Blue Ocean StrategyW. Chan Kim and Renee MaubourgneW. Chan Kim and Renee MaubourgneEdited by Chitchai P.Edited by Chitchai P.1Agenda1.Blue Ocean Strategy (BOS)Creating Blue OceanAnalytical Tools and Frameworks2.Formulating Blue Ocean StrategyReconstruct Market BoundariesFocus on Big PictureReach Beyond Existing DemandGet Strategic Sequence Right3.Executing Blue Ocean StrategyOvercome Key Organization HurdlesBuild Execution into StrategyConclusionAgenda1.Blue Ocean Strategy (BOS)Creating Blue OceanAnalytical Tools and Frameworks2.Formulating Blue Ocean StrategyReconstruct Market BoundariesFocus on Big PictureReach Beyond Existing DemandGet Strategic Sequence Right3.Executing Blue Ocean StrategyOvercome Key Organization HurdlesBuild Execution into StrategyConclusion1.Blue Ocean Strategy (BOS)Creating Blue OceanNew Market SpaceThe Continuing Creation of Blue OceansThe Impact and Imperative of Crating Blue OceansFrom Company and Industry to Strategic MoveValue Innovation: The Cornerstone of BOSThe Six Principles of BOSValue Innovation:The Cornerstone of BOSThe Cornerstone of BOSCostsBuyer ValueValue Value InnovationInnovationThe Simultaneous Pursuit of Differentiation and Low CostRed Ocean vs. Blue Ocean StrategyRed Ocean StrategyCompete in existing market spaceBeat the competitionExploit existing demandMake the value-cost trade-offAlign the whole system of a firms activities with its strategic choices of differentiation or low costFocuses on adapting to external trends as they occurCreate uncontested market spaceMake the competition irrelevantCreate and capture untapped demandBreak the value-cost trade-offAlign the whole system of a firms activities in pursuit of differentiation and low costParticipates in shaping external trends over timeBlue Ocean StrategyThe Six Principles of BOSExecution PrinciplesExecution Principles Overcome key organization hurdles Build execution into strategyRisk Factor Each Risk Factor Each Principle AttenuatesPrinciple Attenuates Organization risk Management riskFormulating PrinciplesFormulating Principles Reconstruct market boundaries Focus on the big picture, not the numbers Reach beyond existing demand Get the strategic sequence rightRisk Factor Each Risk Factor Each Principle AttenuatesPrinciple Attenuates Search risk Planning risk Scale risk Business model riskAnalytical Tools and FrameworksStrategy CanvasFour Actions FrameworkEliminate-Reduce-Raise-Create GridThree Characteristics of a Good StrategyStrategy CanvasUS Wine Industry in the late 1990sUS Wine Industry in the late 1990sHighPriceLowPremium WinesBudget WinesWinerangeWine complexityVineyard prestigeAgingqualityAbove-the-line marketingUse of enological terminology and distinctions in wine communicationFour Actions FrameworkREDUCEREDUCEWhich factors should bereduced well below the industrys standards?CREATECREATEWhich factors should be created that the industry has never offered?ELIMINATEELIMINATEWhich of the factors thatthe industry take for grantedshould be eliminated?RAISERAISEWhich factors should be raised well above the industrys standard?A New A New Value Value CurveCurveEliminate-Reduce-Raise-Create Grid Case Study: Yellow TailCase Study: Yellow TailReduceReduceWine complexityWine rangeVineyard prestigeCreateCreateEasy drinkingEase of selectionFun and adventureEliminateEliminateEnological TerminologyAging qualitiesAbove-the-line MarketingRaiseRaisePrice versus budget winesRetail stores involvementA New Value Curve Strategy Canvas of Yellow TailStrategy Canvas of Yellow TailHighPriceEasy drinkingEase of selectionLowPremium Winesyellow tailBudget WinesFun and adventureWinerangeWine complexityVineyard prestigeAgingqualityAbove-the-line marketingUse of enological terminology and distinctions in wine communicationCREATEREDUCEELIMINATERAISEStrategy Canvas: Southwest AirlinesHighPriceMealsLoungesSeating class choiceHub connectivityFriendly ServiceSpeedFrequent Pint-to-point departureLowAverage AirlinesSouthwest AirlinesCar TransportStrategy Canvas: Cirque du SoleilHighPriceStar performersAnimal showsMultiple