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Blue Ocean Strategy - Part 2 - Advanced


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Everything you wanted to know about Blue Ocean strategy

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Blue Ocean Strategy - Part 2 - Advanced

  1. 1. Blue Ocean Strategy – Part 2 Formulation & Implementation The science of making competition irrelevant
  2. 2. In Our Previous Webinar
  3. 3. Red Ocean Vs. Blue Ocean Red Ocean Strategy Blue Ocean Strategy Compete in existing market space Create uncontested / New market space Beat the competition Make the competition irrelevant Create a value – cost trade off Break the value-cost trade off Competitive Advantage Value Innovation Segment existing customers Attract noncustomers Exploit existing demand Create and capture new demand
  4. 4. Value Innovation Traditional Companies Blue Ocean Companies Price Eliminate Price Reduce Value Innovation – Simultaneous pursuit of high value & Low cost Create Value/ product features Raise Value/ product features Characteristics of a good Value innovation Strategy FOCUS: Not to diffuse efforts across all key factors of competition. DIVERGENCE: The shape of the value curve diverges from those of other players. Compelling Tag line : The value curve can be translated into a clear, strong, truthful and compelling TAGLINE.
  5. 5. The Four Actions Framework REDUCE Factors that should be well below the industry Standard ELIMINATE Factors that the industry takes for granted and need to be eliminated Create A New Value Curve RAISE Factors that should be raised above the industry standard CREATE Factors that the industry has never created
  6. 6. The Strategy Canvas Concept NETJETS High Business / 1st Class Travel Relevance Scale Medium Low Commercial Airline Industry Price Dead head Costs Hassle free Travel Time Savings/ Faster Travel Flexibility & Reliability Jet Ownership In Flight Service Attributes of Industry & Competitors NETJETS • • Commercial Airline Industry Business / 1st Class Travel The strategy canvas is the central diagnostic and action framework for building a compelling blue ocean strategy. The Strategy canvas serves two purposes: – – It captures the current state of play in the known market space. This allows you to know where you are viz competition It propels you to action by reorienting your focus: • From competitors to alternatives • From customers to non customers of the industry.
  7. 7. Strategic Questions before NetJets – How to enter into the Aviation Space when the market was dominated by the big Airline groups? 1983 The Red Ocean •Over 20 domestic And international Airlines competing in the space •All of them attracted Business Travelers, Holiday travelers and Casual Travelers •Corporates spent millions on executive travel every year •All travelers had to go through the long check ins, security checks, hectic flight transfers, congested airports, Baggage claims …. •Business Travelers only have the option of Business Class/ First class or corporate Jet The Blue Ocean • Identified that Business Travelers are the most frequent and regular flyers • NETJETS offered Business Travelers “ The convenience of a private Jet at the price of a Airline Ticket” • NETJETS also provided fractional 1/16 ownership of the aircraft – With no hassles Aircraft Maintenance • Private Aircraft made available to corporate at 4 hours notice ( much less than flight booking) • No Hassles or responsibilities of Aircraft Maintenance • Customized in flight services – Only for the traveler Created a B2B industry when the entire industry was still B2C
  8. 8. The Story Of • World’s first Self Service Virtual Suit company • Customers can choose the fabric, design style and accessories - Online • Buttons, Lapels, linings, pockets, cuff signature – everything is customizable • Customers measure themselves and provide fitting details online with video tutorial • Delivery within 3 weeks ( • If order is less than perfect, Indochino pays for local tailoring or remake sthe suit for free • Most suits priced under $500 ( Whereas cheap suits cost around $200 and the designer ones around $1500) Traditional Apparel / Suit Companies • Industry divided into five segments Haute Couture, Luxury, Affordable Luxury, Mainstream & Discount • The Traditional companies competed among each other on the factor like : No of stores, Location of stores – Premium stores , Premium brand, Range or no of Lines offered, Hi Fashion Vs customization Vs price Tradeoff • Marketing & Brand reputation ( Top brands associated with Designer Labels) •High Customization costs 1) does not compete in any of the segment 2) does not get affected by the industry factors 3) built its brand reputation by delivering Value 4) outsources all suits to quality and reputed local and tailor network of Shanghai Created and Captured a new Market Demand by focusing on Buyer Utility
