The Management of Organisational Resources Leading To Resource
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MMU-DBA – Advanced MarketingMarketing Strategy and Competitive Advantage
MMU-DBA – Advanced MarketingDay 4 – Organisational Resources and Competitive Advantage
The attractiveness of opportunities to the firms depends on the resources available to exploit them
Resources and Capabilities The RBV argument Marketing Resources and competitive
advantage Creating and Exploiting Marketing Assets
Value Chain and Value Network Sustainable Competitive Advantage
Porter’s and Treacy and Wiersema’s typologies Growth Strategies Blue Ocean (Kim and Mauborgne)
Fig. 6.1 Understanding the organisational resource base
The Resource-Based View
Resources &Capabilities
CompetitiveAdvantage
• V aluable
• Rare
• Costly to Imitate
• Organized to Exploit
CA will be sustained if:
• other firms’ costs of imitation are greaterthan benefit of imitation
• the firm is organizedto exploit advantages
Industrial Organization
(IO)
Resource Based View (RBV)
Some Authors:
Porter, Rumelt Barney, Wernerfelt
Focus External—describes environmental conditions favoring high levels of firm performance
Internal—describes firm’s internal characteristics and performance
Assumptions Firms within an industry have identical strategic resources.
Resources are highly mobile (easily bought and sold) and therefore homogeneous.
Firms have idiosyncratic, not identical strategic resources.
Resources are not perfectly mobile and therefore heterogeneous.
This can be maintained over time
Key Concepts
Resources, capabilities/ competences and
Dynamic capabilitiesDiagnosing strategic capability:
value chain, value networks
Western vs. Japanese approach to strategyCore competencies (resources & capabilities)
1970s Komatsu made
small bulldozers
Honda not yet exporting cars to US
Canon making first halting steps in reprographics
1985/7 Komatsu a $2.8bn
co. making earth moving equipment, robots & semiconductors
Honda as big in US as Chrysler
Canon matched Xerox market share
Strategic fit vs. leveraging resources… Trim ambition to match
available resources Strategy as positioning
according to industry rules Planning as projecting the
present forward rather than folding the future back
Innovation as peripheral Narrow conception of
maturity Portfolio management vs.
business development
• Improving quality• Improving productivity
• Managing/reducing costs• Improving business
processes• Improving market position
• Fending off competitors• Improving information
systems• Improving distribution
systems
… and to concentrate on
“Performance Gaps”
Obsession with winning, quest for global leadership Long attention span Motivation by
communicating value (Internal Communication – Vertical and Horizontal)
Leave room for individual & team contributions
▪ Stability over time ▪ clear about ends,
flexible about means Emphasis on improving
competence and leveraging resources
And to concentrate on “Opportunity Gaps”
• Growing• Leveraging technology
• Leveraging people resources
• Building a learning organisation
• Building new capabilities and skills
• Building synergy across businesses
• Building alliances with customers/ competitors
• Finding new opportunities
But it appears that there are no “attractive industries”
Competitive pressure is increasing in all industries Industry boundaries are constantly changing The profitability range is as great within industries as
it is between industries
Robert Grant (2000) Contemporary Strategy Analysis
Rate of Profitin Excess of the
Competitive Level
Industry Attractiveness
CompetitiveAdvantage
DifferentiationAdvantage
CostAdvantage
Vertical Power
Monopoly
Barriers to Entry
BrandsProduct technologyMarketing capabilities
Process technologyPlant sizeLow-cost inputs
Firm sizeFinancial resources
Market share
PatentsBrandsRetaliatory capability
Market, cost or benefit advantages are based
On ‘resources’
When the external environment is in a state of flux, the firm itself is seen – in terms of its bundle of resources and capabilities, and this may
be a more stable basis on which to define its identity.
