Blue Ocean Strategy-Intro [Compatibility Mode]
Transcript of Blue Ocean Strategy-Intro [Compatibility Mode]
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Creating Blue Oceans
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The Book and the Authors
Prof ReneeMauborgne
JOHNABBOTT
Prof Chan Kim
JOHNABBOTT
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AccoladesOver 2 million copies sold
Translated into over 41 foreignlanguages a world record
Taught as the major theory o f strategy at
leading business schools
Gives insights to CEOs, Executives,
Heads of State and Prime Ministers
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New Market Space
Red oceans and blue oceans make up market
universeRedoceans: all industries in existence
= known market space
Blueoceans: all industries not in existence
= unknown market space
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Red Oceans vs. Blue OceansRed oceans
Industry boundaries defined and accepted
Competitive rules of game known
Companies try to outperform rivals; cutthroat competition
As market space gets crowded, prospects for profit and
growth reducedProducts become commodities
Red ocean strategy is a market-competing strategy
Blue oceans
Undefined market space, demand creation, opportunity forhighly profitable growth
Most are created from within red oceans by expandingexisting industry boundaries
Rules of game waiting to be set
Competition irrelevant
Blue ocean strategy is a market-creating strategy
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The Rising Imperative of
Creating Blue OceansSupply is exceeding demand in most industries
global competition is intensifying
Problems:
Accelerated commodization of products andservices
Increasing price wars
Shrinking profit margins
Red oceans becoming bloodier, need to beconcerned with creating blue oceans
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The Continuing Creationof Blue Oceans
Blue oceans have been around for some time;
a feature of business lifeIndustries never stand still, constantly evolving
Significant expansion of blue oceans overyears
So why the focus on red ocean strategy?
Corporate strategy influenced by military strategy
Need to create new market space that is uncontested
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The Impact of Creating Blue Oceans
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From Company and Industry
to Strategic MoveAre there lasting visionary companies that
continuously outperform the market andcreate blue oceans?
Found success of these model companies wasa result of industry sector performance, notcompanies themselves
Strategic move used as unit of analysis (ratherthan company or industry)
Strategic move: the set of managerial actionsand decisions involved in making a majormarket-creating business offering
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Value Innovation: The
Cornerstone of Blue Ocean Strategy
Creators of blue oceansfollow value innovation
Value InnovationEqual emphasis on value andinnovation
Defies value-cost trade-offof competition-based strategy
Successful value innovation:Drives down costs whiledriving up buyers value
Uses a whole-system approach
Follows reconstructionist view
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RedOceanVs. BlueOcean
Compete in existingmarket space
Beat the competition
Exploit existing demand
Make the value-costtrade-off
Align the whole systemof a firms activities withits strategic choice ofdifferentiation or low cost
Create uncontestedmarket space
Make the competitionirrelevant
Create and capture newdemand
Break the value-costtrade-off
Align the whole system ofa firms activities inpursuit of differentiationand low cost
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Formulating and ExecutingBlue Ocean Strategy
Six Principles of Blue Ocean Strategy
Reconstruct market boundariesFocus on the big picture, not the numbers
Reach beyond existing demand
Get the strategic sequence right
Overcome key organizational hurtles
Build execution into strategy
The remaining chapters will give you theprinciples and generalized frameworks tosucceed in blue oceans
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Take Aways
Redocean strategy is a market-competing
strategy, while blue ocean strategy is amarket-creating strategy
As red oceans are becoming bloodier, we
need to create more blue oceans
The only way to beat the competition is to
stop trying to beat the competition!
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The Six Principles of Blue Ocean Strategy
Formulation Principles Risk factor each princi ple
attenuates
Reconstruct market boundariesFocus on the big picture, not the
numbers
Reach beyond existing demand
Get the strategic sequence right
Search riskPlanning risk
Scale risk
Business model risk
Evaluation princip les Risk factor each princi ple
attenuates
Overcome key organizational hurdles
Build execution into strategy
Organizational risk
Management risk
This figure highlights the six principles drivi ng the successf ul formulation andexecution of blue ocean strategy and the risks that these principles attenuate.
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Points of view
Business often look at the industry from astructuralist (supply) point of view
What if we looked at the industry from areconstructionist (demand) point of view?
