Presented By Amit Misra(Roll No. 8) Abhishek Choudhary(Roll No.
Blue ocean strategy challenges companies to break out of
red ocean of bloody competition. Instead of dividing up existing or even shrinking demand and benchmarking competitors, its about growing demand and breaking away from competition. The book focuses on methods of creating uncontested market space and make the competition irrelevant. The book focuses on systematic understanding of creating and capturing blue oceans. This helps in maximizing opportunity and minimizing risk.
Red Oceans Vs Blue Oceans
Red Oceans represent all the
Blue Oceans denote all the industries
industries in existence today. This is known market space. Exploit existing demand Industries boundaries are defined and accepted As market space is crowded, prospects for profit and growth are reduced. Align the whole system of the firm’s activities with its strategic choice of differentiation or low cost
not in existence today. This is the unknown market space. Create and capture new demand Untapped Market space Opportunity for highly profitable growth Align the whole system of a firm’s activities in pursuit of differentiation and low cost.
differentiation. E.New Market Space
Blue oceans are largely uncharted Most blue oceans are created within red oceans by
expanding existing industry boundaries. Creating blue oceans are seen to be too risky a proposition for managers to pursue as a strategy.g. benchmarking Blue oceans though have been continuously created over time
. Overriding focus of strategic thinking has been on competition based red ocean strategies. Low cost. There are no established frameworks to create blue oceans and principles to effectively manage risk.
Impact of creating Blue Oceans
.Cornerstone of Blue Ocean Strategy
Value Innovation is the basic concept behind Blue Ocean strategy. Approach to strategy was the major factor in creating blue oceans successfully. Value innovation is a new way of thinking about and executing
strategy that results in the creation of blue ocean and a break from competition. Value innovation is different from technology innovation and market pioneering. Value without innovation tends to focus on value creation on incremental scale but doesn’t make a company stand out in market place. Value innovation occurs only when companies align innovation with utility. price and cost positions.
. Cost savings are made by eliminating & reducing the factors an industry competes on. Buyer value is lifted by raising and creating elements the industry has never offered.Value Innovation
Value Innovation is created in the region where company’s actions favorably affect both its cost structure and its value proposition to buyers.
Principles of Blue Ocean Strategy
Industry condition can be shaped.
. Think in terms of embracing key customer value commonalities.Difference in Logic
Conventional Logic lue Ocean Logic Blue B
Industry Industry conditions are Assumption given Strategic Focus Customers Build competitive advantages to beat the competition. Retain and expand the customer base through further segmentation and customization. Create a quantum leap in buyer value to dominate the market. Think in terms of embracing customer differences. Go for the mass of buyers and willingly let some existing customers go.
Think in terms of buyers’ solution even if that transcends the industry. Build on what it has.Conventional Logic Blue Ocean Logic
Assets & Think in terms of a Capabilities company’s existing assets and capabilities.
. Seek to maximize the value of these offerings. Think free from a company’s existing assets and capabilities. Seek to solve buyers’ major bottlenecks/chief compromises in using the products/services of the industry. Product/ Service offerings Think in terms of products/services offered by the industry.
Basic Tools and Frameworks of Blue Ocean Strategy
. the basic component of the strategy canvas. is a graphic depiction of a company’s relative performance Strategy canvas not only visualizes a company’s current strategic position in its market place but also helps it chart its future strategy. which allows to understand where the competition exists Information is captured in graphic form Horizontal axis consists of range of factors the industry competes on and invests in. The value curve.The Strategy Canvas
Diagnostic and Action Framework Captures the current state of play in the known market
Four Action Framework
What factors should be raised well beyond the industry standard?
What factors should be eliminated that the industry has taken for granted?
What factors should be created that the industry has never offered?
What factors should be reduced well below the industry standard?
Example: A highly competitive Industry
The American Wine Industry
Polarized Strategic Groups
1600 had the remaining 25% $ millions spent in marketing . Spain.
.American Wine Industry
3rd largest in world: worth $20 billion Californian makes 66% . France. better image. Chile. Washington.Titanic battles – intense competition Sever price pressure The dominant growth strategy was towards premium wines – more complexity. New York Customer base stagnant 31st in the world in per capita consumption Top 8 producers had 75% of the market. more prestigious vineyards.the rest is from Italy. number of medals won at wine festivals. Australia Exploding number of new wines – new vineyards in Oregon.
