Blue Ocean Strategy (Jack Davis)

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Overview of the Harvard Business School "Blue Ocean Strategy" process for how to value-innovate to create uncontested new market spaces that make the competition irrelevant. Innovation techniques such as employed by Apple/Amazon/Google and that can be employed in almost any market area. Presentation discusses Red Oceans and Blue Oceans; Value-Innovation; how to create a graphical Strategy Canvas; the Four Actions Framework; the Eliminate-Reduce-Raise-Create grid; the three key Blue Ocean Strategy characteristics of focus, divergence, and a compelling tag line; and the six formulation and execution principals for blue ocean value-innovation.

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  • Pg 4 R
  • Pg 5 Competing successfully in red oceans will always be important.Red Oceans are a fact of business life.Red Oceans have dominated business strategy for the past 25 years.How to compete skillfully in Red Oceans through productprice, feature focus, or performance (1080i/1080P, 60Hz/120Hz refresh, contrast range) is fairly well known.What are some examples of Red Ocean markets?IPod / ZuneSearch – Google / Yahoo / MicrosoftGame systems: Nintendo (Wii) / Sony Playstation / MS XBoxAirlinesTo create new profit and growth opportunities, companies need to additionally go beyond competing.
  • Pg 4-5
  • Red Ocean Strategy(Head to Head) Focuses on rivals within industry Focuses on competitive position within strategic group Focuses on better serving the buyer group Focuses on maximizing the value of product or service offerings within the bounds of its industry Focuses on adapting to external trends as they occur Blue Ocean Strategy Looks across alternative industries Looks across strategic group within industry Redefines the industry buyer group Looks across to complementary product and service offerings Participates in shaping external trends over time
  •  Differentiation Variables Price per bottleElite image – refined image in packaging and labeling announcing wine medals won, and the use of esoteric enological terminology to stress the art and science of wine making.Above-the-line Marketing to raise consumer awareness and encourage distributor and retailers to give prominence to a particular wine house.Aging quality Prestige of the wine’s vineyard and legacy (accolades of the estate, chateaux, and historic age of the establishment).Wine Complexity and sophistication of a wine’s taste (such things such as tannins, oak, breadth)Wine Range of wines to cover all varieties of grapes consumer preferences from Chardonnay to Merlot, etc.
  • Castella Wines, Australia used Blue Ocean principals to define their value curve and break into the US market as the fastest growing label and best-selling wine of 2003.Rather than competing head-to-head they reengineered the market strategy.They recognized a new potential customers – current cocktail and beer drinkers.These new customers care principally about easy drinking taste, ease of selection, and fun.Based on customer analysis, Castella streamlined it’s wine’s taste to be a bit sweeter and fruiter.Castella completely jettisoned the wine industry’s traditional elitist appeal based on complex taste, aging, brand prestige, awards, and vineyard location.Yellowtail made selection easy by offering only two types – a red and a white.“If you’re having meat, pick red; anything else, pick white.”And it made the wine fun and adventuresome by tying its marketing to an Australian outback theme.
  • To break the Red Ocean focus on differentiation and low cost, ask four key questions to challenge an industry’s or product’s strategic logic and business model.Which industry or product factors are taken for granted and can be eliminated?Which industry or product factors can be reduced without affecting value?Which industry or product factors should be raised to improve value?Which industry or product factors never before can be created to offer new value?
  • Pg 39-40A good tagline must not only deliver a clear message but must also advertise the offering truthfully.A way to test the effectiveness and strength of a strategy is to look at whether it contains a strong and authentic tagline.Yellowtail: “a fun and simple wine to be enjoyed every day”Cirque du Soleil: “We’ve reinvented the circus”
  • Pg 37-40Three Characteristics of a Great Strategy Initial litmus tests of viabilityFocusA great strategy has focus that its value-curve clearly shows.The strategy does not diffuse its efforts across all factors of competition.Companies that invest across the board let their competitor’s moves set their agenda – the result is costly business models.DivergenceThe shape of the value-curve diverges from other players.(a result of not benchmarking competitors, instead looking across alternatives.)Strategies that follow the competition have little or no uniqueness.Use the Four Actions Framework to assess Eliminate-Reduce-Raise-Create actions to define a strategy that stands apart.A Compelling TaglineThe tagline of the profile is clear and compelling.The tagline must not only deliver a clear message but must also advertise the offering truthfully.Yellowtail: “a fun and simple wine to be enjoyed every day”Cirque du Soleil: “We’ve reinvented the circus”Southwest: “The speed of a plane at the price of a car – whenever you need it.”A strong and authentic tagline is a good way to test the effectiveness and strength of a strategy. (p 40)Focus / Divergence / Compelling Tagline (p 42)When a value-curve lacksfocus, its cost structure tends to be high and its business model complex to implement and execute.When it lacksdivergence, the strategy is a “me-too”, with no reason to stand apart in the marketplace.When it lacks a compelling tagline that speaks to customers, the strategy is likely to be internally driven or a classis example of innovation for innovation’s sake but with no great comercial potential and no natural take-off capability.
