Blue Ocean Strategy

Outline
Part I
01 Introduction

02 Blue Ocean Strategy

03 Value Innovation

04 Principles of Blue Ocean Strategy

05 Tools and Framework for BOS

Part II
06 Blue Ocean Strategy in Private
Banking: A new model to win
 Blue Ocean Strategy

It is creating an uncontested market place and making the

competition irrelevant.
It is about making the rivals irrelevant rather than competing with
them.
Focus less on the competitors and more on alternatives
Focus less on the customers, and more on non-customers, or
potential new customers

The Center of blue ocean strategy is Value innovation

 Blue Ocean Strategy (cont’d)

“The only way to

Put buyers not the
beat the
competition at the
competition is to
core of your
stop trying to beat
strategy
the competition.” A blue ocean
strategists sees
opportunities
while others sees
“When you set the
constraints
rules of the game, Technological
the competition innovation is not a
becomes marketing strategy
irrelevant.”
Red Ocean Vs Blue Ocean Strategy
2. Red Ocean Vs Blue Ocean Strategy
 Value Innovation

 Essential component in creating blue ocean

strategy

 Center of blue ocean strategy

 Against the commonly accepted dogma of

COST

VALUE
competition (Value-cost-trade off)

 But, in blue ocean, differentiation and low cost

simultaneously.

 In the long run, obtain Economies of scale

 Red Ocean Trap
Assumptions that hold companies back from breaking out of the red ocean
“keep companies trapped competing in red oceans
1. Define their industry similarly and focus on being the best within it

2. Look at their industries through the lens of generally accepted strategic groups

3. Focus on the same buyer group

4. Define the scope of the products and services offered by their industry similarly

5. Accept their industry’s functional or emotional orientation

6. Focus on the same point in time—and often on current competitive threats—in formulating

strategy
Principles of Blue Ocean strategy
 Principle 1. Reconstruct Market Boundaries
 Reconstruct market boundaries to break from the competition.
 Identify the commercially compelling blue ocean opportunities

Head-to-Head Strategy Blue Ocean Strategy

• Focus on rivals within industry • Looks across alternative industries

• Focuses on competitive position within strategic
group
• Focuses on better serving the buyer group
• Focuses on maximizing the value of product or
service offerings within the bounds of its industry
• Focuses on adapting to external trends as they
occur
• Looks across strategic group within
industry
• Redefines the industry buyer group
• Looks across to complementary product
and service offerings
• Participates in shaping external trends
over time

 There are six basic approaches to reconstructing market boundaries.

 This is called the ‘six path framework’.
 The paths have general applicability across industry sectors,
 Paths of Blue Ocean Strategy
Path 1: Look Across Alternative Industries
 Companies compete with their competitors as well as alternatives to their product or services
 Substitutes
 Alternatives
 Example: Coca-Cola
Substitutes: Pepsi,
Alternatives: Tap Water, juice, Wine, Milk, Coffee
Path 2: Look Across Strategic Groups within Industries
Path 3: Look Across the Chain of Buyers
Path 4: Look Across Complementary Product and Service Offerings
 Before, During, After
Example: Movie theatre
Path 5: Look Across Functional or Emotional Appeal to Buyers
Path 6: Look Across Time
Principle 2. Focus on the Big Picture, not the Numbers

The Four Steps of Visualizing Strategy

• Compare your business with your competitors’ by drawing your “as is” strategy canvas
Visual Awakening
• See where your strategy needs to change

• Go to the field to explore the six paths to creating blue oceans

Visual
• Observe the distinctive advantages of alternative products and services
Exploration
• See which factors you should eliminate, create, or change

• Draw your “to be” strategy canvas based on insights from field observations
Visual • Get feedback on alternative strategy canvases from customers, competitors’
Strategy Fair customers, and noncustomers
• Use feedback to build the best “to be” future strategy

• Distribute your before-and-after strategic profiles on one page for easy comparison
Visual • Support only those projects and operational moves that allow your company to close
Communication the gap to actualize the new strategy
 Principle 3. Reach Beyond Existing Demand

• First tier: “Soon to be” non-customers

who are the edge of your market, waiting
to jump ship
3 Tier of Non- • Second tier: “Refusing” non-customers
customers who consciously choose against your
market

• Third tier: “Unexplored” non-customers

who are in markets distant from yours
Principle 4. Get The Strategic Sequence Right
The Sequence of Blue Ocean Strategy

Buyer utility Price

Is there exceptional buyer Is your price easily
utility in your business idea? accessible to the mass of
buyers?

