Blue Ocean Strategy Concepts

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Blue Ocean Strategy Concepts

  1. 1. Transformational - Value Innovation Strategy <ul><li>Industry Boundaries defined/accepted </li></ul><ul><ul><li>Competitive rules of the game known </li></ul></ul><ul><li>Compete in existing Market Space </li></ul><ul><li>Divide up existing Demand </li></ul><ul><ul><li>Zero sum game </li></ul></ul><ul><ul><li>Products become commodities </li></ul></ul><ul><ul><li>Price Wars </li></ul></ul><ul><li>Benchmark/Emulate Competition </li></ul><ul><li>Outperform the Competition </li></ul><ul><ul><li>Focus on competitors </li></ul></ul><ul><ul><li>Build defensible position </li></ul></ul><ul><ul><li>Incremental improvements </li></ul></ul><ul><ul><li>Strategy is either Differentiation, </li></ul></ul><ul><ul><li>Low Cost or Niche </li></ul></ul><ul><li>Value and Cost seen as Tradeoffs </li></ul><ul><ul><li>Increases in Value increase Cost </li></ul></ul><ul><ul><li>Innovation linked to new technology, </li></ul></ul><ul><ul><li>processes </li></ul></ul><ul><li>Industry Boundaries expanded </li></ul><ul><ul><li>Reset rules of the game </li></ul></ul><ul><li>Reconstruct/Create new Market Space </li></ul><ul><li>Grow Demand </li></ul><ul><ul><li>Stimulate new demand </li></ul></ul><ul><ul><li>Products create new value </li></ul></ul><ul><ul><li>Focus on Value vs. Price </li></ul></ul><ul><li>Breakaway from Competition </li></ul><ul><li>Make Competition irrelevant </li></ul><ul><ul><li>Focus on creating leap in Customer and Company value </li></ul></ul><ul><ul><li>Value Innovation </li></ul></ul><ul><ul><li>Large scale improvements </li></ul></ul><ul><ul><li>Strategy is Differentiation and Low Cost </li></ul></ul><ul><li>Simultaneously pursue Improvements in Value and Cost to break Value-Cost tradeoff </li></ul><ul><ul><li>Increases in Value = increase in Cost </li></ul></ul><ul><ul><li>Innovation linked to what Buyer’s value </li></ul></ul><ul><ul><ul><li>Simplify the offering, technology </li></ul></ul></ul><ul><ul><ul><li>Existing technology can be utilized </li></ul></ul></ul>Create Uncontested Market Space that makes Competition Irrelevant Traditional Transformational
  2. 2. Value Innovation Strategy <ul><li>Four key questions to challenge industry’s strategic logic and business model </li></ul><ul><ul><li>Which of the industry factors that the industry takes for granted should be eliminated ? </li></ul></ul><ul><ul><li>Which factors should be reduced well below the industry’s standard? </li></ul></ul><ul><ul><li>Which factors should be raised well above the industry’s standard? </li></ul></ul><ul><ul><li>Which factors should be created that the industry has never offered? </li></ul></ul><ul><li>Three key elements of strategy </li></ul><ul><ul><li>Focus – emphasis on a few compelling factors valued by the Customer </li></ul></ul><ul><ul><li>Divergence – unique value and strategy that differentiates from industry profile </li></ul></ul><ul><ul><li>Compelling tag line – communicates clear message of what value the company offers </li></ul></ul><ul><li>Guiding Principles in Strategy Formulation </li></ul><ul><ul><li>Reconstruct market boundaries - create uncontested Market Space across diverse industry domains </li></ul></ul><ul><ul><li>Go beyond incremental improvement to value innovation </li></ul></ul><ul><ul><li>Maximize size of opportunity - aggregate demand vs. Market Segmentation through building on commonality across non-customers </li></ul></ul><ul><ul><li>Build a viable business model - allow you to profit from the new space you created </li></ul></ul><ul><ul><ul><li>Quality of Buyer Experience, Unlocking Exceptional Utility, Strategic Pricing, Target Costing </li></ul></ul></ul><ul><li>Examples </li></ul><ul><ul><li>Auto: Ford Model T, Chrysler Minivan, Japanese Fuel-efficient/Low-Cost Car Invasion </li></ul></ul><ul><ul><li>Aerospace : Southwest Airlines, NetJets, F-35 </li></ul></ul><ul><ul><li>Computers : IBM 360, Compaq PC Server, Apple/IBM Home Computer, Dell business model </li></ul></ul><ul><ul><li>Retail/Entertainment : Starbucks, Cirque du Soleil, Yellow Tail Wine </li></ul></ul>