  • Path 6. Look Across Time (p75-76) Three principals to assess trends across time:The trend must be decisive to your businessThe trend must be irreversible, e.g. consolidation of currencies into the Euro e.g. illegal music sharing to a legitimized approach – iPod/iTunesThe trend must have a clear trajectory
  • Pg 37-40Three Characteristics of a Great Strategy Initial litmus tests of viabilityFocusA great strategy has focus that its value-curve clearly shows.The strategy does not diffuse its efforts across all factors of competition.Companies that invest across the board let their competitor’s moves set their agenda – the result is costly business models.DivergenceThe shape of the value-curve diverges from other players.(a result of not benchmarking competitors, instead looking across alternatives.)Strategies that follow the competition have little or no uniqueness.Use the Four Actions Framework to assess Eliminate-Reduce-Raise-Create actions to define a strategy that stands apart.A Compelling TaglineThe tagline of the profile is clear and compelling.The tagline must not only deliver a clear message but must also advertise the offering truthfully.Yellowtail: “a fun and simple wine to be enjoyed every day”Cirque du Soleil: “We’ve reinvented the circus”Southwest: “The speed of a plane at the price of a car – whenever you need it.”
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  • Pg 96-97The more a market is populated Settlers, the greater the opportunity to value-innovate and create a blue ocean of new market space.
  • Where to look for new value-innovation ideas? NEW CUSTOMERS1-OPC “Current Market”: Customers currently using OPC Customers who would use OPC if they new more about it2-OPC “Refusing non-Customers”: IPP – downlevelForeFront Server Security – downlevel PRS – container locking3-OPC “Unexplored Customers”: Developers wanting ZIP (add “Zip import” API option? ) end-users (“Send to > Compressed (zipped) Folder”) (Replace Shell’s current Zip API’s with Packaging API’s?)
  • What are adoption hurdles in actualizing your business idea? Are you addressing them up front?
  • Pg 185-188Value Innovation does not make sense to many company’s conventional logic. Ex. CNN was initially ridiculed by NBC, CBS, and ABC. (24 hour news? Who would watch?).Blue Ocean Strategy may conflict with companies’ brand image. Ex. Body Shop by shunning models, promises of eternal youthful beauty, and expensive packaging left major cosmetic houses actionless by invalidating old business models.Natural monopoly: A market often cannot support a second major player. Ex. A town or city being able to support only one megaplex theaterPatents or legal permits block imitation.High volume leads to rapid cost advantage for the value innovator. Ex. Wal-martNetwork externalities discourage imitation. Ex. eBayImitation often require significant political, operational, and cultural changes. Ex. Competing with Southwest Airlines would mean major changes in routing planes, retraining staff, plus changing marketing, prices, and culture.Companies that value-innovate earn brand buzz and a loyal customer following that tends to shun imitators. Ex. Apple iPod and Quicken. People generally dislike and tend to avoid copycat imitators.Network externalities, e.g eBay
  • Pg 6Go forth and value-innovate!
  • To add:Relational referencingShell Handlers for:PropertiesIFilterThumbnailsPreview HandlerSignature HandlerOPC Customers and Potential Customers1-OPC “Current Market”: Customers currently using OPC Customers who would use OPC if they new more about it2-OPC “Refusing non-Customers”: IPP – downlevelForeFront Server Security – downlevel PRS – container locking3-OPC “Unexplored Customers”: Developers wanting ZIP (add “Zip import” API option? ) end-users (“Send to > Compressed (zipped) Folder”) (Replace Shell’s current Zip API’s with Packaging API’s?)
  • Blue Ocean Strategy (Jack Davis)

    1. 1. Jack Davis
    2. 2. Red Oceans are all industries and productsin existence today. In Red Oceans: Industry and product boundaries are defined. Competitive rules are known. Companies strive to outperform each other to grab a larger share of demand. As the market space gets crowded, prospects for profits and growth shrink.As products become commodities,competition turns the red ocean blody.