show arenaFun and humorThrill and challengeUnique venueThemeLowRingling Bros. & Barnum & BaileyCirque du SolielSmaller Regional CircusesRefined watching environmentMultiple ProductionArtistic music and danceAisle concessionsThree Characteristics of a Good StrategyFocusDivergenceCompelling TaglineAgenda1.Blue Ocean Strategy (BOS)Creating Blue OceanAnalytical Tools and Frameworks2.Formulating Blue Ocean StrategyReconstruct Market BoundariesFocus on Big PictureReach Beyond Existing DemandGet Strategic Sequence Right3.Executing Blue Ocean StrategyOvercome Key Organization HurdlesBuild Execution into StrategyConclusion2.Formulating Blue Ocean StrategyReconstruct Market BoundariesPath 1: Look Across Alternative IndustriesPath 2: Look Across Strategic Groups within IndustriesPath 3: Look Across Chain of BuyersPath 4: Look Across Complementary Products and Service OfferingsPath 5: Look Across Functional or Emotional Appeal to BuyersPath 6: Look Across TimeStrategy Canvas: NetJetsPath1: Alternative IndustryPath1: Alternative IndustryHighPrice (fixed purchase + variable price per flight)Need for customer to manage aircraft (Aircraft M&A)Deadhead costsSpeed of total travel timeEase of travel (include. Check-in, customs, etc.Flexibility and reliabilityIn-flight serviceLowPrivate JetCorporate travelNetJets Value CurveCommercial AirlinesFirst and Business-Classes travelStrategy Canvas: QuickFitPath2: Strategic GroupPath2: Strategic GroupHighPriceAmenitiesWorkout equipment (treadmill, weights, etc)Workout timeAvailability of instructorsEnvironment encouraging discipline and motivation in exerciseNonthreatening same-sexEnviron-mentConvenienceLowTraditionalhealth clubsCurvesHome Exercise ProgramWomanly fun atmos-phereStrategy Canvas: NABIPath4: Scope of Product/Service OfferingsPath4: Scope of Product/Service OfferingsHighInitial purchase priceCorrosionMaintenance costFuel consumptionEnvironmental friendlinessAesthetic designCustomer friendlinessLowAverage US Transit BusNABIHungarian Municipal Bus Company Life-Cycle CostStrategy Canvas: QB HousePath5: Functional/Emotional OrientationPath5: Functional/Emotional OrientationHighPriceReservation deskExtra services (other than haircutting)Range of hair treatmentsHygieneTime savings on waitingTime savings on haircutHigh performance”air wash” systemLowAverage Japanese BarbershopQB HouseSummary:Conceiving New Market SpaceConceiving New Market SpaceHead-to-Head CompetitionIndustryStrategic GroupBuyer GroupScope of Product or Service OfferingFunctionalEmotional OrientationTimeFocuses on rivals within its industryFocuses on competitive position within strategic groupFocuses on better serving the buyer groupFocuses on maximizing the value of product and service offering within the bounds of its industryFocuses on improving price performance within the functional-emotional orientation of its industryFocuses on adapting to external trends as they occurLooks across alternative industriesLooks across strategic groups within industryRedefines the industry buyer groupLooks across to complementary product and service offeringsRethinks the functional-emotional orientation of to industryParticipates in shaping external trends over timeBlue Ocean CreationFocus on Big PictureFour Steps of Visualizing StrategyThe Pioneer-Migrator-Settler MapFour Steps of Visualizing StrategyVisualAwakeningVisualExplorationVisualStrategy FairVisualCommunication Compare your business with your competitors by drawing your “as is” strategy canvas. See where your strategy needs to change. Go into the field to explore the six paths to creating blue oceans. Observe the distinctive advantages of alternative products and services. See which factors you should Eliminate, Raise, Create, or Change. Draw your to be” strategy canvas based on insights from field observations. Get feedback on alternative strategy canvases from customers, competitors customer, and non-customers. Use feedback to build the best “to be” future strategy. Distribute your before-and-after 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.The