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S.P. Mandali’s Welingkar Institute of Management Development & Research
MFM 2008 – 11 Semester IV
Mr. Brajesh Agrawal – Roll # 1 Mr. Udayan Bannerjee –Roll # 5 Mrs. Deepa Phansikar – Roll # 36 Mr. Kavish Tantry – Roll # 54 Mr. Jignesh Upadhyay – Roll # 57 Ms. Lorine Vaz – Roll # 59
Submitted on 5th March 2010 to Mrs. Minal Gupte, Strategic Cost Management
BLUE OCEAN STRATEGY
In the book, “Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant” the authors, INSEAD business professors W. Chan Kim and Renee Mauborgne, put forth an interesting argument - rather than accepting the given operating environment and compete with competitors, a firm could instead employ a re-constructionist strategy that seeks to reshape the competitive environment. Specifically, to innovate, firms should break out of the traditional “red ocean” cycle of intense direct competition and sail into the open “blue ocean” by using a strategy of creating new markets where none existed previously.
Red Ocean is the known market place (or industries), for which industry boundaries are defined and accepted, and the competitive rules of the game are known. Companies, here, try to outperform their rivals to grab a greater share of product or service demand. Profits and growth are reduced as the market space gets crowded. Products become commodities or niche with cut throat competition turning the ocean red.
Blue Oceans, in contrast, denote a non-existent industry or an unknown market space, where competition and demand is created rather than fought over. Competition here is irrelevant because the rules of the market are not set and there is ample opportunity for rapid growth and profitability. However, the corner-stone of Blue Ocean Strategy is 'Value Innovation', either in product, service or delivery, which creates value (not found in the current market) simultaneously for the buyer and the company.
Value Innovation is the foundation of the book ‘Blue Ocean Strategy’. Value innovation is the simultaneous pursuit of differentiation and low cost. It focuses on making the competition irrelevant by creating a leap of value for buyers and for the company, thereby opening up new and uncontested market space. Because value to buyers comes from the offering’s (product / service) utility minus its price, and because value to the company is generated from the offering’s (product / service) price minus its cost, value innovation is achieved only when the whole system of utility, price and cost is aligned.
Blue Ocean Strategy
The strategy canvas serves two purposes : • Firstly. value for the customer and at the same time low cost for the company.e it is a graphical representation of the current scenario that a company is facing with respect to its competition. and the vertical axis captures the offering level that buyers receive across all these key competing factors. it captures the current state of play in the known market space. The horizontal axis captures the range of factors that the industry competes on and invests in. the factors that the industry competes on and what customers receive from the existing competitive Page 3 Blue Ocean Strategy .Value Innovation is pursuing. thus creating a new blue ocean of market space. This allows a company to understand where the competition is currently investing. The Basic tools of a Blue Ocean Strategy that a company uses are :- STRATEGY CANVAS The strategy canvas is the central diagnostic and action framework for building a compelling blue ocean strategy i.
This helps in gaining an insight into how the problem that the industry focuses on can be redefined and thereby the buyer value can be reconstructed. • Secondly. There are four key questions to challenge an industry’s strategic logic and business model: How the cost structure of an offering can be reduced is arrived at by answering the below questions :1.offerings on the market. It is a graphic depiction of a company's relative performance across its industry's factors of competition. FOUR ACTIONS FRAMEWORK A company/firm employs the Four Actions Framework to attempt to break the trade-off between differentiation and low cost and create a new value curve. The value curve is the basic component of the strategy canvas. it propels the company to action by reorienting their focus from competitors to alternatives and from customers to non-customers of the industry. Which of the factors that the industry takes for granted should be eliminated? 2. Which of the factors should be reduced well below the industry’s standard? Blue Ocean Strategy Page 4 .
a common plight in many companies. how the buyer value can be lifted and how demand can be created is answered from the following questions :3. it drives companies to robustly scrutinize every factor the industry competes on. creating a high level of engagement in its application. in addition to raising and creating. * Because completing the grid is a challenging task. Which of the factors should be raised well above the industry’s standard? 4. * It immediately flags companies that are focused only on raising and creating and thereby lifting the cost structure and often over-engineering products and services .And. Which factors should be created that the industry has never offered? ERRC Grid A supplementary analytic to the four actions framework is the Eliminate-Reduce-Raise-Create Grid which pushes companies to fill the grid with the actions of eliminating and reducing. making them discover the range of implicit assumptions the make unconsciously in competing. THREE CHARACTERISTICS OF A GOOD STRATEGY Blue Ocean Strategy Page 5 . * It is easily understood by managers at any level. ELIMINATE RAISE REDUCE CREATE The grid gives companies four immediate benefits: * It pushes companies to simultaneously pursue differentiation and low cost to break the value-cost trade off.
