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Blue Ocean Strategy Toolkit
                       www.straligence.com   -1-
PART 1
A BOS PRIMER



     Primer


               www.straligence.com   -2-
PRIMER



SECTION TABLE OF CONTENTS




1.    INTRODUCTION
      Key concepts underlying Blue ocean strategies                                                   p. 4
      Analytical tools and frameworks: The Strategy Canvas and the 4 Actions Framework                p. 5
      Blue ocean strategy principles: Overview                                                        p. 6


2.    STRATEGY FORMULATION
      6 paths to reconstructing market boundaries                                                     p. 7
      Strategic planning: Focus on the big picture, not the numbers                                   p. 8
      Sizing up the Blue Ocean: Reach beyond existing demand                                          p. 9
      Crafting the Business Model: Get the strategic sequence right                                  p. 10


3.    STRATEGY EXECUTION
      Mobilizing the organization: Overcome key organizational hurdles                               p. 15
      Execution: build execution into strategy                                                       p. 16


The one-pager on Blue Ocean Strategy                                                                 p. 17



                                                                                         www.straligence.com   -3-
Ch. 1




Introduction ⎥ Key concepts underlying blue ocean strategies
In red oceans, our efforts are focused on the conventional logic that we must outpace the competition with a better solution to a given problem. Blue
ocean strategy invites us to redefine the problem itself. It does so by breaking the value-cost trade-off in view of creating new uncontested market
places. Places where no one has been and where we would be the one defining the rules!


THE DIFFERENCE BETWEEN RED AND BLUE OCEANS                                            VALUE INNOVATION: THE HEART OF BLUE OCEAN STRATEGY
In red oceans, industry boundaries are defined and accepted. The                      Value without innovation tends to focus on value creation on an
competitive rules of the game are known. Companies try to outperform                  incremental scale, i.e. something that improves value but is not
their rivals in order to increase their share of the existing demand.                 sufficient to make us really stand out in the marketplace.

As the market space gets crowded, profit and growth opportunities are                 Innovation without value tends to be technology-driven, market
reduced. Products become commodities, and cutthroat competition                       pioneering, or futuristic, often shooting beyond what buyers are ready
turns the ocean bloody, i.e. red.                                                     to accept and pay for.

Blue oceans are defined by untapped market space, demand creation,                    Value innovation occurs only if we align innovation with utility, price,
and the opportunity for highly profitable growth. Some blue oceans are                and cost positions. The focus here is not time-to-market, bleeding-edge
created well beyond existing industry boundaries. Most are created                    technology or best practices. It is the ambition to break one of the most
within red oceans, by expanding industry boundaries.                                  commonly accepted dogmas of competition-based strategy: the value-
                                                                                      cost trade-off.
In blue oceans, competition is irrelevant because the rules of the game
are yet to be set as we create a new market space.                                    It is conventionally believed that companies can either create greater
                                                                                      value to customers at a higher cost, or create reasonable value at a
Red oceans will always matter. Traditional competitive strategy will                  lower cost. Here strategy is seen as making a choice between
continue to be a point of reference for growing and maintaining                       differentiation and cost. In contrast, to create blue oceans, we need to
revenues at acceptable profit levels. But once supply exceeds demand,                 pursue differentiation and low cost simultaneously, by looking within
competing for a share of an existing market will not be sufficient to                 and beyond our industry boundaries and redefining a market
sustain high performance. This is when we also need to go beyond                      altogether.
competing. This is when, in order to seize new profit and growth
opportunities, we also need to create blue oceans.                                    Instead of focusing on beating the competition, value innovation
                                                                                      focuses on making the competition irrelevant by creating a leap in
Each ocean has its own approach to strategy. Red oceans call for                      value for buyers and our company, thereby opening up new and
building a defensible position within an existing industry. They focus on             uncontested market space. The objective here is not to increase our
value creation, i.e. an incremental approach to delivering value to the               competitiveness in the market as we know it. Rather, it is to create a
existing customers of an industry. Blue oceans follow a different                     whole new market where the rules of the games are yet to be created,
strategic logic called value innovation.                                              by us!

                                                                                                                                        www.straligence.com       -4-
Ch. 2




Introduction ⎥ Analytical tools and frameworks
The strategy canvas is both the start and the end point of a blue ocean strategy formulation. An initial value curve depicts where the industry competes on
and invests in. It is then transformed via the eliminate-reduce-raise-create actions framework. The resulting value curve shows a focused effort that
diverges from existing market offerings and can be easily translated into a compelling tagline.

                     THE STRATEGY CANVAS                                                       THE FOUR ACTIONS FRAMEWORK                                                        NEW VALUE CURVE

It facilitates the capture of the current state of play in the                  The four actions framework is used to reconstruct the buyer                               Our new value curve will
known market space. It visually plots a value curve that                        value elements that will define our future value curve.                                   depict a viable strategy if it
allows us to understand where the competition is currently                      First, we should ask ourselves which factors our company should                           has three characteristics:
investing, the factors the industry currently competes on,                      eliminate. Often, these are factors the industry has long
and what customers receive from the existing competitive                        competed on. They are based on implicit assumptions that have                             (1) FOCUS: it shows that we
offerings in the market.                                                        been taken for granted even though they no longer have value, or                          do not diffuse our efforts
                                                                                may even reduce value.                                                                    across all key factors of
                                                                                Then we look at whether products or services have been                                    competition.
To fundamentally shift the strategy canvas of our industry,
we must begin by reorienting our strategic focus from                           overdesigned in the race to match and beat the competition. This
                                                                                                                                                                          (2) DIVERGENCE: the shape
competitors to alternatives, and from customers to non-                         forces us to reduce those elements that over-serve customers,
                                                                                                                                                                          of our curve diverges from
customers of the industry. As we shift our focus, we gain                       and that increase our cost structure for no gain.
                                                                                                                                                                          those of other players.
insight into how we can redefine the problem the industry                       At the same time, we should look at factors that are based on a
focuses on and how we can reconstruct buyer value                               “compromise” within the industry and potentially raise them for                           (3) The curve can be easily
elements. As a result, we can decide how to reshape our                         greater customer appeal and satisfaction.                                                 translated into a
positioning and related offerings to serve both existing                        Finally, we can discover entirely new sources of value for buyers                         clear, strong, truthful and
customers and non-customers of an industry.                                     and create new factors that generate demand and change the                                compelling TAGLINE.
                                                                                strategic pricing of the industry.

THE INITIAL VALUE CURVE IS TRANSFORMED THROUGH…                                    … THE ELIMINATE-REDUCE-RAISE-CREATE GRID, TO CREATE A…                                 … NEW, FOCUSED, DIVERGING
                                                                                                                                                                            VALUE CURVE WITH A
              high                                            //                                                                                                            COMPELLING TAGLINE
   RELATIVE
                                                                                                                                   COSTS
POSITIONING                                                                                          Which of the factors
                                                                                                                                              Which factors should be
                                                              //                                     that the industry takes
 OF PLAYERS                                                                              Eliminate   for granted should be
                                                                                                                                              reduced well below the    Reduce
                                                                                                                                              industry’s standard?
                                                                                                     eliminated?
    AND/OR
                                                              //                                                                   VALUE
    PLAYERS
    GROUPS                                                                                                                      INNOVATION
              low                                             //                                     Which factors should be
                                                                                                                                              Which factors should be
                                                                                                     created that the
                                                                                           Create    industry has never
                                                                                                                                              raised well above the     Raise
                                                                                                                                              industry’s standard?
                      Factor (a)   Factor (b)    Factor (c)        Factor (n)                        offered?
                                                                                                                                BUYER VALUE

                         FACTORS THE INDUSTRY COMPETES ON AND INVESTS IN                    Design new factors of competition
                                                                                                                                                                                   www.straligence.com     -5-
Introduction ⎥ Blue ocean strategy principles - overview
Venturing beyond an existing industry space implies a series of risks. The blue ocean strategy approach to strategy is based on six principles that cater for
the major risks of a new market creation project. Together, they define the underlying philosophy of blue oceans.

