Business Strategy consist of two things business planning & execution. Example- If any company want’s to be no. 1 in retail segment then to be no. 1 is their vision and in order to achieve that vision companies develop business strategy for different product.
Strategic group like luxury automobiles, economy cars, and family vihicles.
Thiese analysis is based on business launches of 108 companies.
The horizontal axis captures the range of factors the industry competes on and invests in. In this case U.S. Transit Bus service competes on 5 principles. That is the underlying structure of the U.S. Transit Bus service from market perspective. Now turn to the vertical axis of the canvass which captures the offering level that the buyer receive across all these key competing factors. A high scores means the company offers buyers more, and hence invests more, in that factor. In the case of price , a higher score indicates a higher price.
The kind of language used in strategy canvas gives insight as to whether a company’s strategic vision is built on an “outside-in” perspective, driven by the demand side, or an “inside-out” perspective, that is operationally driven.
Look across alternative industries- It means company compete not only with the other firm in its own industry but also with companies in those other industries that produce alternative product & services. e.g. Entertainment can be achieved either by going to cinema or restaurant. Look across strategic groups within industries- Most companies focus on improving their competitive position within a strategic group while ignoring factors that determine customers decision to trade up or down from one group to another. e.g. Tata's nano. It seems that it is a blue ocean strategy because in this they have eliminated and reduced few things and created few things. We just have to see whether pricing is adequate to achieve desired profit. Indian railway's launch of AC 3 tier coaches. Look across the chain of buyers- Normally Companies tend to concentrate on target buyer, ignoring chain of buyers who are directly or indirectly influence the buying decision. Purchaser are different from actual user and in some cases they are important influencer as well. By questioning conventional definition of who can and should be target buyer, companies can often see fundamentally new ways to unlock value. e.g. Cannon copier created the small desktop copier industry by shifting the target customer of the copier industry from corporate purchaser to users. Look across complementary product and service offerings- Untapped value is often hidden in complementary product and services. Think about total solution like. use of computer with operating system & software. e.g. Indian railway's Rajdhani trains. Look across functional or emotional appeal to buyers- Some industries compete principally on price and function largely on calculation of utility therein appeal is rational. Other industries compete largely on feelings, there appeal is emotional. e.g. Air Deccan removes some extras like food, water, more leg space etc. and create new business model for airline industry with cheap pricing. This model is basically conversion from emotional to functional. Reliance Communication launch of mobile @ 500/- was and emotional appeal to buy a mobile. Look across time- Looking at trends with the high perspective can show you how to create blue ocean opportunities. Three principles are critical to assessing trends across time- - Trend must be decisive to your business - It must be reversible - It must have the clear trajectory e.g. CNN created the first real-time 24 hr. global news network based on the rising tide of globalization.
Most companies strategic planning process keeps them wedded to red ocean because they give more emphasis on documents and numbers rather than seeing big picture. In order to create blue ocean companies should focus on big picture. This can be achieved by drawing strategy canvas which visualizes not only companies current strategic position in its market place but also helps in building its future strategy.
Typically, to grow their share of a market, companies strive to retain and expand existing customers. This strategy often risk creating too-small target markets. In order to create Blue Ocean Strategy companies should look at non-customer and focus on their key commonalities-not differences; and de-segmentation before pursuing finer segmentation. There are 3-tier of non-customer- 1st-tier of non-customer-This kind of customer sits on the edge of the market. They are buyers who minimally purchase an industry's offering out of necessity but are mentally non-customers of the industry. 2nd-tier of non-customer- This kind of non-customer is people who refuse to use your industry's offering. These are buyers who have seen your industry's offerings as an option to fulfill their needs but have voted against them. 3rd-tier of non-customer- This kind of non-customer is farthest from your market. They are non-customers who have never thought of your market's offerings as an option. By focusing on key commonalities across these non-customers and existing customers, companies can understand how to pull them in their new market.
It is the combination of exceptional utility, strategic pricing and target costing that allows companies to achieve value innovation- a leap in value for both the buyer and companies. Buyer utility MAP helps to look at the issues from the right perspective. It outlines all the levers companies can pull to deliver exceptional utility to buyers as well as the various experience buyers can have with a product or services.
Ford model T. Ford model T was launched in only one color (black) and one model, with scant options. In this way, Ford eliminated investments in image in the use phase. Instead of create cars for weekends in the countryside- a luxury-Ford model T was made for everyday use. It was easy to fix and use. To check the exceptional utility, companies should check whether their offering has removed the greatest blocks to utility across the entire buyer experience cycle for customers and non-customers.
