Presentation by

Christopher
Business Strategy
UMSDQ5-15-3
Lipp

Lecturer
International
Business

Study Unit 5
Strategy and Innovation 1

Code:
 This Week Preparation
Study Unit 5 – Strategy and Innovation 1: Blue Ocean Strategy

Lecture Attendance and Recording

Mandatory preparation for seminars:

Watch and take notes:
Kim and Mauborgne (2005) Blue Ocean Strategy: From Theory to
Practice
Video summary or article available on Blackboard

Case study:
prepare your answers to
the case study on Netflix in 2011.
Blue Ocean Strategy
“Value innovation is the cornerstone of blue ocean strategy. We call it
value innovation because instead of focusing on beating the
competition, you focus on making the competition irrelevant by
creating a leap in value for buyers and your company, thereby opening
up new and uncontested market space.”

― W. Chan Kim & Renee Mauborgne, Blue Ocean Strategy

Blue Ocean Strategy Assumptions

Red Oceans: Blue Ocean:

• Existing firms fight for
market share
• Assumes market structures
are fixed
• Dividing demand to try to
defend position
• Re-defines market
• Reconstruction of value - new
market space
• Focus on value needed by all
customers
• No unattractive industries

Market Competing Market Creating

Can you create new space/ways of competing rather than grinding it

out with the competition?
 “ERIC”!
By reconceiving industry boundaries you can cut cost while at the same time
deliver more value to customers….

Cost Do it right and you appeal to all customers

Cost
Value
Innovation
leadership?

Differentiation?
Buyer Value …by eliminating and reducing the factors of
competition that customers don’t value to
allow increase and creations of factors they do
value
 Factors of Competition
Steps in Blue Ocean strategy process make you challenge current industry
paradigm:
S ee
ing
1. How does the th e
ga p 2. What are
Industry currently Customer “pain
compete? points”?
Look purely Look purely
managers p from Factors of Customer p from
erspective erspective
Competition Im
e ci fic activity ag
cust ine you
p
What s they see as o a
thou mer an re a
do
areas c o m peting g d
enga h your step
in
critical g em
ent

t o the 3. What Strategic

n g es
Ch ctors of
a Moves - can we
fa
e t ition make?
p
com

Focus on great “Strategic Moves” = Changing Activities

 Strategy Canvas: CitizenM Hotels
Critical –
Amount not Eliminate Reduce Increase Create
value!!!!
High

5 Star Luxury Hotels

Citizen M
Amount / Level
of a Factor

3 Star Hotels

Low
ice

et
n
rt

om
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se t

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io

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pt

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7Based on Kim and Mauborgne (1997 and 2018)

Gu
ee
Fr
Systematic Process is the Core
Six Paths New Value Curves
Value Curve

Immersive

Offering Level versus

Market Expectations
Very high

Interviews and
High

Average

mapping “as is” Very low

Low

value curve

ity
Non
existent
-

/S nt
ge

n
ur

e
tio
L o a ff

op

ic
e
ita

ec
m

Pr
ca

Sh
St
er

Sa ay
Key Elements

ty
fe
Winning
Market Ideas through Selecting and validating
Exploration structured winning Ideas
brainstorming

Value Curve Fair

Buyer Utility Map
And
Validation and Testing
Quantifying

ERIC Grid
Netflix Case Study
Part 1
 Factors of Competition
List key factors of competition

Remember you are thinking from

Managers perspective NOT customers
before Netflix
NB. Value is absolute level e.g. amount E.g. Number of stores or stock of recent releases
or Number. Not perceived value
In USA so called
Judge on Amount not value “Mom and Pop”
i.e. nothing, low, med. high independent stores

K+M
always
put Factors of Competition Level (0 - 3)
price What specific activity areas did Blockbuster’s managers see
first in as critical to the firm’s profits? Blockbuste Small stores
value r
curves 1 Pricing -
-
2 -
-
3 -
-
4 -
-
5 -
-
.. -
-
.. -
-
 1
2
3
4
5
Price

Size of network

Access new releasees

Density of stores
Blockbuster

Claiming late fees

“Mon + Pop”
Local stock hit films
Rental days per DVD

Total inventory

Store staff

Relationship with
studios

Availability of niche/
old films

Centralized
Netflix

distribution centres

Personalized
website

Mail distribution

Subscription model

Recommendation
system

Studio relationship/
shared revenue

Streaming
infrastructure

Original content
 Step 1 – define experience cycle for
your industry

Step 2 - identify pain points (Utility Simplified Buyer Utility Matrix

levers might suggest unconsidered
issues First define cycle stages for video rental from
stores and write in definition for each stage

Buyer Experience Cycle

Utility Levers

• Customer
Productivity

• Simplicity

• Convenience

• Risk Reduction

• Fun & Image

• Environmental
Friendliness

wi t h
Bloc using
kbu
ster
/sm
all s
tore
s
 The Gap?

Spend a few minutes thinking about the gap you now see between the “As Is” Value
Curve and the Customer perspective revealed by the Buyer-Utility Matrix. What would
you do?
1. What factors did the firm eliminate
and reduce?
2. What is it increase and create?
ERIC Grid
Netflix 2: Streaming
3. Write in appropriate box
4. Score amount for each factor (0-3)

What factors did Netflix change compared to Blockbuster Stores (see the
mail order business as an step on the way)?

Eliminate Reduce
- Store network and in store - Overall stock level
staff. - Promotion of blockbusters'
- Late fees.
- Rental model

Increase
- Relationship with studios
- Availability to niche/older films
- Promotion of lesser know films
- Acquisition of distribution rights
- Ease of join/depart
Create
- Subscription model
- Centralised distribution centers
- Personalised website
- Mail delivery
- Customer recommendation
system
- Shared revenue model
1. Use data from previous slide to draw the value
curves for Blockbuster, Small Stores and Netflix
2. Order factors to give smooth curve for Netflix Target Value Curve
High
Amount

Med.

Low

Zero
1. Price

..

..

..

..

..

..

..

..

..

..
..
Eliminate Reduce Increase C reate
 Analysis
Did Netflix create Blue Ocean space?

Did it make the competition “irrelevant”? Why?

 Example Exam Question

Kim and Mauborgne (2005) suggests that competitive

advantage based on position or core competencies will
not deliver sustainable success and instead firms will
only thrive by moving into new blue ocean market
spaces.
Using the example of Netflix, critically discuss how firms
might develop a Blue Ocean strategy.
Next week
Lecture on Strategy and Responsibility 1

Seminars on Disruptive Innovation

Mandatory preparation for seminars:

Lecture recording: Main lecture, and lecture chunks (“In details”)

Read and take notes:

Christensen, Raynor and McDonald (2015): What is Disruptive
Innovation?
+ Short interview with Clay Christensen

Case study:
Netflix in 2011 and short news articles
Articles on Blackboard.
See you next week!