  9. 9. The Story Of Zynga •Founded Zynga in April 2007 with a mission “Connect the world through games” •Has over 3000 Employees and 270 million customers, 60 mn daily active users •Largest Social games developer of Facebook •Now provides games in multiple platforms like: •Facebook, Myspace, Android, ipad, iphone, yahoo & Zynga Traditional Gaming Companies 1) Industry divided into four segments • Console based games, Online Games, Mobile Games & Flash Games 2) Console based games dominated the marketplace with 75% of the revenues. 3) The big three of the gaming dominated 95% of the console marketplace (sony, Nintendo, Xbox ..) 4) The Traditional gaming companies competed among each other on the following factors: Consoles – Type speed, capabilities, No of titles in each genre, Speed of Title Release – weekly, monthly, Hi end real time graphics, Hi end accessories 5) Catered only to gamers – Teenage boys to professional gamers 6) Addictive and had lot of side effects – Too much violence, addiction, Lack of exercise, not mind stimulating 7) Parents usually did not recommend / buy Zynga’s Farm Ville 1) Zynga did not compete in any of the segment or market player dominance 2) Zynga’s (Farm Ville) did not get affected by the industry factors 3) Zynga built its brand reputation by sharing and word of mouth connect 4) Zynga caterered to all – children, parents, professionals … 5) Zynga created a new genre of education / simulation games Created and captured a new market demand by focusing on Non Customers
  10. 10. Story Of Khan Academy •A non-profit educational organization created in 2006 by Salman Khan- A MIT & Harvard Business School Alumni •Free online collection of more than 3,300 micro lectures •Most viewed online courses and lectures in the world – Over 172 million total views. • Over 177 million lessons delivered till date • Close to quarter billion dollars in donation • Team size of just 20 people • Amongst the 100 most influential people of the world Traditional Education Companies Khan Academy 1) 1) Industry divided into 2 segments • Brick & mortar Learning – Schools/ Colleges • Online learning 2) Learning was centered around students 3) The factors the industry was competing on: • Student teacher ratio • Class room Interaction • Cost of learning / Education • Interactive Learning • • Khanacademy filled the gaps existing in traditional brick & mortar school learning Videos & Exercises to be used as a teaching aid and not replacement for teacher Use analytics and technology to figure out the Strengths & weakness of students 2) Learning is centered around students, teachers and parents 3) Everybody gets equal opportunity / attention/ Learning 4) Smart kids get more attention than other kids 4) Unique Pedagogy • Stop, rewind, understand and then play 5) Focused pedagogy – Teacher talks – Students listen – Therefore Students learn 5) Analytics drive the understanding of each students strengths & Weakness 6) Teachers Judge student’s strength / weakness Created and captured a new market demand by focusing on functionality & emotional appeal
  11. 11. Moving Forward Discovering the Principles of Blue Ocean Strategy
  12. 12. Principles Of Blue Ocean Strategy Core/Formulation Principles Formulation Risks Reconstruct market boundaries Search Risk Focus on the big picture, not the numbers Planning Risk Reach beyond existing demand Scale Risk Get the strategic sequence right Business Model Risk Execution Principles Execution Risks Overcome key organizational hurdles Organizational Risk Build execution into strategy Management Risk The formulation principles and execution Principles, work in tandem to minimize risks and maximizing opportunities.