Pricing is very important as cost and risk of developing an innovative idea are borne by the initiator, not the follower. This challenge is exacerbated when the notion of the excludability is considered. Excludability is a function both of the nature of the good and of the legal system. A good is excludable if the company can prevent others from using it because of limited access and patent protection. Example- Intel excludes other microprocessor chipmaker from using its manufacturing facilities through property ownership laws. The lack of excludability reinforces the risk of free riding. So, all this means that the strategic price you set for your offering must not only attract buyers in large numbers but also help you to retain them. Companies must start with an offer that buyers can't refuse and must keep it that way to discourage any free-riding limitations. The main challenge in determining a strategic pricing is to understand the price sensitivities of those people who will be comparing new product & services with a host of very different-looking products and services offered outside the group of traditional competitors. The price bandwidth that captures the large groups of target buyers is the price corridor of the mass. The key here is not to pursue pricing against the competition within an industry but rather to pursue against substitutes and alternative across industries and non-industries. Pricing Corridor of the Mass- Upper-level Pricing- High degree of legal and resource protection. Difficult to imitate. e.g. SAP in Business Application software industry. Bloomberg in the financial software industry. Mid-level Pricing- Some degree of legal and resource protection. Lower-level Pricing- Low degree of legal and resource protection. Easy to imitate. Mid-to lower level strategic pricing can be applied in the following circumstances- Their blue ocean offering has high fixed costs and marginal variable costs. Their attractiveness depends heavily on network externalities. Their cost of structure benefits from steep economies of scale scope. Volume brings significant cost advantage.
Pricing Corridor of the Mass- Upper-level Pricing- High degree of legal and resource protection. Difficult to imitate. e.g. SAP in Business Application software industry. Bloomberg in the financial software industry. Mid-level Pricing- Some degree of legal and resource protection. Lower-level Pricing- Low degree of legal and resource protection. Easy to imitate. Mid-to lower level strategic pricing can be applied in the following circumstances- Their blue ocean offering has high fixed costs and marginal variable costs. Their attractiveness depends heavily on network externalities. Their cost of structure benefits from steep economies of scale scope. Volume brings significant cost advantage.
Target Costing: To maximize the profit potential of a blue ocean idea, a company should start with the strategic price and then deduct its desired profit margin from the prices to arrive at the target cost. Here price minus costing not cost plus pricing is essential. When target costing is driven by strategic pricing, however it is usually aggressive. In order to achieve the target costing companies need to follow below mentioned 3 principles- The first involves streamlining operations and introducing cost innovation from manufacturing to distribution. e.g. Swiss watch company Swatch was able to arrive at a cost structure some 30% lower than any other watch company. Fist they set the price of their watch $40 ( $75 other companies) and then the swatch project team worked backwards to arrive at the target cost, a process that involved determining the margin swatch needed to support marketing and services and earn a profit. Labor cost was the main component of total cost . In order to achieve target cost it makes radical changes in the product & production method. Instead of using the more traditional metal or leather swatch used plastic. Swatch engineer also drastically simplified the design of the watch's inner working reducing the number of parts from 150 to 51. Watch cases were sealed by ultrsonic welding instead of screws. Design and manufacturing changes enabled swatch to reduce direct labor cost from 30% of total cost to less than 10%. Second lever companies can pull to meet their target cost is Partnering - Partnering provides a way for companies to secure needed capabilities fast and effectively while dropping their cost structure. It allows companies to leverage other companies' expertise and economics of scale. e.g. German's leading business application software maker SAP. By partnering with Oracle, SAP saved hundred of millions of dollars in development cost and got world class central database namely oracle's which sits at the heart of SAP's core product R/2 & R/3. SAP also tied up with consultancy firm such as Capgemini & Accenture, to gain a global sales force overnight at no extra cost. SAP was able to leverage. Capgemini and Accenture's strong global networks to reach SAP's target customer with no extra cost implication to the company. Sometime, however no amount of streamlining and cost innovation or partnering will make it possible for a company to deliver its target cost. In that case companies can use 3rd lever to achieve target cost by changing the pricing model of the industry and not the level of the strategic price. e.g. IBM exploded the tabulating market by shifting the pricing model from selling to leasing to hit its strategic price while covering its cost. HP has traded high power servers to silicon valley start-ups for a share of their revenue. The customer get immediate access to a key capability, and HP stands to earn a lot more than the price of the machine. The aim is not to compromise on the strategic price but to hit the target cost through a new price model. It is called pricing innovation.
