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Chan Kim & Renee Mauborgne
Summary by: Jesse Starmer COM 459
Value innovation is created in the region where a company’s actions favorably affect both its cost structure and its value proposition to buyers. 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.
Exploit existing demand. In the reconstructionist world. differentiation costs because firms compete with the same best-practice principle. Make the competition irrelevant. Beat the competition. Make the value-cost trade-off. 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 Versus Blue Ocean Startegy In the red ocean. Break the value-cost trade-off. the strategic choices for firms are to pursue either differentiation or low cost. Blue Ocean Strategy Create uncontested market space. however. Here. Align the whole system of a firm’s activities in pursuit of differentiation and low cost. Align the whole system of a firm’s activities with its strategic choice of differentiation or low cost. Create and capture new demand. Red Ocean Strategy Compete in existing market space. .
Red Ocean Versus Blue Ocean Strategy Red Ocean Strategy Blue Ocean Strategy .
Formulation Principles Reconstruct market boundaries Focus on the big picture.The Six Principles of Blue Ocean Strategy This figure highlights the six principles driving the successful formulation and execution of blue ocean strategy and the risks that these principles attenuate. not the numbers Reach beyond existing demand Get the strategic sequence right Risk factor each principle attenuates Search risk Planning risk Scale risk Business model risk Evaluation principles Overcome key organizational hurdles Build execution into strategy Risk factor each principle attenuates Organizational risk Management risk .
The Six Principles of Blue Ocean Strategy Formulation Principles Risk factor each principle attenuates Evaluation principles Risk factor each principle attenuates .
It captures the current state of play in the known market space. This allows you to understand where the competition is currently investing. and what customers receive from the existing competitive offerings on the market. service. The vertical axis captures the offering level that buyers receive across all these key competing factors. the factors the industry currently competes on in products. High Low Price Wine range Vineyard prestige Use of Above-the-line enological marketing Aging and legacy Wine quality complexity terminology . The value curve then provides a graphic depiction of a company’s relative performance across its industry’s factors of competition. The horizontal axis captures the range of factors the industry competes on an invests in.Strategy Canvas The strategy canvas is both a diagnostic and an action framework for building a compelling blue ocean strategy. and delivery.
Strategy Canvas High Low .
. the grid provides four immediate benefits: it pushes them to simultaneously pursue differentiation and low costs. It answers the four key questions of what industry takes for granted and needs to be eliminated. makes it easier for managers to understand and comply. what factors need to be reduced below industry standards. what factors need to be raised above industry standards. raising. reducing. and it drives companies to scrutinize every factor the industry competes on. By driving companies to fill in the grid with the actions of eliminating. and what should be created that the industry has never offered. identifies companies who are only raising and creating thereby raising costs.Four Actions Framework + Eliminate/Reduce/Raise/Create Grid The four actions framework offers an technique that breaks the trade-off between differentiation and low cost and to create a new value curve. and creating. Reduce Which factors should be reduced well below industry standards? Eliminate Which of the factors that the industry takes for granted should be eliminated? A New Value Curve Create Which factors should be created that the industry has never offered? Raise Which factors should be raised well above the industry’s standard? 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 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.
Four Actions Framework + Eliminate/Reduce/Raise/Create Grid Reduce Four Actions Framework Eliminate A New Value Curve Create Raise Eliminate Raise Reduce Create The Eliminate-Reduce-Raise-Create Grid .
•See which factors you should eliminate. visual strategy fair. Visual Awakening 2. •Observe the distinctive advantages of alternative products and services. 1. and noncustomers. Visual Strategy Fair 4. and visual communication. •Distribute your beforeand-after strategic profiles on one page for easy comparison. competitors’ customers. or change.Four Steps of Visualizing Strategy The 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 Communicatio n •Compare your business with your competitors’ by drawing your “as is” strategy canvas. visual exploration. . •Draw your “to be” strategy canvas based on insights from field observations. •Get feedback on alternative strategy canvases from customers. •See where your strategy needs to change •Go into the field to explore the six paths to creating blue oceans. Visual Exploration 3. •Support only those projects and operational moves that allow your company to close the gaps to actualize the new strategy. •Use feedback to build the best “to be” future strategy. create.
Visual Communication .Four Steps of Visualizing Strategy 1. Visual Strategy Fair 4. Visual Awakening 2. Visual Exploration 3.
Pioneer. These are classified accordingly with the highest growth potential being pioneers. Settler. then to migrators. Pioneers Migrators Settlers Today Tomorrow . This strategy can help a company determine which businesses experience the highest and lowest growth and cash flow. Migrator Map A corporate management team pursuing profitable growth can plot the company’s current and planned portfolios on a pioneer-migrator-settler (PMS) map. then to the lowest rung. settlers.
Migrator Map Pioneers Migrators Settlers Today Tomorrow .Pioneer. Settler.
First Tier Your Market Second Tier Third Tier . The first tier of customers minimally buy an industry’s offering out of necessity.Three Tiers of Noncustomers There are three tiers of noncustomers that can be transformed into customers. The third tier are noncustomers who have never thought of your market’s offerings as an option. The second tier of noncustomers refuse to use your industries offerings. They differ in their relative distance from your market.