                                                 1                                                                                  2
                                       STRATEGY FORMULATION                                                              STRATEGY IMPLEMENTATION


         Search Risk                Planning Risk                 Scale Risk          Business Model Risk        Organizational Risk             Management Risk

          6 PATHS                     STRATEGIC                    MARKET                    BUSINESS
        APPROACH                      PLANNING                      SIZING                     MODEL                  MOBILIZATION                   EXECUTION


  1                            2                           3                          4                          5                           6
                                   Focus on the
      Reconstruct                                              Reach beyond               Get the                    Overcome key                Build
                                   big picture,
      market                                                   existing                   strategic                  organizational              execution into
                                   not the
      boundaries                                               demand                     sequence right             hurdles                     strategy
                                   numbers

 Consider six conventional     Plan beyond incremental     Challenge the              Sequence business              Through Tipping Point       Via a Fair Process,
 boundaries of                 improvements via a          conventional practice of   model design to capture        Leadership, tackle          aim to motivate
 competition:                  visualization approach:     finer segmentation and     the newly created value:       traditional hurdles:        people to act on and
 ①    Alternative industries                               resulting smaller target   ①     Buyer utility            ①   Cognitive               execute a blue ocean
                               ①    Visual awakening       markets.                                                                              strategy in a
 ②    Strategic groups                                                                      mapping                  ②   Resource
                                                           Focus on demand                                                                       sustained way, deep
 ③    Buyer groups             ②    Visual exploitation                               ②     Pricing and the          ③   Motivational
                                                           aggregation by building                                                               in the organization:
                                                                                            corridor of the
 ④    Complementary            ③                           on commonalities                                          ④   Political
                                    Visual strategy fair                                    masses                                               ①   Engagement
      product and service                                  across non customers                                      Identify and leverage
      offerings                                                                       ③     Cost targets based                                   ②   Explanation
                               ④    Visual                 groups:                                                   the factors of
                                                                                            on pricing and
 ⑤ Functional-emotional             communication          ① Soon to be                                              disproportionate            ③ Clarity of
                                                                                            desired margins
   orientation                                                                                                       influence in the              expectations
                               ⑤    Pioneer, Migrator,     ②     Refusing             ④     Potential adoption
 ⑥    Time                                                                                                           organization.
                                    Settler map            ③     Unexplored                 obstacles


  Each building block and their components are detailed in the following pages.
                                                                                                                                                 www.straligence.com    -6-
Ch. 3
                                Blue ocean strategy principles ⎥ Strategy Formulation


1. Reconstruct market boundaries
The six paths framework challenges the fundamental assumptions underlying many companies’ strategies. It encourages to look at alternative industries,
strategic groups, chain of buyers, complementary offerings, functional and emotional appeal, and time.


                        LOOK ACROSS                                       LOOK ACROSS STRATEGIC                 GROUPS                                     LOOK ACROSS
  1            ALTERNATIVE INDUSTRIES
                                                                    2                 WITHIN INDUSTRIES
                                                                                                                                     3               THE CHAIN OF BUYERS
  Focus on the purpose of a product or service and consider                                                                          We should always consider the multiple players directly or
                                                                    In most industries you can capture the fundamental differences
  alternatives, not substitutes.                                                                                                     indirectly involved in the buying decision: the purchasers (who
                                                                    among players within a small number of strategic groups (i.e.
  Substitutes are those that have a different form but offer the                                                                     pay for the product or service); the users; and the influencers.
                                                                    group of companies pursuing a similar strategy).
  same functionality.                                                                                                                Although these groups may overlap, they often differ and hold
                                                                    As a minimum, you can generally rank them on the basis of
  Alternatives are those that have different functions and forms                                                                     different definitions of value.
                                                                    price and performance.
  but fulfill the same purpose.                                                                                                      Challenging our industry’s conventional beliefs about which
                                                                    When looking for a blue ocean, the key is to break out of a
                                                                                                                                     buyer group should be targeted can lead to the discovery of
  •   What are the alternative industries to our industry?          strategic group and understand which factors drive customers’
                                                                                                                                     new, locked values. For this, we should look across buyer
                                                                    decisions to trade up or down among groups.
  •   How do customers make trade-offs across them?                                                                                  groups to gain new insight and draft new value curves.
                                                                    •   What are the strategic groups in our industry?               • What is the chain of buyers in our industry?
  •   What makes them jump from an industry to another?
                                                                    •   Why do customers trade up for the higher group?              • Which buyer group does our industry focus on?
  Focus on the key factors that lead buyers to trade across                                                                          • If we shifted the attention to another buyer group of our
  alternative industries and eliminate or reduce everything else.   •   Why do they trade down for the lower one?
                                                                                                                                          industry, how could we unlock new value?




              SIX PATHS TO RECONSTRUCT MARKET BOUNDARIES, BREAK FROM COMPETITION AND CREATE BLUE OCEANS



          LOOK ACROSS COMPLEMENTARY                                          LOOK ACROSS FUNCTIONAL                  OR
  4       PRODUCT & SERVICE OFFERINGS
                                                                    5        EMOTIONAL APPEAL TO BUYERS
                                                                                                                                     6                 LOOK ACROSS TIME

  The total solution buyers seek when they choose a product or                                                                       Blue ocean strategies rarely come out from projecting industry
                                                                    Competition in an industry tends to converge not only on the
  service may be composed of hidden complementary products                                                                           trends. Instead, they arise from business insights into how
                                                                    scope of product and services, but also in terms of functional
  and services.                                                                                                                      trends will change value to customers and impact the
                                                                    /rational and feeling/emotional appeal. Yet the appeal of most
  A way to define the total solution is to explore what happens                                                                      company’s business model.
                                                                    products or services is rarely one or the other.
  before, during and after our product or service is used.                                                                           The idea is to look across time: the value a market delivers
  We should thus ask ourselves:                                     •   Does our industry compete on functionality or on             today, vs. the value it might deliver tomorrow.
  • What is the context in which our product or service is              emotional appeal?                                            When looking at trends, we must focus on those that are
      used?                                                         •   If we compete on emotional appeal, what elements can         decisive to our business, that are irreversible and have a clear
  • What happens before, during and after?                              we strip out to make it functional?                          trajectory. Having identified these trends, we can look across
  • Can we identify the pain points?                                                                                                 time at what the market would look like if they were taken to
                                                                    •   If we compete on functionality, what elements can be
  • Can we eliminate these pain points through a                                                                                     their logical conclusion. Working back, we can identify what
                                                                        added to make it emotional?
      complementary product or service offering?                                                                                     must be changed today to unlock a new blue ocean.

                                                                                                                                                                          www.straligence.com           -7-
Ch. 4
                                  Blue ocean strategy principles ⎥ Strategy Formulation


2. Focus on the big picture
Building on the six paths framework, we can depict our “as-is", “alternative” and “best to-be” strategy canvases. To do so, there are four suggested steps
that will help us create a visual representation of our strategy: visual awakening, visual exploration, visual strategy fair, and visual communication.


                           VISUAL AWAKENING                                                                                       VISUAL     EXPLORATION
    1                                                                                                     2
                   Trigger change via our as-is canvas                                                               Drawing a canvas per every new opportunity

                                                                                                      •       Having drawn our as-is canvas, we need to adopt a human-
•       We can compare the focus of our business to the one of our
                                                                                                              centered design approach, i.e. we must get into the field to
        competitors by drawing our “as-is” strategy canvas.
                                                                                                              watch customers use our products and services.
•       Here, we need to focus on the areas where we think our
                                                                                                      •       We need to identify the array of complementary products and
        strategy needs to change.
                                                                                                              services that are consumed alongside our own. This will give
•       When we will start drawing the strategy canvas(es), we will get                                       us an insight on how we could bundle opportunities.
        into productive arguments and contradictions. This will force
                                                                                                      •       At the same time, we need to look for alternative ways of
        our teams and our leadership to share a common view on the
                                                                                                              fulfilling the need that our product or service satisfies.
        strategy essentials.
                                                                                                      •       Each opportunity should be translated into a new value curve,
•       The diagram will make a stronger case for change than any
                                                                                                              e.g. one per each of the six paths, by looking at which factors
        argument based on numbers and words.
                                                                                                              we should eliminate, create or change.




                         VISUAL    STRATEGY FAIR                                                                             VISUAL COMMUNICATION
    3                                                                                                     4
             Getting feedback for the best “to-be” canvas                                                              New vs. old value curve is the new metric

•       Each value curve should be clear and easily translatable into a
        compelling tagline. We should be able to explain each curve in                                •       Every colleague (and strategic partner) should be able to
        ten minutes or less.                                                                                  compare the new vs. the old strategic profiles. They should
•       We can hang them on the walls, circulate them around and                                              recognize where we stood and were we want to focus our
        capture their pro’s and cons, their blocks, challenges and                                            efforts to create a compelling future.
        implications.
                                                                                                      •       The new strategic profile is explained by all the executives who
•       We must emphasize: (1) factors that we thought were key to
                                                                                                              participated to its creation. They need to emphasize what
        our competitiveness but are in fact marginal to customers; (2)
                                                                                                              needs to be reduced, eliminated, increased and created.
        factors that we had previously overlooked. This way we can
        reassess some of our long-held assumptions.                                                   •       The new picture is to become the reference point for each new
•       We will then be able to draw our best “to-be” strategy canvas                                         initiative and investment decision, i.e. each new project is to be
        based on insights from field                                                                          valued against its contribution to reshaping our existing value
        observations, customers, competitors’ customers, non-                                                 curve into our future one.
        customers, key partners and industry experts.


                                                                                                                                                   www.straligence.com             -8-
Ch. 5
                       Blue ocean strategy principles ⎥ Strategy Formulation


3. Reach beyond existing demand
Non-customers tend to offer us far more insight into how to unlock and grow a blue ocean than do relatively content existing customers. Beyond our current
market are “soon to be”, “refusing”, and “unexplored” non-customers, representing untapped demand waiting to be released.




                                                             DE-SEGMENTING MARKETS, AGGREGATING COMMONALITIES                   AND MAXIMIZING THE NEW MARKET


                                                            This is the farthest away tier of non-customers from our industry’s existing customers. Typically, these
                             Unexplored                     unexplored non-customers have not been targeted or thought of as potential customers by any player in
                                                            our industry. That’s because their needs and the business opportunities associated with them have
                             Non-customers who are in
          THIRD                                             somehow always been assumed to belong to other markets.
                             markets distant from ours      Can we reach beyond existing customers and look across multiple markets to aggregate commonalities
          TIER
                                                            into a new market?


