This is a partial preview of the document found here: https://flevy.com/browse/business-document/blue-ocean-strategy-114 Description: This document provides a comprehensive and very well crafted summary of Blue Ocean Strategy. It explains its principles, tools, and frameworks using simple and carefully selected examples, which tie the framework to real world, modern organizations. In addition, this document includes a supporting 1-page mind map (PDF document) that breaks down your Blue Ocean Strategy into its component parts.

1. Blue Ocean Strategy
―The Peaceful Strategy‖

2. In business, we were always taught to fight an enemy
(competitor) over a given piece of land (market)
Signs of fierce competition/
market unattractiveness ―Me-too‖ Supply
Products >
(commoditized) Demand
Zero-sum Price
Game Wars
(fighting over the
same customers)
Red Ocean
of
Bloody Competition Shrinking
Rising
Profit
Churn
Margins
Rate Declining Slowing
Brand/ Growth/
Customer Mature
Loyalty Markets
...and our language of strategy is deeply imbued with its roots in military:
―Chief executive officers sitting in the corporate headquarters think about
what their customer-facing people at the front lines are doing, and how to
capture a larger share of their markets‖
It is a ―winner/loser‖ thinking
3

3. Companies have achieved substantially higher
returns from investments in Blue Oceans (in %)
Red Oceans Blue Oceans
Market-Competing Business Launches Market-Creating Business Launches
* 10-year study of business lunches from 108 companies in different industries
by: W. Chan Kim & Renée Mauborgne
5

4. Value Innovation is the cornerstone of BOS,
placing equal emphasis on value and innovation
Sony Walkman was the result of
The simultaneous pursuit of differentiation and low cost two already existing technologies
Cost
Eliminate
Cost
Reduce Boom box
Value
Innovation
Raise
Radio transistor
Buyer Value
Create
Value
Sony Walkman
• Value creation: Something that incrementally improves value, but is not sufficient to make your organization stand out in
the market place.
• Innovation: Tends to be technology driven, market pioneering or futuristic, often shooting beyond what customers are
ready to accept.
• Value Innovation: Creating a leap in value for customers and your company, thereby opening up new and uncontested
market space. It goes beyond value creation.
7

5. Maximizing opportunities and minimizing risks in
formulating and executing Blue Ocean Strategy
The six principles of BOS
Formulation Principles Formulation Risks
Reconstruct market boundaries Search Risk
Focus on the big picture, not the
Planning Risk
numbers
Reach beyond existing demand Scale Risk
Get the strategic sequence right Business Model Risk
Execution Principles Execution Risks
Overcome key organization
Organizational Risk
hurdles
Build execution into strategy Management Risk
9

6. What about one simple picture that tells you the
whole story and helps you avoid the ―math‖ things
The strategy canvas
Formula 1 1-star hotels 2-star hotels
9
Sleep well at the best price !
8
ERRC grid
7
Eliminate Raise
6
Eating facilities Bed quality
5
Architecture Hygiene
4
Appealing lounges  Room quietness
3
2
1
Reduce Create
0
 Room size (replaced Automatic check-in
closets with shelves) machines
 Room amenities
(desks, stationary,
decoration)
 Receptionists
(except during peak
times)
Result:
What does the strategy canvas tell you?: • Captured large share of the budget hotel business
• Graphical representation of strategy • Expanded the market to include noncustomers such as
truck drivers who previously slept in their trucks and
• Big picture view
business people who needed a few hours of rest
• Landscape scanning (the most important factors of competition)
• Relative positioning vs. competitors
11

7. Path 1: Look Across Alternative Industries
Southwest Other airlines Car
10
9
The pioneer of the budget airline business model
8
7 Eliminate Raise
6
Meals Speed
5
4 Lounges Friendly service
3 Seating choice
2
Hub connectivity
1
0
Reduce Create
Price versus Frequent point-to-
average airlines point departures
Other areas of cost saving:
• Moved from central to secondary airports
• Used one type of planes (Boeing 737)
* The insight into Southwest‘s success is that they looked at the car (alternative) as their • Adopted simple pricing (all inclusive, no change fees)
competitor and not the other airlines in their industry
Substitutes: Different forms but offer the same functionality or core utility. e.g.: Tea and Coffee
Alternatives: Different forms and functions but give the same purpose. e.g.: Restaurants and Cinemas share the same
purpose (―Enjoy a night out‖)
13