across complementary product and service offerings. it is guided by 6 main principles. reconstructs market boundaries to create a divergent offering from the competition. divergence and a compelling tagline. 6 PRINCIPLES OF BLUE OCEAN STRATEGY As much as the Blue Ocean Strategy is founded on the concept of Value Innovation. in contrast. A blue ocean strategy has a clear-cut and compelling tagline. Reconstruct market boundaries : This principle identifies the paths by which managers can systematically create uncontested market space across diverse industry domains. It suggests that a new strategy has a holistic strategic focus.An initial litmus test for a successful blue ocean strategy is focus. Focus is when a business or product/service offering concentrates on a limited number of key competitive factors. across buyer groups. 2. it refers to the divergence between the key competitive factors and level of investment in these factors of a company's offering relative to its rivals' as visualized on the strategy canvas. Limiting the number of key competitive factors also makes the strategy easier to communicate and execute. across the functional-emotional orientation of an industry. across strategic groups. bringing focus to the execution of the strategy. Focus signals that an offering pursues low cost by not diluting a company's resources in unnecessary investments. The first four principles address Blue Ocean Strategy formulation: 1. Divergence refers to the difference between a company's strategic profile and that of its competitors'. thereby. It teaches companies how to make the competition irrelevant by looking across the six conventional boundaries of competition to open up commercially important blue oceans. Tagline is a phrase that captures the essence of the "to be" strategy in a way that speaks forcefully to both a company's employees and the target mass of buyers. they tend to focus on the same key competitive factors with marginal differences in price and offering level across these competing factors. Focus on the big picture. A compelling tagline ensures that the strategy makes senses. A company practicing blue ocean strategy. It helps customers identify immediately what is offered. and even across time. companies' strategies tend to converge. These principles help companies through the formulation and execution of their Blue Ocean Strategy in a systematic risk minimizing and opportunity maximizing manner. and it helps employees identify what they should concentrate on. hence attenuating search risk. Specifically. instead of being a conglomerate of independent tactics. It focusses on looking across alternative industries. In red oceans. not the numbers : Blue Ocean Strategy Page 6 .
This principle tackles planning risk. cost and adoption requirements. It lays out how leaders and managers alike. this principle shows how to aggregate demand. and political hurdles in spite of limited time and resources in executing blue ocean strategy. This practice often results in increasingly small target markets. Instead. resource. hence minimizing scale risk. When companies meet the sequence of utility. price. Overcome key organizational hurdles : Tipping point leadership shows managers how to mobilize an organization to overcome the key organizational hurdles that block the implementation of a blue ocean strategy. can surmount the cognitive. Build execution into strategy : By integrating execution into strategy making. Using a visualizing approach that drives managers to focus on the big picture rather than to be submerged in numbers and jargon. This principle deals with organizational risk. Reach beyond existing demand : To create the greatest market of new demand. Get the strategic sequence right : This principle describes a sequence which companies should follow to ensure that the business model they build will be able to produce and maintain profitable growth. they address the business model risk and the blue ocean idea they created will be a commercially viable one. This principle introduces fair process. people are motivated to act on and execute a blue ocean strategy in a sustained way deep in an organization. this principle proposes a four-step planning process whereby you can build a strategy that creates and captures blue ocean opportunities. fair process is required to facilitate both strategy making and Blue Ocean Strategy Page 7 . Because a blue ocean strategy perforce represents a departure from the status quo. It presents an alternative to the existing strategic planning process. The remaining two principles address the execution risks of Blue Ocean Strategy. 3. not by focusing on the differences that separate customers but by building on the powerful commonalities across noncustomers to maximize the size of the blue ocean being created and new demand being unlocked. 5. motivational. 6.This principle illustrates how to design a company's strategic planning process to go beyond incremental improvements to create value innovations. which is often criticized as a numbercrunching exercise that keeps companies locked into making incremental improvements. managers must challenge the conventional practice of aiming for finer segmentation to better meet existing customer preferences. 4.
