Blue Ocean Strategy


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Blue Ocean Strategy

  1. 1. Blue Ocean Strategy
  2. 2. About the book <ul><li>Written by two professors at INSEAD </li></ul><ul><li>Published in 2005, a million copies in its first year of publication and is being published in 41 languages </li></ul>
  3. 3. Contents <ul><li>Blue Ocean Vs. Red Ocean Strategy </li></ul><ul><li>Blue Ocean Strategy Tools </li></ul><ul><li>Strategy Canvas and Four Action Framework </li></ul><ul><li>Six Principles of Blue Ocean Strategy </li></ul><ul><li>Formulating Blue Ocean Strategy </li></ul><ul><li>Executing Blue Ocean Strategy </li></ul>
  4. 4. Blue Ocean vs. Red Ocean Strategy <ul><li>Create uncontested market space. </li></ul><ul><li>Make the competition irrelevant. </li></ul><ul><li>Create and capture new demand. </li></ul><ul><li>Break the value-cost trade-off. </li></ul><ul><li>Align the whole system of a firm’s activities in pursuit of differentiation and low cost. </li></ul><ul><li>Compete in existing market space. </li></ul><ul><li>Beat the competition. </li></ul><ul><li>Exploit existing demand. </li></ul><ul><li>Make the value-cost trade-off. </li></ul><ul><li>Align the whole system of a firm’s activities with its strategic choice of differentiation or low cost. </li></ul>Blue Ocean Strategy Red Ocean Strategy In the red ocean, the strategic choices for firms are to pursue either differentiation or low cost . In the blue ocean 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.
  5. 5. Blue ocean strategy = 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. Cost savings are made by eliminating and reducing the factors an industry competes on. Buyer value is lifted by raising and creating elements the industry has never offered. Over time, costs are reduced further as scale economies kick in due to the high sales volumes that superior value generates. Costs Buyer Value Value Innovation
  6. 6. Blue Ocean Strategy Examples <ul><li>Cirque du Soleil: Blending of opera and ballet with circus format while eliminating star performer and animals; </li></ul><ul><li>Netjets: fractional jet ownership; </li></ul><ul><li>Southwest Airlines: offering flexibility of bus travel at the speed of air travel using secondary airports; </li></ul><ul><li>Wii: Rather than releasing a more technologically advanced video game console with more features as in previous generations, Nintendo released a console with innovative controls made to attract people that usually do not play video games such as females and the elderly. </li></ul>
  7. 7. Blue Ocean Strategy Tools Strategy Canvas <ul><li>A diagnostic tool for building a compelling blue ocean strategy </li></ul><ul><li>It captures the current state of play in the known market space </li></ul><ul><li>Allow you to understand : </li></ul><ul><ul><li>where the competition is currently investing </li></ul></ul><ul><ul><li>the factors the industry currently competes on in product, service and delivery </li></ul></ul><ul><ul><li>what customers receive from existing competitive offerings on the market </li></ul></ul>
  8. 8. Blue Ocean Strategy Tools Strategy Canvas
  9. 9. Four Action Framework Eliminate Reduce Raise Create
  10. 10. Four Action Framework Eliminate Reduce Raise Create Which of the factors that the industry takes for granted should be eliminated? Which factors should be reduced well below the industry’s standard? Which factors should be created that the industry has never offered? Which factors should be raised well above the industry’s standard?