Hence a definition of the firm in terms of what it is capable of doing may offer a more durable basis for strategy than a definition based upon the needs the business seeks to satisfy
This is done through an Internal Analysis Robert Grant (2000) Contemporary Strategy Analysis
Some businesses achieve extraordinary profits compared with others in the same industry
Whether its through FIT or STRETCH - Competitive advantage is derived from the distinctiveness of an organisation’s capabilities
Their resources or competences permit▪ production at lower cost
or▪ generation of superior product or service at
standard cost
Resources Tangible resources – physical assets of an organisation Intangible resources – non-physical assets of an
organisation Capabilities / Competences
The activities and processes through which an organisation deploys its resources effectively
Strategic capability is the adequacy and suitabilityof the resources of an organisation for it
to survive and prosper
Strategic capability is the adequacy and suitabilityof the resources of an organisation for it
to survive and prosper
Financial Resources • In addition to Capital, cash, debtors/ creditors, suppliers of money (bankers, shareholders, etc) – includes the firm’s borrowing capacity – collection capacity
Organizational Resources •The firm’s formal reporting structure and its formal planning, controlling,and coordinating systems
Physical Resources •Sophistication and location of a firm’s plant and equipment
•Access to raw materials
Technological Resources •Stock of technology, such as patents, trade-marks, copyrights, and trade secrets
SOURCES: Adapted from J. B. Barney, 1991, Firm resources and sustained competitive advantage, Journal of Management, 17: 101; R. M. Grant, 1991, Contemporary Strategy Analysis, Cambridge, U.K.: Blackwell Business, 100–102.
Human Resources • Knowledge• Trust• Managerial capabilities• Organizational routines
Innovation Resources • Ideas
• Scientific capabilities • Capacity to innovate
Reputational Resources • Reputation with customers
• Brand name • Perceptions of product quality,
durability, and reliability • Reputation with suppliers
SOURCES: Adapted from R. Hall, 1992, The strategic analysis of intangible resources, Strategic Management Journal, 13: 136–139; R. M. Grant, 1991, Contemporary Strategy Analysis, Cambridge, U.K.: Blackwell Business, 101–104.
Fig 6.5 Marketing assets
Table 6.1 The top ten brand namesSource: Interbrand (1996, 2001, 2006)
How an organisation employs and deploys its resources Efficiency and effectiveness of physical, financial, human
and intellectual resources How they are managed
Cooperation between people Adaptability Innovation
Customer and supplier relationships
Learning
1. What opportunities exist for economising on the use of resources
Eg concentrate marketing attention on fewer key “power brands” Unilever Kraft Foods
2. What possibilities exist for using existing resources more intensely and in more profitable employment?
Eg Eisner at Disney Film library via Video Studios via Touchstone Marketing theme parks
While resources are the source of a firm's capabilities/competencies,
capabilities/competencies are the main source of competitive advantage
But on their own few resources are productive
Productive activity requires the cooperation and coordination of teams of resources
A capability is the capacity for a team of resources to perform some task or activity
Production routines: eg Toyota
Top Management routines: see the leadership
practices ▪ of Jack Welch ?
Coordination between R&D, Production & Marketing ▪ eg Canon and M&M
India
And This Requires:
A culture of cooperation & commitment
Trade-offs between efficiency & flexibility
Economies of experience
The diversified corporation is a large tree.
The trunk and major limbs are core products, the smaller branches are
business units; the leaves, flowers and fruit are end products.
The root system that provides nourishment, sustenance, and stability is the core
competence. You can miss the strength of competitors by
looking only at their end products, in the same way you miss the strength of a tree if
you look only at its leaves.
“Core competencies are the collective learning in the organisation, especially how to coordinate diverse production skills and integrate multiple streams of technology”
Prahalad & Hamel (1990)
“a set of differentiated skills, complementary assets, and routines that provide the basis for a firm’s competitive capacities and sustainable advantage in a particular business”•(Teece, Pisano & Shuen 1990: 28)
Makes a significant contribution to customer perceived value (or significant process and manufacturing cost advantage) Provides access to a wide variety of
existing & new markets Is difficult for the competitors to imitate -
▪ complex or sometime even a simple but elegant (SWA)harmonisation of production technologies & skills
Competitor differentiation
Sharp and Toshiba in flat screen display at the heart of the laptop
Honda in engines & power trains for cars, motorcycles, lawn mowers & generators
HP in measurement, computing and communications; 3Ms in adhesives, substrates and advanced materials. Sony: Pocketability / Now they call 3 Cs
Competing, Content and Connectivity Fedex: on time delivery. Walmart: choice availability and value based on logistics.