    3. 3. Successfully competing in Red Oceanswill always be important. Red Oceans are a fact of business life. Red Oceans have dominated business strategy for the past 25 years. How to compete skillfully in Red Oceans through price, feature, or performance differentiation is fairly well known.However, to create new profitablegrowth companies need to movebeyond Red Ocean competition.
    4. 4. Blue Oceans represent all industries,products, and product features not inexistence today. Blue Oceans: Define untapped market space. Create new customer demand. Provide opportunity for rapid growth and high profits.“Blue Ocean Strategy” providesframeworks and analytics for thesystematic pursuit and creation ofBlue Ocean products and markets.
    5. 5. Red Ocean Strategy Blue Ocean StrategyCompete in existing market space Create uncontested market spaceBeat the competition Make the competition irrelevantExploit existing demand Create and capture untapped demandMake the value-cost trade-off Break the value-cost trade-offAlign activities with strategic choice Align activities in pursuit of bothof either differentiation or low cost differentiation and low costAdapt to external trends as they occur Actively shape external trends
    6. 6. Costs Costs Value-Innovation pursues both Value increasing customer value whileInnovation simultaneously lowering costs.Customer Value
    7. 7. The Strategy CanvasGraphic depiction of value curves.The Four Actions FrameworkQuestions to challenge strategic logic and business models.The Eliminate-Reduce-Raise-Create GridActions to create and define new value curves.The 3 Characteristics of a Blue Ocean StrategyFocus – Divergence – A Compelling Tag LineThe 6 Principals of Blue Ocean StrategyFormulation and execution principles for value-innovation.
    8. 8. Wine Industry Value Curves, late 90’sHigh Premium Wines  Budget WinesValue  Low Price Elite High-end Aging Vineyard Wine Wine Image Marketing Quality Prestige Complexity Range  Strategy Value Points 
    9. 9. Yellowtail Value Curve, 2003High Premium Wines  Budget Wines YellowtailValue Low Price Above-the-line Vineyard Wine Ease of Marketing Prestige Range Selection Elite Aging Wine Easy Fun and image quality Complexity Drinking Adventure  Strategy Value Points 
    10. 10. High Ringling Bros. & Barnum & Bailey Cirque du Soliel Smaller Regional CircusesLow Price Animal Multiple Thrill and Theme Multiple shows show challenge Production Star Aisle arena Fun Unique Refined Artistic performers concessions and venue watching music and humor environment dance
    11. 11. The Strategy CanvasGraphic concise depiction of product value curves.The Four Actions FrameworkQuestions to challenge strategic logic and business models.The Eliminate-Reduce-Raise-Create GridActions to create and define new value curves.The 3 Characteristics of a Blue Ocean StrategyFocus – Divergence – A Compelling Tag LineThe 6 Principals of Blue Ocean StrategyFormulation and execution principles for value-innovation.
    12. 12. Reduce factors of limited valueEliminate Create factors factorsof no real never before value offered Raise factors that improve value
    13. 13. The Strategy CanvasGraphic concise depiction of product value curves.The Four Actions FrameworkQuestions to challenge strategic logic and business models.The Eliminate-Reduce-Raise-Create GridActions to create and define new value curves.The 3 Characteristics of a Blue Ocean StrategyFocus – Divergence – A Compelling Tag LineThe 6 Principals of Blue Ocean StrategyFormulation and execution principles for value-innovation.
    14. 14. Eliminate Raise• Elitist terminology • Price over budget wines. and distinctions. • Retail store involvement.• Aging Qualities.• Above-the-line marketing. Reduce Create• Wine complexity. • Easy drinking.• Wine range. • Ease of selection.• Vineyard prestige. • Fun and adventure
    15. 15. Yellowtail Value Curve, 2003High Premium Wines  RAISE Budget Wines YellowtailValue  CREATE ELIMINATE REDUCELow Price Above-the-line Vineyard Wine Ease of Marketing Prestige Range Selection Elite Aging Wine Easy Fun and image quality Complexity Drinking Adventure  “Value Point” Variables 
    16. 16. Focus Divergence A Compelling Tagline “The speed of a plane at the price of a car – whenever you need it.”High Southwest Airlines Average Airlines Car TravelLow Price Meals Lounges Seating class Hub Friendly Speed Frequent choice connectivity Service Point-to- point departure
    17. 17. The Strategy CanvasGraphic concise depiction of product value curves.The Four Actions FrameworkQuestions to challenge strategic logic and business models.The Eliminate-Reduce-Raise-Create GridActions to create and define new value curves.The 3 Characteristics of a Blue Ocean StrategyFocus – Divergence – A Compelling Tag LineThe 6 Principals of Blue Ocean StrategyFormulation and execution principles for value-innovation.