while restaurants provide conversational and gastronomical pleasure. a company can create a blue ocean of new market space. the influencer. are substitutes because they have the same function: going from one place to another quickly. companies should look across alternative industries. 6 PATHS TO RECONSTRUCT MARKET BOUNDARIES Path 1 . users and influencers. For example. they often differ. Path 3 . the luxury car segment and the economy car segment are two separate strategic groups. Cars and buses. Blue Ocean Strategy Page 8 . When trying to reconstruct market boundaries. companies should look across strategic groups within their industry as buyers make trade-offs between offerings from different strategic groups and not solely on price. and the doctor. This is because they are competing not only with products or services from the same industry: customers make trade-offs across offerings from alternative industries. For example in the car manufacturing industry. for example. Generally speaking. Strategic groups can generally be ranked in a rough hierarchical order built on two dimensions. cinemas and restaurants have the same objective: enjoying a night out. It deals with management risk associated with people's attitudes and behaviors. the purchaser. Path 2 . When trying to reconstruct market boundaries. products and services that have different forms but the same functionality or core utility. price and performance. a sick child would be the user of a prescribed medicine.execution by mobilizing people for the voluntary cooperation needed to execute blue ocean strategy. Although these three groups may overlap. that is. For example.Look Across the Chain of Buyers Chain of Buyers refers to the different players involved directly or indirectly in the buying decision. Alternatives also embrace products and services that have different functions and forms but the same objective.Look Across Alternative Industries Alternative Industries reflect the different choices buyers make across the market universe. cinemas and restaurants are alternatives because they have neither the same form nor the same function: cinemas provide visual entertainment. However. their parent. By focusing on the key factors that lead buyers to trade across alternative industries and by eliminating or reducing everything else.Look Across Strategic Groups Within Industries Strategic Groups within Industries are groups of companies within an industry that pursue a similar strategy. there are three groups: purchasers. Alternative industries embrace substitutes.
managers should challenge conventional definitions of who is the target buyer and look across the chain of buyers. Instead of adapting incrementally and somewhat passively. without asking what happens before. a company can create a blue ocean of new market space. by shifting the focus to other buyer groups companies can often see new ways to unlock value. babysitting assistance and parking facilities are two complementary services to movie theaters. their appeal is emotional. When companies are willing to challenge the functional/emotional orientation of their industry. The key is to define the total solution buyers seek when they choose a product or service. normally an industry converges on a single buyer group. For example. Thus. and by removing the "pain points" that buyers experience before. For example. This is because different buyer groups often hold different definitions of value. functional. Some industries focus principally on price and function largely based on calculations of utility. they often find new noncustomer insights. for example. whereby managers gain noncustomer insights by shaping external trends to unlock breakthrough value. and after the use of their product or service. if one is in an industry that is largely focused on an emotional basis of appeal. their appeal is functional. By expanding one's attention to the total solution buyers seek when they choose a product or service. lower-cost offering that would dramatically raise buyers' value?" Path 6 – Look Across Time Look Across Time refers to path six of the Six Paths framework. can we create a simpler. When reconstructing market boundaries. ask: "What are the extras we offer that add to the cost of our product without enhancing functionality? What if we eliminated or reduced these factors.Look Across Complementary Product and Service Offerings Complementary Products and Services are products and services that indirectly impact the utility a buyer receives from an offering. The pharmaceutical industry. the influencers. Path 5 . Competition tends to converge on one of two possible basis of appeal.Look Across Functional or Emotional Appeal to Buyers Emotional Appeal to Buyers refers to the emotional utility a buyer receives in the consumption or use of a product or service. Yet managers tend to confine their worldview within the bounds of their industry. Yet what many companies fail to see is that the appeal of most products or services is rarely intrinsically one or the other. Path 4 . during. one can gain insights into how the trend(s) will change value to Blue Ocean Strategy Page 9 . lower-priced. All industries are subject to external trends that affect their business over time.However. focuses overwhelmingly on doctors. Few products and services are used in a vacuum. during or after the use of their product or service. Other industries compete largely on feelings.
A common mistake is to discuss changes in strategy before resolving differences of opinion about the current state of play. Another problem is that managers are often reluctant to accept the need for change. three criteria are critical: the trend must be decisive to the business. Visual Awakening The Visual Awakening serves as a wake-up call for companies to challenge their existing strategy. By looking across time―from the value a market delivers today to the value it might deliver tomorrow― managers can actively shape the future and lay claim to a new blue ocean. 1. In the Visual Awakening stage drawing the PMS Map and "as is" strategy canvas brings home the need for change quickly and forcefully. 2. In order to assess trends across time. Visual Exploration Blue Ocean Strategy Page 10 . FOCUS ON THE BIG PICTURE Visual Awakening / Visual Exploration / Visual Strategy Fair / Visual Communication is the four step process of the Blue Ocean Strategy methodology. irreversible and have a clear trajectory.customers and impact their company's business model.