Adoption Cost
What are the adoption Can you attain your cost
hurdles in actualizing your target to profit at your
business idea? strategic price?

A commercially viable
blue ocean idea
Principle 5. Overcome Key Organizational Hurdles

Cognitive Resource
Hurdle Hurdle

Overcome Key
Organizational
Hurdles
Motivational Political
Hurdle Hurdle
Principle 6. Build Execution Into Strategy

Fair Process of Strategy

Strategy Formulation Process

Fair Process – Engagement, Explanation, Expectation clarity

Attitudes
Trust and Commitment – “I feel my opinion counts”

Behavior
Voluntary Cooperation – “I’ll go beyond the call of duty”

Strategy Execution
Exceeds Expectation – self initiated
 Tools and framework for BOS

• A diagnostic tool for building a compelling blue ocean

Strategy strategy
Canvas • It captures the current state of play in the known market
space
• Allow you to understand :
• Where the competition is currently investing
• The factors the industry currently competes on in
product, service and delivery
• What customers receive from existing competitive
offerings on the market
 6. Tools and framework for BOS

Strategy
Canvas

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 Four Action Framework
Which of the factors that the industry
Eliminate takes for granted should be eliminated?

Which factors should be reduced well

Reduce
below the industry’s standard?

Which factors should be raised well

Raise above the industry’s standard?

Which factors should be created that

Create the industry has never offered?

www.study Marketing.org 21
 Advantages of blue ocean strategy
 A company will have more success, fewer risks, and increased profits in a blue ocean
market.
 A blue ocean market business leader has first-mover advantages, cost advantages in
marketing with no competition,
 The ability to set prices without competitive constraints
 The flexibility to take its offering in various directions.
 A blue ocean strategy attempt to achieve both: differentiation and a low cost,
opening up a new market space.
 Blue Ocean Strategy allows businesses to create a Niche market to get out of the red
ocean competition so that competition becomes irrelevant.
Blue Ocean Strategy in Private Banking: A
new Model to win
 Introduction
What is the need to create Blue Oceans in Banking
Industry?
 IT and Communication advances and the rise of the
global knowledge based economies across the world.  The sample consisted:
 Current market strategies and skills are quickly
becoming outdated with the new technologies.
 Different players emerging in the market.
 FinTech, Neo bank
 In this scenario, it becomes essential for the
companies to look at new dimensions in their
strategic planning.
 Is it applicable in banking industry?
 Smart strategic moves applied will create Blue Oceans.
 The research conducted for over fifteen years, 150 strategic
moves across thirty industries and span of 100 years.
 Small and large companies,
 New entrants and established companies,
 Private and Public companies,
 Companies in low and high-tech environments and
 Companies in attractive and less attractive Industries.
 Confirm that there are no permanently great companies or
industries, but permanent great strategic moves
 From company and industry to strategic move
 Systematic tools and frameworks
 How to Create Blue Ocean Strategies?

Value Innovation
 Value creation alone improves value but is not sufficient
enough to make you stand out in marketplace.
 Innovation alone will often create a product that buyers are
not willing to pay for.
 Value innovation occurs only when companies align
innovation with utility, price and cost positions.
 Blue Ocean Strategy in Private Banking: A new Model to win

 The global private banking market is not shrinking  The banking industry has been covered with focus

but growing at a slower pace and with different on the retail and commercial sectors.

