Blue ocean strategy Part 2

Blue Ocean Strategy – Part 2
Formulation & Implementation

The science of making competition irrelevant

© 2012 Regalix Inc. Confidential, All Rights Reserved

In Our Previous Webinar


Red Ocean Vs. Blue Ocean

Red Ocean Strategy Blue Ocean Strategy

Compete in existing market space Create uncontested / New market space

Beat the competition Make the competition irrelevant

Create a value – cost trade off Break the value-cost trade off

Competitive Advantage Value Innovation

Segment existing customers Attract noncustomers

Exploit existing demand Create and capture new demand


Value Innovation
Traditional Companies Blue Ocean Companies

Price
Eliminate Price

Reduce
Value Innovation –
Simultaneous pursuit
of high value & Low cost
Create

Value/ Raise Value/ product
product features
features

Characteristics of a good Value innovation Strategy
Compelling Tag line : The value
FOCUS: Not to diffuse efforts DIVERGENCE: The shape of the
curve can be translated into a
across all key factors of value curve diverges from those
clear, strong, truthful and
competition. of other players.
compelling TAGLINE.

The Four Actions Framework
REDUCE

Factors that should be well
below the industry
Standard

ELIMINATE CREATE
Create A
Factors that the industry New
Value Factors that the industry
takes for granted and need
has never created
to be eliminated Curve

RAISE

Factors that should be
raised above the industry
standard

The Strategy Canvas Concept
NETJETS
High

Medium Business / 1st
Class Travel
Relevance Scale

Low Commercial
Airline Industry

Dead head Hassle free Time Savings/ Flexibility &
Price Faster Travel
Jet Ownership In Flight Service
Costs Travel Reliability
Attributes of Industry & Competitors
NETJETS Commercial Airline Business / 1st
Industry Class Travel

• The strategy canvas is the central diagnostic and action framework for building a compelling blue
ocean strategy.
• The Strategy canvas serves two purposes:
– It captures the current state of play in the known market space. This allows you to know where you
are viz competition
– It propels you to action by reorienting your focus:
• From competitors to alternatives
• From customers to non customers of the industry.

Strategic Questions before NetJets
– How to enter into the Aviation Space when the market was dominated by the big Airline groups? -
1983
The Red Ocean
•Over 20 domestic And international Airlines competing in the space
•All of them attracted Business Travelers, Holiday travelers and Casual Travelers
•Corporates spent millions on executive travel every year
•All travelers had to go through the long check ins, security checks, hectic flight transfers, congested airports,
Baggage claims ….
•Business Travelers only have the option of Business Class/ First class or corporate Jet

The Blue Ocean
• Identified that Business Travelers are the most frequent and regular flyers
• NETJETS offered Business Travelers “ The convenience of a private Jet at the price of a Airline Ticket”
• NETJETS also provided fractional 1/16 ownership of the aircraft – With no hassles Aircraft Maintenance
• Private Aircraft made available to corporate at 4 hours notice ( much less than flight booking)
• No Hassles or responsibilities of Aircraft Maintenance
• Customized in flight services – Only for the traveler

Created a B2B industry when the entire industry was still B2C

The Story Of Indochino.com
• World’s first Self Service Virtual Suit company
• Customers can choose the fabric, design style and accessories - Online
• Buttons, Lapels, linings, pockets, cuff signature – everything is customizable
• Customers measure themselves and provide fitting details online with video tutorial
• Delivery within 3 weeks (
• If order is less than perfect, Indochino pays for local tailoring or remake sthe suit for free
• Most suits priced under $500 ( Whereas cheap suits cost around $200 and the designer ones around $1500)

Traditional Apparel / Suit Companies Indochino.com

1) Indochino.com does not compete in any of the
• Industry divided into five segments segment
Haute Couture, Luxury, Affordable Luxury, Mainstream
& Discount 2) Indochino.com does not get affected by the industry
factors
• The Traditional companies competed among each other
on the factor like : No of stores, Location of stores – 3) Indochino.com built its brand reputation by delivering
Premium stores , Premium brand, Range or no of Lines Value
offered, Hi Fashion Vs customization Vs price Tradeoff
4) Indochino.com outsources all suits to quality and
• Marketing & Brand reputation reputed local and tailor network of Shanghai
( Top brands associated with Designer Labels)
Created and Captured a new Market
•High Customization costs Demand by focusing on Buyer Utility

