Blue Ocean Strategy - The Peaceful Strategy


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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.

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Blue Ocean Strategy - The Peaceful Strategy

  1. 1. Blue Ocean Strategy “The Peaceful Strategy”
  2. 2. To break out of this Red Ocean, a “peaceful” way of strategic thinking should be adopted 4 Create uncontested market space Blue Ocean StrategyRed Ocean Strategy Compete in existing market space Beat the competition Exploit existing demand Make the value-cost trade-off Make the competition irrelevant Create and capture new demand Break the value-cost trade-off Align the whole system of a firm’s activities with its strategic choice of differentiation or low cost Align the whole system of a firm’s activities in pursuit of differentiation and low cost Red Ocean vs. Blue Ocean “Go where profits and growth are – and where the competition isn’t” —W. Chan Kim and Renée Mauborgne This document is a partial preview. Full document download can be found on Flevy:
  3. 3. 7 Value Innovation Eliminate Reduce Raise Create Cost Buyer Value Value Cost • 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. Value Innovation is the cornerstone of BOS, placing equal emphasis on value and innovation Boom box Radio transistor Sony Walkman Sony Walkman was the result of two already existing technologiesThe simultaneous pursuit of differentiation and low cost This document is a partial preview. Full document download can be found on Flevy:
  4. 4. Does this sound like the strategic plans in your company? 10 • Lengthy discussion of current industry conditions and competitive situation, followed by discussion about how to increase market share, capture new segments or cut cost, then outline of numerous goals and initiatives. • The process usually culminates in the preparation of a large document culled from a mishmash of data provided by people from various parts of the organization who often have conflicting agendas and poor communication • Managers spend the majority of strategic thinking time filling in boxes and running numbers instead of thinking outside the box and developing a clear picture of how to break from the competition • If you ask managers to present their proposed strategies in no more than a few slides, it is not surprising that few clear or compelling strategies are articulated • Executives are paralyzed by the muddle. Few employees deep down in the company even know what the strategy is • A closer look reveals that most plans don’t contain a strategy at all but rather a smorgasbord of tactics that individually make sense but collectively don’t add up to a unified, clear direction that sets a company apart—let alone makes the competition irrelevant Lengthy discussions Conflicting agendas Creativity is sacrificed for accuracy Long presentations Not well communicated Plans but no strategy This document is a partial preview. Full document download can be found on Flevy:
  5. 5. Path 1: Look Across Alternative Industries 13 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”) 0 1 2 3 4 5 6 7 8 9 10 Southwest Other airlines Car Eliminate Raise Meals Speed Lounges Friendly service Seating choice Hub connectivity Reduce Create Price versus average airlines Frequent point-to- point departures The pioneer of the budget airline business model Other areas of cost saving: • Moved from central to secondary airports • Used one type of planes (Boeing 737) • Adopted simple pricing (all inclusive, no change fees)* The insight into Southwest’s success is that they looked at the car (alternative) as their competitor and not the other airlines in their industry This document is a partial preview. Full document download can be found on Flevy:
  6. 6. Path 4: Look Across Complementary Products and Service Offerings 16 The key is to define the total solution buyers seek when they choose a product or service. See the Buyer Utility Map The world’s first MegaPlex, with 25 screens and 7600 seats • The industry was declining due to the spread of video recorders and cable TV • Movie theatres were located in prime city center locations, making the parking very expensive • Many parents find it difficult to go to cinemas especially when the last minute baby-sitter is not available Result: • Won 50% of the market in Brussels in its first year • Expanded the market by about 40% 1 • Moved their movie theatres to outside city center (15-min drive) • Added childcare facility • Offered free parking 2 This document is a partial preview. Full document download can be found on Flevy:
  7. 7. Answering these challenging questions can open up new and uncontested market space 19 Step 1 : Identify paths Step 2 : Think about Step 3 : Identify desirable value factors Alternative Industries Which are some substitute and alternative industries to your industry? Why do buyers trade across them? What are the most important value factors? Strategic Group What are the main strategic groups in your industry? Why do customers trade up for the higher group, and why do they trade down for the lower one? What are the most attractive value factors? Buyer Group What is the chain of buyers in your industry? Which buyer group does your industry focus on? What factors can you create to unlock new value for a different buyer group? Scope of Product or Service Offering What happens before, during or after using your product? Are there any pain points that can be eliminated through a complementary product or service offering? What factors can be created to offer a total solution buyers seek? Functional or Emotional Appeal Is your industry functionally or emotionally oriented? Can you flip this orientation? What factors can be stripped to create a fundamentally simpler offering? What factors can add emotion to your functional products/services? Time What are some irreversible trends with a clear trajectory that impact your industry? How will these trends impact your business? Given this, what new factors can be created to open up unprecedented customer utility? This document is a partial preview. Full document download can be found on Flevy:
  8. 8. The final strategy should encompass these three qualities: focus, divergence and compelling tagline 22 0 1 2 3 4 5 6 7 8 9 10 Southwest Other airlines Car “Across the board investing is often a sign that competitors' moves are setting a company's agenda.” —W. Chan Kim and Renée Mauborgne Focus (investing on few decisive factors) Compelling tagline: “The speed of a plane at the price of a car travel—whenever you need it.” Divergence (their value curve stand apart from competitors’). This document is a partial preview. Full document download can be found on Flevy:
