Blue Ocean Strategy - An overview for TEC Members

© 2011 Smart Selling International Pty Ltd

Blue Ocean Strategy

An Introduction

Mark [email protected]

[email protected]

mailto:[email protected]


© 2011 Smart Selling International – www.smartsocialmedia.com.au

About Me

• TEC-24

• TEC member for 8 years

• 5-year focus on social media• Social business• Social CRM• Social Community

• Smart Selling• Smartpen – utilised Blue Ocean Strategy to define

uncontested market space• Smart Social Media


Today’s Objectives

• Part 1 – Introducing Blue Ocean Strategy

• Part 2 – The Core of BOS

• Questions – the more the better!


What is Strategy

Value

ProfitPeople

• Three aligned propositions:


Red Ocean Versus Blue Ocean Strategy

In the red ocean, differentiation costs because firms compete with the same best-practice principle. Here, the strategic choices for firms are to pursue either differentiation or low cost. In the reconstructionist world, however, the strategic aim is to create new best-practice rules by breaking the existing value-cost trade-off and thereby creating blue ocean.

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.


Value Innovation

Value innovation is created in the region where a company’s actions favorably affect both its cost structure and its value proposition to buyers.

Costs

Buyer Value

Value

Innovation

Cost savings are made by eliminating and reducing the factors an industry competes on.

Buyer value is lifted by raising and creating elements the industry has never offered. Over time, costs are reduced further as scale economies kick in due to the high sales volumes that superior value generates.


Three Key Perspectives


Four Steps of Visualising StrategyThe four steps of visualizing strategy builds on the six paths of creating blue oceans and involves a lot of visual stimulation in order to unlock people’s creativity. The four steps include visual awakening, visual exploration, visual strategy creation, and visual communication.

1. Visual Awakening 2. Visual Exploration 3. Visual Strategy Creation

4. Visual Communication

•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.


Part 1Visual Awakening


Visual Awakening DefinitionThe Visual Awakening serves as a wake-up call for companies to challenge their existing strategy.

The key tool used here is the “Strategy Canvas”

The strategy canvas is both a diagnostic and an action framework for building a compelling blue ocean strategy.

It captures the current state of play in the known market space.

This allows you to understand where the competition is currently investing, the factors the industry currently competes on in products, service, and delivery, and what customers receive from the existing competitive offerings on the market.


The horizontal axis captures the range of factors the industry competes on an invests in.

The vertical axis captures the offering level that buyers receive across all these key competing factors. The value curve then provides a graphic depiction of a company’s relative performance across its industry’s factors of competition.

The “As-Is” Strategy Canvas


The “As-Is” Strategy Canvas


The “As-Is” Strategy Canvas – Consoles

Price

HiRes Grap

hics

NonGaming F

unc

Proce

ssing P

ower

Online Gam

ing

Design Aesth

etics

Gaming T

itles

High

Low

Sony PS2

Microsoft Xbox

Nintendo Game Cube


1. Identify the dominant customer group your industry focuses on. Label your Strategy Canvas.

2. Identify the key competitive factors your industry competes on to capture this dominant customer group. Your perspective is your industry’s.

• There should be five to twelve factors. Price is always the first factor.

3. Rate your relative offering of each factor. Price is Price, not Value - an absolute figure; a high price is plotted high, a low price is low.

4. Connect the dots to create your “As Is” Value Curve.

5. Identify your dominant competitors in the industry. Repeat the process. Do not plot against more than three competitors, preferably only two – it becomes too cluttered to read.

The “As-Is” Strategy Canvas - Exercise


Buyer Experience CycleA buyer’s experience can usually be broken into a cycle of six stages, running more or less sequentially from purchase to disposal.

Each stage encompasses a wide variety of specific experiences.

At each stage, managers can ask a set of questions to gauge the quality of buyer’s experience.

Purchase Delivery Use Supplements Maintenance Disposal

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?

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?

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?

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?

Does the product require external maintenance?

How easy is it to maintain and upgrade the product?

How costly is maintenance?

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?


Buyer Utility MapThe buyer utility map helps managers look at this issue from the right perspective.

It outlines all the levers companies can pull to deliver exceptional utility to buyers as well as the various experiences buyers can have with a product or service.

1.

Purchase

2.

Delivery

3.

Use

4.

Supplements

5.

Maintenance

6.