Offering Level versus Wine Drinkers’ Expectations
Very high Low Very low High
Us te e o di rmi f en wi stin nol olo co ne ctio ogy gic m ns an al m in d un ic Ab ati m ov on ar eke t h tin eg line Ag in g qu Vi al ity pr ney es ar le ga ti g d c e an W y d in e co m pl ex ity W in e ra ng e
Premium and Budget Wines
Pr e ic
Yellow tail created a social drink with fruit flavours.Observations
Confusing and complex
Wine descriptions and terminology The shopping experience The lack of clear guidance on what to buy and drink Thus. Yellow tail brought non wine drinkers.
. massively intimidating for ‘noncustomers’ (the large majority of the US population who were not wine drinkers) Budget wines and premium wines had the same strategic profile It was required to reorient the strategic focus from competitors to alternatives and from customers to non customers of the industry. beer and ready to drink cocktail drinkers into wine market.
Yellow Tail created a Blue Ocean
Creating a Blue Ocean
Very low High
Us te e o di rmi f en st no o in inc log log tio y ic e m ns an al m in d un ic Ab ati m ov on ar eke t h tin eg line Ag in g qu Vi al ity pr ney es ar le ga ti g d c e an W y d in e co m pl ex ity W in e ra ng e Ea sy dr in ki Ea ng se of se le ct io n Fu ad n a ve nd nt ur ou s
Yellow Tail Value Curve
Pr e ic
Yellow Tail Strategy
A new Value Curve originates by combining all the 4 actions
No 1 imported wine (outsells France and Italy) Fastest growing imported wine in the history of the USA
New consumers of wine Jug drinkers trade up Premium wine drinkers trade down
Characteristics of a good strategy
Reading the Value curve
Value Curve Value Curve converges with competitors Higher level across all factors Curve is in bowl shape Deviations in dependent factors Uncommon strategic jargons Meaning Company is caught in competition Over delivery without payback Incoherent strategy Strategic contradictions Internally driven
Reconstruct Market Boundaries Six Paths Framework
Head to head competition to Blue ocean creation
Head to head competition
Industry Strategic group Focuses on rivals within industry
Blue Ocean creation
Looks across alternative industries
Focuses on competitive Looks across strategic groups position within strategic group within industry Focuses on better serving the Redefines the industry buyer buyer group group Focuses on maximizing the Looks across to value of product & service complementary product and offerings within the bounds of service offerings its industry Focuses on improving price performance within the functional-emotional orientation of its industry Rethinks the functionalemotional orientation of its industry
Buyer group Scope of product or public offering
Focuses on adapting external Participates in shaping trend as they occur external trends over time
The four steps of visualizing strategy
Compare your business with your
Go into the field to explore 6 paths
competitors by drawing your ‘as in’ strategy canvas See where your strategy needs to change
to create blue oceans Observe the distinct advantages of alternative product and services See which factors are to be eliminated. created or changed
Visual Strategy Fair
Draw your ‘to be’ strategy canvas based on
Distribute your before and after
insights from field observations Get feedback on alternative strategy canvases from customers. competitors customers and non customers Use the feedback to build the best ‘to be’ future strategy
strategic profiles on one page for easy comparison Support only those projects and operational moves that allow your company to close the gaps to actualize the new strategy
companies need to look at non customers E. small target segments Instead of focusing on customers. they need to build on powerful commonalities in what buyers value E.g. Marines and Air force of US – highest cost components of software & engines of different fighter planes
. Navy. Big Bertha – golf club Instead of focusing on customer differences.Increasing the target segment
Challenge the existing conventional strategy practices
1) Focus on existing customers 2) Drive for finer segmentation or customization which creates too .g.
.The three tiers of non customers
1st Tier – Non customers on
the edge of the market 2nd Tier – Refusing non customers who consciously choose against your market 3rd Tier – Unexplored non customers who are in distant markets Focus on tier that represents the biggest catchment at that time.
The Sequence of Blue Ocean Strategy
Testing for Exceptional Utility
Phillips’ CD-I “Imagination Machine” Buyer Utility Map
Ford model T
. use.6 Utility Levers
Purchase. supplements. delivery. and disposal.
value of a product/service may be closely tied to the total number of people using it.Strategic Pricing
Two reasons for change: Volume generates higher returns than in past To a buyer. Nonrival good Excludability
Price corridor of the mass: 2 Step Process
levers IBM Slice-share Pricing innovation Article: “Target Cost Management” by Louise Ross
• Goal: corporate profits
during economic downturn
• “Taking a cue from
Hellman's Mayonnaise. who recently redefined the quart as 30 ounces instead of 32. the approach is simple. Hours are now 54 minutes long instead of 60.