  13. 13. Reconstructing Market Boundaries Focus on Big Picture – Not Numbers Reach Beyond Existing Demand Getting The Strategic Sequence Right Overcoming Organizational Challenges Building Execution Into Strategy
  14. 14. 6 Paths Framework Conventional boundaries in a competitive marketplace Competitors in Industry From competing within Look across Alternative Industries Competitive Position among Strategic Groups Looks across strategic groups Better serving existing Buyer Groups Creating value across Looks at Complementary product / service offerings Maximizing value with existing Product More functions more price / premium Adapting to trends & Time value • • • Redefines Buyer Groups Blue ocean Strategy Rethinks Functional Orientation of Industry Shapes External trends over time Blue oceans can be created by exploring outside of industry boundaries Break out of the traditional boundaries of the industry to unlock value “out of the boundaries” thinking framework for unlocking value
  15. 15. 6 PATHS: Exploration Outside of Traditional Boundaries Path 1 - Looking across Alternate Industry What are the alternative industries to your industry? Why do buyers trade across to them? NTT DoCoMo, Federal Express, Southwest Airlines, NetJets Path 2 – looking across Strategic Groups What are the strategic groups in your industry? Why do buyers trade up for the higher group, and why do they trade down for the lower one? Polo Ralph Lauren, Curves, Sony Walkman, Toyota Lexus Path 3 - Looking across chain of buyers What is the chain of buyers in your industry? Which buyer group does your industry typically focus on? If you shifted the buyer group of your industry, how can you unlock new value? Novo Nordisk, Bloomberg Terminals, Canon Copiers, Philips Alto Path 4 – looking across complementary product / service offering What is the context in which your product or service is used? What happens before, during, and after? Can you identify the pain points? How can you eliminate these pain points through a complementary product or service offering? Barnes & Noble, Dyson Vacuum Cleaners, Kinépolis Kiné-kids, Zenick Salick’s Cancer Centers Path 6 – Looking across Time value of business What trends have a high probability of impacting your industry, are irreversible, and evolving in a clear trajectory? How will these trends impact your industry? Given this, how can you open up unprecedented customer utility? Apple Music, Cisco Systems, CNN, HBO’s “Sex and the City” Path 5 – Looking across Functional-emotional appeal to buyers Does your industry focus on functionality or emotional appeal? If you compete on emotional appeal, what elements can you strip out to make it functional? If you compete on functionality, what elements can be added to make it more emotional? Starbucks, QB House, Direct Line Group, Pfizer’s Viagra
  16. 16. Reconstructing Market Boundaries Focus on Big Picture – Not Numbers Reach Beyond Existing Demand Getting The Strategic Sequence Right Overcoming Organizational Challenges Building Execution Into Strategy
  17. 17. •A Typical Strategic plan in an organization today is so very red ocean • Because Managers formulate the strategy based on current industry, current customers and current challenges. • Managers spend majority of their time thinking about profitability, projections, market shares, segments and revenues based on current industry facts / assumptions. • Managers are pulled in all directions by their superiors based on limited information & perceptions •By building a company’s strategic planning process around a strategy canvas, the company can focus their main attention on the big picture rather than getting immersed in numbers and jargons. Ok Here Here Managers CEOs Staff
  18. 18. Four Steps of Visualizing Strategy The four steps that pushes a company’s strategy canvas to blue oceans Visual Awakening • Compare your business with your competitor’s by drawing your “as is” strategy canvas. • See where your strategy needs to change. Visual Exploration • Go into the field to explore the six paths to creating blue oceans. • Observe the distinctive advantages of alternative products and services. • See which factors you should Eliminate, Raise, Create, o r Change. •DO NOT USE MARKET RESEARCH • • Visual Strategy Fair Visual Communication • Draw your ‘to be” strategy canvas based on insights from field observations. • Distribute your beforeand-after strategic profiles on one page for easy comparison. EXPLANATION • Get feedback on alternative strategy canvases from customers, competitor's customer, and noncustomers. • Support only those projects and operational moves that allow your company to close the gaps to actualize the new strategy. EXPECTATION : CLARITY • Use feedback to build the best “to be” future strategy. This approach mitigates planning risks by investing time & effort to develop a compelling strategy canvas that is Focused, Divergent & that has a compelling tagline. Compares the current business attributes with your competitors’ by drawing your “as is” strategy canvas, and then evaluating where the strategy needs to change.