  3. 3. Reconstruct Market Boundaries
  4. 4. Strategy Visualization
  5. 5. Strategy Canvas for Net Jets Low price of Commercial Airline Travel with Convenience and Speed of a Private Jet Factors of Competition Relative Position
  6. 6. Portfolio Management <ul><li>Revenue, Profitability, Market Share, Customer Satisfaction – measures of company’s </li></ul><ul><li>current performance </li></ul><ul><ul><li>Historical, not a predictor of the future as changes in environment are too rapid </li></ul></ul><ul><li>Value and Innovation utilized as important parameters </li></ul><ul><ul><li>Value Creation - extent Customers are willing to pay for innovative ideas </li></ul></ul><ul><ul><ul><li>W/O Innovation, companies are stuck in trap of competitive, incremental improvements </li></ul></ul></ul><ul><ul><li>Three categories: </li></ul></ul><ul><ul><ul><li>Pioneers – Value curve diverges from competitors, Innovative Value, Highest Growth </li></ul></ul></ul><ul><ul><ul><li>Migrators – Marginally better, incremental not innovative value, Reasonable Growth </li></ul></ul></ul><ul><ul><ul><li>Settlers – “me-too” business, stuck in the competition, Low Growth </li></ul></ul></ul>A A B B C C D D E E Focus to be shifted toward Pioneers as path to Profitable Growth Balance needed Between Pioneers (cash users) and Settlers (generators) PMS Map
  7. 7. Reach Beyond Existing Demand <ul><li>Key component of achieving value innovation </li></ul><ul><li>Challenges conventional strategy of </li></ul><ul><ul><li>Focusing on Existing Customers </li></ul></ul><ul><ul><li>Drive for finer Market Segmentation to accommodate Buyer differences </li></ul></ul><ul><li>Work to maximize size of opportunity </li></ul><ul><ul><li>Instead of concentrating solely on Customers – look at Noncustomers </li></ul></ul><ul><ul><li>Instead of focusing on Customer differences – build upon Commonalities in what Buyers value </li></ul></ul><ul><ul><li>Instead of finer segmentation – think Desegmentation </li></ul></ul><ul><li>Three categories of Buyers : </li></ul><ul><ul><li>!st Tier : who minimally purchase industry’s offering – out of necessity, rather not </li></ul></ul><ul><ul><li>2 nd Tier : who refuse to use your industry’s offerings – have seen it, don’t want it </li></ul></ul><ul><ul><li>3 rd Tier : who have never thought of your industry’s offerings </li></ul></ul>Your Market 1 st Tier 2 nd Tier 3 rd Tier Examples: Tier 1 – Calloway Golf Clubs Tier 2 – JC Decaux Outdoor Advertising Tier 3 – JSF Program
  8. 8. Business Model <ul><li>Offer to unlock exceptional utility – compelling reason to buy </li></ul><ul><ul><li>Utility levers to pull – Productivity, Simplicity, Convenience, Risk, Fun/Image, Environmental Friendliness </li></ul></ul><ul><ul><li>Across Stages of buyer Experience – Purchase, Delivery, Use, Supplements, Maintenance, Disposal </li></ul></ul><ul><ul><li>Exceptional utility and value achieved by removing greatest blocks to utility across entire buyer experience for customers and noncustomers </li></ul></ul><ul><li>Strategic pricing to attract mass of target buyers – create leap in buyer value </li></ul><ul><ul><li>Consider products of same form; different form, but same function; different form and function, same objective </li></ul></ul><ul><ul><li>Pricing level dependent upon degree of legal resource protection, ability to imitate </li></ul></ul><ul><ul><li>Considerations: development cost amortization, economies of scale </li></ul></ul><ul><li>Target costing – Price minus costing (strategic price - desired margin = target cost) </li></ul><ul><ul><li>Requires strategic profile that has divergence and strips out cost </li></ul></ul><ul><ul><li>Tactics: Streamline Operations (Ford, Swatch), Partnering (SAP), Changing pricing model of industry (NetJets) </li></ul></ul>