                             Refusing                       Refusing non-customers are people who either do not use or cannot afford to use the current market
                                                            offerings because they find them unacceptable or beyond their means. Their needs are either dealt with
                 SECOND      Non-customers who              by other means or ignored.
                 TIER        consciously choose against     What are the key reasons non-customers refuse to use the products or services of our industry?
                             our market                     Look for the commonalities across their responses. Focus on these, and not on their differences.

                                                            Soon-to-be customers are those who minimally use the current market offerings to get by as they search
                             Soon to be                     for something better. Upon finding any better alternative, they will eagerly jump ship. Locked within these
                    FIRST    Non-customers who are on       first-tier non-customers is an ocean of untapped demand waiting to be released.
                                                            What are the key reasons first-tier non-customers want to jump ship and leave our industry?
                    TIER     the edge of our market
                                                            Look for commonalities across their response. Focus on these, and not on the differences among them.
                             waiting to jump ship

                                                                                             Look for commonalities across tiers.
                                                                                               Our aim is to expand the market
                        Our                                                                       and create new demand.
                       Market

                                                                                               GO FOR THE BIGGEST CATCHMENT


                                                                                                                                                www.straligence.com       -9-
Ch. 6
                           Blue ocean strategy principles ⎥ Strategy Formulation


4. Get the strategic sequence right
We should not let costs drive prices. Nor should we scale down utility because high costs block our ability to profit at a strategic price that is easily
accessible to the mass of target buyers. The right sequence for creating value innovation is (1) buyer utility, (2) price, (3) profit, (4) costs, and (5) adoption.



                                                Creation of Value Innovation and capturing of healthy profits
                      Create a leap in Net Buyer Value
 1         BUYER UTILITY                2                PRICE                    3              COST                      4           ADOPTION
                                                                                  Can we produce our offering at the                                                  A
 Does our offering unlock               Is our offering priced to attract the     target cost and still earn a healthy     What are the adoption hurdles in       COMMERCIALL
 exceptional utility?                   mass of target buyers so that they        profit margin?                           actualizing our business idea?         Y VIABLE BLUE
 Is there a compelling reason for       have a compelling ability to pay for      Can we profit at the price easily
 the mass of people to buy it?          it?                                       accessible to the mass of target         Are we addressing them up front?        OCEAN IDEA
                                                                                  buyers?

                         No, rethink                                     No, rethink                                     No, rethink


     Look at the six stages of              Identify the bandwidth                     Stick to to the logic that              Educate the fearful:
     the buyer’s experience                 that captures the largest                  our strategic price drives              employees, business
     cycle and identify blocks              group of target buyers                     our target profit that                  partners and public
     to buyer’s utility. Identify           while making it difficult                  drives our target cost.                 opinion at large. Openly
     the value proposition                  for our competitors to                     Hit target costing via                  discuss to solve issues
     that removes the biggest               imitate us.                                streamlining, partnering                upfront and get
     blocks allowing us to                                                             and/or pricing                          maximum buy in.
     turn non-customers into                                                           innovation.
     customers.




Each step is further detailed in the pages hereafter.
                                                                                                                                                        www.straligence.com     - 10 -
Blue ocean strategy principles ⎥ Strategy Formulation


4. Get the strategic sequence right ⎥ 1. BUYER UTILITY
Does our offering unlock exceptional utility? Is there a compelling reason for the mass of people to buy it?
By locating our proposed offering on the thirty-six spaces of the buyer utility map, we can clearly see how, and whether, the new idea not only creates a
different utility proposition from existing offerings but also removes the biggest blocks to utility that stand in the way of converting non-customers into
customers. If our offering falls on the same space or spaces as those of other players, chances are it is not a blue ocean offering.



  The buyer utility                                                               BUYER EXPERIENCE CYCLE ⎥ SIX STAGES OF BUYER EXPERIENCE CYCLE
  map
                                                   1. PURCHASE                2. DELIVERY                   3. USE               4. SUPPLEMENTS           5. MAINTENANCE               6. DISPOSAL
                                               • How long does it take   • How long does it take    • Does the product         • Do you need other       • Does the product        • Does the use of the
                                                 to find the product       to get the product         require training or        products and services     require external          product create waste
                                                 you need?                 delivered?                 expert assistance?         to make this product      maintenance?              items?
                                                                                                    • Is the product easy to     work?
                                               • Is the place of         • How difficult is it to     store when not in                                  • How easy is it to       • How easy is it to
                                                 purchase attractive       “unpack and install”       use?                     • If so, how costly are     maintain and upgrade      dispose of the
                                                 and accessible?           the new product?         • How effective are the      they?                     the product?              product?
                                               • How secure is the       • Do buyers have to          product’s features       • How much time do        • How costly is           • Are there legal or
                                                 transaction               arrange delivery           and functions?             they take?                maintenance?              environmental issues
                                                 environment?              themselves?              • Does the product or                                                            in disposing of the
                                                                           If yes, how costly and     service deliver far      • How much pain do                                    product safely?
                                               • How rapidly can you       difficult is this?         more power or              they cause?
                                                 make a purchase?                                     options than required                                                        • How costly is
                                                                                                                               • How easy are they to                                disposal?
                                                                                                      by the average user?
                                                                                                                                 obtain?
                                                                                                      Is it overcharged with
                                                                                                      bells and whistles?

                             CUSTOMER
                                                            In which stage are the biggest blocks to customer productivity?
                             PRODUCTIVITY
   BLOCKS TO BUYER UTILITY




                             SIMPLICITY                     In which stage 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?

                             ENVIRONMENTA
                                                            In which stage are the biggest blocks to environmental friendliness?
                             L FRIENDLINESS
                                                                                                                                                                                  www.straligence.com       - 11 -
Blue ocean strategy principles ⎥ Strategy Formulation


  4. Get the strategic sequence right ⎥ 2. STRATEGIC PRICE

   Is our offering priced to attract the mass of target buyers so that they have a compelling ability to pay for it?


                                        STEP 1:                                                                                     STEP 2:
                  IDENTIFY THE PRICE CORRIDOR           OF THE MASS                                       SPECIFY A PRICE LEVEL WITHIN THE PRICE CORRIDOR


            Same form               Different form,            Different form
                                    same function                   and                                                     DIFFICULT TO IMITATE
                                                              function, same
                                                                 objective                                  High degree of legal and resource protection



                                                                                                                CAN BE IMITATED WITH SOME DIFFICULTY
PRICE




                        Price Corridor of the Masses                                                       Some degree of legal and resource protection
              The price bandwidth that captures the largest                        Mid-level pricing
                         groups of target buyers

                                                                                                                               EASY TO IMITATE

                                                                                                            Low degree of legal and resource protection

        The size of circle is proportional to number of buyers that the
        product/service is able to attract.

        A good way to look outside industry boundaries is to list products and                         The second step helps us determine how high a price we can afford to
        services that fall into the three categories above.                                            set within the corridor of the masses, without inviting competition to
        This allows us to see the full range of buyers that can be poached from                        imitate products or services.
        other industries as well as from non-industries. It provides a way to
        identify where the mass of target buyers is and what prices these buyers
        are prepared to pay for the products and services they currently use.


                                                                                                                                                     www.straligence.com        - 12 -
Blue ocean strategy principles ⎥ Strategy Formulation


4. Get the strategic sequence right ⎥ 3. TARGET COST

Can we produce our offering at the target cost and still earn a healthy profit margin? Can we profit at the price easily accessible to the mass of target
buyers?




                                                                                                        If you are to arrive at a cost structure that is
      STRATEGIC                          TARGET                            TARGET                       both profitable and hard for potential followers
        PRICE                            PROFIT                             COST                        to match, you must tackle the price equation
                                                                                                        as price-minus costing, not cost-plus pricing.


                                                                        Three levers to hit
  ■ Can the service’s or product’s                                       the cost target                                 ■ In bringing a new product or
    raw materials be replaced by                         STREAMLININ                                                       service to market, many
    unconventional, less expensive                   1    G AND COST                   PARTNERING           2              companies mistakenly try to carry
    ones?                                                                                                                  out all the production and
                                                         INNOVATIONS
  ■ Can high-cost, low-value added                                                                                         distribution activities themselves.
    activities in our value chain be                                                                                     ■ Partnering provides a way for
    significantly eliminated, reduced                                                                                      companies to secure needed
    or outsourced?                                                                                                         capabilities fast and effectively
                                                                          PRICING                                          while dropping their cost
  ■ Can the physical location of our                                3
    product or service be shifted from
                                                                        INNOVATION                                         structure. It allows a company to
    prime real estate locations to                                                                                         leverage other companies’
    lower-cost locations?                                                                                                  expertise and economies of
                                                 ■ If streamlining and cost innovation and/or partnering does              scale.
  ■ Can we truncate the number of
    parts of steps used in production              not bring us to the desired target cost, is changing the              ■ Partnering includes closing gaps
    by shifting the way things are                 pricing model of the industry a viable alternative?                     in capabilities through making
    made?                                        ■ The aim is not to compromise on the strategic price, but to             small acquisitions when doing so
                                                   hit the target through a new price model, e.g.                          is faster and cheaper, providing
  ■ Can we digitize activities to
                                                   renting/leasing vs. selling, equity interest in the customer’s          access to expertise that has
    reduce costs?
                                                   business, etc.                                                          already been mastered.