  19. 19. The PMS Map • Pioneers • Migrator • Settlers Today • • Pioneers: Businesses that provide unprecedented value Settlers: Their business conforms to the basic value curve of the industry or me too industry Migrators: Improved value but not innovative idea Tomorrow Visualizing strategy helps managers to predict and plan company’s future This framework can be used to help a company align its internal product portfolios • • Clearly, what companies should be doing is shifting the balance of their future portfolio toward pioneer If current portfolio and the planned offerings consist mainly of settlers then the company has low growth trajectory
  20. 20. Reconstructing Market Boundaries Focus on Big Picture – Not Numbers Reach Beyond Existing Demand Getting The Strategic Sequence Right Overcoming Organizational Challenges Building Execution Into Strategy
  21. 21. Reach Beyond Existing Demand Conventional Companies Focus on Existing Customers Drive for finer Segmentation • Retain and guard existing customers • Compete for competitor business • Create a niche by looking at finer customer preferences • Dominate with competitive advantage in segments Creates enhanced competiveness among players – leading to higher cost of customer acquisition Creates small marketplaces that might not be scalable and profitable in long run Conventional Strategy of companies needs to be challenged
  22. 22. The Three Tiers of Non Customers Tier 3 Non Customers Tier 2 Non Customers Tier 3 non customers: “unexplored” non customers who are in markets distant from yours. Tier 2 non customers: refusing noncustomers who consciously choose against your market Tier 1 – Non Customers Tier 1 non customers : “soon-to-be” noncustomers who are on the edge of your market, waiting to jump ship Non Customers Managing the three tiers of Non customers Tier 1 Non Customers : Investigate Dissatisfaction Key commonalities across needs & desires e.g. PRET A MANGER- British fast food chain Tier 2 Non Customers: Go for the Bigger Catchment Eliminate access barriers Economic, Functional, Education, Geographical e.g. JCDecaux – street Furniture Tier 3 Non Customers: Remove long held assumption on customer needs & behavior e.g. US Airforce Joint Strike Fighter and Zynga
  23. 23. How did Zynga effectively utilized this principle? Tier 1 Non-Customers Audience Non Regular players – young boys & girls bored out of traditional games Tier 2 Non-Customers Casual Players - working men/ women not enough time to play Change 1 Changed genres completely – from shooting, arcade, racing, to simulation Cost of acquisition – free Change 2 Made social networking fun and more exciting Eliminated hassles of consoles, game titles, accessories, hardware & setups Fun lasts longer, with reduced time and effort Non serious casual play to relax / unwind Results Tier 3 Non –Customers Non Player Parents- women/ housewives Removed violence Play with friends and family – not necessarily together / real time No winner – no loser • Zynga looked across non customers and attracted new buyer groups to create an industry that did not exist earlier
  24. 24. Reconstructing Market Boundaries Focus on Big Picture – Not Numbers Reach Beyond Existing Demand Getting The Strategic Sequence Right Overcoming Organizational Challenges Building Execution Into Strategy
  25. 25. Buyer Utility Is there a compelling reason for the mass to buy? Is there exceptional buyer utility in your Business idea? Yes No Price Is your strategic price attractive enough to attract customers? Sequence of Blue Ocean Strategy Can your costs be significantly lower than the current Industry price? Are there any adoption hurdles? What are the resistance points? We will explore the Sequence and the formulation in our Next webinar using the tools we have explored today Revenue Is your price easily accessible to the mass of buyers? Yes No Cost Can you attain your cost target to profit at your Strategic price? Yes Costs No Adoption What are the adoption hurdles in actualizing your business idea? Are you addressing them upfront? Yes Hurdles No Commercially Viable Blue Ocean Strategy
  26. 26. Buyer Utility Map A buyer’s experience can usually be broken into a cycle of six stages, running from purchase to disposal. Each stage encompasses a wide variety of specific experiences. At each stage, managers need to ask a set of questions to gauge the quality of buyer’s experience. Purchase •How long does it take to find the product you need? •Is the place of purchase attractive and accessible? •How secure is the transaction environment? •How rapidly can you make a purchase? Delivery Use •How long does it take to get the product delivered? •Does the product require training or assistance? •How difficult is it to unpack and install the new product? •Is the product easy to store when not in use? •Do buyers have to arrange delivery themselves? •How effective are the product’s features and functions? •Does the product or service deliver far more power or options than required by the average user? Is in overcharged with bells and whistles? Supplements Maintenance Disposal •Do you need other products and services to make this product work? •Does the product require external maintenance? •Does use of the product create waste items? •If so, how costly are they? •How much time do they take? •How easy are they to obtain? •How easy is it to maintain and upgrade the product? •How costly is maintenance? •How easy is it to dispose of the product? •Are there legal or environmental issues in disposing of the product safely? •How costly is disposal?