  9. 9. Implementation of Blue Ocean Strategy <ul><li>Pursue combination of Traditional and Transformational ( Blue Ocean ) strategies </li></ul><ul><li>Establish Value Innovation Program concept </li></ul><ul><ul><li>Discussion with, potential utilization of Blue Ocean authors </li></ul></ul><ul><ul><li>Visit a couple of the firms who have implemented strategy – Samsung, etc. </li></ul></ul><ul><ul><li>Institutionalize use of Strategy Canvas and PMS Maps in Strategic Planning </li></ul></ul><ul><ul><ul><li>Establish common language, corporate culture that drives business from “ red ” to “ blue ” oceans </li></ul></ul></ul><ul><ul><li>Pursue set of strategic projects and establish Core Cross-Functional Teams </li></ul></ul><ul><ul><ul><li>Setup project rooms – discuss strategic projects, develop strategy canvases, assist </li></ul></ul></ul><ul><ul><ul><li>in making product/service decisions </li></ul></ul></ul><ul><ul><li>Establish 4-Step Visualization process </li></ul></ul><ul><ul><li>Incorporate new business model – Utility, Strategic Pricing, Target Costing </li></ul></ul><ul><ul><li>Consider funding mechanism outside normal business operation – higher risk projects </li></ul></ul><ul><li>Adoption hurdles addressed upfront – cognitive need for strategic shift </li></ul><ul><ul><li>Desire to preserve status quo; limited resources; motivating key players to change; </li></ul></ul><ul><ul><li>politics - internal & external resistance to change </li></ul></ul><ul><ul><li>Strategies: </li></ul></ul><ul><ul><ul><li>See and Experience operational issues, disgruntled customers </li></ul></ul></ul><ul><ul><ul><li>Free up low return resources and redirect to high-impact areas </li></ul></ul></ul><ul><ul><ul><li>Get key influencers involved in implementing change in manageable bites </li></ul></ul></ul><ul><ul><ul><li>Identify land mines and resistance to change, leverage supporters </li></ul></ul></ul>
  10. 10. Implementation of Advanced Concepts Strategy <ul><li>R&D Success requires Collaborative & Cross-Functional approach to max ROI </li></ul><ul><ul><li>Product/Service concepts and potential evolution – Product/Service Roadmaps </li></ul></ul><ul><ul><li>Definition of needed competencies, technologies – potential sources, Technology Roadmaps </li></ul></ul><ul><ul><li>Launch Customers – develop relationships w/Key Customers, Noncustomers </li></ul></ul><ul><ul><li>Collaboration – Customer needs (Marketing, R&D), Partners for Technology, Market Access, Supply Chain </li></ul></ul><ul><li>Skunkworks Concept of Operation – outside mainstream of business </li></ul><ul><li>Core Team – Chief Engineer, Marketing – in the market, comfortable with Customers and technology </li></ul><ul><ul><li>New Products & Technology different breed – inquisitive, open-minded, solutions vs. product orientation </li></ul></ul><ul><li>Tools – Market & Customer Research, Focus Groups, Advanced Product concepts </li></ul><ul><li>Budget and Resources – who owns the Gold? </li></ul><ul><li>Integration with Business Units – Ideation  Commercialization </li></ul><ul><ul><li>Selection, Prioritization with Business Units, Pilot on into the Market </li></ul></ul><ul><ul><li>Maximize size of opportunity while minimizing risk </li></ul></ul>Ideation Project Selection Product Development Commercialization Basic Research – Conception, Definition of new ideas - # of new ideas per year Apple, Google Keen understanding Of Customers – End-User Input & Observation Black & Decker, ITW Speed & Efficiency Of Process – Joint Technology Dev. Consortiums Toyota, CAT Doing the Right R&D Doing the R&D Right Bringing to Market, Adaptation - % of Revenues from Prdts into last 5 yrs Sandisk, Symantec
  11. 11. Implementation of Advanced Concepts Strategy <ul><li>“ Product/Technology Pipeline ” is a staged, concept to implementation process flow that provide for exploration of concepts through off-line development to program implementation and reuse. </li></ul><ul><ul><li>Phased approach for a staged pipeline, gated design process </li></ul></ul><ul><ul><li>Funding increases as concept mature to off-line development </li></ul></ul><ul><li>Need to define Pipeline phase-gate criteria and processes, establish finding mechanism </li></ul>Concepts Technology Maturity Concept Exploration Concept Validation Off-Line Development Ties to technology planning, technology supply chain and customers Emphasis on Blue Ocean strategies CONCEPTS

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