Adoption: Before plowing and investing in the new idea, the company must first educate or get confidence of three main stakeholders of the company i.e. employees, partners and general public. Employee: Companies should work with employees to find ways of defusing the threats so that everyone in the company wins, despite shifts in people's roles, responsibilities, and rewards. Business Partners: Potentially even more than employees disaffection is the resistance of partners who fear that their revenue streams or market positions are threatened by a new business. e.g. It happen when SAP launched ASAP.ASAP brought business application software within the reach of midsized and small companies .Normally SAP require active cooperation of large consulting firms that were deriving substantial income from lengthy implementation of SAP's product. As a result, they were not necessarily incentivized to find the fastest way to implement the company's software. SAP resolved this dilemma by openly discussing the issues with its partners. They convinced them that as ASAP would reduce implementation time for small and midsized companies but they would gain access to a new client base that would more than compensate for some lost revenues from larger companies.
Overcome key Organizational Hurdles: Once a company has developed a blue ocean strategy with a profitable business model, it must execute it. There are four hurdles in executing blue ocean strategy- Cognitive Hurdle: An organization wedded to the status quo. Waking employees up to the need for a strategic shift. Resource Hurdle: Limited Resource. The greater the shift in strategy, the greater it is assumed are the resources needed to execute it. But resources were being cut, and not raised. Motivational Hurdle: Unmotivated staff. How do you motivate key players to move fast and tenaciously to carry out a break from the status quo? Political Hurdle: Opposition from powerful vested interest. Tipping point leadership allows you to overcome these 4 hurdles fast and at low cost while winning employees' backing in executing a break from the status quo. Tipping point leadership traces its roots to the field of epidemiology and the theory of tipping points. It builds on the rarely exploited corporate reality that in every organization, there are people, acts and activities that exercise a disproportionate influence on performance. It hinges on the insight that in any organization, fundamental changes can happen quickly when the beliefs and energies of a critical mass of people create an epidemic movement toward an idea. Break through the cognitive hurdle- Tipping point leadership does not rely on numbers to break through the organization's cognitive hurdle. To tip the cognitive hurdle fast, tipping point leaders such as Bratton zoom in on the act of disproportionate influence: making people see and experience harsh reality firsthand. &quot;Seeing is believing&quot;. - Ride the &quot;Electric Sewer&quot; - To break the status quo, employees must come face-to-face with the worst operational problems. - Meet with Disgruntled Customers- To tip the cognitive hurdle, not only must you get your managers out of the office to see operational horror, but also you must get them to listen to their most disgruntled customer firsthand. Jump to Resource Hurdle - Instead of focusing on getting more resources, tipping point leaders concentrate on multiplying the value of the resources they have. This can be achieved by doing following- - Hot Spots- Hot spots are activities that have low resources input but high potential performance gains. Redistribute resources to hot your spots. - Cold Spots- Cold spots are activities that have high resources input but low performance impact. Leaders need to free up resources by searching out cold spots. - Horse Trading- In addition to internally refocusing the resources a unit already controls, tipping point leaders skillfully trade resources they don't need for those of others that they don't need.
Jump to Motivational Hurdle: To reach your organization's tipping point and execute blue ocean strategy, you must alert employees to the need of a strategic shift and identify how it can be achieved with limited resources. For a new strategy to become a movement, people must not only recognize what needs to be done, but they must also act on that insight in a sustained and meaningful way. Companies need to focus on 3 factors of disproportionate influence in motivating employee- Zoom in on Kingpins- To trigger an epidemic movement of positive energy, however, you should not spread your efforts thin. Rather you should concentrate your efforts on kingpins, the key influencer in the organization. These are the people inside the organization who are natural leader, who are well respected and persuasive. Place kingpins in a Fishbowl Management- This is what we refer to as fishbowl management where kingpins' actions and inaction are made as transparent to others as are fish in a bowl of water. Atomization-It relates to the framing of the strategic challenge- one of the most subtle and sensitive tasks of the tipping point leader. Unless people believe that the strategic challenge is attainable, the change is not likely to succeed.