01
growth rates depending on the region.  The regional areas explored comprise:

 However, as the market is exposed to several game-  US,

 Europe,
changing trends leading to real threats,
 parts of South East Asia (e.g., Malaysia and
 it is suited for analysis using the BOS framework.
02 Singapore),

 Addresses both the “what” and the “how” of  India,

 Several countries in the Middle East, and
successful business model adaption.
 Africa.
 Visual Awakening
 Understand Where You Are Now
 Explore Your Status
 Where is your business compered to others?
 As Is
 See where your strategy needs to change
 Business Model Canvas
 What is business model?  High level systematic thinking.
 Wild idea and how we can make money on it.  The BMC supports the systematic analysis of business
 Business model canvas explain by three steps: models:
1. How do we make money?  The way companies operate and generate
revenue.
 Revenue mix
 It helps to document and visualize key factor
2. How do we balance multiple revenue streams with
cost structure?
 How do we structure both revenues and costs?
 Revenue mix and cost Structure
3. How do we design mutually reinforcing business
models where all building blocks make the whole
greater than the sum of parts.
 Business Model Canvas cont’d
Business Model Canvas:
 Provides detailed information of the nine
building blocks business model:
1. key partners,
2. key activities,
3. key resources,
4. Value proposition,
5. Client relationship,
6. Channels,
7. Customer segments,
8. Cost structure, and
9. Revenue streams.
How do we know enough key Competing Factors?
 Key factors must be comprehensive enough to capture
the dynamics of key players in the industry.
 Factors must be collectively exhaustive.
 If you identify too many factors, you will see that they
begin to overlap.
 Factors must be mutually exclusive.
 To apply a holistic approach that covers all relevant
elements and avoids overlaps, use a guiding
framework (BMC).
 The BMC will subsequently be used to develop BOS
strategy canvas.
 Customer
Key Partners Key Activities Value Proposition Client Relationship Segments

