Blue Ocean StrategyAnalytical Tools and
Frameworks
June 2, 2009
Introduction
Effective blue ocean strategy should be about risk minimization, not risk taking.
Looks closely at US wine industry
US Wine Industry
Intense Competition 75% of US wine is produced by top 8
companies Leaves last 25% to be produced by remaining
1600 wineries Mounting price pressure Increasing bargaining power by retailers,
distributors Flat demand
Critical Questions
Two critical questions remain with wine market How do you break out of the bloody
competition? How do you open up and capture a blue
ocean? The Answer
Analytical tools and frameworks
Overview
The Strategy Canvas The Four Actions Framework The Eliminate-Reduce-Raise-Create Grid 3 Characteristics of a Good Strategy Reading the Value Curves
The Strategy Canvas
The Strategy Canvas
Both a Diagnostic and Action framework Wine Example Value Curve
The Four Actions Framework
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?
ReduceWhich factors should be reduced well below the industry’s standard?
The Four Actions Framework
A New Value Curve
[yellow tail]
[yellow tail]
Created three new factors in the wine industry – easy drinking, easy to select, fun and adventure
Eliminated and Reduced factors the wine industry long competed on – tannins, oak, complexity, and aging
Raised price versus budget wines and retail involvement
The Four Actions Framework: Ipod
Which of the factors that the industry takes for granted should be eliminated? The need for cds/ cassette tapes The need for batteries
Which factors should be reduced well below the industry’s standard? The size of music players
The Four Actions Framework: Ipod
Which factors should be created that the industry has never offered? The transfer of music from multiple sources Portability: cars, stereos, headphones,
computers, shoes, jackets Which factors should be raised well above
the industry’s standard? Mass storage capacity Quality in sound
Eliminate-Reduce-Raise-Create Grid
Eliminate-Reduce-Raise-Create GridYellow Tail
Eliminate Enological terminology
and distinctions Aging qualities Above-the-line
marketing
Reduce Wine complexity Wine range Vineyard prestige
Raise Price versus budget
wines Retail store
involvement
Create
Easy drinking Ease of selection Fun and adventure
Eliminate Star performers Animal shows Aisle concession sales Multiple show arenas
Reduce Fun and humor Thrill and danger
Eliminate-Reduce-Raise-Create GridCirque du Soleil
Raise Unique venue
Create Theme Refined environment Multiple productions Artistic music and dance
3 Characteristics of a Good Strategy
Three Characteristics of a Good (Blue Ocean) Strategy
Focus Divergence Compelling Tagline
Focus
A company’s conviction to its strategy Example: Southwest Airlines
Strategy: competing more with the car than with other airlines
Without focus, investments would have strayed to mirror those of established airlines
Example: [yellowtail] Strategy was to sell to average consumer Focus allowed company to dismiss critics from wine
community
Divergence
The basis of finding a Blue Ocean Retroactively forming a strategy throws
companies right into Red Oceans Benchmarking is widely used in the business
community, but perpetuates the same cycles
Divergence Examples Southwest Airlines
Common practices of other airlines?-Meals-Lounges-Seating class choices
Common practices of Southwest?-Friendly Service-Speed-Frequent point-to-point departure
New ideas born from four actions of eliminating, reducing, raising, and creating
[yellow tail] Diverge from prestige of wine drinking to create easy
drinking product
Compelling Tagline
Simple but crucial Must deliver a clear, truthful message Should highlight divergent characteristics
Example: Southwest Airlines Taglines change with advertising campaigns However, one thing remains the same
- Southwest always highlights its different culture
Example: [yellowtail] “a fun and simple wine to be enjoyed everyday” Highlights strategic profile
Reading the Value Curves
Types of Tools and Frameworks
Companies Caught in the Red Ocean Overdelivery without Payback An Incoherent Strategy Strategic Contradictions An Internally Driven Company
Companies Caught in Red Ocean
When Value Curves Converge Company is caught in the Red Ocean Strategy is trying to outdo its competitors
Overdelivery Without Payback
Does the company’s market share and profitability reflect these investments? If not, the company might be oversupplying its
customers
An Incoherent Strategy
Inconsistency with growth and decline Reflects an organization with divisional and
functional silos The strategy is based on independent sub
strategies that do not distinguish the company or provide a clear strategic vision
Strategic Contradictions
Are there strategic contradictions? Offering a high level on one competing factor
while ignoring others that support that factor Example:
• Investing heavily in a web site that is very user-friendly, but not improving the speed of the site’s operation
An Internally Driven Company
Is the strategic vision of the company built on an “outside-in” perspective, which is driven by demand
Or an “inside-out” perspective, which is driven by operations
Sum It Up!
ConclusionAnalytical Tools & Frameworks: Strategy Canvas:
- drawing the value curve Four Actions Framework:
- breaking trade-off between differentiation and low cost and creating a new value curve
Eliminate-Reduce-Raise-Create Grid: - pushes companies to act
3 Characteristics of a Good Strategy: - Focus, Divergence, & Compelling Tagline
Reading the Value Curves: - Caught in the Red Ocean, Overdelivery without Payback, an Incoherent Strategy, Strategic Contradictions, and an Internally Driven Company
Take Aways
The point where these analytic techniques and the six principles of creating blue ocean meet is the point where a company begins to break out of their red ocean and into a blue ocean.
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