  11. 11. Four Action Framework The Case of Cirque du Soleil (A Circus Company) <ul><li>Theme </li></ul><ul><li>Refined environment </li></ul><ul><li>Multiple productions </li></ul><ul><li>Artistic music and dance </li></ul>Eliminate Reduce Raise Create <ul><li>Star performers </li></ul><ul><li>Animal shows </li></ul><ul><li>Aisle concession sales </li></ul><ul><li>Multiple show arenas </li></ul><ul><li>Fun and humor </li></ul><ul><li>Thrill and danger </li></ul><ul><li>Unique venue </li></ul>
  12. 12. Six Principles of Blue Ocean Strategy <ul><li>Reconstruct market boundaries </li></ul><ul><li>Focus on the big picture, not the numbers </li></ul><ul><li>Reach beyond existing demand </li></ul><ul><li>Get the strategic sequence right </li></ul><ul><li>Overcome key organizational hurdles </li></ul><ul><li>Build execution into strategy </li></ul>Formulation Principles Execution Principles
  13. 13. Formulating Blue Ocean Strategy
  14. 14. 1. Reconstruct Market Boundaries <ul><li>Focus on rivals within industry </li></ul><ul><li>Focuses on competitive position within strategic group </li></ul><ul><li>Focuses on better serving the buyer group </li></ul>Head-to-Head Strategy Blue Ocean Strategy <ul><li>Looks across alternative industries </li></ul><ul><li>Looks across strategic group within industry </li></ul><ul><li>Redefines the industry buyer group </li></ul>
  15. 15. 1. Reconstruct Market Boundaries <ul><li>Focuses on maximizing the value of product or service offerings within the bounds of its industry </li></ul><ul><li>Focuses on adapting to external trends as they occur </li></ul>Head-to-Head Strategy Blue Ocean Strategy <ul><li>Looks across to complementary product and service offerings </li></ul><ul><li>Participates in shaping external trends over time </li></ul>
  16. 16. 2. Focus on the Big Picture, not the Numbers Focus on the Big Picture , not the Numbers The Four Steps of Visualizing Strategy <ul><li>Visual Awakening </li></ul><ul><li>Visual Exploration </li></ul><ul><li>Visual Strategy Fair </li></ul><ul><li>Visual Communication </li></ul>
  17. 17. 2. Focus on the Big Picture, not the Numbers Visual Awakening <ul><li>Compare your business with your competitors’ by drawing your “as is” strategy canvas </li></ul><ul><li>See where your strategy needs to change </li></ul>
  18. 18. 2. Focus on the Big Picture, not the Numbers Visual Exploration <ul><li>Go to the field to explore the six paths to creating blue oceans </li></ul><ul><li>Observe the distinctive advantages of alternative products and services </li></ul><ul><li>See which factors you should eliminate, create, or change </li></ul>
  19. 19. 2. Focus on the Big Picture, not the Numbers Visual Strategy Fair <ul><li>Draw your “to be” strategy canvas based on insights from field observations </li></ul><ul><li>Get feedback on alternative strategy canvases from customers, competitors’ customers, and noncustomers </li></ul><ul><li>Use feedback to build the best “to be” future strategy </li></ul>
  20. 20. 2. Focus on the Big Picture, not the Numbers Visual Communication <ul><li>Distribute your before-and-after strategic profiles on one page for easy comparison </li></ul><ul><li>Support only those projects and operational moves that allow your company to close the gap to actualize the new strategy </li></ul>
  21. 21. 3. Reach Beyond Existing Demand The Three Tier of Non-customers <ul><li>First tier: “Soon to be” non-customers who are the edge of your market, waiting to jump ship </li></ul><ul><li>Second tier: “Refusing” non-customers who consciously choose against your market </li></ul><ul><li>Third tier: “Unexplored” non-customers who are in markets distant from yours </li></ul>
  22. 22. 4. Get The Strategic Sequence Right An important part of blue ocean strategy is to “get the strategic sequence right.” This sequence fleshes out and validates blue ocean ideas to ensure their commercial viability. This can then reduce business model risk. In this model, potential blue ocean ideas must pass through a sequence of buyer utility, price, cost, and adoption. At each step there are only two options: a “yes” answer, in which case the idea may pass to the next step, or “no”. If an idea receives a no at any point, the company can either park the idea or rethink it until you get a yes.
  23. 23. 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. 1. Purchase 2. Delivery 3. Use 4. Supplements 5. Maintenance 6. Disposal Customer Productivity Simplicity Convenience Risk Fun and Image Environmental friendliness The Six Stages of the Buyer Experience Cycle The Six Utility Levers
  24. 24. Executing Blue Ocean Strategy
  25. 25. 5. Overcome Key Organizational Hurdles Overcome Key Organizational Hurdles Cognitive Hurdle Motivational Hurdle Resource Hurdle Political Hurdle
  26. 26. 5. Overcome Key Organizational Hurdles Cognitive Hurdle (status quo) Resource Hurdle <ul><li>Ride the “Electric Sewer” </li></ul><ul><li>Meet with Disgruntled Customers </li></ul><ul><li>Redistribute resources to your hot spots </li></ul><ul><li>Redirect resources from your cold spots </li></ul><ul><li>Engage in horse trading </li></ul>
  27. 27. 5. Overcome Key Organizational Hurdles Motivational Hurdle Political Hurdle <ul><li>Zoom in on Kingpins (key influencers) </li></ul><ul><li>Place kingpins on a fishbowl </li></ul><ul><li>Atomize to get the organization to change itself </li></ul><ul><li>Secure a consigliere on your top management team </li></ul><ul><li>Leverage your angels and silence your devils </li></ul>
  28. 28. 5. Build Execution Into Strategy Fair Process of Strategy Strategy Formulation Process Fair Process – Engagement, Explanation, Expectation clarity Attitudes Trust and Commitment – “I feel my opinion counts” Behavior Voluntary Cooperation – “I’ll go beyond the call of duty” Strategy Execution Exceeds Expectation – self initiated
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