Disposal

Customer Productivity

Simplicity

Convenience

Risk

Fun and Image

Environmental friendliness

The Six Stages of the Buyer Experience Cycle

Th

e S

ix U

tili

ty L

eve

rs


Example – teachers in remote areas

No or limited retail;

Will it save time

What is required

What is required

Product life

Where to start

How long How to install

Don’t have credit card

Deliver to remote towns

Easy to hold Where to get consumables

Connecting to DET

Damage in transit

Damage Availability Lose the pen or pads

How to use well

Do the accessories look good

Paper use Lith-Ion battery

1.

Purchase

2.

Delivery

3.

Use

4.

Supplements

5.

Maintenance

6.

Disposal

Customer Productivity

Simplicity

Convenience

Risk

Fun and Image

Environmental friendliness

The Six Stages of the Buyer Experience Cycle

Th

e S

ix U

tilit

y L

ever

s


Uncovering Blocks to Buyer UtilityUncovering blocks to buyer utility can identify the most compelling hot spots to unlock exceptional utility.

By locating your proposed offering on the thirty-six space of the buyer utility map, you 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 noncustomers into customers.

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?


Visual Awakening SummaryThis phase is primarily navel gazing

Use a cross section of internal resources so you achieve a real balance of opinion and insight

Key Tools Used:

1. Strategy Canvas – the As-Is strategy canvas

2. Buyer Utility Map – complex, but a cornerstone of the next phase of BOS


Part 2Visual Exploration


Visual Exploration Definition

During Visual Exploration, teams of managers go out into the field to explore the Six Paths Framework gathering noncustomer insights.

Here they are looking to observe the distinct differences of alternative products and services to see which factors should be eliminated, reduced, raised, or created in the company's offerings.

A New Value Curve

Reduce

Eliminate Create

Raise


Visual Exploration – Six Paths Analysis

• As we transitioned into the Exploration stage, time was spent on the Six Paths Analysis – looking across alternate industries, groups, products and services

• This analysis identified:• Apple stores – how they harness desire and

enthusiasm – the tribe

• In business, who spends a lot of time taking notes or minutes?

• How do the sub groups of educators work and communicate


Three Tiers of NoncustomersThere are three tiers of noncustomers that can be transformed into customers.

They differ in their relative distance from your market.

• The first tier of customers minimally buy an industry’s offering out of necessity.

• The second tier of noncustomers refuse to use your industries offerings.

• The third tier are noncustomers who have never thought of your market’s offerings as an option.

Your Market

First Tier

Second Tier

Third Tier


Non-Customer Example

• From this study we identified a number of new customer segments (see diagram).

• Our focus shifted to what barriers existed for these non-customers


What Did We Hear from Non-Customers?

• What does it do?

• I work in a small rural school. How do we buy one?

• This is my job. Will it help?

• Can I use the pen to create mini tutorials for my students?

• I work with students from non-English speaking backgrounds; how will this help?

• Will it work with this third party application?


The ERRC Chart

CA NewValue Curve

RaiseWhat should be

raised well above the industry’s standard?

EliminateWhat does the

industry take for granted that should

be eliminated ?

ReduceWhat should be

reduced well below the industry’s

standard?

CreateWhat should be created that the

industry has never offered?

COST

VALUE


The ERRC Chart – Why?

The eliminate-reduce-raise-create grid pushes companies not only to ask all four questions in the four actions framework but also to act on all four to create a new value curve.

By driving companies to fill in the grid with the actions of eliminating, reducing, raising, and creating, the grid provides four immediate benefits:

1. It pushes them to simultaneously pursue differentiation and low costs;

2. Identifies companies who are only raising and creating thereby raising costs;

3. Makes it easier for managers to understand and comply; and

4. It drives companies to scrutinize every factor the industry competes on.


The ERRC Grid for Smartpen

• Our field research led us to develop the following Four Action Framework

Eliminate

Above the line advertising

Raise

PriceProduct range

Post-sales support

Reduce Create

Social media footprintPurchase order options

Multi-channel communications


The ERRC Grid for Wii

• Nintendo created a ERRC grid as follows

Eliminate Raise

Design aestheticsGame titles

Reduce

Hi-res graphicsNon-gaming functionality

Processing power

Create

MotionFun friendly games


Sequence of Blue Ocean StrategyAn important part of blue ocean strategy is to “get the strategic sequence right.”

This sequence fleshes out and validates blue ocean ideas to ensure their commercial viability.

This can then reduce business model risk.

In this model, potential blue ocean ideas must pass through a sequence of buyer utility, price, cost, and adoption.

At each step there are only two options: a “yes” answer, in which case the idea may pass to the next step, or “no”. If an idea receives a no at any point, the company can either park the idea or rethink it until you get a yes.