                                                                                                                                         www.straligence.com     - 13 -
Blue ocean strategy principles ⎥ Strategy Formulation


4. Get the strategic sequence right ⎥ 4. ADOPTION
Almost by definition, a blue ocean idea threatens the status quo. As a result, it may provoke resistance among employees, partners and the general public.
Often underestimated or put aside because of its cost, educating the “fearful” can have a make or break impact on our new idea. Identifying threats to
employees and third parties and openly discussing issues upfront helps minimize risks and defuse negative opinions that would be much more costly to
address later on.


  Educate the fearful


                                                     ■   Before going public with an idea, we must communicate to our colleagues the
                                                         threats and benefits posed by its execution.
         1      Employees                            ■   We must work with our colleagues to find ways of defusing the threats so that
                                                         everyone feels as comfortable as possible and is set to win, despite the shifts that
                                                         will be necessary in people’s roles, responsibilities and rewards.

                                                     ■   Will our partners fear that their revenue streams or market positions will be
                                                         threatened by our new business idea? If so, we must openly discuss the issues with
                                                         them and find a win-win solution upfront.
                Business
         2      partners                             ■   Even if a common ground is not found and we are due to put an end to a business
                                                         relationship, it is in our interest to find an agreement through an open conversation
                                                         as early as possible. The worst thing that could happen is to see our efforts
                                                         undermined by a partners’ sales force.

                                                     ■   If the idea threatens established social or political norms, general public’s opinion
                                                         could represent a fierce opposition. Again, the best recommendation is not to
                General
         3      public
                                                         underestimate the indirect negative impacts of third parties.
                                                     ■   Engaging in an open discussion about why the adoption of the new idea is
                                                         necessary and beneficial is the best way to defuse negative press upfront.


                                                                                                                                   www.straligence.com       - 14 -
Ch. 7
                           Blue ocean strategy principles ⎥ Strategy Implementation


5. Key organizational hurdles
We all know that strategy execution is at least as important as, if not more important than, strategy definition. The changes underlying a blue ocean
strategy make execution even more delicate. This is why carefully addressing four key organizational hurdles can make or break our initiative, no matter
how strong is our business case.

                             COGNITIVE HURDLE                                                                            POLITICAL HURDLE

  What are the three most important facts and                                                                              How do we overcome potential corporate
  figures that we will use to make people aware                                                                            politics, intrigue and plotting?
  of the need for a strategic shift and agree on                  TIPPING POINT LEADERSHIP   APPROACH                      Who are the possible negative influencers who
  its causes?                                                                                                              can fiercely and vocally oppose the new
                                                      Identify, focus on and leverage people, acts and activities
                                                                                                                           strategy? Are they only internal? Are they also
  How can we make people, and especially
                                                      that exercise disproportionate influence on performance.             external to our department, organization, or
  leadership, see the reality first hand? How can     Fundamental changes can happen quickly when the beliefs              company?
  customers or third parties help us?                 and energies of a critical mass of people create an                  The Consigliere will help us identify in advance
                                                      epidemic movement toward an ideal. Key to unlocking an               the possible land mines. He/she will profile
  What are the three most effective and practical     epidemic       movement         is concentration,   not              those who have the most to win and to lose
  ways we could leverage to make executives           dispersion/diffusion of effort.                                      from the new corporate direction. He will help
  and employees experience and feel the need                                                                               us isolate the detractors and discourage them
  for change?                                        Employees with                                  Employees with        before their war starts to get any steam.
                                                     disproportionate                                disproportionate
                                                         influence                                       influence
                                                        Against                Mass of                  In favor
                                                                              employees
                                                                                                                           KINGPINS: Who are the people inside our
  HOT SPOTS: Which of our activities are                                                                                   group that are the most respected and
  currently poorly staffed but have a high                                                                                 persuasive natural leaders and influencers that
  potential to deliver superior results?                                                                                   have the ability to unlock or block access to
                                                                             “Consigliere”                                 key resources?
  COLD SPOTS: Which activities do we pursue           One of the key factors of our success, no matter how                 FISHBOWL: Can we motivate the kingpins by
  today that require a high input of resources but                                                                         putting them in the spotlight and showing to
                                                      strong our business case, is to know in advance all the
  deliver a low impact on our performance?                                                                                 others their actions (and inactions) in a
                                                      likely angles of attack to our proposal. The Consigliere, a          repeated and highly visible way?
  HORSE TRADING: How could we reshuffle               highly respected insider, will help us know whom will fight
                                                                                                                           ATOMIZED CHALLENGE: What are the “bite-
  our resources allocation for greater impact and     us and whom will be naturally interested in aligning                 size atoms” of our initiative that are individually
  business performance?                               him/herself with the new strategy.                                   attainable and collectively allow us to
                                                                                                                           implement our strategy?

                             RESOURCE HURDLE                                                                            MOTIVATIONAL HURDLE
                                                                                                                                                     www.straligence.com         - 15 -
Ch. 8
                               Blue ocean strategy principles ⎥ Strategy Implementation


6. Build execution into strategy
Our company will (continue to) stand apart as a great and consistent executor when our people embrace our new strategy with their minds and hearts.
When of their own accord they will be willing to go beyond compulsory execution to voluntary cooperation. When trust and commitment will align
attitudes and behavior to the spirit of our strategy, not to its letter. Adopting a fair process to strategy execution will help us achieve this goal deep into all
the ranks of our company, across teams and departments.


 FAIR PROCESS: ENGAGEMENT, EXPLANATION, EXPECTATION CLARITY
       INTELLECTUAL AND                                         TRUST                                     VOLUNTARY COOPERATION             IN
                                                                                                                                                          EXCEED EXPECTATIONS
   EMOTIONAL RECOGNITION                                     & COMMITMENT                                     STRATEGY EXECUTION
 Emotional recognition:                              It is only through actions, not words, that          When you and I are being considered,
 Our colleagues want to be appreciated for           we will gain the trust and commitment of all         valued and feeling recognized, we want to    Building such an intrinsic and
 their value, for their individual worth,            involved parties. We must walk our talk              share. Recognizing our intellectual worth    extrinsic motivation within our
 regardless of the hierarchical level. They          and make others walk their talk.                     inspires us and makes us want to impress     colleagues can help us pull together
 are not “resources”, “labor factor” or              Indeed, we must create an environment of             and confirm the expectations of those who    our collective wisdom and generate
 “personnel”. They are human beings who              trust towards those leading the new                  trust us and in whom we trust.               brilliant new ideas, processes and
 want to and should be treated with full             initiative as well as among those                                                                 tricks to make us achieve our goals.
 respect and dignity.                                participating to it and being affected by it,        Additionally, if there is an emotional       People will be almost in an auto-
 Intellectual recognition:                           directly or indirectly.                              component to the recognition, we feel        pilot mode because they will
 Our colleagues may have brilliant ideas             Recognition and feedback will allow us to            emotionally tied to the strategy and the     understand what we are aiming for,
 and new points of view. We must leverage            build a strong sense of commitment.                  end result. We are much more willing to go   they are emotionally bound to the
 their willingness to be consulted and show          Ideally it will drive ourselves and our              the extra mile and give all we’ve got.       result, they are being valued for
 that their perspective is appreciated and           colleagues to override personal self-                                                             their intelligence and skills and trust
 given thoughtful reflection.                        interest.                                                                                         that this is done in a clear and equal
                                                                                                                                                       way in the best interest of all of us.
    Open & collaborative strategic planning                 Positive and optimistic attitude                   Proactive and determined behavior

 ENGAGEMENT: We make sure that we involve our colleagues in the strategic decisions that affect them. We do so by asking for their input and by        Potentially, such a momentum can
 allowing them to refute the merits of one another’s ideas and assumptions. Our teams show respect for individuals and for their ideas; they           be further fuelled by a transcendent
 encourage refutation in order to sharpen our thinking and leverage collective wisdom.                                                                 motivation, one that goes beyond
                                                                                                                                                       the goals of the individual and of our
 EXPLANATION: We want every employee involved and affected by our strategy to understand why final strategic decisions are made as they are. By        company. For example, a goal that
 sharing the thinking underlying our decisions, our colleagues will be confident that we have considered all options and opinions, and that            is linked to a humanitarian cause
 decisions have been made impartially in the best interest of the company.                                                                             linked to our project, to the well
 EXPECTATION CLARITY: Once our strategy is set, we must clearly set the new rules of the game. Goals, targets and milestones must be clearly           being of customers beyond our
 communicated. So must responsibilities and rewards. As a result, political jockeying and favoritism should be killed, letting our people focus on     products and services, or, to the
 executing strategy rapidly.                                                                                                                           extent our products and services
                                                                                                                                                       allow us to, to the improvement of
                                     Our employees care as much about the justice of the process                                                       the society we live in.
                            through which our outcome will be produced as they do about the outcome itself!

                                                                                                                                                              www.straligence.com                - 16 -
THE ONE PAGER ON BLUE OCEAN STRATEGY

Red vs. Blue - In red oceans, our efforts are focused on the conventional logic that we must outpace the competition with a better solution to a given problem. Blue ocean strategy invites us
to redefine the problem itself. It does so by breaking the value-cost trade-off in view of creating new uncontested market places. Places where no one has been and where we would be the
one defining the rules!