Companies should be organised as a portfolio of competencies, building Marketing strategy around resources that meet key tests Continually improve and upgrade resources,
acquiring complementary ones where appropriate
Examine scope of the business, maximising value from resources through their utilisation in new areas Do not compete in markets where resource
advantage lacking
Fig 6.8 The resource portfolio
Fig 6.9 Developing and exploiting resourcesAdapted from Hamel and Prahalad, 1994
What are your core competencies and/or core rigidities
What actions are you taking to build your future core competencies?
How can a firm “protect” resources or capabilities
Unique Historical Conditions First mover advantages Path dependence
Causal Ambiguity Causal links between resources and competitive advantage
may not be understood Bundles of resources fog these causal links
Social Complexity The social relationships entailed in resources may be so
complex that managers cannot really manage or replicate them
Patents Offer a period of protection if the firms is able to defend its patent rights Can be a two-edged sword as firms disclosure may decrease costs of
imitation by other firms
The Question of Organization
• a firm’s structure and control mechanismsmust be aligned so as to give people abilityand incentive to exploit the firm’s resources
• examples: formal and informal reporting structures,management controls, compensation policies,relationships, etc.
• these structure and control mechanisms complementother firm resources—taken together, they can help a firm achieve sustained competitive advantage(3M Company – rewards innovation and risk-taking)
Strategic (Marketing) Assets - (Owns)• Brands, patents, infrastructure,
proprietary standards, customer data Core Competencies (Knows)
• skills & unique capabilities• Brand building
Core Processes (Does)• Activities, routines,
• Dell (Mass Customisation), John Hardy (Sustainable processes -> brand)Hamel (2001)
Managers of (NPD) projects face a paradox:
Core capabilities simultaneously enhance and inhibit development
Examined a range of NPD projects some of which had close and some a lowerfit with core capabilities
Eg. DIGITAL, KODAK…..
Values and
normsTechnical
systems
Managerial
systems
Skills &
knowledge
Four dimensions vary in terms of ease of change 1. Technical systems 2. Managerial systems 3. Skills and
knowledge 4. Values and norms
Increasing difficulty to change
Four dimensions to the knowledge set – 1. its content is embodied in employee knowledge
and skills (firm specific knowledge & scientific understanding)
2. Embedded in technical systems: accumulating, codifying and structuring the tacit knowledge in people’s heads. Greater than the sum of its parts/
3. Guided by managerial systems: formal and informal ways of creating and controlling knowledge
4. The values and norms associated with the various types of embodies and embedded knowledge and with the process of knowledge creation and control
Tool:The Value Chain and
Value Networks
Source: M.E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance, Free Press, 1985. Used with permission of The Free Press, a division of Simon & Schuster, Inc. © 1985, 1988 by Michael E. Porter. All rights reserved.
Exhibit 3.6
To diagnose strategic capability To understand how value is created or
lost in terms of the activities undertaken
The value chain describes the activities withinand around an organisation which togethercreate a product or service
The value chain describes the activities withinand around an organisation which togethercreate a product or service
Identifies clusters of activities providing particular benefit to customers
Highlights activities which are less efficient and which might be de-emphasised or outsourced
Requires managers to think about the role of such activities
Can be used to identify the cost and value of activities
Source: M.E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance, Free Press, 1985. Used with permission of The Free Press, a division of Simon & Schuster Inc. © 1985, 1988 by Michael E. Porter. All rights reserved.
