STRATEGIC MANAGEMENT

Session 6 & 7
External Environment Analysis
Blue Ocean Strategy

Exec-MBA II SEM V 2019-22

August 21 & 29, 2021

“It is only one who is thoroughly acquainted with the evils of war
that can thoroughly understand the profitable way of carrying it on.”
- Sun Tzu in “The Art of War”
Course Structure: a quick recap of last lecture
• Session 4 & 5: External Environment Analysis
o Introduction to External environment scanning
o PESTEL analysis, Porter’s five forces analysis
o CAGE distance framework
o ‘NETFLIX’ case discussion

• Session 6: External Environment Analysis (contd...)

o Porter’s five forces analysis
o Porter’s five forces analysis exercise
o ‘DuckDuckGo’ case discussion
o Blue-Ocean Strategy
Why are some industries more
profitable than others?
Porter’s Five Forces
Rivalry:
- competitors (number/rel. scale) - concentration (number of key buyers)
Bargaining - sophistication
- growth rate (ind. life cycle) Power of
- exit barriers - switching costs
Buyer - integration potential (backwards into
- fixed costs (% total)
industry)

Threat of Industry Threat of

New entrants Rivalry Substitutes

- scale economies - relative price/performance

- patents/brands - switching costs
- tariffs/govt
- concentration (number of key
Bargaining
suppliers)
Power of
- sophistication
Supplier
- switching costs
- Forward integration (i.e. into industry)
Source: Whittington, R., Johnson, G., Scholes, K., “Exploring Corporate Strategy”
PESTEL
• Bureaucracy, Corruption Levels
Political • Government EXIM Policies
• Government Stability

• Manpower Supply, Inflation, Wage Levels

Economic • Monetary and Fiscal Policies
• Credit Availability, Capital Market Efficiencies, Cost of Capital

• Demographic Changes, Education

Socio-Cultural • Work Ethic, Productivity
• Religion and Beliefs

• Technology Infrastructure, Complexity

Technological • Rate of adaptation of new technology and Technological change
• R&D spending

• Climate change, Energy Policies, Renewable Energy incentives

Environmental • Pollution Regulations
• Waste Management, Disaster Management

• Labour Laws, Anti-trust Laws, Laws related to discrimination

Legal • Copyright, Patents/ Intellectual property law
• Consumer Protection, Data Protection and Data Privacy
 Case Study:
Netflix in India
What Strategies should Netflix
follow in order to succeed in
the Indian Market?
Course Structure: Where are we in the course
Strategy Formulation Strategy Execution

‘Scope’ Environmnt Corporate Business MNC Strategy Managing Experiential Innovation

of a firm Analysis Strategy Strategy Strategies Execution Change Learning KM

External Change
Diversification

env Strategy
Mgmnt
Introduction scanning &
Globalisat’n Framework
to Low-cost Structure
strategy Wy&Whr
Experiential Competitive
McKinsey Learning Advantage:
BOS Culture
7S Model exercise
Differen-
tiation Innovation
Internal env Experience &
Setting the analysis
vision, Knowledge
VRIO
mission, Portfolio Niche/ Globalisat’n Ethics and Strategic Evaluation Mgmnt
goals, Planning Focus Wn&Hw Gov’nance Leadership
& Value chain
objectives analysis
 First,
let’s have some fun!
Course Structure: Plan for this session
• Session 4 & 5: External Environment Analysis
o Introduction to External environment scanning
o PESTEL analysis
o Porter’s five forces analysis
o Netflix Ivey case study

• Session 6 & 7: External Environment Analysis (contd...)

o Porter’s five forces analysis
o Red Oceans
o Blue-Ocean Strategy
o “DuckDuckGo” case study
o Class Test - II
Key questions to ask while examining industry
structure
• What are the industry’s dominant economic factors?
• Is the industry attractive and what are the prospects for long term
profitability?
• What are the key factors for success?
• Is the structure changing and if yes, what is causing the
industries competitive structure & business environment to
change?
• What is the competition like, how strong are the competitive
forces?
• Who are the complementors & how can we lock them in?
• Which adjacent industries are likely to transform these industry
forces?
Source: Jose, P.D., “Introduction to Strategic Management”
Specific steps in carrying out an industry analysis?
1. First, define the relevant industry: What is the served market? What products
are in it? And what is the geographic scope of competition?

2. Identify participants & segment them into groups, wherever appropriate

3. Third, evaluate the forces and their underlying drivers to determine which
forces are strong or which are weak and why.

4. After determining the overall industry structure, test your analysis for
consistency – ask the following questions:

• Why is the level of profitability what it is?

• Which are the controlling forces for profitability?

• Is your analysis consistent with the actual observed long-run profitability

in this sector?

5. Analyse the likely future changes in each force, both positive & negative.
Source: Jose, P.D., “Introduction to Strategic Management”
So, what does Porter say about industry profitability?

The profitability varies across industries and

depends upon the industry structure – which is
driven by the five (or six) forces
Why we need Blue Ocean Strategy?

What is the best way to drive profitable growth?

Stop competing in Overcrowded industries!

What happens in overcrowded industries?
• Products
become
commoditized
• Profits
evaporate
• Growth
prospects
shrink
• Companies
fight
• Competition
becomes cut-
throat
Figuratively speaking, cut-throat competition turns the
space bloody creating Red Oceans
What is Red Ocean?

Red Oceans are established industries with

well-known rules of the game and
hyper-active competition
 How to avoid the Red Oceans?

(Let us consider an example)

Which country dominates the world running scene?