Analytical Tools & Frameworks - The strategy canvas is both the start and the end point of a blue ocean strategy formulation. An initial value curve depicts where the industry competes
on and invests in. It is then transformed via the eliminate-reduce-raise-create actions framework. The resulting value curve shows a focused effort that diverges from existing market
offerings and can be easily translated into a compelling tagline.

Underlying principles - Venturing beyond an existing industry space implies a series of risks. The blue ocean strategy approach to strategy is based on six principles that cater for the
major risks of a new market creation project: search risk, planning risk, scale risk, business model risk, organizational risk and management risk. Together, they define the underlying
philosophy of blue oceans.

Six paths to reconstruct market boundaries - The six paths framework challenges the fundamental assumptions underlying many companies’ strategies. It encourages to look at
alternative industries, strategic groups, chain of buyers, complementary offerings, functional and emotional appeal, and time.

Strategic planning focused on the big picture - Building on the six paths framework, we can depict our “as-is", “alternative” and “best to-be” strategy canvases. To do so, there are four
suggested steps that will help us create a visual representation of our strategy: visual awakening, visual exploration, visual strategy fair, and visual communication.

Reaching beyond existing demand - Non-customers tend to offer us far more insight into how to unlock and grow a blue ocean than do relatively content existing customers. Beyond our
current market are “soon to be”, “refusing”, and “unexplored” non-customers, representing untapped demand waiting to be released.

Getting the strategic sequence right - We should not let costs drive prices. Nor should we scale down utility because high costs block our ability to profit at a strategic price that is easily
accessible to the mass of target buyers. The right sequence for creating value innovation is (1) buyer utility, (2) price, (2b) profit, (3) costs, and (4) adoption.

         1.   Buyer utility - Does our offering unlock exceptional utility? Is there a compelling reason for the mass of people to buy it?
              By locating our proposed offering on the thirty-six spaces of the buyer utility map, we can clearly see how, and whether, the new idea not only creates a different utility
              proposition from existing offerings but also removes the biggest blocks to utility that stand in the way of converting non-customers into customers. If our offering falls on the
              same space or spaces as those of other players, chances are it is not a blue ocean offering.

         2.   Strategic Price - Is our offering priced to attract the mass of target buyers so that they have a compelling ability to pay for it?

         3.   Target Cost - Can we produce our offering at the target cost and still earn a healthy profit margin? Can we profit at the price easily accessible to the mass of target buyers?

         4.   Adoption - Almost by definition, a blue ocean idea threatens the status quo. As a result, it may provoke resistance among employees, partners and the general public. Often
              underestimated or put aside because of its cost, educating the “fearful” can have a make or break impact on our new idea. Identifying threats to employees and third parties
              and openly discussing issues upfront helps minimize risks and defuse negative opinions that would be much more costly to address later on.

Mobilizing the organization to overcome key organization hurdles - We all know that strategy execution is at least as important as, if not more important than, strategy definition. The
changes underlying a blue ocean strategy make execution even more delicate. This is why carefully addressing four key organizational hurdles can make or break our initiative, no matter
how strong is our business case.

Building execution into strategy via a fair process - Our company will (continue to) stand apart as a great and consistent executor when our people embrace our new strategy with their
minds and hearts. When of their own accord they will be willing to go beyond compulsory execution to voluntary cooperation. When trust and commitment will align attitudes and behavior to
the spirit of our strategy, not to its letter. Adopting a fair process to strategy execution will help us achieve this goal deep into all the ranks of our company, across teams and departments.
                                                                                                                                                                       www.straligence.com  - 17 -
Blue Ocean Strategy Tools


Primer        Methodology   MS PowerPoint   MS Excel
                              Templates      Forms




    www.straligence.com
                                            www.straligence.com   - 18 -