Knock over the political Hurdle: Organizational politics is an inescapable reality of corporate and public life. Even if an organization has reached the tipping point of execution, there exists powerful vested interests that will resist the impending changes. To overcome these political forces, tipping point leaders focus on 3 disproportionate influence factors- Leveraging angels, silencing devils- Angels are those who have the most to gain from the strategic shift. Devils are those who have the most to lose from it. Fight with devils. Don't fight alone. Get the higher and wider voice to fight with you. Identify your detractors and supporters-forget the middle-and strive to create win-win outcome for both. Secure a Consigliore on your top management team- Most leaders concentrate on building a top management team having strong functional skills such as marketing, operations, and finance- and that is important. Tipping point leader, however also engage one role few other executive think to include: a consigliore.
Conventional Wisdom- Theory of organization change rests on transforming the mass. So change efforts are focused on moving the mass, requiring steep resources and long term frames. Tipping Point leadership- To change the mass, focus on the extreme-people, acts, and activities that exercise a disproportionate influence on performance to achieve a strategic shift fast at low cost.
Affect of Fair process on people's attitude in behavior Strategy Formulation Process Fair Process Engagement- It means involving individuals in the strategic decision making that affect them by asking for their input and allowing them to refute the merits of one another's ideas and assumption. It communicates management's respect for individuals and their ideas. Explanation-It means that everyone involved and affected should understand why final strategic decisions are made as they are. Expectation clarity- It requires that after a strategy is set, managers state clearly that new rules of the game. Employee should know up front what standards they will be judged by and the penalties for failure. What are the goals of the new strategy? What are the new targets and milestones? Who is responsible for what? Example: Elevator systems manufacturer ELCO. It its quest to create and execute a blue ocean strategy, the company realized that it needed to replace its batch-manufacturing system with a cellular approach that would allow self directed teams to achieve superior performance. In order to execute strategy faster management decided that they would first install plant at Elco's Chester plant and then roll it out to its second plant, High Park. Elco's chester plant has never faced labor union problem and they thought that strategic change will be go smoothly with the cooperation of work force, however in High park plant on several occasions they have labor union problem and they realized that they have face some hurdle in order to execute strategic change at High Park. The theory was good. In practice, however, things took an unpredicted truth. The introduction of the new manufacturing process at the Chester plant quickly led to disorder and rebellion. Within a few months both cost and quality performance were in free fall. Employees were talking about bringing back the union. In contrast, the High park plant, despite its reputation for resistance , had accepted the strategic shift in the manufacturing process. A closer look at the way the strategic shift was made at the two plants reveal the reasons behind this apparent anomaly. At the chester plant , Elco managers at Chester violated all the 3 basic principles of Fair Process however management of the High Park plant abided by all the 3 principle's of fair Process.
What ever the context in which a company's blue ocean strategy is executed- be it working with a joint-venture partner to outsource component manufacturing, reorienting the sales force, transforming the manufacturing process, relocating a company's call center from united States to India-we have consistently observed this dynamic at work.
The Sustainability and Renewal of Blue Ocean Strategy Creating blue ocean is not a static achievement but a dynamic process. As the company and its imitators succeed and expand the blue ocean, more companies eventually jump in. Barrier to Imitation: A blue ocean strategy brings with it considerable barriers to imitation. Some of these are operational, and others are cognitive. More often than not, a blue ocean strategy will go without credible challenges for ten to fifteen years. This sustainability can be traced to the following imitation barriers rooted in the blue ocean strategy: Value innovation does not make sense to a company's conventional logic. e.g. When CNN was introduced, NBC,CBS and ABC ridiculed the idea of 24 hrs, 7-day, real-time news without star broadcasters. CNN was referred to as chicken noodle news by the industry. Ridicule does not inspire rapid imitation. Blue Ocean Strategy may conflict with other companies brand image. e.g. Body Shop shunned beautiful models. promises of eternal beauty and youth, and expensive packaging -left major cosmetic houses the world over action less for years because imitation would signal an invalidation of their current business model. Natural monopoly. The market often cannot support a second player. e.g. Belgian cinema company Kinepolis created the first megaplex in Europe in the city of Brussels and has not been imitated in more than 15 years despite its enormous success. The reason size of Brussels could not support a second megaplex. Patents or legal permit block imitation. SAP, Intel. High volume leads to rapid cost advantage for the value innovator, discouraging followers from entering the market. e.g. Huge economies of scale in purchasing enjoyed by Wal-Mart discouraged other companies to imitate its blue ocean strategy. Network Externalities discourage imitation. e.g. eBay’s enjoys in the online market. The more customer eBay has online, the more attractive the auction sites becomes for both sellers and buyers of wares, creating scant incentive for buyers to switch to a potential imitator. Imitation often requires significant political, Operational and cultural changes. e.g. When Southwest Airlines created a service that offered the speed of air travel with the cost and flexibility of driving, imitating the blue ocean strategy would have meant major revision in routing plane, retraining staff, and changing marketing and pricing and culture- significant changes that the politics of a few company can bear in a short term. Companies that value-innovate earn brand buzz and a loyal customer following that tends to shun imitators. e.g. Microsoft has been trying for years to dislodge Intuit's value innovation, Quicken. More than 10 years out. despite all its efforts and investments, it has not been able to do so. In addition, blue ocean strategy is a system approach that requires not only getting each strategic element right but also aligning them in integral system to deliver value innovation. Imitating such a system is not an easy feat.