PMS MapPioneersPioneersMigratorsMigratorsSettlersSettlersTodayTodayTomorrowTomorrowReach Beyond Existing DemandFirst Tier: “Soon-to-be” non-customers who are on the edge of your market, waiting to jump shipSecond Tier: “Refusing non-customers who consciously choose against your market.Third Tier: “Unexplored” non customers who are in markets distant from yours.FirstTierSecondTierThirdTierYour MarketGet the Strategic Sequence RightBuyerUtilityPriceCostAdoptionCommercially Commercially Viable Blue Viable Blue Ocean IdeaOcean IdeaNOIs there exceptional buyer utility in your business idea? Is your price easily accessible to the mass of buyers? NOCan you attain your cost target to profit at your strategic price?NOWhat are adoption hurdles in actualizing your business idea? Are you addressing them up front?NOBuyer Utility Map1Purchase2Delivery3Use4Supplement5Maintenance6DisposalCustomerProductivitySimplicityConvenienceRiskFun and ImageEnvironmental FriendlinessThe Six Utility LevelsThe Six Stages of the Buyer Experience CycleHow long to find the product you need?Is the place of purchase attractive and accessible?How secure is the transaction environment?How rapidly can you make a purchase?How long to get the product delivered?How difficult to unpack and install the new product?Do buyers have to arrange delivery themselves? If yes, how costly and difficult is thisTraining or expertise assistance required?Easy to store when not in used?How effective are features and functions?Overcharged with bell and whistles?Need other products to make it work?If so, how costly are they?How much time do they take?How much pain do they cause?How easy are they to obtain?Require external MEHow easy to maintain and upgrade?How costly?Create waist items?How easy to dispose?Legal or environmental issue of the product disposal?How costly?Price Corridor of the Mass1.Identify the Price Corridor of the mass2.Specify a Price Level within the Price CorridorThree alternative product/service types:Same FormDifferent FormSame FunctionDifferent Form and Function, Same ObjectiveSize of circle is proportion to number of buyers that product/service attractsUpper-level pricingMid-level pricingLow-level pricingPrice Corridor of the MassHigh degree of legal and resource protection Difficult to ImitateSome degree of legal and resource protectionLow degree of legal protectionEasy to ImitateProfit Model of BOSThe Target ProfitThe Strategic PriceThe Target CostPricing InnovationStreamlining and Cost InnovativePartneringAdoptionEmployeesPartnersGeneral PublicAgenda1.Blue Ocean Strategy (BOS)Creating Blue OceanAnalytical Tools and Frameworks2.Formulating Blue Ocean StrategyReconstruct Market BoundariesFocus on Big PictureReach Beyond Existing DemandGet Strategic Sequence Right3.Executing Blue Ocean StrategyOvercome Key Organization HurdlesBuild Execution into StrategyConclusion3.Executing Blue Ocean StrategyOvercome Key Organization Hurdles1.Cognitive Wedded to status quo2.Political Opposition from powerful vested interest3.Motivational Unmotivated4.Resource Limited resourceBuild Execution into StrategyFair ProcessEngagementExplanationExpectation clarityTrust &Commitment“I feel my opinion counts.”VolunteerCooperation“Ill go beyond the call of duty.”Exceeds ExpectationSelf-InitiatedStrategy Formulation ProcessAttitudeBehaviorStrategy ExecutionConclusionSustainability and Renewal of Blue Ocean StrategySustainability and Renewal of Blue Ocean StrategyImitation Barriers to BOSValue Innovation does not make sense to a companys conventional logic.Blue Ocean Strategy may conflict with companies brand image.Natural monopoly: The market often cannot support a second player.Patents or legal permits block imitation.High volume leads to rapid cost advantage for the value innovator, discouraging followers from entering the market.Network Externalities discourage imitation.Imitation often require significant political, operational, and cultural changes.Companies that value-innovate earn brand buzz and a loyal customer following that tends to shun imitators.