Here teams begin to draw their "to be" strategy canvases based on insights from the Visual Awakening and Visual Exploration stages.During Visual Exploration. 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. raised. This step is called Visual Communication. Visual Strategy Fair The penultimate step is the Visual Strategy Fair. 3. reduced. external constituencies―the kinds of people met during the teams' field work. This is executed principally by distributing a one-page picture showing the new and old strategic profiles on the strategy canvas so that every employee can see where the company stood and where it has to focus its efforts to create a compelling future. USING THE PIONEER-MIGRATOR-SETTLER MAP Blue Ocean Strategy Page 11 . 4. The strategy fair invites senior corporate executives. teams of managers go out into the field to explore the Six Paths Framework gathering noncustomer insights. the last step is to communicate it in a way that can be easily understood by all employees. or created in the company's offerings. Visual Communication After a lot of work perfecting their "to be" strategy canvases. Here they are looking to observe the distinct differences of alternative products and services to see which factors should be eliminated.
settlers are defined as me-too businesses. the company has a low growth trajectory. For the purpose of the exercise. it may well have fallen into the trap of competitive benchmarking. If both the current portfolio and the planned offerings consist mainly of settlers. Although the company might be profitable today as its settlers are still making money. migrators are business offerings better than most in the marketplace. and risks being marginalized by a company that value-innovates. In our experience the more an industry is populated by settlers. These are your blue ocean strategies. This exercise is especially valuable for managers who want to see beyond today's performance. imitation. They are the only ones with a mass following of customers. But the company is not exploiting its potential for growth.A useful exercise for a corporate management team pursuing profitable growth is to plot the company's current and planned portfolios on the pioneer-migrator-settler (PMS) map. Blue Ocean Strategy Page 12 . and a company's pioneers are the businesses that offer unprecedented value. the greater the opportunity to value-innovate and create a blue ocean of new market space. reasonable growth can be expected. is largely confined to red oceans. and are the most powerful sources of profitable growth. and needs to push for value innovation. and intense price competition. If current and planned offerings consist of a lot of migrators.
on average. REACH BEYOND EXISTING DEMAND Typically. Today's market share is a reflection of how well a business has performed historically. companies strive to retain and expand existing customers. The PMS map above depicts this trajectory. to grow their share of a market. changes in the environment are too rapid. profitability. expressed as twelve dots. Clearly. what companies should be doing is shifting the balance of their future portfolio toward pioneers. the greater. shifts from a preponderance of settlers to a stronger balance of migrators and pioneers.Revenue. Contrary to what conventional strategic thinking suggests. those measures cannot point the way to the future. The more intense the competition is. This often leads to finer segmentation and greater tailoring of offerings to better meet customer preferences. market share. and customer satisfaction are all measures of a company's current position. As companies compete to embrace customer preferences Blue Ocean Strategy Page 13 . That is the path to profitable growth. is the resulting customization of offerings. showing the scatter plot of a company's portfolio of businesses. where the gravity of its current portfolio of twelve businesses.
They are noncustomers who have never thought of your market’s offerings as an option. To maximize the size of their blue oceans. To convert this huge latent demand into real demand in the form of thriving new customers. However. They differ in their relative distance from your market. companies need to deepen their understanding of the universe of noncustomers. SEQUENCE OF BLUE OCEAN STRATEGY Blue Ocean Strategy Page 14 . The second tier of noncustomers is people who refuse to use your industry’s offerings. Instead of concentrating on customers. These are buyers who have seen your industry’s offerings as an option to fulfill their needs but have voted against them. Although the universe of noncustomers typically offers big blue ocean opportunities. The third tier of noncustomers is farthest from your market. That allows companies to reach beyond existing demand to unlock a new mass of customers that did not exist before. few companies have keen insight into who noncustomers are and how to unlock them. not only would they stay. There are three tiers of noncustomers that can be transformed into customers. They sit on the edge of the market. And instead of focusing on customer differences. they need to look to noncustomers. they often risk creating too-small target markets. but also their frequency of purchases would multiply. companies can understand how to pull them into their new market. The first tier of noncustomers is closest to your market. they need to build on powerful commonalities in what buyers value. They are waiting to jump ship and leave the industry as soon as the opportunity presents itself. companies need to take a reverse course. They are buyers who minimally purchase an industry’s offering out of necessity but are mentally noncustomers of the industry. unlocking enormous latent demand. By focusing on key commonalities across these noncustomers and existing customers. if offered a leap in value.through finer segmentation.
Is there exceptional buyer utility in your business idea ??? Does your offering Blue Ocean Strategy Page 15 . price.Companies need to build their Blue Ocean Strategy in the sequence of buyer utility. cost. and adoption. Buyer Utility .