  27. 27. Uncovering Blocks to Buyer Utility Uncovering blocks to buyer utility can identify the biggest blocks to buyer experience that stand in the way of converting noncustomers into customers. Customer Productivity: In which stage are the biggest blocks to customer productivity? Simplicity: In which stages are the biggest blocks to simplicity? Convenience: In which stage are the biggest blocks to convenience? Risk: In which stage are the biggest blocks to reducing risks? Fun and Image: In which stage are the biggest blocks to fun and image? Environmental Friendliness: In which stage are the biggest blocks to environmental friendliness?
  28. 28. Testing the Buyer Utility – with Purchase Delivery Use Supplements Maintenance Disposal Utility Leavers Is it Productive for the buyer? Does the buyer find it simple? Does the buyer find it Convenient? Does it reduce buyers' Risk Does it have a fun image association? Does it have environment friendly Buying Experience • Buyer Utility Score Blocks– Lower than what is prevalent in the current industry • Therefore raised the Buyer Utility and Experience Traditional Suit industry
  29. 29. Exceptional Utility to Strategic Pricing Three Alternate product / service Types Same Form Different Form & Function – Same objective Different Form – Same Function Higher degree of Legal & resource protection Difficult to imitate Viagra SAP I phone Lycra Mid Level pricing Price Corridor of Masses Some degree of legal & resource protection Low degree of legal & resource Protection Ford Model T Air Asi • • Step 1: Identify the Price Corridor of the Mass. • • Blue oceans approach to price is not Cost + profit Infact it is Strategic Price – Target Cost Step 2: Specify the price level within the price corridor
  30. 30. Strategic Pricing to Target Costing Strategic Price • Target Profit • • Target Cost • Streamlining & Cost Innovations Partnering Unlike traditional companies the price must be determined first not the costs. The costs is determined based on the target profit intended Cost is approached as a target for reduction Target Costs Can be achieved through: – Streamlining Operations • • Price Innovations – Partnering • • Price ≠ Cost + profit Outsourcing, digitizing, cloud, E.g. Apple Leverage low cost capabilities and reach of other companies E.g. SAP who partnered with Oracle, Cape Gemeni , Accenture etc
  31. 31. Overcoming Adoption Hurdles • • • • Perfect business model doesn’t always guarantee success of a blue ocean idea A new idea threatens the position of the company, which can provoke fear among the three main stakeholders: employees, business partners, and the public Before moving on with a new idea, the company should communicate the plan effectively to all stake holders Use Blue Ocean Idea Index to test the system •Failure to address the concerns of employees can be very expensive •Make an effort to explain the new idea, Work out the problems so everyone wins Employees General Public •Stakeholders need to be confident and know that there will be no surprises •Do not let others take charge of your own debate Business Partners •Possibly more important than employees •Resolve by openly discussing the problem
  32. 32. Reconstructing Market Boundaries Focus on Big Picture – Not Numbers Reach Beyond Existing Demand Getting The Strategic Sequence Right Overcoming Organizational Challenges Building Execution Into Strategy
  33. 33. Overcoming Key Organizational Hurdles • Every change in organization is encounters 4 hurdles viz. Cognitive, Resource, Motivational & Political • Conventional wisdom asserts that the greater the change, the greater the resources and time you will need to bring about results. Cognitive Hurdle An Organization Wedded with Status Quo Resource Hurdles Political Hurdles Limited resources Opposition from Powerful Vested Interests Leveraging tipping point leadership to align all with the new strategy. • Transforming the extremes will transform the masses. • Focus on acts of disproportionate influence. – People, Acts and Activities Motivational Hurdles Unmotivated Staff