Exhibit 3.7
The value network Set of inter-organisational links/relationships
necessary to create a product or service Specialisation of roles
Underpins excellence in creating best-value products Need to understand whole process
Where cost/value is created in supply/distribution chains
How to manage links to improve customer value How product quality is a function of linked activities
of manufacturer, suppliers and distributors
Competition is between networks, not companies.The winner is the company with the better network.
Delivery
Sears(Retail)Sears
(Retail)Levi’s
(Apparel)Levi’s
(Apparel)
Order
Delivery
Order
CustomerCustomer
Delivery
Du Pont(Fibers)Du Pont(Fibers)
Order
Delivery
Order
Milliken(Fabric)Milliken(Fabric)
Competition is between networks, not companies.The winner is the company with the better network.
Delivery
Air Asia /TGV/GSC
Air Asia /TGV/GSC
NetworkMaxis/DigiNetwork
Maxis/Digi
Order
Delivery
Order
CustomerCustomer
Delivery
ContentDevelopersContent
Developers
Order
Delivery
Order
SoftwareGuys
SoftwareGuys
Where are cost and value created? Which activities are vital to an organisation?
Retain direct control of core capabilities Outsource less important activities
Where are the profit pools? Potential profits at different parts of the value
network Availability of competences to compete in these
areas Make or buy?
Outsourcing Develop competence in influencing performance of
other organisations Who are the best partners?
What kind of relationships are required?
Promote a learning organisation Recognise intuition of people Accept conflicting ideas Experimentation as the norm
Add activities to support learning, e.g. “venturing” business units
Manage organisational knowledge Need right culture and structure
Develop spiral of interaction between tacit and explicit knowledge
Question core rigidities
Resource based perspective states Competitive advantage is derived from
strategic capabilities – which are identified through ‘Internal Analysis’▪ Strategic capability comprises tangible and intangible
resources deployed via capabilities / competences▪ For sustainable competitive advantage strategic capabilities
must be valuable, rare, robust or non-substitutable/ inimitable
Value chain/value network to understand cost and value creation
In an ever changing environment Management of strategic capabilities involves stretching capabilities and building dynamic capabilities
MMU-DBA – Advanced MarketingDay 4 – Organisational Resources and Competitive Advantage
Today's Agenda Porter’s Generic
Strategies Treacy & Wirsema’s 3
Value Disciplines Being Best of Both or “stuck in the middle” ?
Growth Strategies Market Leaders and
Challengers Blue Ocean Strategy
Through External Analysis – we analyse the environment / industry / competitive factors that can affect a firm’s profits
In ‘Organisational Resource Analysis’ we discussed firm-specific factors that impact on a firm’s competitive advantage
and now we further analyse firm specific factors vis-à-vis rivals
So we are concerned with where companies position themselves relative to rivals in order to obtain competitive advantage
External
Internal
Are you in an attractive market? ie one where average player makes an
economic profit
Have you got a competitive advantage?
A strategic business unit is a part of an organisationfor which there is a distinct external market forgoods or services that is different from another SBU
A strategic business unit is a part of an organisationfor which there is a distinct external market forgoods or services that is different from another SBU
External Internal
Same customer types Similar products/services
Same channels Similar technologies
Similar competitors Similar resources and competences
Keynon and Mathur ague that competitive advantage is not so
much at the SBU level – but from the “offering” and particularly from
Future Offerings.
Firm Infrastructure
Human Resource ManagementTechnology Development
Procurement
Inbo
und
Log
isti
cs
Ope
rati
ons
Out
boun
d L
ogis
tics
Mar
keti
ng
& S
ales
Ser
vice
Mar
gin
Margin
Primary activities
Support activities
Displays total value comprising value activities & margins
Divided into primary and support activities
Useful framework for analysing opportunities for
Resource allocation Differentiation
Cost reductions
Value chain for the firm and value chain for the industry
Figure 4.1Figure 4.1
SOURCE: Adapted with the permission of The Free Press, an imprint of Simon & Schuster Adult Publishing Group, from Competitive Advantage: Creating and Sustaining Superior Performance, by Michael E. Porter, 12. Copyright © 1985, 1998 by Michael E. Porter.