The Story Of Zynga
•Founded Zynga in April 2007 with a mission “Connect the world through games”
•Has over 3000 Employees and 270 million customers, 60 mn daily active users
•Largest Social games developer of Facebook
•Now provides games in multiple platforms like:
•Facebook, Myspace, Android, ipad, iphone, yahoo & Farmville.com

Traditional Gaming Companies Zynga

1) Industry divided into four segments
• Console based games, Online Games, Mobile Games &
Flash Games
2) Console based games dominated the marketplace with 75% Zynga’s Farm Ville
of the revenues.
1) Zynga did not compete in any of the segment or market
3) The big three of the gaming dominated 95% of the console player dominance
marketplace (sony, Nintendo, Xbox ..)
2) Zynga’s (Farm Ville) did not get affected by the industry
4) The Traditional gaming companies competed among each factors
other on the following factors:
Consoles – Type speed, capabilities, No of titles in each genre, Speed 3) Zynga built its brand reputation by sharing and word of
of Title Release – weekly, monthly, Hi end real time graphics, Hi end mouth connect
accessories
4) Zynga caterered to all – children, parents, professionals …
5) Catered only to gamers – Teenage boys to professional 5) Zynga created a new genre of education / simulation games
gamers
Created and captured a new market demand by
6) Addictive and had lot of side effects – Too much violence,
focusing on Non Customers
addiction, Lack of exercise, not mind stimulating

7) Parents usually did not recommend Inc.buy
© 2012 Regalix
/ Confidential, All Rights Reserved

Story Of Khan Academy
•A non-profit educational organization created in 2006 by Salman Khan- A MIT & Harvard Business School Alumni
•Free online collection of more than 3,300 micro lectures
•Most viewed online courses and lectures in the world – Over 172 million total views.
• Over 177 million lessons delivered till date
• Close to quarter billion dollars in donation
• Team size of just 20 people
• Amongst the 100 most influential people of the world

Traditional Education Companies Khan Academy

1) Khanacademy filled the gaps existing in traditional brick
1) Industry divided into 2 segments & mortar school learning
• Brick & mortar Learning – Schools/ Colleges • Videos & Exercises to be used as a teaching aid and not
• Online learning replacement for teacher
2) Learning was centered around students • Use analytics and technology to figure out the Strengths
& weakness of students
3) The factors the industry was competing on:
• Student teacher ratio 2) Learning is centered around students, teachers and parents
• Class room Interaction
• Cost of learning / Education 3) Everybody gets equal opportunity / attention/ Learning
• Interactive Learning
4) Unique Pedagogy -
4) Smart kids get more attention than other kids • Stop, rewind, understand and then play

5) Focused pedagogy – Teacher talks – Students listen – 5) Analytics drive the understanding of each students strengths
Therefore Students learn & Weakness

6) Teachers Judge student’s strength / weakness Created and captured a new market demand by focusing on
functionality & emotional appeal

Moving Forward

Discovering the Principles of Blue
Ocean Strategy


Principles Of Blue Ocean Strategy

Core/Formulation Principles Formulation Risks
Reconstruct market boundaries Search Risk

Focus on the big picture, not the numbers Planning Risk

Reach beyond existing demand Scale Risk

Get the strategic sequence right Business Model Risk

Execution Principles Execution Risks
Overcome key organizational hurdles Organizational Risk

Build execution into strategy Management Risk

The formulation principles and execution Principles, work in tandem to minimize risks and maximizing
opportunities.