  34. 34. Overcoming Hurdles with Tipping point leadership Cognitive Hurdles Ride the “Electric Sewer” (Experience the key challenges yourselves / top management, before framing the problem) Meet with Disgruntled Customers (Ensure you understand the experience of others) Resource Hurdles Motivational Hurdles Zoom in on Kingpins (key influencers) Identify the Natural Leaders, Skilled and persuasive Place kingpins on a fishbowl (Highlight actions and responsibilities of kingpins in a transparent & fair process) Atomize to get the organization to change itself (Breaking up of objectives, by function and role so that nobody can say it’s a difficult task) Political Hurdles Redistribute resources to your hot spots (Identify the impactful areas where more resources are required but not adequate) Redirect resources from your cold spots (Identify the non Impactful areas where resources can be freed) Engage in horse trading (Trade resources from others for symbiotic Who are my devils? Who will fight me? Who will lose the most Who are my angels? Who will naturally align with me? Who will gain the most by the strategic shift?
  35. 35. Reconstructing Market Boundaries Focus on Big Picture – Not Numbers Reach Beyond Existing Demand Getting The Strategic Sequence Right Overcoming Organizational Challenges Building Execution Into Strategy
  36. 36. Building execution into Strategy • During a Strategy execution that requires offering customers a leap in value : – People are required to step out of their comfort zones and change the way they have performed previously – People can resent having a strategy thrust upon them – Poor process can ruin Strategy, leading to distrust, non-cooperation and even sabotage. The Three Principles of Fair process Engagement Explanation Expectation Clarity • Involving Individuals in strategic decisions that affect them. • Asking for their inputs and allowing to refute the merits and demerits of ideas • Nullifying the assumptions that anyone may have •Involves explaining as to why the strategic decisions are made as they are • What is the core thinking that underlies the strategy •What are the new rules of the game and therefore the new responsibilities • What are the expectations and standards that each will be judged upon
  37. 37. How fair Process affects People’s Attitudes & behaviors Strategy Formulation Process Attitudes Fair Process Engagement Explanation Expectation Clarity Trust & Commitment Intellectual & Emotional Recognition Trust & Commitment “ I feel My Opinion Counts” Behavior Voluntary Cooperation “ I will go beyond the call of Duty” Strategy Execution • Voluntary cooperation in execution Strategy Exceeds Expectations Self Initiated Fair process of Strategy ensures a managerial road map that builds productivity while executing a strategy
  38. 38. BOS Principles Summary Strategy Execution Strategy Formulation Search Risks Planning Risks Scale Risks Business Model Risks Organizational Risks Management Risks 6 Paths Approach Strategic Planning Market Sizing Business Model Mobilization Management Risks Reconstruct Market Boundaries Focus on Big Picture – Not Numbers Reach Beyond Existing Demand Getting the strategic Sequence Right Overcoming Organization al hurdles Building Execution into Strategy •Alternative Industries •Strategic groups •Buyer Groups •Complementary Product offerings •Functional Emotional Orientation •Time Plan beyond incremental improvements using a visualization approach •Visual Awakening • Visual Exploitation • Strategy Fair • Visual Communication •Use PMS map to identify current & future orientation of business •Sequence the business Model to capture newly created value •Buyer Utility Mapping •Pricing & corridors of Masses • Cost Targets based on margins desired • Potential Adoption obstacles Tipping Point leadership to Tackle • Cognitive hurdles •Resource Hurdles •Motivational Hurdles • Political Hurdles Execution through: Engagement •Explanation •Clarity of expectations •Challenge Conventional practices •Consolidate demand by focusing on Non Customers • Three tiers of Non Customers
  39. 39. Thank you