Stuck in the Middle ?
Cost-leadership strategy – the firm strives to be the lowest-cost supplier
and thus achieve superior profitability from an above-average price–cost margin.
(Product) differentiation strategy the firm strives to differentiate its product (or
service) from rivals’ products, such that it can raise price more than the cost of differentiating and thereby achieve superior profitability.
Focus strategy the firm concentrates on a particular segment of
the market and applies either a cost-leadership or a differentiation strategy.
Can still earn returns when rivals have competed away profits
Buyers can only bargain down to level of next most efficient competitor
Have flexibility to cope with price increases from suppliers
Scale economies deter new entrants and make substitutes less attractive
Economies of scale and learning effects are potentially significant, but no firm seems to be exploiting them provided the opportunity for Walmart and Dell – then.
Opportunities for enhancing the product’s perceived benefit are limited by the nature of the product (commodities --- garments sector in Malaysia was getting
commoditised during/post asian crisis – even a brand like British India – was selling at RM 20/unit)
Consumers are relatively price sensitive and are unwilling to pay much of a premium for enhanced product attributes (eg. selling to government - In the food-retailing in Malaysia
– Jusco is also forced to ………………???(Bezanko 2000)
Disaggregate the firm’s value chain into separate activities (processes) Establish the relative importance of
different activities in the total cost of the product
Compare the costs by activity Identify the cost drivers
Identify linkages: how costs in one activity influence costs in another
Identify opportunities for reducing costs ▪ (increase volume, reduce labour costs,
outsource)
An integrated set of actions taken to produce goods or services (at an acceptable cost) that customers perceive as being different in ways that are important to them
Nonstandardized products
Customers value differentiated features more than they value low cost
Brand loyalty means buyers are less price sensitive and therefore less likely to move to lower cost rivals or substitutes
Customer loyalty and uniqueness create entry barriers
Higher margins provide protection against powerful suppliers
1. Raises the firm above intense price competition rivalry
2. Uniqueness and customer loyalty act as a barrier to entry
3. Able to ward off threat of substitutes.Genetic cures vs Conventional
Drugs ?4. Reduces bargaining power of buyers.5. Increases bargaining power with
suppliers
Product/service differentiation
(based on levels of offering) Fig 11.7
Inbound Logistics: quality of components &
materials Operations:
defect free products (6 sigma) Outbound logistics:
faster delivery Marketing & sales:
building brand reputation Service: consumer credit
(What are your classic examples?)
“The worst strategic error is to be stuck in the middle or to try simultaneously to pursue all the strategies.
This is a recipe for strategic mediocrity and below-average performance, because pursuing all strategies simultaneously means that a firm is not able to achieve any of them because of their inherent contradictions.” (Porter, 1990, p.40).
Porter argues that a strategy of differentiation advantage is usually incompatible with the pursuit of cost advantage because higher quality or better performance products cost more to produce:- e.g. more expensive components- e.g. better trained or more highly skilled labour- e.g. higher advertising and promotion costs• Therefore if firms pursue ‘best of …” they are
likely to lose out to cost leaders and and top end competitors;
• also suffer from a “blurred corporate image”
Why? High quality products drives market share
which gives scale and learning benefits and reduces average costs
The rate at which accumulated experience reduces costs is greater for higher quality products
Inefficiencies muddy the relation between cost position and differentiation position: Porter may have been observing inefficient firms, not a true trade-off between quality and cost
Consumers do not think in terms of polar opposites? Think of a trade-off in terms of value for
money (e.g. Hotels)
“Bottom of the Pyramid” Market As an extension of Cost Leadership ?
Fortune at the Bottom of the Pyramid - Prahlad
Operational Excellence
Product Leadership Customer Intimacy
Best total cost
Best product Best total solution
Figure 6.2 Value disciplines
Providing reliable products and services at competitive prices with minimal difficulty and inconvenience
(Similar to Cost ?) Eg Dell, Air Asia ?!