Business Strategy - Blue Ocean Strategy
Business Strategy Blue Ocean Strategy Prepared By:Deepak Agrawal Source: Blue ocean Strategy by W Chan Kim & Renee Mouborgne
Business Strategy <ul><li>What’s business strategy? </li></ul><ul><li>Types of business strategy? </li></ul><ul><li>What’s red ocean strategy? </li></ul><ul><li>What’s blue ocean strategy? </li></ul><ul><li>Why blue ocean strategy? </li></ul><ul><li>What’s the difference between red ocean & blue ocean strategy? </li></ul><ul><li>Why companies tapped in red ocean strategy? </li></ul><ul><li>What’s value innovation? </li></ul><ul><li>What’s strategy canvas/value curve? </li></ul><ul><li>How to read a value curve? </li></ul><ul><li>How to create a blue ocean strategy? </li></ul><ul><li>What’s the life cycle of a blue ocean strategy? </li></ul><ul><li>When should company create another blue ocean strategy? </li></ul>
Business Strategy? <ul><li>Every organization has a vision and in order to achieve that vision companies develop business strategies </li></ul><ul><li> “ How to get where you want to go with what you have” </li></ul>
Type of business strategy <ul><li>Red ocean strategy </li></ul><ul><li>Blue ocean strategy </li></ul>
Type of business strategy Align the whole system of a firm activities with its strategic choice of differentiation and low cost Align the whole system of a firm activities with its strategic choice of differentiation or low cost Break the value cost trade-off Make the value-cost trade off Create and capture new demand Exploit existing demand Make the competition irrelevant Beat the competition Create uncontested market space Competing in the existing market space Blue ocean strategy Red ocean strategy
Why Companies trapped in red ocean strategy? <ul><li>Define their industry similarly and focus on being the best </li></ul><ul><li>Look at the industries through the lens of generally accepted strategic groups and strive to stand out in the strategic group they play in </li></ul><ul><li>Focus on the same buyer group, be it the purchaser, user or influencer </li></ul><ul><li>Define the scope of the products and services offer by their industry similarly </li></ul><ul><li>Accept their industry's functional or emotional orientation </li></ul><ul><li>Focus on the same point in time-and often on current competitive threats in formulating strategy </li></ul>
Why blue ocean strategy? <ul><li>Profit and growth consequences of blue ocean strategy </li></ul><ul><li>Business launch </li></ul><ul><li>Revenue impact </li></ul><ul><li>Profit impact </li></ul>86% 14% 62% 38% 39% 61% launches within red oceans launches for creating blue oceans
Value Innovation <ul><li>“ Value innovation is a cornerstone of any blue ocean strategy” </li></ul><ul><li>It occurs when companies align innovation with utility, price, and cost position </li></ul><ul><li>It defies one of the most commonly accepted dogmas of competition-based strategy: the value-cost trade off </li></ul><ul><li>It create both differentiation and low cost simultaneously </li></ul>Cost Buyer Value Value Innovation
Strategy Canvas / Value Curve <ul><li>Strategy canvas is both a diagnostic and an action frame work 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>Value curve is a basic component of the strategy canvas which depicts a company’s relative performance across it’s industry’s factors of competition </li></ul>
Strategy Canvas / Value Curve Low High Initial Purchase price Corrosion Maint. cost Fuel consum. Environmt friendliness Aesthetic design Cust. friendlines Average U.S Transit Bus value curve NABI value curve
Reading Value Curve <ul><li>Company caught in the red ocean - When a company's value converges with its competitors </li></ul><ul><li>Over delivery without payback - When a company's value curve on the strategy canvass is shown to deliver high levels across all factors </li></ul><ul><li>An incoherent strategy - When a company's value has no rhyme or reason, where the offerings can be described as "low-high-low-high-low-high“ </li></ul><ul><li>Strategic contradictions - Strategic inconsistencies can be found between level of offering and price </li></ul><ul><li>An internally driven Company - Competing factors stated in terms buyers can understand and value , or are they operational jargon </li></ul>
How to create a blue ocean strategy? <ul><li>Six principles to create blue ocean strategy </li></ul><ul><li>Formulation Principles </li></ul><ul><li>- reconstruct market boundaries Search risk </li></ul><ul><li>- focus on the big picture, not the numbers planning risk </li></ul><ul><li>- reach beyond existing demand scale risk </li></ul><ul><li>- g et the strategic sequence right business model risk </li></ul><ul><li>Executing Principles </li></ul><ul><li>- over come key organizational hurdles organizational risk </li></ul><ul><li>- build execution into strategy management risk </li></ul>