These first two steps address the revenue side of a company’s business model. They ensure that you create a leap in net buyer value.Is your price easily accessible to the target mass of buyers? Is your offering priced to attract the mass of target buyers so that they have a compelling ability to pay for your offering ? If it is not.What are the adoption hurdles in actualizing your business idea ? Are you addressing them up front ? What are the adoption hurdles in rolling out your idea ? Adoption hurdles include for example.Can you attain your cost target to profit at your strategic price ? Can you produce your offering at the target cost and still earn a healthy profit margin? Can you profit at the strategic price . potential resistance to the idea by retailers or partners. and target costing that allows companies to achieve value innovation—a leap in value for both buyers and companies Adoption .the price easily available to the mass of target buyers ? It is the combination of exceptional utility. then rethink the idea until an affirmative answer. then you have a commercially viable blue ocean idea. To assess how the strategy is passing through the 4 stages. This lets managers identify the full range of utility propositions that a product or service can offer. If yes. testing is done.unlock exceptional utility? Is there a compelling reason for the mass of people to buy it ??? If not. Nor will the offering create irresistible market buzz. strategic pricing. It outlines all the levers companies can pull to deliver utility to buyers as well as the different experiences buyers can have of a product or service. then advance to the next step. Blue Ocean Strategy Page 16 . If yes. BUYER UTILITY MAP/BUYER EXPERIENCE CYCLE Buyer Utility Map/Buyer Experience Cycle is used to test the exceptional utility of the product or service The buyer utility map helps to get managers thinking from the right perspective. where net buyer value equals the utility buyers receive minus the price they pay for it Cost . Price . they cannot buy it.
Usually. But in many existing industries. or in different ways. this Blue Ocean Strategy Page 17 . An innovation can increase productivity by helping them do things faster. makes traders more efficient by offering on-line analytics that analyze and compare the raw information it delivers. where there’s plenty of room for improving a company’s utility proposition. And a product or service offers convenience simply by being easy to obtain and or use. Simplicity. Purchasing. Each stage encompasses a wide variety of specific experiences. That approach may be reasonable in emerging industries. managers can clearly see how the new idea creates a different utility proposition from existing products.A buyer's experience can usually be broken down into a cycle of six distinct stages.com as well as the experience of pushing a shopping cart through Wal-Mart’s aisles. By locating a new product on one of the 36 spaces of the buyer utility map. managers all too often focus on delivering more of the same stage of the buyer’s experience. running more or less sequentially from purchase to disposal. Most of the levers are obvious. The most commonly used lever – but perhaps the least obvious. for example. includes the experience of browsing Amazon. better. fun and image. and environmental friendliness need little explanation. Nor does the idea that a product could reduce a buyer’s financial or physical risks. The financial information company Bloomberg.is that of customer productivity. for example. Cutting across the stages of the buyer’s experience are what we call the levers of utility – the ways in which companies unlock utility for their customers.
The Price Corridor of the Mass is a two-step process: Blue Ocean Strategy Page 18 .approach is unlikely to produce a market-shaping blue ocean strategy. which need not be the lower price. Price Corridor of the Mass is a tool managers can use to determine the right price to unlock the mass of target buyers. as well as the level of legal and resource protection that will block other companies from imitating their offerings. managers must evaluate the trade-offs that buyers consider when making their purchasing decision. PRICE CORRIDOR Price Corridor is used to help managers find the right price for an irresistible offer. When setting a strategic price for a business or product/service.
the price range that attracts the mass of target buyers . Identify the price corridor of the mass.e. Next determine how high or low the strategic price should be set within the corridor without inviting competition from imitation. For example.Key to determining the strategic price is for managers to understand the price sensitivities of buyers who will be comparing the new business or product/service with a host of very different-looking products and services offered outside the group of traditional competitors. For example. The higher the level of protection against imitation. To do this. Managers should consider two categories of products/services that are beyond an industry's boundaries in identifying the price corridor of the mass. such as an expensive production plant. Those are: products and services that take different forms but perform the same function. On the other hand. buyers can choose between several movie theaters. and products and services that have different forms and functions but serve the same purpose. i. the higher the strategic price can be within the price range that still attracts the mass of target buyers. a company should consider two sets of factors: 1) the level of legal and resource protection the new offering has to block imitation.1. 2. but they can also decide to go to restaurants and bars. PROFIT MODEL OF BLUE OCEAN Blue Ocean Strategy Page 19 . if a manager is uncertain about their patent and asset protection they should consider pricing somewhere in the middle to lower end of the corridor. if the product or service has strong patents and hard-toimitate service capabilities one can use upper-boundary strategic pricing to attract the mass of buyers. that can also block imitation. and 2) the degree to which the company owns some exclusive asset or core capability.
it is critical to take the reverse course by setting a strategic price from the outset that will attract the mass of target buyers. In Blue Ocean Strategy. Target Costing is the process of actively searching for ways to minimize an offering's costs to Blue Ocean Strategy Page 20 . Many companies first test the waters of a new product or service by targeting noveltyseeking. as well as at the level of protection that the company's new offering has against imitation. the next step in the strategic sequence.Target costing. addresses the profit side of the business model. Only over time do they drop price to attract the mass of target buyers. however. It involves looking at the alternatives that buyers have when making their purchasing decisions. Strategic Pricing is the systematic process of setting a price that attracts the mass of target buyers. price-insensitive customers.
