three alternative product/service types: Different form and function, same objective Same form Different form, same function Upper-level pricing Price Corridor of the Mass Mid-level pricing Lower-level pricing
Target Costing – the Profit Model The Strategic Price The Target Profit The Target Cost Streamlining and Cost Innovations Partnering Pricing Innovation
Challenging Conventional Wisdom Conventional Wisdom Versus Tipping Point Leadership Conventional Wisdom Mass of Employees Company Tipping Point Leadership Extremes Extremes Company
Build Execution into Strategy Formulating Executing
How Fair Process Affects People’s Attitudes and Behavior Fair Process Engagement Explanation Expectation Clarity Strategy Formulation Process Trust and Commitment “I feel my opinion counts.” Attitudes Voluntary Cooperation “I’ll go beyond the call of duty.” Behavior Exceeds Expectations Self-initiated Strategy Execution
The Three E Principles of Fair Process Engagement Explanation Expectation clarity
Fair Process and Blue Ocean Strategy Fair Process Intellectual and Emotional Recognition Trust and Commitment Voluntary Cooperation in Strategy Execution Violation of Fair Process Intellectual and Emotional Indignation Distrust and Resentment Refusal to Execute Strategy
Conclusion: The Sustainability and Renewal of Blue Ocean Strategy
Barriers to Imitation 1. Conflict with conventional logic 2. Conflict with brand image 3. Natural monopoly 4. Patents or legal permits 5. High volume leads to rapid cost advantage for the value innovator, discouraging followers 6. Network externalities 7. Imitation requires significant political, operational, and cultural changes. 8. Brand buzz and a loyal customer following
When to Value-Innovate Again Monitor value curves on the strategy canvas. Ensure the strategy has focus, divergence, and a compelling tagline. Use the six principles to think about future strategy.
Create Uncontested Market Space and Make the Competition Irrelevant.