Blue Ocean

Strategy

Summarized by Vanessa YangAug 9, 2010

In today’s head-to-head competition……And overcrowded industries…

How to survive in the bloody “red ocean” of rivals fighting over a shrinking profit pool?

Creating “blue oceans” of uncontested market space ripe for growth.

Creating Blue Oceans

Value Innovation: The Cornerstone of Blue Ocean Strategy

Costs

Buyer Value

Value

Innovation

Red Ocean Versus Blue Ocean Strategy

Red Ocean Strategy Blue Ocean Strategy

Compete in existing market space. Create uncontested market space.

Beat the competition. Make the competition irrelevant.

Exploit existing demand. Create and capture new demand.

Make the value-cost trade-off. Break the value-cost trade-off.

Align the whole system of a firm’s activities with its strategic choice of differentiation or low cost.

Align the whole system of a firm’s activities in pursuit of differentiation and low cost.

The Six Principles of Blue Ocean Strategy

Formulation Principles Risk factor each principle attenuates

Reconstruct market boundaries ↓ Search risk

Focus on the big picture, not the numbers ↓ Planning risk

Reach beyond existing demand ↓ Scale risk

Get the strategic sequence right ↓ Business model risk

Execution principles Risk factor each principle attenuates

Overcome key organizational hurdles ↓ Organizational risk

Build execution into strategy ↓ Management risk

Analytical Tools and Frameworks

The Strategy Canvas

High

LowPrice Use of

enological terminology

Above-the-line marketing Aging

quality

Vineyard prestige and legacy Wine

complexity

Wine range

The Four Actions Framework

ReduceWhich factors should

be reduced well below the industry’s

standard?

A New Value Curve

RaiseWhich factors should be raised well above

the industry’s standard?

EliminateWhich of the factors

that the industry takes for granted should be

eliminated?

CreateWhich factors should be created that the industry has never

offered?

The Eliminate-Reduce-Raise-Create Grid:The Case of [yellow tail]

Eliminate

Enological terminology and distinctions

Aging qualitiesAbove-the-line marketing

Raise

Price versus budget winesRetail Store involvement

Reduce

Wine complexityWine range

Vineyard prestige

Create

Easy drinkingEase of selection

Fun and adventure

Three Characteristics of a Good Strategy

Divergence Focu

s

Compelling

Tagli

ne

3 Characteristics of a good strategy

A Blue Ocean Strategy

A Company Caught in the

Red Ocean

Overdelivery Without Payback

An Incoherent Strategy

Strategy Contradictions

An Internally Driven

Company

Reading the Value Curves

Formulating Executing

Reconstruct Market Boundaries

Six Paths to Create Blue Ocean

Look Across Alternative Industries

Look Across Strategic Groups within

Industries

Look Across the Chain of Buyers

Look Across Compleme

ntary Product

and Service Offerings

Look Across Functional

or Emotional Appeal to

Buyers

Look Across Time

Path 1

Path 2

Path 6

Path 5

Path 4

Path 3

Head-to-Head Competition Blue Ocean Creation

Industry Focuses on rivals within its industry

Looks across alternative industries

Strategic group Focuses on competitive position within strategic group

Looks across strategic groups within industry

Buyer group Focuses on better serving the buyer group

Redefines the industry buyer group

Scope of product or service offering

Focuses on maximizing the value of product and service offerings within the bounds of its industry

Looks across to complementary product and service offerings

Functional-emotional orientation

Focuses on improving price performance within the functional-emotional orientation of its industry

Rethinks the functional-emotional orientation of its industry

Time Focuses on adapting to external trends as they occur

Participates in shaping external trends over time

From Head-to-Head Competition to Blue Ocean Creation

Formulating Executing

Focus on the Big Picture,Not the Numbers

The Four Steps of Visualizing Strategy

Visual Awakening

Visual Exploration

Visual Strategy Fair

Visual Communications

• Compare your business with your competitors’ by drawing your “as is” strategy canvas.

• See where your strategy needs to change

• Go into the field to explore the six paths to creating blue oceans.

• Observe the distinctive advantages of alternative products and services.

• See which factors you should eliminate, create, or change.

• Draw your “to be” strategy canvas based on insights from field observations.

• Get feedback on alternative strategy canvases from customers, competitors’ customers, and noncustomers.

• Use feedback to build the best “to be” future strategy.

• Distribute your before-and-after strategic profiles on one page for easy comparison.

• Support only those projects and operational moves that allow your company to close the gaps to actualize the new strategy.

The Pioneer-Migrator-Setting (PMS) Map

Pioneers

Migrators

Settlers

Today Tomorrow

Formulating Executing

Reach Beyond Existing Demand

The Three Tiers of Noncustomers

Your Market

First Tier

Second Tier

Third Tier

1st

Tier2rd

Tier3rd

Tier

“soon-to-be” noncustomers

“refusing” noncustomers

“unexplored” noncustomers

Noncustomers

Formulating Executing

Get the Strategic Sequence Right

The Sequence of Blue Ocean Strategy

Buyer utility

Is there exceptional buyer utility in your business idea?

Price

Is your price easily accessible to the mass of buyers?

Cost

Can you attain your cost target to profit at your strategic price?