4 ORGANIZATIONAL HURDLES TO STRATEGY EXECUTION Once a company has developed a blue ocean strategy with a profitable business model. great ideas must create a significant leap in buyer utility. BLUE OCEAN IDEA (BOI) INDEX Blue Ocean Idea (BOI) Index is a simple yet robust tool to verify if a new business idea meets the criteria of a Blue Ocean Strategy. by reducing or eliminating key competitive factors the industry has taken for granted. In this perspective. often have a tough time translating thought into action whether in red or blue oceans. Is the price easily accessible to the mass of target buyers? 3. Many companies take the reverse path: looking at their product's cost. or the general public in response to the change created by the new business idea. Part of the challenge of meeting the target cost is addressed in building a strategic profile that has focus. Are adoption hurdles addressed up front? If the answer is no at any step. the Blue Ocean Idea index tests the following four criteria. Managers must also ensure that before executing the strategy. is essential if one is to arrive at a cost structure that is both profitable and hard for potential followers to match.meet the predetermined strategic price and profit margin. for any strategy. They face four hurdles: Blue Ocean Strategy Page 21 . The challenge of execution exists. Does the new offering provide exceptional utility? 2. Target costing for companies executing a Blue Ocean Strategy is therefore generally more aggressive. price-minus costing.e. business partners. Of course. Here. they add their desired margin to create their price. and not cost-plus pricing. while at the same time guaranteeing a handsome profit to the company by reducing its cost structure. because it forces companies to find innovative ways to reduce their costs. i. But the offering must also be priced so that it is within the reach of the mass of target buyers. Often. companies believe that a great idea is enough to generate a commercial success. in that order: 1. they have addressed any adoption hurdles ― fears and resistance coming from employees. it must execute it. Companies. like individuals. Does the cost structure meet the target cost? 4. of course. This usually leads to a price that is not attractive to the mass of target buyers. The challenges managers face are steep. it is important to return to the previous step until the answer is yes to each question.
How do you motivate key players to move fast and tenaciously to carry out a break from the status quo? Politics :. the greater it is assumed are the resources needed to execute it. Red oceans may not be the paths to future profitable growth.A cognitive hurdle :. companies must abandon perceived wisdom on effecting change. and many may face only some subset of the four.The greater the shift in strategy. To achieve this effectively. “In our organization you get shot down before you stand up. Tipping point leadership allows you to overcome these four hurdles fast and at low cost while winning employees’ backing in executing Blue Ocean Strategy Page 22 .” Although all companies face different degrees of these hurdles. Conventional wisdom asserts that the greater the change.As one manager put it. the greater the resources and time you will need to bring about results. you need to flip conventional wisdom on its head using what we call tipping point leadership. Instead. but they feel comfortable to people and may have even served an organization well until now. so why rock the boat? Limited resources :. knowing how to triumph over them is key to attenuating organizational risk. But many companies find resources in notoriously short supply. however. Motivation :.Waking employees up to the need for a strategic shift.
Engagement results in better strategic decisions by management and greater commitment from all involved to execute those decisions.means involving individuals in the strategic decisions that affect them by asking for their input and allowing them to refute the merits of one another's ideas and assumptions. explanation. they all look to these elements.means that everyone involved and affected should understand why final strategic decisions are made as they are. Blue Ocean Strategy Page 23 . The conventional theory of organizational change rests on transforming the mass. An explanation allows employees to trust manager's intentions even if their own ideas have been rejected.a break from the status quo. acts. The key questions answered by tipping point leaders are as follows: What factors or acts exercise a disproportionately positive influence on breaking the status quo? On getting the maximum bang out of each buck of resources? On motivating key players to aggressively move forward with change? And on knocking down political roadblocks that often trip up even the best strategies? By single-mindedly focusing on points of disproportionate influence. An explanation of the thinking that underlies decisions makes people confident that managers have considered their opinions and have made decisions impartially in the overall interests of the company. To change the mass it focuses on transforming the extremes: the people. Explanation . By transforming the extremes. It also serves as a powerful feedback loop that enhances learning. tipping point leaders are able to change the core fast and at low cost to execute their new strategy. So change efforts are focused on moving the mass. There are three mutually reinforcing elements that define fair process: engagement. Encouraging refutation sharpens everyone's thinking and builds better collective wisdom. Engagement communicates management's respect for individuals and their ideas. This inspires them to cooperate voluntarily in executing the resulting strategic decisions. POWER OF FAIR PROCESS What is fair process? Fair process builds execution into strategy by creating people's buy-in up front. Tipping point leadership. Engagement . They can do this fast and at low cost. When fair process is exercised in the strategy making process. Whether people are senior executives or shop employees. and activities that exercise a disproportionate influence on performance. by contrast. takes a reverse course. requiring steep resources and long time frames — luxuries few executives can afford. We call them the three Ε principles of fair process. people trust that a level playing field exists. and clarity of expectation. tipping point leaders can topple the four hurdles that limit execution of blue ocean strategy.
