Track B-Innovating in a Down Economy-Von Briesen

Blue Ocean Strategy: Innovating in a Down Economy

IMCNE Annual Conference “A Recession is a Terrible Thing to Waste”

May 5, 2009

Jennifer von BriesenOwner & PrincipalFrontier Strategy, LLC

Source: Blue Ocean Strategy by W. Chan Kim & Renée Mauborgne ©2005

Strategy Over the YearsStrengths and Weakness analysis, SWOT (HBS, late 60s)

Portfolio approaches (GE, McKinsey, BCG 60-70s)

Shareholder value, EVA (80s-90s),

Michael Porter (mid 80s)

Core Competence, Strategic Intent (Hamel, Prahalad, early 90s)

Profit Zone (Adrian Slywotzky, et al)

Disruptive technologies (Clay Christensen, late 90s)

Value Innovation (Chan Kim, Renée Mauborgne, late 90s).

So what’s new about Value Innovation/Blue Ocean Strategy?

What Is A Blue Ocean?

• New market space• Companies expand or go

across industry boundaries• Competition is irrelevant in

the blue uncharted water• Significant opportunity for

profitable growth

• Existing market space• Industry boundaries are defined

and accepted• Cutthroat competition means

the water is bloody red• Growth and profits are

restricted

Red Ocean Blue Ocean


Core Concept

The Simultaneous

Pursuit of Differentiation (Superior

Buyer Value) and Low Cost

• Buyer value is increased by raising and creating elements the industry has never offered.

• Cost Structure Is lowered through eliminating and reducing factors the industry competes on but buyers do not value highly

• High sales volume creates scale economies and further cost reduction


Key Principle: Reach Beyond Existing DemandEngage the Three Tiers of Non-Customers

Tier 1• Soon-to-be non-customers.

• In search of better solutions.

Tier 2•Are aware of but don’t use your industry’s offerings.

Tier 3•Have never thought of your market’s offerings as an option.

• “Unexplored” customers who have not been targeted or thought of as potential customers by any player in the industry.


Benchmarking Focuses On Beating The Competition

Rather than competing for a share of a contracting market, Value Innovators stimulate the demand side of the economy.

“World’s Friendliest Driver”

• Callaway did not focus on competitors

• Launched “Big Bertha” in 1991

• Dominated the market by capturing share from rivals and expanding the total golf club market

• e.g., attracted non golf playing sports enthusiasts

86%

Why It’s ImportantThe Sources of Profitable Growth


When Should Blue Ocean Strategy(BOS) Be Used?Best Situations

Leadership is committed to investing in innovation for profitable growth and significant cost structure reduction

Core business or organization is performing well Strategic, future-focused opportunities are not sacrificed to short-

term prioritiesLeadership embraces new approaches and non-incremental

thinkingLeadership believes in the need for a well balanced portfolio of

offerings/businesses tied to different growth strategies including Pioneers, not just Settlers and Migrators

Will BOS be of value to your clients?Frontier Strategy takes clients through an initial audit/

questionnaire

Using BOS for Business DevelopmentThink differently about how you position your services in this

downturn BOS helps position your functional expertise and services more

strategicallyC-level introductions and conversationsAppeal to multiple functions and decision-makers

Use Innovation positioning to increase appeal and demand for new project workCorporate innovation isn’t just about new products and top-line

revenues, it’s about cost structure and building capabilities tooCompanies who invest now can make a break from competitors who

are hunkering down

Plus, connect what you do to a popular, recognized approach for added credibility

Using the BOS Toolkit During Projects BOS Methodology includes unique tools that relate to and can be

applied to projects in a variety of areas, e.g., Current situation assessment/auditNew product/service development

Customer research Competitive analysis Branding Pricing

Performance improvement work e.g., Process re-engineering

Organizational transformation Restructuring/new staffing models, etc.

Systems and infrastructureNew operations and business models

Four-Step Blue Ocean Strategy Process1. Visual

Awakening2. Visual

Exploration3. Visual

Strategy Fair4. 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, non-customers, and competitors’ customers

• 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.

