Blue ocean strategy


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Blue ocean strategy

  1. 1. BLUE OCEAN STRATEGY The ´How to´ book No. 2,3 & 7 in (Foreign language books) No. 1,1 & 8 in (relevant categories) Peter Berends W.Chan Kim Renée Mauborgne
  2. 2. Introduction • What is Blue Ocean Strategy? • Background? • What are the steps prescribed? • How does it relate to practice? • Difficulties and appraisal
  3. 3. Background • Based on a study of 150 strategic moves spanning more than 100 years and 30 industries. • BOS is the simultaneous pursuit of differentiation and low cost. • The aim of BOS is not to out-perform the competition in the existing industry, but to create new market space or a blue ocean, thereby making the competition irrelevant. • BOS claims to offer systematic and reproducible methodologies and processes in pursuit of value innovation by both new and existing firms.
  4. 4. What is Blue Ocean Strategy? • Blue Ocean Strategy is a preconceived way to maximise the chances to open new competition-free markets that boost firm income (and thus survival). • Red oceans are competition intensive markets where firms ´struggle´ to survive (the oceans are red from the blood of fish biting each other)
  5. 5. Red Ocean Strategy Blue Ocean Strategy Compete in existing market space Create uncontested market space Beat the competition Make the competition irrelevant Exploit existing demand Create and capture new demand Make the value-cost trade off Break the value-cost trade off Focus on ´normal´ strategic choices Focus on ´both-and´ choices
  6. 6. Value innovation as cornerstone • Value innovation places equal emphasis on value and innovation. • Value innovation is a new way of thinking about and executing strategy that results in the creation of a blue ocean. • The creation of blue oceans is about driving costs down while simultaneously driving value up for buyers.
  7. 7. The 6 Principles of a Blue Ocean Strategy Formulation principles: • Reconstruct market boundaries • Focus on the big picture • Reach beyond existing demand • Get the strategic sequence right Execution principles: • Overcome the four key organizational hurdles • Build execution into strategy
  8. 8. Analytical tools and frameworks • The strategy canvas • The four actions framework and grid (Eliminate, Reduce, Raise, Create) • The three characterisics of a good strategy
  9. 9. The strategy canvas: Benefits Industry profile by showing the factors that affect competition among the players. Shows the strategic profile for incumbents, identifying which factors they invest in. Shows the company´s strategic profile and how it invests in the competitive factors, and possible future factors to create a BOS.
  10. 10. The Strategy Canvas: Components Component Graphical depiction Description Key competive factors Horizontal axis 1. Factors the industry invests in (red), and 2. Factors that are added (to create a blue ocean strategy) Level of investment/Value Vertical axis Captures the offering levels buyers receive across all the competitive facors Strategic profile Value curve Visualises the strategic position vis à vis the competition
  11. 11. The power of visualization: perceptual bandwith: • taste: 1.000 b/s • smell: 100 kb/s • hearing: 100 kb/s • touch: 1Mb/s • sight: 10 Mb/s (That´s why a picture tells more than a thousand words.)
  12. 12. Value innovation Reduce Raise Create Eliminate The ERRC framework A consistent way to analyse factors that could increase value for the customer In a later stage to help setting the price right.
  13. 13. 1. Reconstructing Market Boundaries: The 6 Paths • Path 1. Look across alternative industries • Path 2. Look across strategic groups within industries • Path 3. Look across the chain of buyers • Path 4. Look across complementary product and service offerings • Path 5. Look across functional or emotional appeal to buyers • Path 6. Look across time
  14. 14. Path Head to head Competition BlueOcean Creation 1 Industry Focuses on rivals within the industry Looks across alternative industries 2 Strategic Group Focuses on competitive position within strategic groups Across strategic groups 3 Buyer Group Focuses on better serving the buyer group Redefines the buyer group 4 Product-Service Scope Maximizing the value of product and service offerings within the bounds of the industry Complementary product and service offerings 5 Functional- emotional orientation Improving price-performance within the functional-emotional orientation of its industry Rethinks 6 Time Adapting to trends Co-creates trends over time
  15. 15. 2. Focus on the big picture, not the numbers (aligning the strategy process) • Visualize • Awakening • Exploration • Strategy fair • Communication
  16. 16. 3. Reach beyond existing demand Three groups (tiers) of non-customers 1. Soon to be customers 2. Refusing customers 3. unexplored customers Expansion instead of segmentation.
  17. 17. 4. Get the strategic sequence right Decision tree: 1. Buyer utility? (Buyer utility map) then 2. Price? (Price corridor) then 3. Cost? (target costing) then 4. Adoption hurdles? (educating the fearful) Viable Blue Ocean Strategy
  18. 18. Characteristics of a BOS • Focus • Divergence • CatchingTagline
  20. 20. 5. Overcoming key organization hurdles • Tipping point leadership • Hurdles: • cognitive • resource • motivational • political
  21. 21. 6. Build execution into strategy • Take the process in consideration • Procedural fairness: • Engagement • Explanation • Expectation clarity • Take the people you´re working with seriously
  22. 22. Examples 1. Philips Senseo 2. Nestlé Nespresso
  23. 23. THT Constant taste Brand loyalty Price Ease of use Disposal Variety `espresso feel´ Senseo Coffee Senseo Coffee Nespresso
  24. 24. Central ideas • Value for customers • The customer doesn`t know what he wants • Visualise • Dialogue • looking for leverage points • Challenge conventional wisdom Challenge business/firm paradigms The main challenge is thus more entrepreneurial in nature.
  25. 25. Appraisal • Puts forward the focus of value innovation: what can we do to increase customer value in a divergent way (not only cost or diversification). • Blue Ocean Strategy is a well written account of what creative entrepreneurs and value innovation can accomplish. • It offers templates and procedures of which the strategy canvas and the ERRC grid are an addition to the literature.
  26. 26. Difficulties • They describe cases and promise success (success bias). From descriptive theory to prescriptive (pretty common in economic sciences). • Little is known of firms that consciously addapted BOS –AND were successful. • Finding and appraising the strategic values is the hard work that asks for out of the box thinking. Mostly market entrants shake up the industry rules, not the incumbents. • For the execution of strategy and accompanying change, better books are available.
  27. 27. Conclusion • The strategy canvas and ERRC Grid are valuable tools for analysis, visualisation and communication. • It´s difficult to see what we cannot see (paradigms and mental models) • The customer doesn´t know on forehand what he wants –what is it that we envision? • The customer is the central focus: how to increase value. +49 176 99 129 615