 Who are our key  What key activities do our value • What value we deliver  What type of relationship does each of our customer segments expect us  For whom
partners? propositions require? to the customer? establish and maintain with them? are we
 Who are our key  Our distribution channels? • Which one of the  Which ones have we establish? creating
supplier?  Customer relationships? customers problems are  How costly are they? value?
 Which key resources  Revenue stream? we helping to solve?  How are they integrated with rest of our business model?  Who are our
are we acquiring • Which customer needs Examples most
from partners? Categories are we satisfying?  Personal assistance/dedicated personal assistance important
 Which key activities  Production • What bundles of  Self-service/automated services customer?
do partners perform?  Problem solving products and services  Communities
 Platform/network are we offering to each  Co-creation
Motivation for customer segment?  Mass market
Key Resources Channels
Partnerships: Characteristics  Niche market
 Optimization and  What key resources do our value • Newness  Through which channels do our customer segments want to be reached?  Segmented
economy of scale proposition require? • Performance  How are we reaching them now?  Multi sided
 Reduction of risk  Our distribution channels? • Customization  How are our channels integrated? platform
and uncertainty  Customer relationships? • “Getting the job done”  Which ones work best?
 Acquisition of • Design  Which ones are cost efficient?
 Revenue streams?
particular resources • Brand/status  How are we integrating them customer routines?
Types of Resources:
Channel Phases
and activities  Physical • Price
 Awareness (how do we raise awareness about our company’s product and services?)
 Intellectual(brand patents, copy • Cost reduction  Evaluation (how do we help customers evaluate our organization’s value propositions?)
rights, data) • Risk reduction  Purchase (how do we allow customers to purchase specific product and services?)
 Human • Accessibility  Delivery (how do we deliver a value proposition to customers?)
 Financial • Convenience/Usability  After sales (how do we provide post purchase customer support?)
Cost Structure Revenue Stream
 What are the most important costs inherent in our business model?  For what value are our customers really willing to pay?
 Which key resources are most expensive?  For what do they currently pay?
 Which key activities are most expensive?  How are they currently paying?
Is your business more  How would they prefer to pay?
 Cost driven (leanest cost structure, low price proposition, maximum automation, extensive  How much does each revenue stream contribute to overall revenue?
out sourcing) or Types Fixed Menu Pricing Dynamic pricing
 Value driven (focused on value creation, premium value proposition) Asset sale Licensing List price Negotiation/bargain
Sample characteristics Usage fee Brokerage fees Product feature dependent Yield management
 Fixed cost (salaries, rent, utility)/variable costs Subscription fees Advertising Customer segment dependent Real-time market
 Economies of scale/economies of scope Lending /renting/leasing Volume dependent Auctions
Business Model Canvas of Private Bank
 How to determine CF score
 0 means that the industry does not address,
emphasize, or invest.
 10 indicates full commitment to or emphasis.
 These dimensions can have several characteristics:
 level (e.g., pricing or personal assistance),
 a binary (e.g., existence/non-existence of RMs).
 Not all these dimensions can be scored similarly.
Reading Value Curves
 A company caught in the Red Ocean: converge
 Over delivery without payback: deliver high levels
across all factors. Market share and profit?
 An incoherent strategy: zigzag with no reason "low-
high-low-low high-low-high"
 Strategic contradictions: offering a high level on one
competing factor while ignoring others that support it.
 An internally driven company: how label the
industry's competing factors? E.g. language
 Competing Factors of Private Bank
Competing Factor Description of Competing Factor
Breadth and depth of A PB offering can be characterized by its scope:
the offering
 Breadth: The total number of products and services included in the offering.
 Depth: The number of different offering versions.
 The typical private bank displays both elements.
 PB offerings are comprehensive and sophisticated.
 Thus its score is set at the higher end.
Pricing and fees  Focuses on the level of prices, charges, and fees.
 PB clients’ needs are complex and require comprehensive, specialist advice, prices are set at the
higher.
 Private banks strongly tend to align their price levels to their market positioning.
 prices are deliberately set at the higher end, coupled with a significant flexibility of RMs to
grant discounts, thus pleasing clients and generating a mutually beneficial situation (clients get
a discount, banks still earn sufficient revenue).
 Competing Factors of Private Bank Cont’d
Competing Factor Description of Competing Factor
Financial stability  a key unique selling point (USP) of the PB sector.
and security
 A capitalization (equity and equity like assets) level above regulatory requirements serves as:
 a buffer and absorption measure in case of crises and
 indicates financial stability.
 Financial solidity is a cornerstone of client trust, and
 Thus scores high on the strategy canvas.
Convenience and  Ease of access to services as well as the simplicity of client-oriented tools and
usability
infrastructure is a primary factor.
 Seamless customer journeys, facilitated by highly-usable front ends, enhance clients’ experience
and create value.
 In PB, where manual processes often still prevail, the convenience level is currently low.
 Thus, this factor’s canvas score is relatively low.
 Competing Factors of Private Bank Cont’d
Competing Factor Description of Competing Factor
Productivity and  The speed of client facing and customer-centric banking processes:
speed
 The mission critical onboarding process, is determined by their online closing capability.
 Technology is making substantial progress (e.g., video-supported ID checks).
 However, in traditional PB, significant room for improvement exists,
 Thus leading to a factor number in the lower range.
Availability and  These elements represent the client-facing quality of customer support
responsiveness
 e.g., responsiveness of assistance functions such as a hotline.
 In PB relationships, the RM, as the key point of contact, performs support functions:
 Answering questions or handling issues,
 Supported by further downstream functions.
 For lower-tier PB clients, these tasks are increasingly being shifted to RM pools.
 In general, the client support offered is sufficient,
 Therefore resulting in a medium-range score.
 Competing Factors of Private Bank Cont’d
Competing Factor Description of Competing Factor
Level of personal  Personal assistance refers to the overall client support provided by the dedicated RM and,
assistance
possibly, an RM assistant.
 It includes all personal and business-related topics (from processing payments to organizing
an opera ticket despite the event being sold-out)
 since an RM acts as the key go-to person for his/her clients.
 In traditional PB, this key factor level is very elevated.
Holistic client view  One of PB’s primary features is offering a comprehensive view of the assets, the liabilities,
and the overall business, financial, and personal situation of wealthy clients.
 A full insight can provide the level of information required to develop tailored proposals and
measures in the best interest of the clients.
 The idea of holistic advice has recently gained traction, partly fueled by improvements in
underlying technologies (AI, client workbench, etc.).
 Thus, the canvas score of this factor is positioned high end.
 Competing Factors of Private Bank Cont’d
Competing Factor Description of Competing Factor
Customization  To meet client expectations and cater for a broad and heterogeneous array of requirements,
 PB products and services must provide a superior level of
 Personalization and
 Individualization.
 Since this service is generally offered to clients in the industry (e.g., via bespoke solutions),
 The corresponding score is set at the higher end.

