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Blue Ocean Strategy
Tools and Frameworks
@ 2014 Kim & Mauborgne. Blue Ocean Strategy. All rights reserved. blueoceanstrategy.com
Contents
Red vs. Blue 3 3 Tiers of Noncustomers 16
Value Innovation 4 Sequence of BOS 18
Strategy Canvas 6 Buyer Utility Map 20
Four Actions Framework 8 Four Hurdles to Execution 22
ERRC Grid 10 Tipping Point Leadership 24
Six Paths Framework 12 Fair Process 26
PMS Map 14
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Page 4
Align the whole system of a firm’s activities with Align the whole system of a firm’s activities
its strategic choice of differentiation or low cost. in pursuit of differentiation and low cost.
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Value
Innovation
Value innovation, the cornerstone of blue ocean strat- Break the value-cost tradeoff by answering
egy, is the simultaneous pursuit of differentiation and the following questions:
low cost, creating a leap in value for both buyers and · Which of the factors that the industry takes for
the company. Because value to buyers comes from the
granted should be eliminated?
offering’s utility minus its price, and because value to
the company is generated from the offering’s price · Which factors should be reduced well below the
minus its cost, value innovation is achieved only when industry’s standard?
the whole system of utility, price, and cost is aligned. · Which factors should be raised well above the
industry’s standard?
· Which factors should be created that the
industry has never offered?
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Value
Innovation
Cost savings are made by eliminating
COST
and reducing the factors an industry
competes on.
BUYER VALUE
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Page 7
Strategy Canvas
The strategy canvas is both a diagnostic and an action The strategy canvas serves two purposes:
framework for building a compelling blue ocean
strategy. The horizontal axis captures the range of · To capture the current state of play in the
factors that the industry competes on and invests in, known market space, which allows users to
while the vertical axis captures the offering level that clearly see the factors that the industry
buyers receive across all of these key competing competes on and where the competition
factors. currently invests and
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Page 8
Strategy Canvas
High
Low
Key Competing Factors
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Page 9
Four Actions
Framework
The Four Actions Framework is used to reconstruct
buyer value elements in crafting a new value curve. To
break the trade-off between differentiation and low
cost and to create a new value curve, the framework
poses four key questions, shown in the diagram, to
challenge an industry’s strategic logic.
Eliminate Create
Which of the factors that the New Value Which factors should be
industry takes for granted Curve created that the industry
should be eliminated? has never offered?
Raise
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Page 11
ERRC Grid
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Page 12
ERRC Grid
Eliminate Raise
Reduce Create
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Page 13
The Six Paths Framework allows managers to The table outlines these six basic assumptions and the
address the search risk many companies struggle pathway managers can take to break away from
with. It enables them to successfully identify out of head-to-head competition towards blue ocean
the haystack of possibilities that exist, commercially creation.
compelling blue oceans by reconstructing market
boundaries. The six paths have general applicability across industry
sectors. None of the paths requires special vision or
There are six basic approaches to reconstructing foresight about the future. All are based on looking at
market boundaries. These paths challenge the six familiar data from a new perspective.
fundamental assumptions underlying many companies’
strategies that keep companies trapped competing in
red oceans. Instead of looking within the accepted
boundaries of competition, the Six Paths Framework
allows managers to look systematically across them to
create blue oceans.
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Page 14
Industry Focuses on rivals within its industry Looks across alternative industries
Buyer Focuses on better serving the buyer group Redefines the industry buyer group
Group
Scope of Product Focuses on maximizing the value of Looks across to complementary product
or Service Offering product and service offerings within
the bounds of its industry and service offerings
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Page 15
Pioneers
Value Innovation
Migrators
Value Improvement
Settlers
Value Imitation
Today Tomorrow
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Page 17
3 Tiers of Noncustomers
Typically, to grow their share of a market, companies The first tier of noncustomers is closest to the current
strive to retain and expand their existing customer market, sitting just on the edge. They are buyers who
base. This often leads to finer segmentation and minimally purchase an industry’s offering out of neces-
greater tailoring of offerings to better meet customer sity but are mentally noncustomers of the industry.
preferences. The more intense the competition is, the They are waiting to jump ship and leave the industry as
greater, on average, is the resulting customization of soon as the opportunity presents itself. However, if
offerings. As companies compete to embrace customer offered a leap in value, not only would they stay, but
preferences through finer segmentation, they often also their frequency of purchases would multiply,
risk creating too-small target markets. unlocking enormous latent demand.
To maximize the size of their blue oceans, companies The second tier of noncustomers is people who refuse
need to take a reverse course. Instead of concentrating to use your industry’s offerings. These are buyers who
on customers, they need to look to noncustomers. And have seen your industry’s offerings as an option to
instead of focusing on customer differences, they need fulfill their needs but have voted against them.
to build on powerful commonalities in what buyers
value. This reorientation allows companies to reach The third tier of noncustomers is farthest from your
beyond existing demand to unlock a new mass of market. They are noncustomers who have never
customers that did not exist before. thought of your market’s offerings as an option.
There are three tiers of noncustomers that can be By focusing on key commonalities across
transformed into customers. They differ in their rela- these noncustomers and existing customers, compa-
tive distance from the current market. nies can understand how to pull them into their new
market.
3 Tiers of Noncustomers
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Page 19
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Page 20
Sequence of BOS
Rethink
Buyer Utility
Is there exceptional buyer utility in your business idea?
YES NO
Rethink
Price
Is your price easily accessible to the mass of buyers?
YES NO
Rethink
Cost
Can you attain your cost target to profit at your strategic price?
YES NO
Adoption
What are the adoption hurdles in actualizing your business idea?
Are you addressing them upfront?
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Page 21
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Page 22
Customer
Productivity
The Six Utility Levers
Simplicity
Convenience
Risk
Fun and
Image
Environmental
Friendliness
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Page 23
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Page 24
Four Hurdles
to Execution Cognitive Hurdle
An organization
wedded to the
status quo
Motivational Hurdle
Unmotivated Staff
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Page 25
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Page 26
Mass of Employees
Company
Tipping Point Leadership To change the mass, focus on the extremes — people, acts, and activities that exercise
a disproportionate influence on performance to achieve a strategic shift fast at low cost.
Disproportionate Disproportionate
Influence Factors Influence Factors
Company
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Page 27
Fair Process
Fair process builds execution into strategy by creating It should be noted that any subset of the three is
people’s buy-in up front. When fair process is exercised insufficient. The three criteria collectively lead to
in the strategy formulation phase, people trust that a judgments of fair process.
level playing field exists, inspiring voluntary
cooperation during the execution phase.
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Page 28
Engagement means involving Explanation means that everyone Expectation clarity requires that
individuals in the strategic involved and affected should after a strategy is set, managers
decisions that affect them understand why final strategic clearly state the new rules of the
by asking for their input and decisions are made as they are. An game. Although the expectations
allowing them to refute the merits explanation of the thinking that may be demanding, employees
of one another’s ideas and underlies decisions makes people know up front the standards by
assumptions. Engagement confident that managers have which their work will be judged
communicates management’s considered their opinions and have and the penalties for failure. When
respect for individuals and their made decisions impartially in the people clearly understand
ideas. The result is better strategic overall interests of the company. expectations, political jockeying
decisions by management and An explanation allows employees and favouritism are minimized,
greater commitment from all to trust managers’ intentions even and people can focus on executing
involved in execution. if their own ideas have been the strategy rapidly.
rejected. It also serves as a
powerful feedback loop that
enhances learning.
@ 2014 Kim & Mauborgne. Blue Ocean Strategy. All rights reserved. blueoceanstrategy.com