Market boundaries are not viewed as given,but could be reconstructed to unlock newdemand
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Generic Strategies vs.Value Innovation
High
Low
V1
C1
Cost
Quality
HighHigh
High
LowLow
Low
Quality
Cost
D
LC
V1
C1
Red Ocean Strategy Blue Ocean (VI) Strategy
Structuralist Reconstructionist
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Example:A highly competitive Industry
The American
Wine Industry
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What the industry offersPremium Wines Budget Wines
Massive Choice
Polarised
Strategic Groups
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American Wine Industry3rd largest in world: worth $20 billion
Californian makes 66% - the rest is from Italy,France, Spain, Chile, Argentina, Australia
Exploding number of new wines new vineyardsin Oregon, Washington, New York
Customer base stagnant
31st in the world in per capita consumption !
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American Wine IndustryTop 8 producers had 75% of the market; 1600
had the remaining 25%
$ millions spent in marketing - Titanic battles intense competition
Sever price pressure
The dominant growth strategy was towardspremium wines more complexity, betterimage, more prestigious vineyards, number ofmedals won at wine festivals.
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What wine customers said It is too confusing and complex
Wine descripti ons and terminolo gy
The shopping experience
The lack of clear guidance on what to buy and
drink
Thus, massively intimidating for
noncustomers (the large majority of the US
population who were not wine drinkers)
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What are people
looking for in a wine?
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Segmentation of Market and Brands
LowInvolvement
HighInvolvement
Easy Going Enjoyers Aspi rati onal s Appr eciato rs Connoisseurs
Glass withfriends
Least carechoosing a wine
Not winepreferrers
Price is a stronginfluencer
Everydayenjoyment
To relax/unwindStick with limitedlist of knownbrandsChoose in-storeNot interested inwine language
Influenced bymajor brandadvertising
Image importantWine preferrers(sic)VarietalknowledgeInterested insome winelanguageEnjoy trying newwines
Visit wineries /read wine articles
Want todiscover wine
Knowledge ofwine regionsFrequently buy>$10 winesJoin wine clubsDont stick toknown brands
Ideal wine iscomplex &interesting
Sophisticateddrinker
Discerning winetastesDont decide instoreHave a cellarLess influencedby specials/promotions
Actively pursuewine knowledge
Brand: LindemansRosemount
EstateWolf Blass Penfolds
Demographic: M/F: 50/50 Age:35-49
M/F: 30/70; Age:30-40
M/F: 70/30; Age:35-50
Age: 40+
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Strategy CanvasThe strategy canvas is both a diagnostic and an action fra mework for building acompelling blue oce an strategy. It captures the current state of play in the knownmarket space. This allows you to understand where the competition is curre ntlyinvesting, the factors the industry currently competes on in products, service, and
delivery, and what customers receive from the existing competitive offerings on themarket. The horizontal axis captures the range of factors the industry competes onan invests in. The vertical axis captures the offering level that buyers receive acrossall these key competing factors. The value curve then provides a graphic depictionof a companys relative performance across its industrys fac tors of competition.
High
Low
Price Use ofenological
terminology
Above-the-linemarketing Aging
quality
Vineyard prestigeand legacy Wine
complexity
Wine range
Budget Wines
Premium Wines
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Four Steps of Visualizing
1. Visual
Awakening
2. Visual
Exploration
3. Visual
Strategy Fair
4. Visual
Communication
Compare yourbusiness with your
competitors bydrawing your as iscanvas
See where yourstrategy needs to
change
Go into the field toexplore the six paths
to creating blueoceans
Observe thedistinctive advantagesof alternative products
and services
See which factorsyou should eliminate,
create or change
Draw your to becanvas based on
insights from fieldobservations
Get feedback onalternative strategycanvases from
customers,competitorscustomers, and non-customers
Use feedback to buildthe best to be future
strategy
Distribute yourbefore-and-after
strategic profiles onone page for easycomparison
Support only thoseprojects and
operational movesthat allow yourcompany to closegaps and actualize the
new strategy
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What factorsshould be
eliminated that theindustry has taken
for granted?
Eliminate
What factors
should be reduced
well below theindustry standard?
Reduce
What factors shouldbe created that the
industry has neveroffered?
Create
What factorsshould be raised
well beyond the
industry standard?