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

No-- Rethink

Yes

Yes

Yes

Yes

No-- Rethink

No-- Rethink

No-- Rethink


Price Corridor of the MassThis tool helps managers find the right price for an irresistible offer, which, by the way, isn’t necessarily the lower price. The tool involves two distinct buy interrelated steps.

The first step involves identifying the price corridor of the mass which deals with customer price sensitivity and pricing strategies of products offered outside the group of traditional competitors. The second step deals with specifying a level within the price corridor which factors in legal protection and exclusive assets.

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

High degree of legal and resource protection

Difficult to imitate

Some degree of legal and resource protection

Low degree of legal and resource protection

Easy to imitate

Upper-level pricing

Mid-level pricing

Lower-level pricing


Part 3Visual Strategy Creation


Visual Strategy Creation

The penultimate step is the Visual Strategy Creation.

Here teams begin to draw their "to be" strategy canvases based on insights from the Visual Awakening and Visual Exploration stages.

The strategy fair invites senior corporate executives, external constituencies―the kinds of people met during the teams' field work, including noncustomers and customers of competitors.

The objective is for each team to present their various alternative strategy canvases and gain feedback to build the best possible "to be" future strategy canvas.


Nintendo Wii “To-Be” canvas

Price

HiRes Grap

hics

NonGaming F

unc

Proce

ssing P

ower

Online Gam

ing

Design Aesth

etics

Gaming T

itles

Motion

Fun Fr

iendly Gam

es

High

Low

Sony PS2

Microsoft Xbox

Nintendo Wii


Nintendo

“We are not competing against Sony or Microsoft.

We are battling the indifference of people who have no interest in video games.

We want to appeal to mothers who do not want consoles in their living rooms, and to the elderly and young women.”

- Iwata Satoru, Nintendo President, Fortune Magazine 6/11/2007


Visual Strategy Creation – To-Be Canvas

• Through a series of iterations a To Be Strategy Canvas was developed


Part 4Execution


Execution of a Blue Ocean Strategy

Blue Ocean Strategy completes the overall strategy process by providing two additional tools to aide execution:

• Fair Process - builds execution into strategy by creating people's buy-in up front. When fair process is exercised in the strategy making process, people trust that a level playing field exists. This inspires them to cooperate voluntarily in executing the resulting strategic decisions.

• Tipping Point Leadership - To change the mass it focuses on transforming the extremes: the people, acts, and activities that exercise a disproportionate influence on performance. By transforming the extremes, tipping point leaders are able to change the core fast and at low cost to execute their new strategy.


Fair Process Principles

Engagement

Explanation

Expectations Clarity


Fair ProcessIntellectual &

Emotional Recognition

Trust & Commitment

Voluntary Cooperation in

Strategy Execution

Violation of Fair Process

Intellectual & Emotional

Indignation

Distrust & Resentment

Refusal to Execute Strategy

Presence of Fair Process

Absence of Fair Process

Execution Consequences


Motivational

Resource

Political CognitiveExecutionFailure

- Consigliere- Angels & Devils

- Experiences, not numbers

- Hot & Cold Spots- Horse trading

- Kingpins wielding disproportionate influence- Fishbowl management

Tipping Point Leadership


Summary


Blue Ocean Strategy - Summary

Blue Ocean Strategy completes the overall strategy process by providing two additional tools to aide execution:

• Visual Awakening - serves as a wake-up call for companies to challenge their existing strategy.

• Visual Exploration – go out into the field to explore the Six Paths Framework gathering noncustomer insights.

• Visual Strategy Creation - teams begin to draw their "to be" strategy canvases based on insights from the Visual Awakening and Visual Exploration stages.


Napster vs iTunes

2003

iTUNES1999


Blue Ocean Strategy - Summary

iTUNES

Value Profit People

Value Profit

People


• Blue Ocean Strategy Australia

• Andrew Nelson – (0404) 870 305,

• [email protected]

• http://au.linkedin.com/in/andrewnelsonau

• Robynne Berg – (good friend of Tim Martin)

• [email protected]

• BOS LinkedIn Group

• http://linkd.in/BOS-Aust

Key Contacts re Blue Ocean Strategy




http://au.linkedin.com/in/andrewnelsonau

http://au.linkedin.com/in/andrewnelsonau


http://linkd.in/BOS-Aust

http://linkd.in/BOS-Aust

Blue Ocean Strategy - An overview for TEC Members

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Transcript of Blue Ocean Strategy - An overview for TEC Members