Three Tiers of Noncustomers .
If an idea receives a no at any point. potential blue ocean ideas must pass through a sequence of buyer utility.Rethink An important part of blue ocean strategy is to “get the strategic sequence right. the company can either park the idea or rethink it until you get a yes. In this model. and adoption.” This sequence fleshes out and validates blue ocean ideas to ensure their commercial viability. Yes Price Is your price easily accessible to the mass of buyers? No-.Rethink A Commercially Viable Blue Ocean Idea . price. in which case the idea may pass to the next step.Rethink Adoption What are the adoption hurdles in actualizing your business idea? Are you addressing them up front? Yes No-. This can then reduce business model risk. or “no”. cost. At each step there are only two options: a “yes” answer.Sequence of Blue Ocean Strategy Buyer utility Is there exceptional buyer utility in your business idea? No-.Rethink Yes Cost Can you attain your cost target to profit at your strategic price? Yes No-.
Sequence of Blue Ocean Strategy Buyer utility No-.Rethink Yes A Commercially Viable Blue Ocean Idea .Rethink Yes Cost No-.Rethink Yes Adoption No-.Rethink Yes Price No-.
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. Purchase 2. The Six Stages of the Buyer Experience Cycle 1. Supplements 5. Delivery 3. Use 4. Disposal Customer Productivity The Six Utility Levers Simplicity Convenience Risk Fun and Image Environmental friendliness .Buyer Utility Map The buyer utility map helps managers look at this issue from the right perspective. Maintenance 6.
Purchase Customer Productivity 2.Buyer Utility Map The Six Stages of the Buyer Experience Cycle 1. Supplements 5. Maintenance 6. Delivery 3. Disposal The Six Utility Levers Simplicity Convenience Risk Fun and Image Environmental friendliness . Use 4.
how costly are they? How much time do they take? How easy are they to obtain? Maintenance Does the product require external maintenance? How easy is it to maintain and upgrade the product? How costly is maintenance? Disposal 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? How secure is the transaction environment? How rapidly can you make a purchase? Do buyers have to arrange delivery themselves? If yes. At each stage. running more or less sequentially from purchase to disposal.Buyer Experience Cycle A buyer’s experience can usually be broken into a cycle of six stages. Each stage encompasses a wide variety of specific experiences. Purchase How long does it take to find the product you need? Is the place of purchase attractive and accessible? Delivery How long does it take to get the product delivered? How difficult is it to unpack and install the new product? Use 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? Supplements Do you need other products and services to make this product work? If so. managers can ask a set of questions to gauge the quality of buyer’s experience. how costly and difficult is this? .
Buyer Experience Cycle Purchase Delivery Use Supplements Maintenance Disposal .
Purchase Delivery Use Supplements Maintenance Disposal Customer Productivity: Simplicity: Convenience: In which stage are the biggest blocks to customer productivity? In which stages are the biggest blocks to simplicity? 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? Environmental Friendliness: In which stage are the biggest blocks to environmental friendliness? .Uncovering Blocks to Buyer Utility Uncovering 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. 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. you can clearly see how.
Uncovering Blocks to Buyer Utility Purchase Delivery Use Supplements Maintenance Disposal Customer Productivity: Simplicity: Convenience: Risk: Fun and Image: Environmental Friendliness: .
Price Corridor of the Mass This tool helps managers find the right price for an irresistible offer. same function Different form and function. same objective Step 2: Specify a price level within the price corridor. Step 1: Identify the price corridor of the mass. isn’t necessarily the lower price. 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 Price Corridor of the Mass Mid-level pricing . The tool involves two distinct buy interrelated steps. Three alternative product/service types: Same form Different form. The second step deals with specifying a level within the price corridor which factors in legal protection and exclusive assets. by the way. which. 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.
same function Different form and function.Price Corridor of the Mass Step 1: Identify the price corridor of the mass. High degree of legal and resource protection Difficult to imitate Price Corridor of the Mass Some degree of legal and resource protection Mid-level pricing Low degree of legal and resource protection Easy to imitate . Three alternative product/service types: Same form Different form. same objective Step 2: Specify a price level within the price corridor.
The Strategic Price The Target Profit The Target Cost Streamlining and Cost Innovations Partnering Pricing Innovation .Profit Model of Blue Ocean Strategy The profit model of blue ocean strategy shows how value innovation typically maximizes profit by using the three levers of strategic price. target cost. and pricing innovation.
Profit Model of Blue Ocean Strategy .
Blue Ocean Idea Index The blue ocean idea index is a simple but robust test demonstrating how the sequence of utility. price. cost. and adoption form an integral whole to ensure commercial success through blue ocean strategy. DoCoMo I-mode Japan + Philips Motorola Iridium CD-i Utility Is there exceptional utility? Are there compelling reasons to buy your offering? Is your price easily accessible to the mass of buyers? Does your cost structure meet the target cost? Have you addressed adoption hurdles up front? - Price - - + Cost - - + Adoption - +/- + .
Blue Ocean Idea Index Utility Is there exceptional utility? Are there compelling reasons to buy your offering? Is your price easily accessible to the mass of buyers? Price Cost Does your cost structure meet the target cost? Have you addressed adoption hurdles up front? Adoption .
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