Raise
Four Actions to create a Blue Ocean
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Four Actions Framework +Eliminate/Reduce/Raise/Create Grid
The four actions framework offers an techniquethat breaks the trade-off betweendifferentiation and low cost and to create a newvalue curve. It answers the four key questionsof what industry takes for granted and needs tobe eliminated; what fac tors need to be reducedbelow industry standards; what factors need tobe raised above industry standards; and whatshould be created that the industry has neveroffered.
The eliminate-reduce-raise-create grid pushescompanies not only to ask all four questions in thefour actions framework but also to acton all fourto create a new value curve. By drivingcompanies to fill in the grid with the actio ns ofeliminating, reducing, rais ing, and creating, thegrid provides four immediate benefits: it pushesthem to simultaneously pursue differentiation andlow costs; identifies companies who are onlyraising and creating thereby raising costs; makesit easier for managers to understand and comply;and it drives companies to scrutinize every factor
the industry competes on.
Eliminate
Enological terminology and
distinctions
Aging qualities
Above-the-line marketing
Raise
Price versus budget wines
Retail Store involvement
Reduce
Wine complexity
Wine range
Create
Easy drinking
Ease of selection
ANewValueCurve
Reduce
Eliminate Create
Raise
Which factors should bereduced well below
industry standards?
Which factors should becreatedthat the industryhas never offered?
Which factors shouldbe raised well above
the industrys standard?
Which of the factorsthat the industry takes
for granted should beeliminated?
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ERRC Grid yellow tail
The Case of yellow tail
Eliminate
Enological terminology & distractionsAging qualities
Above-the-line marketing
Raise
Price versus budget winesRetain store i nvolvement
Reduce
Wine complexityWine Range
Vineyard prestige
Create
Easy drinkingEase of selectionFun & adventure
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To Be Canvas
Eliminate
Reduce
Raise
Create
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Yellow TailOnly 2 types ini tially Chardonnay and Shiraz
Fruity, soft o n palette, sweet-ish great for those who hadnot drunk wine before
Same bottle for red and white low logistics cos tsSimple vibrant packaging low er case letters/kangaroo
Un-intimidating
They were selling The essence of a great land Aus tra lia ie they wer e not sel ling th e win e
Aus tral ian c lothi ng for the retail staff theyenthusiastic ally promoted a wine they couldunderstand.
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Example: Cirque du Soleil
Each show, like a theater production, had its
own unique theme and storylineThis allowed customers to return to the show
more frequently
They also did away with the traditional high-priced concessions and vendors therebycutting costs
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Example: Cirque du Soleil
Cirque du Soleil effectively combined the best
of both the circus and the theater whileeliminating everything else
This allowed them to achieve bothdifferentiation and low cost
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Eliminate-Reduce-Raise-Create
Eliminate
Star Performers
Animal showsAisle concession sales
Multiple show arenas
Raise
Unique venues
Reduce
Fun and humor
Thrill and danger
Create
Theme
Refined environment
Multiple productions
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The Strategy Canvas
of Cirque du Soleil
hi
offering
level
loPrice
Fun & Humor Unique VenueAisle Concessions
Multiple ShowArenas
Thrills & DangerAnimal Shows
Star Performers
Theme
Refined ViewingEnvironment
MultipleProductions
Artistic Music& Dance
Cirque du Soleil
ReduceEliminate Raise Create
Kim & Mauborgne2006
Ringling Brothers
Smaller Regional Circus
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Key TakeawaysThree tiers of non-customers:
1: buyers who purchase your industry offerings out of necessity;will jump ship if given an opportunity.
2: buyers who purchase alternative offerings that serve the samefunction
3: people who dont consume even the alternatives to yourofferings
Non-customer demand is unlocked by providingnew buyer utilities, at a pricethat attracts amass of buyers, given target costs.
Buyers could be not only end-users, but also otherparticipants in a value chain (e.g. distributors)
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Comparison of approaches
Red Ocean Strategy Blue Ocean Strategy
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Exercise
1. List Factors of
Competition
2. Top 2 or 3 in ERRC
Grid Quadrants
Clearly define the
group of non-
customer that you are
going after.
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Examples
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Exercise
3. Write on
Worksheet:E left, C right
4. Draw As Is
5. Draw To Be
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Examples