6 percent. costly adjustments.iPhone Pricing Strategy
“The early adopters of Apple's iPhone paid $599 for the
privilege of being the first to have the hot new consumer product when it was launched in June of 2007.” "When you have something new about the product. As the early adopters complained about the $200 price cut.. such as the sleeker design and touch-screen technology for the iPhone. Apple announced that it was slashing prices on its most expensive iPhone by a third. Apple shares fell 8. losing almost $11 billion in market value in the three days following the announcement. it is a little harder to price it. The iPhone illustrates both the challenges of getting pricing right for new products and the dynamic changes in pricing that are needed as the market is developed. But by September.. Apple may have mispriced the product in the first place and then had to make painful.“
Profit Model of Blue Ocean Strategy
Blue Ocean Idea (BOI) Index
Phillips Motorola DoCoMo iCD-i Mode Japan Utility Is there exceptional utility? Are there compelling reasons to buy your offering? Is your price easily accessible to the mass of buyers? Does your cost structure meet the target cost? +
+ + +
Adoption Have you addressed adoption hurdles up front?
The Four Organizational Hurdles to Strategy Execution
Resource Hurdle Motivational Hurdle
• Tipping point leadership does not rely on numbers to break through the organization’s cognitive
Breaking Through the Cognitive Hurdle
. the hardest part is making people aware of the need for a strategic change.
• In turnaround.The Pivotal Lever: Disproportionate Influence Factors
Fundamental changes can happen quickly when the
beliefs and energies of a critical mass of people create an epidemic movement toward an idea. The 20:80 concept. and corporate transformations.
. employees must face the
worst operational problems.Ride the “Electric Sewer”
To break the status quo. Coming face to face with poor performance is shocking and inescapable. NYC Subway in 1990s
Meet with Disgruntled Customers
• To tip cognitive hurdle. • Managers must also listen to disgruntled customers firsthand. i. you can not simply just get managers out of the office to witness the operational horror.e.
.low resources but high potential
Cold Spots.high resource input but low performance
Horse Trading.Jump the Resource Hurdle
Multiply vale of resources already have factors that can
leverage to free up resources: Hot Spots Cold Spots Horse Trading
Hot Spots.Trading unit’s excess resources in one
area to another’s to fill remaining resources gaps.
increase costs Target hot spots and force remained constant Redirect Resources from Your Cold Spots NY Transit police Freeing up resources for use in Hot Spots Engage in Horse Trading Skillfully trade resources not needed for those of others do needed. NY Transit police: Traded not needed excess patrol cars for much needed office space the other department did not need.Jump the Resource Hurdle
Redistribute Resources to Your Hot Spot
NY Transit police Increase profits.
2.Jump the Motivational Hurdle
How to motivate
quickly and cheaply? Three factors of disproportionate influence:
Kingpins Fishbowl Management Atomization
• Use the “fair process”
. • Gives an opportunity for achievers to gain the recognition.
Kingpins in a Fishbowl
• Make these kingpins’s actions and non-actions visible to others. Example: NYPD motivating 76 precinct heads that have a ripple effect on their departments. those who are
well respected and persuasive. those who have ability to use or unlock key resources. • Question them in front of their peers and superiors.KINGPINS
Hone in on your natural leaders.
• Keep a Consigliere in your management team – A politically adept but highly respected insider. or sectors.
. Unless the goal is seen as attainable. By Department By Precinct By Division
Knock Over the Political Hurdle
• Politics are everywhere in business related activities – Influencing factors • Leverage Angels • Silencing Devils • Getting the consigliore on the top management. it usually is not likely to
work. Make the actions in the vision framed by sections.
Leverage Your Angels and Silence your Devils
Who is an angel and who is a devil? Don’t fight alone. “Discourage the war before it begins. Know the
angles of attack” “Anticipate the reaction”
Challenge Conventional Wisdom
• Transforming the masses uses time and resources. • Execution by using tipping point leaders to use disproportionate influencers.
People of the Company
• A company is not only top management, nor is it only middle
management. It is everyone from the top to the front lines.
• Only when all the members of the organization are aligned
around a strategy and support it does a company stand apart as a great and consistent executor.
• You must create a culture of trust and commitment that
motivates people to execute the agreed strategy, and willingly go beyond the compulsory execution to the voluntary cooperation in carrying it out. start. It allows company to minimize management risk of distrust, noncooperation and even sabotage.
• Companies need to build the execution into strategy from the
Poor Process Fair Process
Poor process can ruin strategy execution. People care as much about the process through which the
outcome is produced as they do about the outcome itself. Fair process builds execution into strategy by creating people’s buy-in up front.