    18. 18. Formulation Principals: Reconstruct Market Boundaries Focus on the big picture, not the numbers Reach beyond existing demand Get the strategic sequence rightExecution Principals: Overcome key organization hurdles Build execution into strategy
    19. 19. Path 1: Look Across Alternative IndustriesPath 2: Look Across Strategic Groups within IndustriesPath 3: Look Across Chain of CustomersPath 4: Look Across Complementary Products and Service OfferingsPath 5: Look Across Functional or Emotional Appeal to CustomersPath 6: Look Across Time
    20. 20. Focus Divergence A Compelling TaglineHigh Private Jet Corporate travel NetJet’s Value Curve Commercial Airlines First and Business-Classes travelLow Price (fixed Need for Deadhead Speed of total Ease of travel Flexibility and In-flight purchase + customer to costs travel time (including reliability servicevariable price manage aircraft check-in, per flight) (Aircraft M&A) customs, etc.)
    21. 21. Four Steps of Visualizing StrategyThe Pioneer-Migrator-Settler Map
    22. 22. Visual Visual Visual Visual Awakening Exploration Strategy Fair Communication• Compare your • Go into the field • Draw your „to be” • Distribute your business with your to explore the six strategy canvas before-and-after competitor‟s by paths to creating based on insights strategic profiles drawing your “as blue oceans. from field on one page for is” strategy observations. easy comparison. canvas. • Observe the distinctive • Get feedback on • Support only• See where your advantages of alternative strategy those projects strategy needs to alternative canvases from and operational change. products and customers, moves that allow services. competitors your company to customer, and non- close the gaps to • See which factors customers. actualize the new you should strategy. Eliminate, Raise, • Use feedback to Create, or Change. build the best “to be” future strategy.
    23. 23. PioneersBusinesses thatoffer unprecedentedvalueMigratorsBusinesses intransition.SettlersBusinesseswhose valuecurves followsthe shape oftheir industry(“me to” companies) Today Tomorrow
    24. 24. First Tier: “Soon-to-be” non- Third customers who are on the Tier edge of your market, waiting Second to jump ship Tier First Your Tier Second Tier: “Refusing non-CurrentMarket customers who consciously choose against your market. Third Tier: “Unexplored” non customers who are in markets distant from yours.
    25. 25. Customer Viable Blue Price Cost Adoption Ocean Idea UtilityIs there Is your price Can you attain What are theexceptional easily your cost target customercustomer value accessible to to profit at your adoption hurdlesin your idea? the mass of strategic price? in actualizing buyers? your idea?
    26. 26. Formulation Principals: Reconstruct Market Boundaries Focus on the big picture, not the numbers Reach beyond existing demand Get the strategic sequence rightExecution Principals: Overcome key organization hurdles Build execution into strategy
    27. 27. Value Innovation does not make sense to theconventional logic of many companies.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 anda loyal customer following that tends to shun imitators.
    28. 28. “The reality is that industries never stand still. Operations improve, markets expand, and players come and go. History teaches us that we have a hugely underestimated capacity to create new industries and re-create existing ones.” - W. Chan Kim & Renée Mouborgne, authors Blue Ocean Strategy
    29. 29. Blue Ocean Strategy web site http://www.blueoceanstrategy.comBlue Ocean Strategy book http://www.amazon.com/Blue-Ocean-Strategy-Uncontested- Competition/dp/1591396190/ref=sr_1_1?ie=UTF8&s=books&qid=1232733006&sr=1-1 http://mslibrary/Books/Pages/fulfillment.aspx?bib=155469&csId=LibraryBlue Ocean Strategy unabridged audio CD http://www.amazon.com/Blue-Ocean-Strategy-Uncontested- Competition/dp/1596590688/ref=ed_oe_a http://mslibrary/Books/Pages/fulfillment.aspx?bib=193896&csId=LibraryQuestions / Comments jack.davis@microsoft.com
    30. 30. High OPC UCF-ToDo ZIPLow ISO Win32 & Enterprise Edit-In-Place SharePoint Downlevel Standard .NET APIs RM (.NET) (.NET) Handlers Support Core Quick File-based Shell Shell Properties Access to View Password Handlers “Save as (interleaving) Encryption (zip) Package”

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