8. Path 3: Look Across the Chain of Buyers
By launching NovoPen (the first user-friendly insulin delivery
3
solution), Novo Nordisk shifted its industry focus from doctors
to patients
Result: 70% of its total turnover comes from diabetes care!
1 2
• Historically, the insulin industry focused on doctors • Meanwhile diabetics (users) were left with the
(influencers) who wanted purer insulin for their complex and unpleasant task of handling
patients syringes, needles and administering their doses.
• By 1980s advances in purification technology had
improved dramatically (Little progress could be made
further in this direction)
The chain of buyers: purchasers, users and influencers.
15

9. Path 5: Look Across Functional or Emotional
Appeal to Buyers
Functional: Emotional:
• Simple • Pricey
• Low cost • Extras
• Low price • Feelings
―No-nonsense‖ haircutting service
Commodity Experience
• Hot towel
• Shoulder rubbing
• Tea/coffee
• 1-hour, $27-$45
• Automatic wash & dry
Result: • ―one-use‖ towel & comb
• From 1 outlet in in Japan (1996) to 560 • 10-mintue, $9
shops in Far East (2010) • Traffic light system (no
• Capital: $8.5m reservation desk)
17

10. Answering these challenging questions can open
up new and uncontested market space
Step 3 : Identify desirable value
Step 1 : Identify paths Step 2 : Think about
factors
Alternative Which are some substitute and alternative Why do buyers trade across them?
What are the most important value factors?
Industries industries to your industry?
Why do customers trade up for the higher
Strategic What are the main strategic groups in What are the most attractive value factors?
group, and why do they trade down for the
Group your industry?
lower one?
What is the chain of buyers in your Which buyer group does your industry What factors can you create to unlock new
Buyer Group
industry? focus on? value for a different buyer group?
Scope of
Are there any pain points that can be
Product or What happens before, during or after What factors can be created to offer a total
eliminated through a complementary
Service using your product? solution buyers seek?
product or service offering?
Offering
What factors can be stripped to create a
Functional or
Is your industry functionally or emotionally fundamentally simpler offering?
Emotional Can you flip this orientation?
oriented? What factors can add emotion to your
Appeal
functional products/services?
What are some irreversible trends with a How will these trends impact your Given this, what new factors can be created to
Time
clear trajectory that impact your industry? business? open up unprecedented customer utility?
19

11. To maximize the size of your BO, reach beyond
existing demand by focusing on noncustomers
The three tiers of noncustomers
Unexplored
Refusing
Soon-to-be These have not been targeted or
They are already part of the current They either do not use or cannot thought of as potential customers
market and minimally use the afford to use the current market by any company in the industry
Your
product/service until something offerings because they find the and are assumed to belong to
Current other markets. e.g. until recently
better comes up. They do not have offerings unacceptable or beyond
Market their means. Their needs are either tooth whitening was thought to be
loyalty, want something better and
usually try other alternatives dealt with through another means or a service provided exclusively by
are completely ignored doctors and not by oral care
consumer-product companies
Young
antisocial Other males
males
Girls
Everyone else
Blue Oceans can be created by focusing on the key commonalities in what buyers value, and
not their differences through finer customization and segmentation.
21

12. Unless your new idea offers exceptional additional
utility for customers, don‘t go any further
Buyer Experience Cycle
Buyer Utility
Map Purchase Delivery Use Supplement Maintenance Disposal
Utility Levers
Customer Helping customers do things faster or better (time/money)
Productivity
Simplicity No physical or intellectual difficulty
Convenience Easy to obtain, use or dispose of
Risk Reduce financial, physical or credibility risk
Reductions
Fun/Image Provide a fun experience or particular image for the customer
Environmental
Contributing to improving the environment
Friendliness
23
Back to Path 4

13. Target costing addresses the profit side of the
business model to ensure meeting the strategic price
Red Ocean Pricing Blue Ocean Pricing
The Strategic Price
Strategic
Cost
Price
The Target Profit Target
Profit
Profit
Target
Price The Target Cost Cost
Streamlining & Cost Partnering
Innovations
• Swatch strategic price was $40 and their • Partnered with over 1500 manufacturers in
Asian competitors‘ around $75 per watch more than 50 countries to ensure lower material
• Used plastic instead of metal or leather Pricing Innovation cost and faster production
• Reduced the inner parts from 150 to 51
• Replaced screws by ultrasonic welding
• Fractional ownership of corporate jets
• Direct labor cost went down from 30% to 10%
• Revenue share with IT start-ups in return for providing HP‘s
high-end servers
25