Smartpen has no retail presence and is a pure online store. The Pulse Smartpen is a computer in a pen. Visual Awakening 2. The Pulse Smartpen has won international acclaim including Macworld 2009 Best of Show Award. Smartpen was the first reseller to offer Livescribe for sale in Australia. Also. It decided to save costs by eliminating and/or reducing the barriers for non-customers. political jockeying and favoritism are minimized. Officeworks could spend more on above the line marketing and could also out-discount Smartpen. Smartpen followed the below core Strategy steps 1. managers state clearly the new rules of the game.Expectation clarity . When people clearly understand what is expected of them. Taken together. This is important because any subset of the three does not create judgments of fair process. It was announced that the Pulse Smartpen would also be sold through Officeworks. Smartpen is an Australian business that sells the Livescribe Pulse Smartpen. Although the expectations may be demanding. employees should know up front what standards they will be judged by and the penalties for failure. it decided to lift value by raising or creating elements which the industry had not offered. Visual Awareness 3. Also Officeworks had the retail presence to better capture impulse buyers. a national retail office supplies chain. and people can focus on executing the strategy rapidly. CASE STUDIES Case Study # 1 : SmartPen Background :The Livescribe Pulse Smartpen was launched in 2007 in the US. these 3 criteria collectively lead to judgments of fair process. Smartpen wasn’t in a position to compete on the traditional ‘red ocean’ terms. Socialising the Strategy (Strategy Fair) 4. It captures audio and synchronizes this to what you are writing. It decided to use Blue Ocean Strategy and focus on value innovation rather than head to head competition. The Problem :Competition started shortly after Smartpen launched online sales.requires that after a strategy is set. Execution of the Strategy Blue Ocean Strategy Page 24 .
how they could buy it. time was spent on the Six Paths Analysis – looking across alternate industries. who spends a lot of time taking notes or minutes ? • How do the sub groups of educators work and communicate From this study. Visual Awareness Smartpen came up with the below Four Action Framework ELIMINATE Above the line advertising REDUCE RAISE Price Product Range Post-sales support CREATE Social Media Profile Purchase Order Options Multi-channel communications Blue Ocean Strategy Page 25 .what did the product do. how it would help in their jobs. products and services. The analysis identified • Apple stores – how they harness desire and enthusiasm • In business. Focus shifted as to what barriers existed for these non-customers. 2nd tier – Teachers & Academics. a number of new customer segments were identified 1st tier – University students & business users. Non-customers were interested to know . • Officeworks controlled 2 factors that could most damage Smartpen’s ability to remain in the market – Retail location and Above the line advertising. groups. 3rd tier – Pre-university students & students with learning disabilities. Visual Exploration As Smartpen transitioned into the exploration stage.Visual Awakening Smartpen created As-Is strategy canvas where it compared itself with Officeworks and came to the following conclusions : • Smartpen had little opportunity to differentiate. Smartpen took the feedback from the non-customers.
Dialogue Go into the social world and engage Smartpen contributes advice and knowledge in specific social networks and forums. crowdsource how and where the product could be developed. Encourage Innovation – encourage users to innovate. a To Be Strategy Canvas was developed where the main focus was on product range. blog and Facebook. 5. 4. Twitter and Scout labs were used to listen to the conversation Engage. 3. updates & news. Listening – initially passive but soon conversational listening. Be in their social space – go out to their worlds and contribute Help everyone – even if they didn’t purchase from Smartpen.Visual Strategy Creation – To Be canvas Through a series of iterations. product knowledge. post-sales support. It won’t happen overnight but it will happen Social media Strategy Principles Goal Listen & Learn Listen to the community and learn from them Tools like Google Alerts. 2. Be Patient – being social builds loyalty. At the core of the strategy were principles like : 1. and flexible purchase terms. 2. If Smartpen can’t meet the immediate need of the customer. Strategy Fair The To-Be Strategy Canvas was successfully validated with all stakeholders. It is quite diligent about not trying to sell. Changes to the core Smartpen site. it sends the customer to where they can go to satisfy their need even if it is to the competitor Encourage Innovation Capture innovative uses of the Livescribe Smartpen By engaging with users through Twitter. help them anyway.using social technologies to remove the barriers for these non-customers so that they could become customers. Smartpen focused on a social media strategy that would allow it to connect with these noncustomers. To do this. Smartpen captures examples of how the Smartpen is being used Strategy Blue Ocean Strategy Page 26 . Development & execution of a social media strategy Creating the Blue Ocean The Blue Ocean for non-customers was in the social sphere . multi-channel communications. Execution of the strategy involved two things : 1.