Relationship Manager  The RM is the key person for PB clients, advising or arranging supplementary support if
needed.
 Seamless RM availability (through all channels, virtually at all times) is a primary factor.
 Today, the industry provides sufficient RM availability and support to meet client
expectations, leaving the value dimension score at a high level.
 Competing Factors of Private Bank Cont’d
Competing Factor Description of Competing Factor
Branch coverage  Despite discussions about reducing geographic client service coverage to reduce costs,
 The branch and its staff that personally serve clients is still key to building trust-worthy client
relationships.
 Having strong market coverage through regional branches is valued by clients, especially larger
clients with complex requirements.
 The current branch coverage for PB is high, and
 Thus receives a high factor score.

Online channel  Online channels are becoming an increasingly important way to interact and communicate with
coverage clients, especially since digital natives, such as
 The millennial generation, will gradually become the main customer base,
 Considering the rising demand for fast, seamless interaction.
 Although private banks invest heavily in the online arena, there is still room for improvement,
 Thus resulting in a medium canvas score.
Structuring framework to determine BOS key industry factors
“As-is” strategy canvas for PB (industry aggregate and exemplary bank)

• What do you observe from the above strategy canvas?

 Business context / Field Lab in Innovation & Entrepreneurship Portuguese University
Students
Bank Y: Project:
The Innovation & Entrepreneurship Field Lab
 One of the major players in the sector,
assembles several teams of Master’s students to develop
 Aims to develop a more competitive positioning. new concepts to help Bank Y innovate the banking

 Created its Living Innovation lab to develop innovative sector.

The project was developed together with students and
ideas and
Bank Executives, while this Work Project was made by
 push the limits of the Bank’s culture with the help of the students alone.

university students and staff. This thesis serves as a report of the work developed in
the innovation & entrepreneurship field lab.
Strategy Canvas for Bank Y
Business Model Canvas of Flow: Customers segment side
Business Model Canvas of Flow: Sharing customers
 Visual Exploration
 Imagine where you could be?
 What are unknown customers?
 What are pain points?
 How to solve the pain points?
Non-customer Analysis (from Customer to Non customer): Go Beyond the Existing Demand
 By focusing on the key factors that lead buyers to trade across alternative industries and eliminating or reducing everything
else, you can create a blue ocean of new market space.
Substitutes Alternatives Potential Value dimensions:

Retail banks Robo-advisors  Low cost,

Universal bank Financial advisors  Convenience, and

Private banks Insurance  professional advice

Fund providers
 Strategic industry group
Potential value dimensions:
 Large (universal) banks with a significant PB
 Branch network,
 Investment banks with a small to midsized PB business
 Prices,
 Retail banks with a minor PB business
 Accessibility,
 State or federal owned institutes with a decent PB business
 Financial stability,
 Robo-advisors targeting smaller clients with sophisticated, algorithm-based
 User experience.
solutions.
 By looking across buyer groups, companies can gain new
insights into how to redesign their value curves to focus
on a previously overlooked set of buyers.

 Elements of chain of buyers  Value factors conditioned by major tech companies:

 Purchasers: actual PB clients  Convenience,
 Users: actual clients and their family members (wife,  Speed,
children, parents)  Access, and
 Influencers: external asset managers, financial  Client experience
intermediaries  The potential value dimensions are already incorporated in
 All types of buyer exist in PB. the current PB canvas.
 The shift to the next generation of younger users.
BOS approach types (examples)
Benefits that emerge:
 Bundling Combining complementary services with the main offering result in a complete solution
 Convenience,
 Direct product-related features: e.g., real-time support, online product simulation tools, data sharing
with third party analytics providers to enhance investment performance.
 Client experience,

 General or unrelated features: e.g., seamless and rapid onboarding, access to investment-related social and
media/networks, and further measures that enhance client experience.  Innovation
 Total cost approach combination of (at first glance) expensive main products a free or less expensive
sub-product or service.
 Securities research, access, or the use of specialists such as wealth planning expert
 PB industry: Perspective Functional or emotional appeal

Emotional: client relationships  Stripping away emotionality: Eliminate RMs

 Focusing on client self-servicing or algorithm-based investment support via appropriate tools.
 de-emotionalization
 Enhance client onboarding and investment profiling (risk assessment and alignment with
investment goals) e.g using behavioral finance techniques

Emotional: Client relationships  Enhance the emotional intelligence level of RMs. So that enhance client satisfaction

 Maximizing the current  Optimize the client-RM matching process onboarding to obtain the best personal fit.