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Blue ocean strategy primer

  • 1. Blue Ocean Strategy Toolkit www.straligence.com -1-
  • 2. PART 1 A BOS PRIMER Primer www.straligence.com -2-
  • 3. PRIMER SECTION TABLE OF CONTENTS 1. INTRODUCTION Key concepts underlying Blue ocean strategies p. 4 Analytical tools and frameworks: The Strategy Canvas and the 4 Actions Framework p. 5 Blue ocean strategy principles: Overview p. 6 2. STRATEGY FORMULATION 6 paths to reconstructing market boundaries p. 7 Strategic planning: Focus on the big picture, not the numbers p. 8 Sizing up the Blue Ocean: Reach beyond existing demand p. 9 Crafting the Business Model: Get the strategic sequence right p. 10 3. STRATEGY EXECUTION Mobilizing the organization: Overcome key organizational hurdles p. 15 Execution: build execution into strategy p. 16 The one-pager on Blue Ocean Strategy p. 17 www.straligence.com -3-
  • 4. Ch. 1 Introduction ⎥ Key concepts underlying blue ocean strategies In red oceans, our efforts are focused on the conventional logic that we must outpace the competition with a better solution to a given problem. Blue ocean strategy invites us to redefine the problem itself. It does so by breaking the value-cost trade-off in view of creating new uncontested market places. Places where no one has been and where we would be the one defining the rules! THE DIFFERENCE BETWEEN RED AND BLUE OCEANS VALUE INNOVATION: THE HEART OF BLUE OCEAN STRATEGY In red oceans, industry boundaries are defined and accepted. The Value without innovation tends to focus on value creation on an competitive rules of the game are known. Companies try to outperform incremental scale, i.e. something that improves value but is not their rivals in order to increase their share of the existing demand. sufficient to make us really stand out in the marketplace. As the market space gets crowded, profit and growth opportunities are Innovation without value tends to be technology-driven, market reduced. Products become commodities, and cutthroat competition pioneering, or futuristic, often shooting beyond what buyers are ready turns the ocean bloody, i.e. red. to accept and pay for. Blue oceans are defined by untapped market space, demand creation, Value innovation occurs only if we align innovation with utility, price, and the opportunity for highly profitable growth. Some blue oceans are and cost positions. The focus here is not time-to-market, bleeding-edge created well beyond existing industry boundaries. Most are created technology or best practices. It is the ambition to break one of the most within red oceans, by expanding industry boundaries. commonly accepted dogmas of competition-based strategy: the value- cost trade-off. In blue oceans, competition is irrelevant because the rules of the game are yet to be set as we create a new market space. It is conventionally believed that companies can either create greater value to customers at a higher cost, or create reasonable value at a Red oceans will always matter. Traditional competitive strategy will lower cost. Here strategy is seen as making a choice between continue to be a point of reference for growing and maintaining differentiation and cost. In contrast, to create blue oceans, we need to revenues at acceptable profit levels. But once supply exceeds demand, pursue differentiation and low cost simultaneously, by looking within competing for a share of an existing market will not be sufficient to and beyond our industry boundaries and redefining a market sustain high performance. This is when we also need to go beyond altogether. competing. This is when, in order to seize new profit and growth opportunities, we also need to create blue oceans. Instead of focusing on beating the competition, value innovation focuses on making the competition irrelevant by creating a leap in Each ocean has its own approach to strategy. Red oceans call for value for buyers and our company, thereby opening up new and building a defensible position within an existing industry. They focus on uncontested market space. The objective here is not to increase our value creation, i.e. an incremental approach to delivering value to the competitiveness in the market as we know it. Rather, it is to create a existing customers of an industry. Blue oceans follow a different whole new market where the rules of the games are yet to be created, strategic logic called value innovation. by us! www.straligence.com -4-
  • 5. Ch. 2 Introduction ⎥ Analytical tools and frameworks The strategy canvas is both the start and the end point of a blue ocean strategy formulation. An initial value curve depicts where the industry competes on and invests in. It is then transformed via the eliminate-reduce-raise-create actions framework. The resulting value curve shows a focused effort that diverges from existing market offerings and can be easily translated into a compelling tagline. THE STRATEGY CANVAS THE FOUR ACTIONS FRAMEWORK NEW VALUE CURVE It facilitates the capture of the current state of play in the The four actions framework is used to reconstruct the buyer Our new value curve will known market space. It visually plots a value curve that value elements that will define our future value curve. depict a viable strategy if it allows us to understand where the competition is currently First, we should ask ourselves which factors our company should has three characteristics: investing, the factors the industry currently competes on, eliminate. Often, these are factors the industry has long and what customers receive from the existing competitive competed on. They are based on implicit assumptions that have (1) FOCUS: it shows that we offerings in the market. been taken for granted even though they no longer have value, or do not diffuse our efforts may even reduce value. across all key factors of Then we look at whether products or services have been competition. To fundamentally shift the strategy canvas of our industry, we must begin by reorienting our strategic focus from overdesigned in the race to match and beat the competition. This (2) DIVERGENCE: the shape competitors to alternatives, and from customers to non- forces us to reduce those elements that over-serve customers, of our curve diverges from customers of the industry. As we shift our focus, we gain and that increase our cost structure for no gain. those of other players. insight into how we can redefine the problem the industry At the same time, we should look at factors that are based on a focuses on and how we can reconstruct buyer value “compromise” within the industry and potentially raise them for (3) The curve can be easily elements. As a result, we can decide how to reshape our greater customer appeal and satisfaction. translated into a positioning and related offerings to serve both existing Finally, we can discover entirely new sources of value for buyers clear, strong, truthful and customers and non-customers of an industry. and create new factors that generate demand and change the compelling TAGLINE. strategic pricing of the industry. THE INITIAL VALUE CURVE IS TRANSFORMED THROUGH… … THE ELIMINATE-REDUCE-RAISE-CREATE GRID, TO CREATE A… … NEW, FOCUSED, DIVERGING VALUE CURVE WITH A high // COMPELLING TAGLINE RELATIVE COSTS POSITIONING Which of the factors Which factors should be // that the industry takes OF PLAYERS Eliminate for granted should be reduced well below the Reduce industry’s standard? eliminated? AND/OR // VALUE PLAYERS GROUPS INNOVATION low // Which factors should be Which factors should be created that the Create industry has never raised well above the Raise industry’s standard? Factor (a) Factor (b) Factor (c) Factor (n) offered? BUYER VALUE FACTORS THE INDUSTRY COMPETES ON AND INVESTS IN Design new factors of competition www.straligence.com -5-
  • 6. Introduction ⎥ Blue ocean strategy principles - overview Venturing beyond an existing industry space implies a series of risks. The blue ocean strategy approach to strategy is based on six principles that cater for the major risks of a new market creation project. Together, they define the underlying philosophy of blue oceans. 1 2 STRATEGY FORMULATION STRATEGY IMPLEMENTATION Search Risk Planning Risk Scale Risk Business Model Risk Organizational Risk Management Risk 6 PATHS STRATEGIC MARKET BUSINESS APPROACH PLANNING SIZING MODEL MOBILIZATION EXECUTION 1 2 3 4 5 6 Focus on the Reconstruct Reach beyond Get the Overcome key Build big picture, market existing strategic organizational execution into not the boundaries demand sequence right hurdles strategy numbers Consider six conventional Plan beyond incremental Challenge the Sequence business Through Tipping Point Via a Fair Process, boundaries of improvements via a conventional practice of model design to capture Leadership, tackle aim to motivate competition: visualization approach: finer segmentation and the newly created value: traditional hurdles: people to act on and ① Alternative industries resulting smaller target ① Buyer utility ① Cognitive execute a blue ocean ① Visual awakening markets. strategy in a ② Strategic groups mapping ② Resource Focus on demand sustained way, deep ③ Buyer groups ② Visual exploitation ② Pricing and the ③ Motivational aggregation by building in the organization: corridor of the ④ Complementary ③ on commonalities ④ Political Visual strategy fair masses ① Engagement product and service across non customers Identify and leverage offerings ③ Cost targets based ② Explanation ④ Visual groups: the factors of on pricing and ⑤ Functional-emotional communication ① Soon to be disproportionate ③ Clarity of desired margins orientation influence in the expectations ⑤ Pioneer, Migrator, ② Refusing ④ Potential adoption ⑥ Time organization. Settler map ③ Unexplored obstacles Each building block and their components are detailed in the following pages. www.straligence.com -6-
  • 7. Ch. 3 Blue ocean strategy principles ⎥ Strategy Formulation 1. Reconstruct market boundaries The six paths framework challenges the fundamental assumptions underlying many companies’ strategies. It encourages to look at alternative industries, strategic groups, chain of buyers, complementary offerings, functional and emotional appeal, and time. LOOK ACROSS LOOK ACROSS STRATEGIC GROUPS LOOK ACROSS 1 ALTERNATIVE INDUSTRIES 2 WITHIN INDUSTRIES 3 THE CHAIN OF BUYERS Focus on the purpose of a product or service and consider We should always consider the multiple players directly or In most industries you can capture the fundamental differences alternatives, not substitutes. indirectly involved in the buying decision: the purchasers (who among players within a small number of strategic groups (i.e. Substitutes are those that have a different form but offer the pay for the product or service); the users; and the influencers. group of companies pursuing a similar strategy). same functionality. Although these groups may overlap, they often differ and hold As a minimum, you can generally rank them on the basis of Alternatives are those that have different functions and forms different definitions of value. price and performance. but fulfill the same purpose. Challenging our industry’s conventional beliefs about which When looking for a blue ocean, the key is to break out of a buyer group should be targeted can lead to the discovery of • What are the alternative industries to our industry? strategic group and understand which factors drive customers’ new, locked values. For this, we should look across buyer decisions to trade up or down among groups. • How do customers make trade-offs across them? groups to gain new insight and draft new value curves. • What are the strategic groups in our industry? • What is the chain of buyers in our industry? • What makes them jump from an industry to another? • Why do customers trade up for the higher group? • Which buyer group does our industry focus on? Focus on the key factors that lead buyers to trade across • If we shifted the attention to another buyer group of our alternative industries and eliminate or reduce everything else. • Why do they trade down for the lower one? industry, how could we unlock new value? SIX PATHS TO RECONSTRUCT MARKET BOUNDARIES, BREAK FROM COMPETITION AND CREATE BLUE OCEANS LOOK ACROSS COMPLEMENTARY LOOK ACROSS FUNCTIONAL OR 4 PRODUCT & SERVICE OFFERINGS 5 EMOTIONAL APPEAL TO BUYERS 6 LOOK ACROSS TIME The total solution buyers seek when they choose a product or Blue ocean strategies rarely come out from projecting industry Competition in an industry tends to converge not only on the service may be composed of hidden complementary products trends. Instead, they arise from business insights into how scope of product and services, but also in terms of functional and services. trends will change value to customers and impact the /rational and feeling/emotional appeal. Yet the appeal of most A way to define the total solution is to explore what happens company’s business model. products or services is rarely one or the other. before, during and after our product or service is used. The idea is to look across time: the value a market delivers We should thus ask ourselves: • Does our industry compete on functionality or on today, vs. the value it might deliver tomorrow. • What is the context in which our product or service is emotional appeal? When looking at trends, we must focus on those that are used? • If we compete on emotional appeal, what elements can decisive to our business, that are irreversible and have a clear • What happens before, during and after? we strip out to make it functional? trajectory. Having identified these trends, we can look across • Can we identify the pain points? time at what the market would look like if they were taken to • If we compete on functionality, what elements can be • Can we eliminate these pain points through a their logical conclusion. Working back, we can identify what added to make it emotional? complementary product or service offering? must be changed today to unlock a new blue ocean. www.straligence.com -7-