Segmenting and targeting precisely and then tailoring offerings to match exactly the demand of those niches.
Combine detailed customer knowledge with operational flexibility.
Lifetime profit vs single transaction Eg Nordstrom, Home Depot, Ritz Carleton
Offering customers leading-edge products and services that consistently enhance the customer’s use or application of the product, thereby making rival's goods obsolete
Speed to market Eg Nike, Sony, 3M
Or become the master in two!Eg Toyota: operational excellence + product leadership
Competitive
Cost Advantage
Position
Benefit Advantage
Product & Marketing Standardise products Customise products
Production Mass-production
Inventory control
Make to order
Anticipate demand
Engineering & design Design for ease of manufacture
Create customer benefits
R&D Process innovations Product innovation
HR Transactional leadership
Transformational leadership
A growth market means a growing product market.
Attractive to companies because: Gaining share is easier Share gains are worth more Price competition is likely to be less intense
Early entry may be necessary to keep pace with technology
Strategic options depend on market position Market leader (defensive) Market challenger (aggressive)
83
Is it conventional wisdom? Normally used to guide resource allocation
decisions Reality – growth markets represent opportunities
but also substantial risks and challenges
Firms to beware of shakeout phase! A market is neither attractive or unattractive because of high growth
REAL QUESTION: CAN THE FIRM EXPLOIT THE OPPORTUNITIES PRESENTED BY MARKET GROWTH TO GAIN COMPETITIVE ADVANTAGE?
84
Overcrowded market (market share) providing high charged environment for a shakeout
Inadequate distribution Inadequate resourcesKey success factors changeLeap frogging competitorMarket does not grow!!!!
85
When firm is able to ; Develop strong customer loyalty Develop broad product line Create delayed obsolescence Possess experience curve
advantage Possess absolute cost advantage Possess high initial price
structure
86
Maintain leading position in view of rising competitors, fragmentation of market segments and threat of product innovation.
87
Seek to improve on organisational performance through expansion of activities. Achieved through Market Expansions – or
taking sales from competitors (Confrontation) Five Confrontation Strageiges (Koter and
Singh 1981)▪ Frontal attack▪ Flanking attack▪ Encirclement attak▪ Bypass strategy▪ Guerilla tactics
89
CHALLENGER
FLANKING ATTACK
Target competitor FRONTAL ATTACK
ENCIRCLEMENT STRATEGY
LEAPFROG STRATEGY
Figure 11.9 Market challenger strategies
Figure 11.10 Frontal attack
Figure 11.11 Flanking attack
Figure 11.12 Encirclement attack
Figure 11.13 Bypass strategy
Figure 11.14 Guerrilla tactics
Kotler and Singh suggest six ‘holding’ Strategies – Fortification or Position Defence Erecting barriers to copy and/or entry
(differentiation, brand building etc)
Figure 11.16 Position defence
Figure 11.17 Flanking defence
Figure 11.18 Pre-emptive strike
Figure 11.19 Mobile defence
Figure 11.20 Contraction (focus) defence
102
Market expansionstrategy
LEADER
FORTRESSOR POSITION OF DEFENSE
STRATEGY
CONTRACTIONOR STRATEGICWITHDRAWAL
CONFRONTATION STRATEGY
PROACTIVE/REACTIVE
COMPETITIONOR POTENTIALCOMPETITOR
FLANKER STRATEGY – PROACTIVEFLANKER STRATEGY - REACTIVE
LEADER
Selection of any one or combination of strategies depends on :
Market size and customer characteristics
Number and relative strengths of competitors or potential competitors in that market
Leader’s own resources and cabalities / competencies
103
COMMON STRATEGIC TRAPS DURING MARKET SHAKEOUTSFailure to anticipate transition from
growth to maturityNo clear competitive advantageAssumption that an early advantage
will insulate the firm from price or service competition
Sacrificing market share in favour of short-run profit.