Eunice Kirwa
Stephen Cherono Abraham Toronto
aka Saif Saeed Shaheen
Talent Drain
They all have
So, how avoided
to avoid the Oceans?
the Red Red Ocean and created a
Blue Ocean for themselves!

Blue Oceans are the uncontested market spaces

where the competition is irrelevant
What are Blue Oceans?

Blue Oceans are the uncontested market

spaces where the competition is irrelevant;

Blue Oceans are new industries, with new

rules of the game and no competition
Blue Ocean Strategy Canvas

“Value Innovator”

Blue Ocean
Blue Ocean Strategy Canvas Sample
“Value Innovator”
High
Company A

Blue 1. Establish CSFs

Company B 2. Identify Key
Ocean
Perceived Competitors
3. Compare Customer
Performance
Satisfaction Profiles
4. Adjust Strategy (if
needed)

Low
Cost After-sales Delivery Technical Testing Design
Service Reliability Quality Services Advice

Competing Factors / Critical Success Factors

So, what is Blue Ocean Strategy?

Invent Create and Raise Customer

Uncontested Capture New Value, Lower
Market Space Demand Cost
Ringling Bros. and Barnum & Bailey Circus and the
Red Oceans
Blue Ocean Strategy Canvas for RB&BB and CdS?
Blue Ocean
High strategic moves
RB&BB

1. Establish CSFs
Other 2. Identify Key
circuses Blue Competitors
Perceived
Ocean 3. Compare Customer
Performance
Satisfaction Profiles
4. Adjust Strategy (if
CdS needed)

Low
Cost Entertainment Animal Technical Target Ticket
Experience Rights Quality Segment Price

Competing Factors / Critical Success Factors

Two Ways to create Blue Oceans
• Create completely new industries
• eBay created online auction industry
• Fewer cases of this type, but continually emerging

• Alter boundaries of existing industries – depicting red oceans

• Example, Cirque du Soleil, Apple iPhone, Ford Model-T,
Boeing Jumbo jets
• More cases of this type
19th – 20th century blue ocean – new industries
Blue oceans from last few decades

Digital Marketing
Mutual Funds
Coffee Bars

E-commerce Cellular Telephone

Many traditional industries
SVoD offering services online

Biotechnology DVD / Home Videos

Express Package Delivery
Discount Retailing
Blue oceans emerging from red oceans
Automobiles Computers

Ford Model-T 1908 CTRs tabulating machine 1914

IBM 650 electronic
GM's car for every purse computer and
and every purpose 1924 System/360 1952
Japanese Fuel-efficient
autos 1970s Apple PC 1978
Chrysler minivan 1984 Compaq PC Servers 1992
Dell built-to-order
computers 1995
Blue Ocean Strategy: Core Principles

Grounded in
Data
Pursues
Creates win-
Value + Low
win outcome
Cost

Builds Core Creates

Execution uncontested
into Strategy Principles market space

Maximizes
opportunity, Tools and
minimizes Frameworks
risk Provides
Step-by-step
process
Simultaneous pursuit of Differentiation and
Low cost

Cost
• Blue Ocean is
Value Innovation
(align innovation
with utilize, price,
cost position) Blue
Buyer Value and
Ocean Low Cost
• By contrast, Diamond
innovation could be
tech-driven and
futuristic

Buyer Value
Blue Ocean Strategy: Four-Action Framework
1. What factor should be “eliminated” from various factors that have been
received by the company?

2. What factor should be “reduced” until it reaches under the company

standard?

3. What factor should be “raised” until the upper limit of the standard
determined by the company?

4. What factor that has not been offered yet by the company so that it should
be “created”?
Blue Ocean Strategy: ERRC Grid
What factor should be “reduced” until it reaches
under the company standard?

Reduce

What factor What factor that

should be has not been
eliminated from New offered yet by the
various factors Eliminate Value Create company so that
that have been Curve it should be
received by the “created”?
company?

Raise

What factor should be “raised” until the upper limit of

the standard determined by the company?
Blue Ocean Strategy Canvas: Apple iPhone (2007)
5
4

Other Smartphones
3
2

Apple iPhone
1
0

Range of Customizability Affordability Availability of Software Hardware

Selection mobile apps ease-of-use quality/design
 Case Study:
DuckDuckGo: Reinventing the
Internet Search
 Analyse the strategic
positioning of DuckDuckGo
 Despite being a late entrant,
how did DuckDuckGo carve a
prominent position for itself in
the Internet Search Engine
industry?
What did DuckDuckGo
eliminate/
reduce/
raise/
create?
How did DuckDuckGo achieve
Value Innovation?
Course Structure: What we covered this session
• Session 4 & 5: External Environment Analysis
o Introduction to External environment scanning
o PESTEL analysis
o Porter’s five forces analysis
o Netflix Ivey case study

• Session 6 & 7: External Environment Analysis (contd...)

o Porter’s five forces analysis
o Red Oceans
o Blue-Ocean Strategy
o “DuckDuckGo” case study
Course Structure: Plan for the next session
• Session 8: Internal Environment Analysis
o Introduction to Internal environment analysis
o Analyzing strategic capabilities, resources, core competence
o VRIO framework study
o VRIO framework exercise
Group Assignment: 30 marks: Gentle reminder…
• Topic: “How is the Retail / CPG industry changing?”
• Category: Any retail or product category you like
• Geography: Industry in India, UK, or the US
• Submission deadline: 23:59 of 3rd September 2021
• Format: Any format you like
• Group of max. 5 students in one group
• How to submit? Will be notified
• Specific details follow in a ppt within a day or max. 2
Second Class Test
NOW!