How to create a blue ocean strategy? <ul><li>4 Action framework </li></ul>A new value curve Reduce Which factor should be reduced well below the industry standard Create Which factor should be created that the industry has never offered Raise Which factor should be raised well above the industry standard Eliminate Which of the factors that industry takes for granted should be eliminated Characteristics Focus Diversity Compelling tagline
Reconstruct market boundaries <ul><li>Look across alternative industries </li></ul><ul><li>Look across strategic groups within industries </li></ul><ul><li>Look across the chain of buyers </li></ul><ul><li>Look across complementary product and service offerings </li></ul><ul><li>Look across functional or emotional appeal to buyers </li></ul><ul><li>Look across time </li></ul>
Reconstruct market boundaries <ul><li>Red ocean vs Blue ocean </li></ul>Rethink the F/E orientation of its industry Focus on improving price performance within F/E orientation of its industry Functional/Emotional orientation Participates in shaping external trends over time Focus on adapting to external trends as they occurs Time Looks across complementary P&S offerings Focus on max. P&S offerings within the bounds of industry Scope of Product or Servicing Redefines the industry buyer group Focus on better serving the buyer group Buyer group Looks across SG within industry Focus on competitive position within SG Strategic group Looks across alternative industries Focus on rivals within its industry Industry Blue ocean Red ocean Parameter
Focus on the big picture not on numbers <ul><li>Visualizing strategy </li></ul><ul><li>Portfolio of Business </li></ul><ul><li>Visualizing strategy </li></ul>Support only those projects and operational moves that allow your company to close the gap to actualize the new strategy Get feedback on alternative strategy canvas from customer competitor's customer and non customer Observe the distinctive advantages of alternative products and services See whether your strategy need to change Use feedback to build the best "to be" future strategy See which factors you should eliminate, create or change Distribute your before and after strategic profiles on one page for easy comparison Draw your to be strategy canvas based on insights from field observations Go in the field to explore the six paths to creating blue ocean Compare your business with your competitors by drawing your “as is” strategy canvas Visual Communication Visual Strategy Fair Visual Exploration Visual Awakening
Focus on the big picture not on numbers <ul><li>Portfolio of business </li></ul>Tomorrow Today Settlers are the other extreme of the business whose value curves conform to the basic shape of the industry's. It generally not contribute much to a company's future growth. They are stuck within the red ocean. Settlers have marginally growth potential, they are frequently today's cash generators. Settlers Migarators lies somewhere in between Pioneers & settlers. Such business extend the industry's curve by giving customers more for less, but they don't alter its basic shape Migrators Pioneers are the companies blue ocean strategies and they are the most powerful sources of profitable growth. There business has mass following of customers. Pioneers have max. growth potential but often consume cash at the outset as they grow and expand Pioneers
Reach beyond existing demand <ul><li>“ Companies should look at non-customers and focus on their key commonalities, not differences and de-segmentation before pursuing finer segmentation” </li></ul><ul><li>3-tier of non-customer </li></ul><ul><li>First tier - “Soon-to-be” non-customers who </li></ul><ul><li>are on the edge of your market, waiting to </li></ul><ul><li>jump in </li></ul><ul><li>Second tier - “Refusing” non-customers </li></ul><ul><li>who consciously choose against your </li></ul><ul><li>customer </li></ul><ul><li>Third-tier – “Unexplored” non-customers </li></ul><ul><li>who are in markets distant from yours </li></ul>First Tier First Tier Second Tier Third Tier Your Market
Build robust business model <ul><li>Sequence of blue ocean strategy </li></ul>Buyer utility Is there exceptional buyer utility in your business idea? No-Rethink yes Price Is your price easily accessible to the mass of the buyer? No-Rethink yes Cost Can you attain your cost target to profit at your strategic price? No-Rethink ye s Adoption What are the adoption hurdles in actualizing your business ides? Are you addressing them upfront? yes A commercial viable blue ocean strategy No-Rethink