104
Mature markets are characterised by fewer stronger firms that have survived the shakeout phase
At this stage – potential customers have adopted the product and rate of sales growth declines
Primary objective – HOLD existing customers
Declining markets are characterised by low sales due to customers,or obsolesence of product category.
Options – harvest or consolidate or divest. 105
106
When ?Market leader in a mature or declining market.
Costs exceed benefits of building
Significant barriers to entry
Strategic focusMonitoring the competition
Confronting the competition
Competitive equilibrium andimplicit collusion
Avoid price wars !
107
Attractive conditionsMarket is mature or declining(dog products)
Core of loyal customers
Future breadwinners exist
When restructuring is more profitable than divestment
Increase cashflow from current sales rather than increase sales
Strategic focusEliminate R&D expenditure
Product reformulation
Rationalise product line
Cut market support
Maintain or Consider increasing price
108
When ?Small company with limited Resources with large competitors dominating main segments
Niches that can provide anOpportunity
Major players are neglecting the needs of some customers
Strategic focus
Market segmentation
Focused R and D
Focused Differentiation
109
Attractive conditionsLoss-making products or businessdrain on resourcesOften low share in declining marketsCosts of turnaround exceed benefitsRemoval will not significantly affect sales of other productsOther companies value businesssignificantly higher than current firm
Strategic focusGet out quickly BUT do not damage reputation if more products/brands exist
Minimise the costs
Marketing Strategy formulation should adapt to evolving markets.
Range of strategic options for growing, mature and declining markets.
Cannot simply assume that growing markets are attractive but not declining ones.
The Imperative for BOS supply exceeds demand globalization accelerated commoditization of products and
services increasing price wars shrinking profit margins brands are becoming more similar
select based on price
Two worlds …
Two worlds …
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 strategic firm's activities with its choice of differentiation or low cost.
Align the whole system of a firm's activities in pursuit of differentiation and low cost.
VALUE INNOVATION
BOS Logic: The Core Principles
Reconstruct Market Boundaries… overcome believes.
Reach beyondexisting Demand… go for uncontested space.
Get the strategic sequence right… value [innovation] first.
VIVI
COST
VALUE
BOS Logic: Reconstruct market boundaries
IndustryFocuses on rivals within its industry
Strategic GroupFocuses on competitive position within strategic group
Buyer GroupFocuses on better serving the buyer group
Scope of Product and Service
Offerings
Focuses on maximizing the value of product and service offerings within the bounds of its industry
Functional-emotional Orientation of an
Industry
Focuses on improving price-performance with the functional-emotional orientation of this industry
Time/TrendsFocuses on adapting to external
trends as they occur
Looks across alternative industries
Looks across strategic groups within its industry
Redefines the buyer group of the industry
Looks across to complementary product and service offerings that go beyond the bounds of its industry
Rethinks the functional-emotional orientation of its industry
Participation in shaping external trends over time
Boundaries of Competition
Head-to-HeadCompetition
Creating New Market Space
BOS Logic: Reach beyond existing demand
Core Customer Noncostumer
Soon-to-be-NC
Refusing Customer
BOS Logic: Get the Strategic Sequence right
Buyer utility
Is there exceptional buyer utility in your business idea?
Adoption
What are the adoption hurdles in actualizing your business idea?
Are you addressing them up front?
Price
Is your price easily accessible to the mass of buyers?
Cost
Can you attain your cost target to profit at your strategic price?
A commercially viable Blue Ocean Strategy
YES
YES
YES
YES
No Rethink
No Rethink
No Rethink
No Rethink
The case of Accor's Formule 1
The value curve of Formule 1 in the French Low Budget Hotel Industry
References
• W. Chan Kim, Renée Mauborgne, Blue Ocean Strategy, 2005,
Havard Business School Press.
• http://www.blueoceanstrategy.com
• http://www.hotelformule1.com