Functional: investing and managing wealth  Increasing functionality: behavioral finance tools and techniques in the management of assets
Private Banking: major trends being decisive, irreversible and having a clear trajectory:  Value factors:
 Regulatory: The primary objective of client protection  The potential client-facing key
 Demographics: Generational shift
factors
 Client behavior: Change in client behavior due to technical affiliation
 Already factored into the current
 Technology: Technological development, Emergence of agile,
PB canvas.
 Deconstruction of the value chain: Fintech/high-tech companies
 Investment environment: Long-lasting low interest rate environment
 Summary of the six paths framework and applying findings to the PB sector
Potential benefits
Key Path Head-To- head competition Blue Ocean Creation Remark
(new value) dimensions
Industry Focuses on rivals within its Looks across alternative low cost, convenience,
industry industry and professional advice
Strategic Focuses on competitive position Look across strategic branch network, prices, Already
group within strategic group groups within industry accessibility, financial incorporated
stability, user experience in current
Buyer group Focuses on better serving the Redefine the industry convenience, speed, access, canvas
buyer groups buyer group and client experience
Scope of Focuses on maximizing the value Looks across to Convenience, client
product or of product and service offerings complementary and experience, and
service offering within the bounds of its industry service offerings innovation
Functional or Focuses on improving price Rethinks the functional- The optimization of
emotional performance within the emotional orientation of emotionally-driven
orientation functional-emotional orientation its industry processes
its industry
Time Focuses on adapting to external Participates in shaping The potential client- Already
trends as they occur external trends over time facing key factors incorporated in
current canvas
ERRC Grid: Sense and Purpose
Eliminate-Reduce-Raise-Create (ERRC) Grid PB
 Visual Strategy Creation
 Start create a new value curve

 Putting together how to create value and reduce cost

 Start a new strategic profile of our company

“To-be” PB BOS canvas (Industry aggregate vs exemplary bank) including the ERRC
measures
 The characteristics of a Good BOS
Focus Divergent Compelling Tagline

 The strategy is clearly reflected in the  The new value curve stands  A potential slogan could be “private

01
company’s value curve. 02
apart from the competition. banking for aspiring clients”

 It is focused on the key factors:  The key differentiators:  Summarizing the value proposition

 Client experience,  Client experience in one sentence

 Client servicing,  Client servicing  Delivering a razor-sharp message to

02
 Online channel coverage,  Image and accessibility the market

 New target clients and  Displaying uniqueness and

 Image and accessibility supporting the BOS approach

Get the Strategic Sequence Right
The BOS sequence
Buyer Utility Map

Private bank:
 Discover and Identify hidden opportunities:
High convenience, onboarding experience,
look and feel, online channel access, and
support low fees and the PB offering’s
accessibility and image
Identify spots not yet covered by anyone
within the industry:
 The new PB BOS offering passes this utility
test and can move to the next step.
Price Corridor of the Mass
Profit Model of BOS
Overview of efficiency- and cost-focused measures within BOS target costing
New Operating model of Private Bank
Business Model Canvas to Create a New Private Bank BOS Model
Bringing it all Together
The Financial Viability Perspective
 The Final Operational Setup of the PB BOS model

 Leveraging superior portfolio management capabilities and PB offerings of the parent bank to attract a
completely new set of clients (former non clients of the industry).

 reducing or compensating for weaknesses (e.g., client front-end processes, client experience)

 Utilizing the strong brand and reputation of the parent bank but changing its respective image to make
PB more accessible for smaller (target) clients.

 Offering attractive prices aligned with the value proposition to allure target customers.

 The distinct value proposition of the new PB BOS setup (in short: high-end PB products at “retail” price, superior
client experience, and accessible image)

 Applying cutting-edge technology from established third party providers to deliver outstanding client
experience.