How Fair Process Affects People’s Attitudes and Behaviors Strategy Formulation Strategy
Trust and Commitment
“I feel my opinion counts.”
Engagement Explanation Expectation Clarity
“I’ll go beyond the call of duty.”
Any subset of the three does not create judgments of fair process.
. these three criteria collectively lead to judgments of fair process.The Three E Principles of Fair Process
• Engagement • Explanation • Clarity of Expectation
set out to create and execute
a blue ocean strategy.Tale of Two Plants
Company had two plants at Chester and High Park.Example . there was a strong union. whereas at High Park. a elevator systems manufacturer.
manufacturing system with a cellular approach.
Elco decide to implement its strategy in phased manner 1st at Chester
and next at High Park.
themselves decertifying there union. Elco had very good employee relationship at Chester. with employee.
) High Park plant People felt as if they had been treated fairly.Results
1. 2.) Chester Plant The introduction of the new process quickly led to disorder and rebellion.
. Cost and quality performance were in a free fall. and so they willingly participated in the rapid execution of the new manufacturing process.
Violation of Recognition
– If individuals are not treated as if their knowledge is valued. individuals seek recognition that their ideas are sought
after and given thoughtful reflection. – They will also reject others’ intellectual worth. including sabotage.
• When people are emotionally recognized. – They will apply counter-efforts. they feel emotionally tied to
the strategy and inspired to give it their all.Intellectual and Emotional Recognition
• Intellectually. they will feel angry and will
not invest their energy in their actions.
– If emotional worth is not recognized. – They will hoard their best thinking and creative ideas. they
will feel indignation and will not share their ideas and expertise.
The Execution Consequences of the Presence and Absence of Fair Process in Strategy Making
Fair Process Intellectual and Emotional Recognition Trust and Commitment Voluntary Cooperation in Strategy Execution
Violation of Fair Process
Intellectual and Emotional Indignation
Distrust and Resentment
Refusal to Execute Strategy
and consistency of their execution and to implement strategic shifts fast at low cost.
Commitment. they are willing to override
personal self-interest in the interests of the company. trust. quality.Fair Process and Blue Ocean Strategy
When people have trust.
When they have commitment. they have a heightened confidence
in one another’s intentions and actions.
People realize that compromises and sacrifices are
necessary in building a strong company and they accept the need for short-term personal sacrifices in order to advance the long-term interests of the corporation.
. and voluntary cooperation allow
companies to stand apart in the speed.
Kinepolis. The Body Shop.
.Barriers to Imitation
A blue ocean strategy brings with it considerable
barriers to imitation A blue ocean strategy can go without credible challenges for ten to fifteen years
This was the case with CNN.
• High volume generated by a value innovation leads to rapid cost
advantages. discourages initiations. placing potential imitators to entering the market.
• Brand image conflict prevents.(The Body
• Natural monopoly: The market cannot often support a 2nd Player. imitation of strategy.Barriers to Imitation
• Value innovation move doesn’t make sense to a conventional logic. (Wal-Mart)
• Network externalities. political and
cultural changes. • Imitation
often requires significant operational.
When to Value-Innovate Again
• Eventually. you may focus on the competition and not the buyer
– If you stay on this course. the basic shape of your value curve will
begin to converge with those of the competition
• To avoid the trap of competing you need to monitor value curves on the
strategy canvas – Monitoring value curves signals when and when not to value innovate – Also. almost every blue ocean strategy will be imitated
– Result: you may fall into the trap of competition
• Overtime. it keeps you from pursuing another blue ocean when there is still a profit stream to be collected from your current offering
bloody competition commences and the ocean will turn red Plot your own and your competitors’ value curves on a strategy canvas to determine when you should create a new blue ocean This allows you to see the extent to which your blue ocean is turning red
.When to Value-Innovate Again
When the company’s value curve still has focus you should resist the
temptation to value innovate again However. you should focus on operational improvements and geographical expansion to achieve the maximum economies of scale and market coverage As rivalry intensifies and total supply exceeds demand.
The Six Principles
The 6 principles of blue ocean strategy proposed should serve as essential pointers for every company thinking of its future strategy
that companies succeed in both oceans and master strategies for both.
should go beyond competing for share to creating blue oceans.Conclusion
• To obtain high performance in this overcrowded market.
• Because red and blue oceans have always coexisted.
• Companies need to learn how to make competitors irrelevant • This book aims to help balance the scales so that formulating and
executing blue ocean strategy can become as systematic and actionable as competing in the red oceans of known market space.