Reconstructing Market Boundaries

Focus on Big Picture – Not Numbers

Reach Beyond Existing Demand

Getting The Strategic Sequence Right

Overcoming Organizational Challenges

Building Execution Into Strategy


6 Paths Framework

Conventional boundaries in a
competitive marketplace
Look across Alternative
Competitors in Industry Industries

From competing Competitive Position among
Strategic Groups
Looks across strategic groups
within

Better serving existing Buyer Redefines Buyer Groups
Groups Creating
value across

Maximizing value with Looks at Complementary
existing Product product / service offerings

More functions more price /
Blue Rethinks Functional
ocean Orientation of Industry
premium
Strategy
Shapes External trends over
Adapting to trends & Time
time
value

• Blue oceans can be created by exploring outside of industry boundaries
• Break out of the traditional boundaries of the industry to unlock value
• “out of the boundaries” thinking framework for unlocking value

6 PATHS: Exploration Outside of Traditional Boundaries
Path 1 - Looking across Alternate Industry
What are the alternative industries to your industry? Path 2 – looking across Strategic Groups
Why do buyers trade across to them? What are the strategic groups in your industry?
Why do buyers trade up for the higher group, and why do
NTT DoCoMo, Federal Express, Southwest Airlines, NetJets
they trade down for the lower one?
Polo Ralph Lauren, Curves, Sony Walkman, Toyota Lexus

Path 3 - Looking across chain of buyers
What is the chain of buyers in your industry?
Which buyer group does your industry typically focus on?
If you shifted the buyer group of your industry,
how can you unlock new value?
Novo Nordisk, Bloomberg Terminals, Canon Copiers, Philips Alto

Path 4 – looking across complementary product / service offering
What is the context in which your product or service is used? What
happens before, during, and after? Can you identify the pain points?
How can you eliminate these pain points through a complementary
product or service offering?
Barnes & Noble, Dyson Vacuum Cleaners, Kinépolis Kiné-kids, Zenick
Salick’s Cancer Centers

Path 6 – Looking across Time value of business Path 5 – Looking across Functional-emotional appeal to buyers
What trends have a high probability of impacting your industry, are Does your industry focus on functionality or emotional appeal? If you
irreversible, and evolving in a clear trajectory? How will these trends compete on emotional appeal, what elements can you strip out to make it
impact your industry? Given this, how can you open up unprecedented functional? If you compete on functionality, what elements can be added
customer utility? to make it more emotional?
Apple Music, Cisco Systems, CNN, Starbucks, QB House, Direct Line Group, Pfizer’s Viagra
HBO’s “Sex and the City”

•A Typical Strategic plan in an organization today is so very red ocean
• Because Managers formulate the strategy based on current industry, current customers and current
challenges.
• Managers spend majority of their time thinking about profitability, projections, market shares,
segments and revenues based on current industry facts / assumptions.
• Managers are pulled in all directions by their superiors based on limited information & perceptions

•By building a company’s strategic planning process around a strategy canvas, the company can
focus their main attention on the big picture rather than getting immersed in numbers and
jargons.

Ok

Here

Here

Managers
CEOs © 2012 Regalix Inc. Confidential, All Rights Reserved
Staff

Four Steps of Visualizing Strategy
The four steps that pushes a company’s strategy canvas to blue oceans

Visual Visual Visual Strategy Visual
Awakening Exploration Fair Communication

• Compare your business • Go into the field to • Draw your ‘to be” • Distribute your before-
with your competitor’s by explore the six paths to strategy canvas based on and-after strategic profiles
drawing your “as is” creating blue oceans. insights from field on one page for easy
strategy canvas. observations. comparison. EXPLANATION
• Observe the distinctive
• See where your strategy advantages of alternative • Get feedback on • Support only those
needs to change. products and services. alternative strategy projects and operational
canvases from customers, moves that allow your
• See which factors you competitor's customer, company to close the gaps
should Eliminate, Raise, and non-customers. to actualize the new
Create, or Change. strategy.
• Use feedback to build EXPECTATION : CLARITY
•DO NOT USE MARKET the best “to be” future
RESEARCH strategy.

• This approach mitigates planning risks by investing time & effort to develop a compelling strategy canvas
that is Focused, Divergent & that has a compelling tagline.
• Compares the current business attributes with your competitors’ by drawing your “as is” strategy canvas,
and then evaluating where the strategy needs to change.