Build robust business model – Buyer Utility <ul><li>Buyer experience cycle </li></ul>How costly is disposal? How much pain do they cause & how easy are they to obtain? Does the P & S deliver far more power or options than required by the average user? How rapidly can you make a purchase? Are there legal or environmental issues in disposing of the product safely? How costly is maintenance? How much time do they take? How effective are the product’s features and functions? Do buyers have to arrange delivery themselves? If yes how costly and difficult is this? How secure is the transaction environment? How easy is it to dispose of the product? How easy is it to maintain and upgrade the product? If so, how costly are they? Is the product easy to store when not in use? How difficult is it to unpack & install the new product? Is the price of purchase attractive and accessible? Does use of the create waste items? Does the product require external maintenance? Do you need other product & services to make this product work? Does the product require training or expert assistance? How long doses it take to get the product delivered? How long doses it take to find the product customer need? Disposal Maintenance Supplements Use Delivery Purchase
Build robust business model – Buyer Utility <ul><li>Buyer utility MAP - It outlines all the levers companies can pull to deliver exceptional utility to buyers as well as the various experience buyers can have with a product or services </li></ul>6 utility livers 6 stages of buyer experience In which stage are the biggest block? Environment Friendliness Fun & Image Risk Convenience Simplicity Customer Productivity Disposal Maintenance Supplements Use Delivery Purchase
Build robust business model – Strategic Pricing <ul><li>Pricing is very important as cost and risk of developing an innovative idea are borne by the initiator, not the follower </li></ul><ul><li>It is exacerbated when the notion of the excludability is considered </li></ul><ul><li>Strategic price offering must not only attract buyers in large numbers but should also help to retain them </li></ul><ul><li>Pursue pricing not against the competition within an industry but rather to pursue against substitutes and alternative across industries and non-industries </li></ul>
Build robust business model – Strategic Pricing <ul><li>Pricing corridor of the mass </li></ul>Price corridor of mass Size of circle is proportional to number of buyers that products & services attracts Price level within the price corridor Upper level pricing Mid-level pricing Lower-level pricing High degree of legal and resources protection difficult to imitate Some degree of legal and resources protection Low degree of legal and resources protection easy to imitate Three alternative product & services Same form Different form Same function Different form & function, same objective
Build robust business model – Target Costing <ul><li>Three principle to achieve target costing </li></ul><ul><li>Streamlining operations and introducing cost innovation from manufacturing to distribution </li></ul><ul><li>Partnering - Partnering provides a way for companies to secure needed capabilities fast and effectively while dropping their cost structure </li></ul><ul><li>Changing the pricing model of the industry and not the level of the strategic price </li></ul>
Build robust business model – Target Costing <ul><li>Profit model of blue ocean strategy </li></ul>strategic price target profit target cost streamlining & cost innovation partnering pricing innovation
Build robust business model – Adoption <ul><li>Before plowing and investing in the new idea, the company must first educate or get confidence of three main stakeholders of the company </li></ul><ul><li>Employee - Companies should work with employees to find ways of defusing the threat </li></ul><ul><li>Business Partners - Potentially even more than employees disaffection is the resistance of partners who fear that their revenue streams or market positions will be threaten by a new business </li></ul><ul><li>General Public - General public concern should also be attained by convincing them the benefits to society </li></ul>
Build robust business model – BOI index <ul><li>Blue ocean idea (BOI) index </li></ul>+ +/- - Have you addressed adoption hurdles up front? Adoption + - - Does your cost structure meet the target cost? Cost + - - Is your price easily accessible to the mass of buyers? Price + - - Is there exceptional utility? Are there compelling reason to buy your offering? Utility DOCoMo i-mode Japan Motorola iridium Philip CD-i