Adoption

What are the adoption hurdles in actualizing your business idea? Are you addressing them up front?

A Commercially Viable Blue Ocean Idea

Yes

Yes

Yes

Yes

No – Rethink

No – Rethink

No – Rethink

1. Purchase

2. Delivery

3. Use

4. Supplements

5. Maintenance

6. Disposal

Customer Productivity

Simplicity

Convenience

Risk

Fun and Image

Environmental Friendliness

Testing for Exceptional Utility 1- The Buyer Utility Map

The Six Stages of the Buyer Experience Cycle

The

Six

Util

ity L

ever

s

Purchase

How long does it take to find the product you need?

Is the place of purchase attractive and accessible?

How secure is the transaction environment?

How rapidly can you make a purchase?

Delivery

How long does it take to get the product delivered?

How difficult is it to unpack and install the new product?

Do buyers have to arrange delivery themselves? If yes, how costly and difficult is this?

Use

Does the product require training or expert assistance?

Is the product easy to store when not in use?

How effective are the product’s features and functions?

Does the product or service deliver far more power or options than required by the average user? Is in overcharged with bells and whistles?

Supplements

Do you need other products and services to make this product work?

If so, how costly are they?

How much time do they take?

How easy are they to obtain?

Maintenance

Does the product require external maintenance?

How easy is it to maintain and upgrade the product?

How costly is maintenance?

Disposal

Does use of the product create waste items?

How easy is it to dispose of the product?

Are there legal or environmental issues in disposing of the product safely?

How costly is disposal?

Testing for Exceptional Utility 2- The Buyer Experience Cycle

Testing for Exceptional Utility 3- Uncovering the Blocks to Buyer Utility

Purchase Delivery Use Supplements Maintenance Disposal

Customer Productivity: In which stage are the biggest blocks to customer productivity?

Simplicity: In which stages are the biggest blocks to simplicity?

Convenience: In which stage are the biggest blocks to convenience?

Risk: In which stage are the biggest blocks to reducing risks?

Fun and Image: In which stage are the biggest blocks to fun and image?

EnvironmentalFriendliness:

In which stage are the biggest blocks to environmental friendliness?

Strategic Pricing – the Price Corridor of the Mass

Step 1: Identify the price corridor of the mass.

Step 2: Specify a price level within the price corridor.

Three alternative product/service types:

Same form

Different form, same function

Different form and function,

same objective

Price Corridor of the Mass

Upper-level pricing

Mid-level pricing

Lower-level pricing

High degree of legal and resource protectionDifficult to imitate

Some degree of legal and resource protection

Low degree of legal and resource protection

Easy to imitate

Target Costing – the Profit Model

The Strategic Price

Streamlining and Cost Innovations

Pricing Innovation

The Target Cost

Partnering

The Target Profit

The General Public

Business Partners

Employees

Adoption

Blue Ocean Idea (BOI) Index

PhilipsCD-i

MotorolaIridium

DoCoMoI-modeJapan

UtilityIs there exceptional utility? Are there compelling reasons to buy your offering?

- - +

Price Is your price easily accessible to the mass of buyers? - - +

Cost Does your cost structure meet the target cost? - - +

Adoption Have you addressed adoption hurdles up front? - +/- +

Formulating Executing

Overcome Key Organizational Hurdles

Cognitive HurdleAn organization

wedded to the status quo

Resources HurdleLimited resources

Motivational HurdleUnmotivated staff

Political HurdleOpposition from powerful vested

interests

Four Organizational Hurdles to Strategy Execution

Challenging Conventional Wisdom

Conventional Wisdom Versus Tipping Point Leadership

Conventional Wisdom

Tipping Point Leadership

Mass of EmployeesCompany

Company

Extremes Extremes

Formulating Executing

Build Execution into Strategy

How Fair Process Affects People’s Attitudes and Behavior

Fair ProcessEngagementExplanation

Expectation Clarity

Trust and Commitment

“I feel my opinion counts.”

Voluntary Cooperation

“I’ll go beyond the call of duty.”

Exceeds ExpectationsSelf-initiated

Strategy Formulation Process

Attitudes

Behavior

Strategy Execution

The Three E Principles of Fair Process

Engagement

Explanation

Expectation clarity

Fair Process and Blue Ocean Strategy

Fair Process

Intellectual and

Emotional Recognition

Trust and Commitment

Voluntary Cooperation in Strategy Execution

Violation of Fair Process

Intellectual and

Emotional Indignation

Distrust and Resentment

Refusal to Execute Strategy

Conclusion: The Sustainability and Renewal of Blue Ocean Strategy

8. Brand buzz and a loyal customer following

7. Imitation requires significant political, operational, and cultural changes.

6. Network externalities

5. High volume leads to rapid cost advantage for the value innovator, discouraging followers

4. Patents or legal permits

3. Natural monopoly

2. Conflict with brand image

1. Conflict with conventional logic

Barriers to Imitation

Monitor value curves on the strategy canvas.

Ensure the strategy has focus, divergence, and a compelling tagline.

Use the six principles to think about future strategy.

When to Value-Innovate Again

Create Uncontested Market Space and Make the Competition Irrelevant.

THANK YOU!