3 billion— which was expected to be $90 billion by 2010. In 2005. Blue Ocean Strategy Page 27 . The fourth was platform-based BPO. There was a capability gap in India to address the SAP market. first – because employees are the product that customers are buying. predominantly because they are innovation driven. all the IT companies were 90% applications development and maintenance (ADM) and HCL was a small player.3 bilion of it offshorable. HCL Technologies has also aimed to make the firm as transparent as possible – so much so.5 billion. Indian ITs share was $1. of which India's share was less than $ 1 billion. The offshorable market was $ lOO billion. It would have failed if they had fought on ADM. HCL Technologies switched its focus to value from concentrating on volume. Third the $100-bi]lion enterprise applications market. he says. where employees remain accountable to the organisation. Nayar maintains it’s very easy to create blue oceans of uncontested market space ripe for growth for product companies. SAP services market was $26bilion. Smartpen used Blue Ocean strategy to identify non-customers and the barriers that prevented them from becoming customers. Social media provided the means to capture these non-customers and create a blue ocean outcome. or sell cars like Toyota. Case Study # 1 : HCL Technologies Vineet Nayar. Instead of a ‘command and control’ form of leadership. Another move was that the company decided to put employees. attributes the company’s transformation to Blue Ocean Strategy.Summary : Smartpen needed to compete against a major legacy retailer for sales of the Livescribe Pulse Smartpen. for companies for example that sell computers. Nayar adopted a democratic model. Remote infrastructure management (RIM) was the second. The first was the $ 15 billion engineering services—India's share was only $1. So it is good. such as Apple and Samsung. But he adds it’s very difficult for services-related companies where innovation is not necessarily the end product.5 billion IT services company HCL Technologies Ltd. HCL Technologies decided that not only did it have to be in a different business to its competitors. It identified four gaps. A further radical overhaul was linked to the accountability of the CEO. CEO of $1. Of this. it also had to deliver its business differently. which he believes is more productive. Instead HCL came out with their Blue Ocean strategy of identifying distinct markets. about $7. so HCL started searching for acquisition opportunities. not customers.
Chairman and CEO. The company is among the fastest growing IT services companies today. President. this is the fourth large co-sourcing deal being announced by HCL — with this being the largest so far this year. "We conceptualised what we call the `Blue ocean' strategy and created uncontested market spaces." "In the last six months alone. HCL Technologies." he said. According to Mr Kevin O'Byrne. Blue ocean businesses almost reverse the figures: their expansions accounted for 38% of total revenues and 61% of total profits. Blue Ocean Strategy Page 28 . "Based on this strategy. we went about transforming HCL internally. said. Kim and Mauborgne argue that the blue ocean strategy is more profitable." Mr Shiv Nadar. According to Nayar. and go for multi-service deals with application and infrastructure components. but on the way it conducted its business. Nayar says. HCL recognised the application outsourcing business was being increasingly commoditised and that it was coming under pricing pressure. We are happy to have DSG international as one of our top four customer relationships. This type of expansion produced 62% of total revenues but only 39% of total profits. "We have selected HCL Tech on the basis of its breadth of experience.500-crore contract from DSG International. its stock is one of the best performing in India’s information technology sector.that Nayar is confident that if his employees change jobs they will not find anything to match it. said. the company’s Blue Ocean Strategy was that it concentrated not on the end product. For the DSG International deal. HCL Technologies’ market capitalisation has doubled since it adopted Blue Ocean thinking. And. put in the Request for Proposals (RFPs). The result was that it evolved as a value-focused company that was completely different to its competitors. the authors state that 86% of business expansion came from existing competitive business. In short." Mr Vineet Nayar. including frontline Indian IT vendors. Of 108 companies they studied. HCL Technologies. and that has resulted in deals like Autodesk and EXA. Three vendors — HCL Tech and two global companies — were short-listed and at the end of nine months the contract came to HCL Tech. to move up the value chain. then bagged the Rs 1. HCL then decided to chase large deals that would bring a significant transformation. 10 participants. had worked out a three-pronged strategy in July 2005 to procure big-ticket deals in the international market. partnership approach and the transparency in its cost models. CONCLUSION The authors. Group Finance Director of DSG international.
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