Overcome key organizational hurdles <ul><li>Hurdles in executing blue ocean strategy </li></ul>Cognitive Hurdle an organization wedded to the status quo Political Hurdle opposition from powerful vested interests Motivational Hurdle unmotivated staff Resource Hurdle limited resources
Overcome key organizational hurdles <ul><li>Tipping point leadership allows to overcome these 4 hurdles. It builds </li></ul><ul><li>on the rarely exploited corporate reality that in every organization, there </li></ul><ul><li>are people, acts and activities that exercise disproportionate influence on </li></ul><ul><li>performance </li></ul><ul><li>Ride the "Electric Sewer“ - to break the status quo, employees must come face-to-face with the worst operational problems </li></ul><ul><li>Resource Hurdle - tipping point leaders concentrate on multiplying the value of the resources </li></ul><ul><li>- hot spot </li></ul><ul><li>- cold spot </li></ul><ul><li>- horse trading </li></ul><ul><li>Motivational hurdle - companies need to focus on 3 factors for disproportionate influence in motivating employee </li></ul><ul><li>- zoom in on kingpins </li></ul><ul><li>- place kingpins in a fishbowl management </li></ul><ul><li>- atomization </li></ul>
Overcome key organizational hurdles <ul><li>Political hurdle - powerful vested interest exists in every organization that will resist impeding changes </li></ul><ul><li>- leveraging angels </li></ul><ul><li>- silencing devils </li></ul><ul><li>- secure a Consigliore on top management team </li></ul>
Overcome key organizational hurdles Conventional wisdom vs Tipping point leadership Mass of employee Conventional wisdom Extremes Extremes Tipping point leadership organizational changes rests on transforming the mass that requires steep resources and long time frame to change the mass, focus on the extremes- people, acts, and activities that exercises a disproportionate influence on performance to achieve a strategic shift fast and at low cost
Build execution in strategy <ul><li>To build people's trust and commitment and inspire their voluntary cooperation companies need to build execution to strategy from the start </li></ul><ul><li>Companies must reach to fair process in the making and executing of strategy </li></ul><ul><li>How fair process affects people’s attitudes and behavior </li></ul><ul><li>Strategy </li></ul><ul><li>formulation </li></ul><ul><li>process </li></ul>Fair process Engagement Explanation Expectation clarity Trust & commitment “ I feel my opinion counts” Attitudes Behavior Voluntary cooperation “ I’ll go beyond the call of duty” Strategy execution Exceeds expectations Self initiated
Build execution in strategy <ul><li>The execution consequences of the presence and absence of fair process in strategy making </li></ul>Fair process Intellectual and emotional recognition Trust and commitment Voluntary cooperation in strategy execution Violation fair process Intellectual and emotional indignation Distrust and resentment Refusal to execute strategy
Life cycle of a blue ocean strategy <ul><li>Creating blue ocean is not a static achievement but a dynamic process however more often than not, a blue ocean strategy will go without credible challenges for ten to fifteen years </li></ul><ul><li>Life cycle of a strategy depends upon imitation barriers rooted in a blue ocean strategy </li></ul><ul><li>Barrier to imitation </li></ul><ul><li>Value innovation does not make sense to a company's conventional logic </li></ul><ul><li>Blue ocean strategy may conflict with other company’s brand image </li></ul><ul><li>Natural monopoly </li></ul><ul><li>Patents or legal permit block imitation </li></ul><ul><li>High volume leads to rapid cost advantage for the value innovator, discouraging followers from entering the market </li></ul><ul><li>Network externalities discourage imitation </li></ul><ul><li>Imitation often requires significant political, operational and cultural changes </li></ul><ul><li>Companies that value-innovate earn brand buzz and loyal customers that tends to shun imitators </li></ul>
When should company create another blue ocean strategy? <ul><li>To avoid the trap of competing , companies need to monitor value curves on the strategy canvas. Monitoring value curves signals when to value-innovate and when not to. It alerts you to reach out for another blue ocean when your value curve begins to converge with those of the competition </li></ul><ul><li>However, when the company's value curve still has focus, divergence, and a compelling tagline, it should focus on lengthening, widening, and deepening of rent stream through operational improvements in order to dominate the blue ocean over imitator for as long as possible </li></ul>