ENGAGEMENT

EXPLANATION

EXPECTATION CLARITY


Blue Ocean Strategy Core Tools(1) Pioneer-Migrator-Settler MapFinding the most promising possibilities for growth across a portfolio of service offerings

(2) Strategy Canvas and Value CurvesGraphically depicting how a company configures its offerings to deliver customer benefits relative to other industry players

(3) Six Paths and Four ActionsFrameworks for discovering new ideas which can lead to future value curves


Drawing the Strategy Canvas• Decide the relevant market

and offering scope to draw

• Focus on the buyer/customer

• Put Price as the first factor of competition and rate it on an absolute value basis

• Carefully identify and discuss the factors and agree on definitions

• Try to streamline and simplify for visual clarity

• Group related factors

• Group similar competitors

• Reorder the factors

• Draw multiple potential to-be value curves and test them

Example Strategy Canvas: Curves Customer: Consumer

Four Actions for Creating New Value Curves


Example 1: Southwest

Southwest

High

Low

Rel

ativ

e O

fferin

g Le

vel

Key Elements of Product, Service and Delivery

Meals Lounges Friendly Service

Seating Class

Choices

Hub Connectivity

Frequent Point-to-

Point Departures

SpeedPrice

Average Airlines

e.g. US Airways

Car

Southwest’s Value Curve Shows Its Blue Ocean Strategy Characteristics of Focus, Divergence and a Compelling Tagline.

Tagline: “The speed of a

plane at the price of a car – whenever you

need it.”


Example 2: NetJets

Focus on the key factors that lead buyers to trade across industries and eliminate or reduce everything else.

High

Low

Rel

ativ

e O

fferin

g Le

vel


Need for customers to

manage aircraft (aircraft mgmt.

and admin.)

Deadhead costs

Flexibility and Reliability

Speed of total travel

time

East of travel (incl. check-in, customs, etc.)

In-flight service

Price (fixed purchase

plus variable price per

flight)

Private Jet (Corporate Travel)

Commercial Airlines (First & Business Class)

NetJets

“The convenience of a private jet at the price of a commercial airline ticket.”


Example 3: Joint Strike Fighter (F-35)

The JSF Program Offered A Superior Fighter Plane For All Three Branches At A Lower Cost.

High

Low

Rel

ativ

e O

fferin

g Le

vel


Design Customization

Weapons customization

StealthMission Customization

Agility DurabilityMaintainabilityPrice

Air Force (F-22)

JSF (F-35)

Counter-measures

STOVL


Defense Aerospace IndustryTraditional View: Three Branches With Unique Needs For Planes

Air Force Navy MarinesLightweight Two engines STOVL

(Short Take Off Vertical Landing)

Design customization

Integrated avionics Two seats Lightweight

Stealth Large wings Short wings

Supercruise engine Durability Countermeasures

Long-distance Long-distance

Agility Maintainability

Air-air armaments Large/flexible weapons payloads

Large/flexible weapons payloads

Weapons customization

Fixed internal weapons payload

Air-air and air-ground armaments

Air-ground armaments

Electronic warfare

An aircraft built for every mission



Mission customization

The JSF eliminated or reduced all existing competing factors other than those shaded yellow. It questioned these differences and found the key commonalities across the three branches.


3 Things You Can Do Tomorrow1. Think about non-customers in your business and in your clients’ industries.

• Who are the untapped “soon-to-be”, “refusing”, and “unexplored” non-customers?

• Create at least one hypothesis about their needs that could be a Blue Ocean opportunity.

2. Draw an “As Is” Strategy Canvas for your or your client’s organization (with value curves for you and other industry competitors/alternatives) and assess opportunities and threats. Does your value curve have focus, divergence and a compelling tagline?

3. Start investigating your industry regarding the cost drivers and offering levels on each of the factors of competition that you identified on your Strategy Canvas. What factors can be reduced, eliminated, raised and created to create a new value curve?

[email protected](508) 561-0852

“There exist limitless opportunities in every industry. Where there is an

open mind, there will always be a frontier.”

Charles Kettering

Track B-Innovating in a Down Economy-Von Briesen

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