  • 8. Ch. 4 Blue ocean strategy principles ⎥ Strategy Formulation 2. Focus on the big picture Building on the six paths framework, we can depict our “as-is", “alternative” and “best to-be” strategy canvases. To do so, there are four suggested steps that will help us create a visual representation of our strategy: visual awakening, visual exploration, visual strategy fair, and visual communication. VISUAL AWAKENING VISUAL EXPLORATION 1 2 Trigger change via our as-is canvas Drawing a canvas per every new opportunity • Having drawn our as-is canvas, we need to adopt a human- • We can compare the focus of our business to the one of our centered design approach, i.e. we must get into the field to competitors by drawing our “as-is” strategy canvas. watch customers use our products and services. • Here, we need to focus on the areas where we think our • We need to identify the array of complementary products and strategy needs to change. services that are consumed alongside our own. This will give • When we will start drawing the strategy canvas(es), we will get us an insight on how we could bundle opportunities. into productive arguments and contradictions. This will force • At the same time, we need to look for alternative ways of our teams and our leadership to share a common view on the fulfilling the need that our product or service satisfies. strategy essentials. • Each opportunity should be translated into a new value curve, • The diagram will make a stronger case for change than any e.g. one per each of the six paths, by looking at which factors argument based on numbers and words. we should eliminate, create or change. VISUAL STRATEGY FAIR VISUAL COMMUNICATION 3 4 Getting feedback for the best “to-be” canvas New vs. old value curve is the new metric • Each value curve should be clear and easily translatable into a compelling tagline. We should be able to explain each curve in • Every colleague (and strategic partner) should be able to ten minutes or less. compare the new vs. the old strategic profiles. They should • We can hang them on the walls, circulate them around and recognize where we stood and were we want to focus our capture their pro’s and cons, their blocks, challenges and efforts to create a compelling future. implications. • The new strategic profile is explained by all the executives who • We must emphasize: (1) factors that we thought were key to participated to its creation. They need to emphasize what our competitiveness but are in fact marginal to customers; (2) needs to be reduced, eliminated, increased and created. factors that we had previously overlooked. This way we can reassess some of our long-held assumptions. • The new picture is to become the reference point for each new • We will then be able to draw our best “to-be” strategy canvas initiative and investment decision, i.e. each new project is to be based on insights from field valued against its contribution to reshaping our existing value observations, customers, competitors’ customers, non- curve into our future one. customers, key partners and industry experts. www.straligence.com -8-
  • 9. Ch. 5 Blue ocean strategy principles ⎥ Strategy Formulation 3. Reach beyond existing demand Non-customers tend to offer us far more insight into how to unlock and grow a blue ocean than do relatively content existing customers. Beyond our current market are “soon to be”, “refusing”, and “unexplored” non-customers, representing untapped demand waiting to be released. DE-SEGMENTING MARKETS, AGGREGATING COMMONALITIES AND MAXIMIZING THE NEW MARKET This is the farthest away tier of non-customers from our industry’s existing customers. Typically, these Unexplored unexplored non-customers have not been targeted or thought of as potential customers by any player in our industry. That’s because their needs and the business opportunities associated with them have Non-customers who are in THIRD somehow always been assumed to belong to other markets. markets distant from ours Can we reach beyond existing customers and look across multiple markets to aggregate commonalities TIER into a new market? Refusing Refusing non-customers are people who either do not use or cannot afford to use the current market offerings because they find them unacceptable or beyond their means. Their needs are either dealt with SECOND Non-customers who by other means or ignored. TIER consciously choose against What are the key reasons non-customers refuse to use the products or services of our industry? our market Look for the commonalities across their responses. Focus on these, and not on their differences. Soon-to-be customers are those who minimally use the current market offerings to get by as they search Soon to be for something better. Upon finding any better alternative, they will eagerly jump ship. Locked within these FIRST Non-customers who are on first-tier non-customers is an ocean of untapped demand waiting to be released. What are the key reasons first-tier non-customers want to jump ship and leave our industry? TIER the edge of our market Look for commonalities across their response. Focus on these, and not on the differences among them. waiting to jump ship Look for commonalities across tiers. Our aim is to expand the market Our and create new demand. Market GO FOR THE BIGGEST CATCHMENT www.straligence.com -9-
  • 10. Ch. 6 Blue ocean strategy principles ⎥ Strategy Formulation 4. Get the strategic sequence right We should not let costs drive prices. Nor should we scale down utility because high costs block our ability to profit at a strategic price that is easily accessible to the mass of target buyers. The right sequence for creating value innovation is (1) buyer utility, (2) price, (3) profit, (4) costs, and (5) adoption. Creation of Value Innovation and capturing of healthy profits Create a leap in Net Buyer Value 1 BUYER UTILITY 2 PRICE 3 COST 4 ADOPTION Can we produce our offering at the A Does our offering unlock Is our offering priced to attract the target cost and still earn a healthy What are the adoption hurdles in COMMERCIALL exceptional utility? mass of target buyers so that they profit margin? actualizing our business idea? Y VIABLE BLUE Is there a compelling reason for have a compelling ability to pay for Can we profit at the price easily the mass of people to buy it? it? accessible to the mass of target Are we addressing them up front? OCEAN IDEA buyers? No, rethink No, rethink No, rethink Look at the six stages of Identify the bandwidth Stick to to the logic that Educate the fearful: the buyer’s experience that captures the largest our strategic price drives employees, business cycle and identify blocks group of target buyers our target profit that partners and public to buyer’s utility. Identify while making it difficult drives our target cost. opinion at large. Openly the value proposition for our competitors to Hit target costing via discuss to solve issues that removes the biggest imitate us. streamlining, partnering upfront and get blocks allowing us to and/or pricing maximum buy in. turn non-customers into innovation. customers. Each step is further detailed in the pages hereafter. www.straligence.com - 10 -
  • 11. Blue ocean strategy principles ⎥ Strategy Formulation 4. Get the strategic sequence right ⎥ 1. BUYER UTILITY Does our offering unlock exceptional utility? Is there a compelling reason for the mass of people to buy it? By locating our proposed offering on the thirty-six spaces of the buyer utility map, we can clearly see how, and whether, the new idea not only creates a different utility proposition from existing offerings but also removes the biggest blocks to utility that stand in the way of converting non-customers into customers. If our offering falls on the same space or spaces as those of other players, chances are it is not a blue ocean offering. The buyer utility BUYER EXPERIENCE CYCLE ⎥ SIX STAGES OF BUYER EXPERIENCE CYCLE map 1. PURCHASE 2. DELIVERY 3. USE 4. SUPPLEMENTS 5. MAINTENANCE 6. DISPOSAL • How long does it take • How long does it take • Does the product • Do you need other • Does the product • Does the use of the to find the product to get the product require training or products and services require external product create waste you need? delivered? expert assistance? to make this product maintenance? items? • Is the product easy to work? • Is the place of • How difficult is it to store when not in • How easy is it to • How easy is it to purchase attractive “unpack and install” use? • If so, how costly are maintain and upgrade dispose of the and accessible? the new product? • How effective are the they? the product? product? • How secure is the • Do buyers have to product’s features • How much time do • How costly is • Are there legal or transaction arrange delivery and functions? they take? maintenance? environmental issues environment? themselves? • Does the product or in disposing of the If yes, how costly and service deliver far • How much pain do product safely? • How rapidly can you difficult is this? more power or they cause? make a purchase? options than required • How costly is • How easy are they to disposal? by the average user? obtain? Is it overcharged with bells and whistles? CUSTOMER In which stage are the biggest blocks to customer productivity? PRODUCTIVITY BLOCKS TO BUYER UTILITY SIMPLICITY In which stage 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? ENVIRONMENTA In which stage are the biggest blocks to environmental friendliness? L FRIENDLINESS www.straligence.com - 11 -
  • 12. Blue ocean strategy principles ⎥ Strategy Formulation 4. Get the strategic sequence right ⎥ 2. STRATEGIC PRICE Is our offering priced to attract the mass of target buyers so that they have a compelling ability to pay for it? STEP 1: STEP 2: IDENTIFY THE PRICE CORRIDOR OF THE MASS SPECIFY A PRICE LEVEL WITHIN THE PRICE CORRIDOR Same form Different form, Different form same function and DIFFICULT TO IMITATE function, same objective High degree of legal and resource protection CAN BE IMITATED WITH SOME DIFFICULTY PRICE Price Corridor of the Masses Some degree of legal and resource protection The price bandwidth that captures the largest Mid-level pricing groups of target buyers EASY TO IMITATE Low degree of legal and resource protection The size of circle is proportional to number of buyers that the product/service is able to attract. A good way to look outside industry boundaries is to list products and The second step helps us determine how high a price we can afford to services that fall into the three categories above. set within the corridor of the masses, without inviting competition to This allows us to see the full range of buyers that can be poached from imitate products or services. other industries as well as from non-industries. It provides a way to identify where the mass of target buyers is and what prices these buyers are prepared to pay for the products and services they currently use. www.straligence.com - 12 -
  • 13. Blue ocean strategy principles ⎥ Strategy Formulation 4. Get the strategic sequence right ⎥ 3. TARGET COST Can we produce our offering at the target cost and still earn a healthy profit margin? Can we profit at the price easily accessible to the mass of target buyers? If you are to arrive at a cost structure that is STRATEGIC TARGET TARGET both profitable and hard for potential followers PRICE PROFIT COST to match, you must tackle the price equation as price-minus costing, not cost-plus pricing. Three levers to hit ■ Can the service’s or product’s the cost target ■ In bringing a new product or raw materials be replaced by STREAMLININ service to market, many unconventional, less expensive 1 G AND COST PARTNERING 2 companies mistakenly try to carry ones? out all the production and INNOVATIONS ■ Can high-cost, low-value added distribution activities themselves. activities in our value chain be ■ Partnering provides a way for significantly eliminated, reduced companies to secure needed or outsourced? capabilities fast and effectively PRICING while dropping their cost ■ Can the physical location of our 3 product or service be shifted from INNOVATION structure. It allows a company to prime real estate locations to leverage other companies’ lower-cost locations? expertise and economies of ■ If streamlining and cost innovation and/or partnering does scale. ■ Can we truncate the number of parts of steps used in production not bring us to the desired target cost, is changing the ■ Partnering includes closing gaps by shifting the way things are pricing model of the industry a viable alternative? in capabilities through making made? ■ The aim is not to compromise on the strategic price, but to small acquisitions when doing so hit the target through a new price model, e.g. is faster and cheaper, providing ■ Can we digitize activities to renting/leasing vs. selling, equity interest in the customer’s access to expertise that has reduce costs? business, etc. already been mastered. www.straligence.com - 13 -