14. Building a robust business model is important to
ensure profitability from your Blue Ocean idea
The strategic sequence Buyer utility
Is there exceptional buyer utility in your
business idea? No- Rethink
• Address the revenue side
Yes
• Create a leap in value for buyer
• Net Buyer Value = Buyer Utility - Price
Price
Is your price easily accessible to the
mass of buyers?
No- Rethink
Yes
• Addresses the profit side
Cost
• Create a leap in value for company Can you attain your cost target to profit
• Profit = Price - Cost at your strategic price?
No- Rethink
Yes
Adoption
What are the adoption hurdles in
actualizing your business idea? Are you
addressing them up front? No- Rethink
Yes
A Commercially
Viable Blue Ocean
Idea
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15. Tipping Point Leaders take a shortcut to address
organizational hurdles
Conventional Wisdom vs. Tipping Point Leadership
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 time frames.
Mass of Employees
Company
Tipping Point Leadership: To change the mass, focus on the extremes – people, acts, and activities
that exercise a disproportionate influence on performance to achieve a strategic shift fast at low cost.
Disproportionate Disproportionate
influence Factors influence Factors
Company
29

16. Tipping Point Leadership in action: How Bill Bratton
turned New York to the safest large city in the US 1994 -1996
1 Seeing is believing: 2 Redistribute resources to your hot spots:
• Although the public was complaining about the • Bratton did a complete refocus of cops at subway stations as he
surge in crime in the subway system, the NYC found that they were staffed equally even though the majority of
Police Dept. believed that it only accounted for 3% crimes occurred only in a few stations and lines
of city‘s crime. • He also allocated more staff to narcotics unit which was
• Starting by himself, Bratton let the top and middle understaffed (5% of the total work force yet handled 30-50% of
brass ride the subway trains. total crimes, attributable to drug-related crimes)
Redirect resources from your cold spots:
• Before Bratton, it would take an officer 16 hrs to bring a
Meet with disgruntled customers:
criminal/suspect from downtown to the court.
• The public was intimidated by the surge in crime in
• By using ‗bust buses‘ that were parked outside subway
Boston‘s Police District 4 (under Bratton), and
stations, an officer needed to only escort the suspect up to the
residents were selling their homes and leaving.
street level to the bus
• But the police force felt there were doing a fine
• This cut processing time from 16 hrs to 1 hr, freeing more officers
job, according the short 911 response times and
to patrol the subway and catch criminals
their record in solving major crimes.
• To solve the paradox, Bratton arranged a series Engage in horse trading:
of town hall meetings between his officers and the • Bratton facilitated a horse trading initiative between 2 police
neighborhood residents units, one was short of cars but had excess office space and the
other vice versa.
4 Leverage your angles and silence your devils: 3 Zoom in on kingpins:
• Bratton‘s devils were the courts, who believed that his new • Bratton zoomed in on the 76 precinct heads as his key
strategy (focusing on quality-of-life crimes) would overwhelm the influencers and kingpins
system with small crimes (prostitution, public drunkenness) • Each head directly controlled 200-400 police officers, who
• He built a coalition with his angles (mayor, district in turn would have ripple effect on 36 thousand police force.
attorneys, jail managers, public media), by illustrating to them
that the court system could indeed handle the added crimes and “Fishbowl” management:
in the long run they would reduce their caseload. • Biweekly crime strategy meetings
• With this powerful coalition, the courts could no longer oppose • Each commander‘s performance was publically critiqued
his strategy in front of peers and superiors
• Made results and responsibilities clear and transparent for
everyone
Secure a consigliere: • The fishbowl was applied to all kingpins
• Bratton appointed John Timoney, a highly respected NYPD
officer, as his number two Atomization (break the challenge into bit-sized atoms):
• Timoney‘s task was to report to Bratton on the likely attitudes • Each officer was responsible for his/her (block, precinct
of the top NYPD staff on the new strategy, identifying those or borough), so no one could claim that was out of his/her
who would fight or silently sabotage the new initiative hands
• Responsibility for executing the new strategy shifted from
him to each of the NYPD 36,000 police officers
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17. Are you saying Red Ocean Strategy is no longer
useful?
Absolutely not. It will always be important to swim successfully
in the Red Ocean by outcompeting rivals. Red Oceans will
always matter and will always be a fact of business life. But…
while Red Ocean Strategy tells you Blue Ocean Strategy shows
how take a bigger slice from the market‘s how to create your own
pizza
33

18. Thank you