  9. 9. Target costing addresses the profit side of the business model to ensure meeting the strategic price 25 The Strategic Price The Target Profit The Target Cost Streamlining & Cost Innovations Partnering Pricing Innovation • Swatch strategic price was $40 and their Asian competitors’ around $75 per watch • Used plastic instead of metal or leather • Reduced the inner parts from 150 to 51 • Replaced screws by ultrasonic welding • Direct labor cost went down from 30% to 10% • Partnered with over 1500 manufacturers in more than 50 countries to ensure lower material cost and faster production • Fractional ownership of corporate jets • Revenue share with IT start-ups in return for providing HP’s high-end servers Strategic Price Target Profit Target Cost Blue Ocean Pricing Cost Profit Price Red Ocean Pricing This document is a partial preview. Full document download can be found on Flevy:
  10. 10. Since BOS is a significant departure from business-as-usual, it needs to be well managed 28 • Zoom in on kingpins • Place kingpins in a fishbowl • Atomize to get the organization to change itself • Secure a consigliere on your top management team • Leverage your angles and silence your devils • Redistribute resourses to your hot spots • Redirect resources to your cold spots • Engage in horse trading • Come face-to-face with most operational problems • Listen to most disgruntled customers Cognitive Hurdles An organization wedded to the status quo Resource Hurdles Limited resources Political Hurdles Opposition from powerful vested interests Motivational Hurdles Unmotivated staff • Hot spots: Activities that have the greatest performance impact but are resource starved • Cold spots: Activities that are resource oversupplied but have scant performance impact • Horse trading: Trading your unit’s excess resources in one area for another unit’s excess resources to fill remaining resources gap • Kingpins: Key influencers in organization • Fishbowl: Transparency, inclusion and fair process • Atomize: Break the overall objective down into bite-sized components to make it actionable at all levels. • Consigliere: A highly respected insider who knows in advance “who will fight you, and who will support you” • Angels: Who the most to gain from the strategic shift • Devils: Who the most to lose from the strategic shift Key organizational hurdles This document is a partial preview. Full document download can be found on Flevy:
  11. 11. Tipping Point Leadership in action: How Bill Bratton turned New York to the safest large city in the US 31 Seeing is believing: • Although the public was complaining about the surge in crime in the subway system, the NYC Police Dept. believed that it only accounted for 3% of city’s crime. • Starting by himself, Bratton let the top and middle brass ride the subway trains. Meet with disgruntled customers: • The public was intimidated by the surge in crime in Boston’s Police District 4 (under Bratton), and residents were selling their homes and leaving. • But the police force felt there were doing a fine job, according the short 911 response times and their record in solving major crimes. • To solve the paradox, Bratton arranged a series of town hall meetings between his officers and the neighborhood residents Zoom in on kingpins: • Bratton zoomed in on the 76 precinct heads as his key influencers and kingpins • Each head directly controlled 200-400 police officers, who in turn would have ripple effect on 36 thousand police force. “Fishbowl” management: • Biweekly crime strategy meetings • Each commander’s performance was publically critiqued in front of peers and superiors • Made results and responsibilities clear and transparent for everyone • The fishbowl was applied to all kingpins Atomization (break the challenge into bit-sized atoms): • Each officer was responsible for his/her (block, precinct or borough), so no one could claim that was out of his/her hands • Responsibility for executing the new strategy shifted from him to each of the NYPD 36,000 police officers Secure a consigliere: • Bratton appointed John Timoney, a highly respected NYPD officer, as his number two • Timoney’s task was to report to Bratton on the likely attitudes of the top NYPD staff on the new strategy, identifying those who would fight or silently sabotage the new initiative Leverage your angles and silence your devils: • Bratton’s devils were the courts, who believed that his new strategy (focusing on quality-of-life crimes) would overwhelm the system with small crimes (prostitution, public drunkenness) • He built a coalition with his angles (mayor, district attorneys, jail managers, public media), by illustrating to them that the court system could indeed handle the added crimes and in the long run they would reduce their caseload. • With this powerful coalition, the courts could no longer oppose his strategy Engage in horse trading: • Bratton facilitated a horse trading initiative between 2 police units, one was short of cars but had excess office space and the other vice versa. Redirect resources from your cold spots: • Before Bratton, it would take an officer 16 hrs to bring a criminal/suspect from downtown to the court. • By using ‘bust buses’ that were parked outside subway stations, an officer needed to only escort the suspect up to the street level to the bus • This cut processing time from 16 hrs to 1 hr, freeing more officers to patrol the subway and catch criminals Redistribute resources to your hot spots: • Bratton did a complete refocus of cops at subway stations as he found that they were staffed equally even though the majority of crimes occurred only in a few stations and lines • He also allocated more staff to narcotics unit which was understaffed (5% of the total work force yet handled 30-50% of total crimes, attributable to drug-related crimes) 1994 -1996 1 2 4 3 This document is a partial preview. Full document download can be found on Flevy:
  12. 12., the best way to beat your competition is to make them irrelevant 25/02/201434 swim to the Blue Oceans... This document is a partial preview. Full document download can be found on Flevy:
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