  • 14. Blue ocean strategy principles ⎥ Strategy Formulation 4. Get the strategic sequence right ⎥ 4. ADOPTION Almost by definition, a blue ocean idea threatens the status quo. As a result, it may provoke resistance among employees, partners and the general public. Often underestimated or put aside because of its cost, educating the “fearful” can have a make or break impact on our new idea. Identifying threats to employees and third parties and openly discussing issues upfront helps minimize risks and defuse negative opinions that would be much more costly to address later on. Educate the fearful ■ Before going public with an idea, we must communicate to our colleagues the threats and benefits posed by its execution. 1 Employees ■ We must work with our colleagues to find ways of defusing the threats so that everyone feels as comfortable as possible and is set to win, despite the shifts that will be necessary in people’s roles, responsibilities and rewards. ■ Will our partners fear that their revenue streams or market positions will be threatened by our new business idea? If so, we must openly discuss the issues with them and find a win-win solution upfront. Business 2 partners ■ Even if a common ground is not found and we are due to put an end to a business relationship, it is in our interest to find an agreement through an open conversation as early as possible. The worst thing that could happen is to see our efforts undermined by a partners’ sales force. ■ If the idea threatens established social or political norms, general public’s opinion could represent a fierce opposition. Again, the best recommendation is not to General 3 public underestimate the indirect negative impacts of third parties. ■ Engaging in an open discussion about why the adoption of the new idea is necessary and beneficial is the best way to defuse negative press upfront. www.straligence.com - 14 -
  • 15. Ch. 7 Blue ocean strategy principles ⎥ Strategy Implementation 5. Key organizational hurdles We all know that strategy execution is at least as important as, if not more important than, strategy definition. The changes underlying a blue ocean strategy make execution even more delicate. This is why carefully addressing four key organizational hurdles can make or break our initiative, no matter how strong is our business case. COGNITIVE HURDLE POLITICAL HURDLE What are the three most important facts and How do we overcome potential corporate figures that we will use to make people aware politics, intrigue and plotting? of the need for a strategic shift and agree on TIPPING POINT LEADERSHIP APPROACH Who are the possible negative influencers who its causes? can fiercely and vocally oppose the new Identify, focus on and leverage people, acts and activities strategy? Are they only internal? Are they also How can we make people, and especially that exercise disproportionate influence on performance. external to our department, organization, or leadership, see the reality first hand? How can Fundamental changes can happen quickly when the beliefs company? customers or third parties help us? and energies of a critical mass of people create an The Consigliere will help us identify in advance epidemic movement toward an ideal. Key to unlocking an the possible land mines. He/she will profile What are the three most effective and practical epidemic movement is concentration, not those who have the most to win and to lose ways we could leverage to make executives dispersion/diffusion of effort. from the new corporate direction. He will help and employees experience and feel the need us isolate the detractors and discourage them for change? Employees with Employees with before their war starts to get any steam. disproportionate disproportionate influence influence Against Mass of In favor employees KINGPINS: Who are the people inside our HOT SPOTS: Which of our activities are group that are the most respected and currently poorly staffed but have a high persuasive natural leaders and influencers that potential to deliver superior results? have the ability to unlock or block access to “Consigliere” key resources? COLD SPOTS: Which activities do we pursue One of the key factors of our success, no matter how FISHBOWL: Can we motivate the kingpins by today that require a high input of resources but putting them in the spotlight and showing to strong our business case, is to know in advance all the deliver a low impact on our performance? others their actions (and inactions) in a likely angles of attack to our proposal. The Consigliere, a repeated and highly visible way? HORSE TRADING: How could we reshuffle highly respected insider, will help us know whom will fight ATOMIZED CHALLENGE: What are the “bite- our resources allocation for greater impact and us and whom will be naturally interested in aligning size atoms” of our initiative that are individually business performance? him/herself with the new strategy. attainable and collectively allow us to implement our strategy? RESOURCE HURDLE MOTIVATIONAL HURDLE www.straligence.com - 15 -
  • 16. Ch. 8 Blue ocean strategy principles ⎥ Strategy Implementation 6. Build execution into strategy Our company will (continue to) stand apart as a great and consistent executor when our people embrace our new strategy with their minds and hearts. When of their own accord they will be willing to go beyond compulsory execution to voluntary cooperation. When trust and commitment will align attitudes and behavior to the spirit of our strategy, not to its letter. Adopting a fair process to strategy execution will help us achieve this goal deep into all the ranks of our company, across teams and departments. FAIR PROCESS: ENGAGEMENT, EXPLANATION, EXPECTATION CLARITY INTELLECTUAL AND TRUST VOLUNTARY COOPERATION IN EXCEED EXPECTATIONS EMOTIONAL RECOGNITION & COMMITMENT STRATEGY EXECUTION Emotional recognition: It is only through actions, not words, that When you and I are being considered, Our colleagues want to be appreciated for we will gain the trust and commitment of all valued and feeling recognized, we want to Building such an intrinsic and their value, for their individual worth, involved parties. We must walk our talk share. Recognizing our intellectual worth extrinsic motivation within our regardless of the hierarchical level. They and make others walk their talk. inspires us and makes us want to impress colleagues can help us pull together are not “resources”, “labor factor” or Indeed, we must create an environment of and confirm the expectations of those who our collective wisdom and generate “personnel”. They are human beings who trust towards those leading the new trust us and in whom we trust. brilliant new ideas, processes and want to and should be treated with full initiative as well as among those tricks to make us achieve our goals. respect and dignity. participating to it and being affected by it, Additionally, if there is an emotional People will be almost in an auto- Intellectual recognition: directly or indirectly. component to the recognition, we feel pilot mode because they will Our colleagues may have brilliant ideas Recognition and feedback will allow us to emotionally tied to the strategy and the understand what we are aiming for, and new points of view. We must leverage build a strong sense of commitment. end result. We are much more willing to go they are emotionally bound to the their willingness to be consulted and show Ideally it will drive ourselves and our the extra mile and give all we’ve got. result, they are being valued for that their perspective is appreciated and colleagues to override personal self- their intelligence and skills and trust given thoughtful reflection. interest. that this is done in a clear and equal way in the best interest of all of us. Open & collaborative strategic planning Positive and optimistic attitude Proactive and determined behavior ENGAGEMENT: We make sure that we involve our colleagues in the strategic decisions that affect them. We do so by asking for their input and by Potentially, such a momentum can allowing them to refute the merits of one another’s ideas and assumptions. Our teams show respect for individuals and for their ideas; they be further fuelled by a transcendent encourage refutation in order to sharpen our thinking and leverage collective wisdom. motivation, one that goes beyond the goals of the individual and of our EXPLANATION: We want every employee involved and affected by our strategy to understand why final strategic decisions are made as they are. By company. For example, a goal that sharing the thinking underlying our decisions, our colleagues will be confident that we have considered all options and opinions, and that is linked to a humanitarian cause decisions have been made impartially in the best interest of the company. linked to our project, to the well EXPECTATION CLARITY: Once our strategy is set, we must clearly set the new rules of the game. Goals, targets and milestones must be clearly being of customers beyond our communicated. So must responsibilities and rewards. As a result, political jockeying and favoritism should be killed, letting our people focus on products and services, or, to the executing strategy rapidly. extent our products and services allow us to, to the improvement of Our employees care as much about the justice of the process the society we live in. through which our outcome will be produced as they do about the outcome itself! www.straligence.com - 16 -
  • 17. THE ONE PAGER ON BLUE OCEAN STRATEGY Red vs. Blue - In red oceans, our efforts are focused on the conventional logic that we must outpace the competition with a better solution to a given problem. Blue ocean strategy invites us to redefine the problem itself. It does so by breaking the value-cost trade-off in view of creating new uncontested market places. Places where no one has been and where we would be the one defining the rules! Analytical Tools & Frameworks - The strategy canvas is both the start and the end point of a blue ocean strategy formulation. An initial value curve depicts where the industry competes on and invests in. It is then transformed via the eliminate-reduce-raise-create actions framework. The resulting value curve shows a focused effort that diverges from existing market offerings and can be easily translated into a compelling tagline. Underlying principles - Venturing beyond an existing industry space implies a series of risks. The blue ocean strategy approach to strategy is based on six principles that cater for the major risks of a new market creation project: search risk, planning risk, scale risk, business model risk, organizational risk and management risk. Together, they define the underlying philosophy of blue oceans. Six paths to reconstruct market boundaries - The six paths framework challenges the fundamental assumptions underlying many companies’ strategies. It encourages to look at alternative industries, strategic groups, chain of buyers, complementary offerings, functional and emotional appeal, and time. Strategic planning focused on the big picture - Building on the six paths framework, we can depict our “as-is", “alternative” and “best to-be” strategy canvases. To do so, there are four suggested steps that will help us create a visual representation of our strategy: visual awakening, visual exploration, visual strategy fair, and visual communication. Reaching beyond existing demand - Non-customers tend to offer us far more insight into how to unlock and grow a blue ocean than do relatively content existing customers. Beyond our current market are “soon to be”, “refusing”, and “unexplored” non-customers, representing untapped demand waiting to be released. Getting the strategic sequence right - We should not let costs drive prices. Nor should we scale down utility because high costs block our ability to profit at a strategic price that is easily accessible to the mass of target buyers. The right sequence for creating value innovation is (1) buyer utility, (2) price, (2b) profit, (3) costs, and (4) adoption. 1. Buyer utility - Does our offering unlock exceptional utility? Is there a compelling reason for the mass of people to buy it? By locating our proposed offering on the thirty-six spaces of the buyer utility map, we can clearly see how, and whether, the new idea not only creates a different utility proposition from existing offerings but also removes the biggest blocks to utility that stand in the way of converting non-customers into customers. If our offering falls on the same space or spaces as those of other players, chances are it is not a blue ocean offering. 2. Strategic Price - Is our offering priced to attract the mass of target buyers so that they have a compelling ability to pay for it? 3. Target Cost - Can we produce our offering at the target cost and still earn a healthy profit margin? Can we profit at the price easily accessible to the mass of target buyers? 4. Adoption - Almost by definition, a blue ocean idea threatens the status quo. As a result, it may provoke resistance among employees, partners and the general public. Often underestimated or put aside because of its cost, educating the “fearful” can have a make or break impact on our new idea. Identifying threats to employees and third parties and openly discussing issues upfront helps minimize risks and defuse negative opinions that would be much more costly to address later on. Mobilizing the organization to overcome key organization hurdles - We all know that strategy execution is at least as important as, if not more important than, strategy definition. The changes underlying a blue ocean strategy make execution even more delicate. This is why carefully addressing four key organizational hurdles can make or break our initiative, no matter how strong is our business case. Building execution into strategy via a fair process - Our company will (continue to) stand apart as a great and consistent executor when our people embrace our new strategy with their minds and hearts. When of their own accord they will be willing to go beyond compulsory execution to voluntary cooperation. When trust and commitment will align attitudes and behavior to the spirit of our strategy, not to its letter. Adopting a fair process to strategy execution will help us achieve this goal deep into all the ranks of our company, across teams and departments. www.straligence.com - 17 -
  • 18. Blue Ocean Strategy Tools Primer Methodology MS PowerPoint MS Excel Templates Forms www.straligence.com www.straligence.com - 18 -