The PMS Map
Pioneers • Pioneers: Businesses that
provide unprecedented value
• Settlers: Their business
conforms to the basic value
Migrator curve of the industry or me too
industry
• Migrators: Improved value but
not innovative idea
Settlers

Today Tomorrow

• Visualizing strategy helps managers to predict and plan company’s future
• This framework can be used to help a company align its internal product portfolios
• Clearly, what companies should be doing is shifting the balance of their future portfolio toward
pioneer
• If current portfolio and the planned offerings consist mainly of settlers then the company has low
growth trajectory


Reach Beyond Existing Demand
Conventional Companies
Creates enhanced
• Retain and guard existing
customers
competiveness among
Focus on Existing • Compete for competitor business players – leading to higher
Customers cost of customer
acquisition

• Create a niche by looking at finer
customer preferences Creates small
Drive for finer • Dominate with competitive marketplaces that might
Segmentation advantage in segments not be scalable and
profitable in long run

Conventional Strategy of companies needs to be challenged


The Three Tiers of Non Customers

Tier 3 Non
Customers Tier 3 non customers: “unexplored” non customers who are in markets
distant from yours.

Tier 2 Non
Customers Tier 2 non customers: refusing noncustomers who consciously choose against your market

Tier 1 – Non
Customers

Tier 1 non customers : “soon-to-be” noncustomers who are on the edge of
your market, waiting to jump ship

Non
Customers Managing the three tiers of Non customers

Tier 1 Non Customers :
Investigate Dissatisfaction
Key commonalities across needs & desires
e.g. PRET A MANGER- British fast food chain
Tier 2 Non Customers:
Eliminate access barriers
Economic, Functional, Education, Geographical
Go for the Bigger Catchment e.g. JCDecaux – street Furniture
Tier 3 Non Customers:
Remove long held assumption on customer needs & behavior
e.g. US Airforce Joint Strike Fighter and Zynga

How did Zynga effectively utilized this principle?

Tier 1 Non-Customers Tier 2 Non-Customers Tier 3 Non –Customers

Non Regular players – young Casual Players - working Non Player Parents- women/
Audience boys & girls bored out of men/ women not enough housewives
traditional games time to play
Change 1 Changed genres completely – Cost of acquisition – free Removed violence
from shooting, arcade, racing,
to simulation
Change 2 Made social networking fun Eliminated hassles of consoles, Play with friends and family –
and more exciting game titles, accessories, not necessarily together / real
hardware & setups time

Results Fun lasts longer, with reduced Non serious casual play to relax No winner – no loser
time and effort / unwind

• Zynga looked across non customers and attracted new buyer groups to
create an industry that did not exist earlier


Buyer Utility
Is there a compelling Is there exceptional buyer utility in
reason for the mass to your Business idea?
buy?
Yes No

Price Revenue
Is your strategic price Is your price easily accessible to the
attractive enough to mass of buyers?
attract customers?
Yes No

Sequence of Cost
Can your costs be
Blue Ocean significantly lower
than the current
Can you attain your cost target to
profit at your Strategic price?
Costs

Strategy Industry price? Yes No

Adoption
Are there any
adoption hurdles?
What are the adoption hurdles in Hurdles
actualizing your business idea? Are
What are the you addressing them upfront?

resistance points? Yes No

Commercially
Viable Blue
We will explore the Sequence and the formulation in our Ocean Strategy
Next webinar using the tools we have explored today

Buyer Utility Map
A buyer’s experience can usually be broken into a cycle of six stages, running from purchase to
disposal. Each stage encompasses a wide variety of specific experiences. At each stage, managers
need to ask a set of questions to gauge the quality of buyer’s experience.

Purchase Delivery Use Supplements Maintenance Disposal

•How long does it •How long does it •Does the •Do you need •Does the •Does use of the
take to find the take to get the product require other products product require product create
product you need? product training or and services to external waste items?
delivered? assistance? make this product maintenance?
•Is the place of •How easy is it to
work?
purchase •How difficult is it •Is the product •How easy is it to dispose of the
attractive and to unpack and easy to store •If so, how costly maintain and product?
accessible? install the new when not in use? are they? upgrade the
•Are there legal
product? product?
•How secure is the •How effective •How much time or environmental
transaction •Do buyers have are the product’s do they take? •How costly is issues in
environment? to arrange features and maintenance? disposing of the
•How easy are
delivery functions? product safely?
•How rapidly can they to obtain?
themselves?
you make a •Does the •How costly is
purchase? product or disposal?
service deliver far
more power or
options than
required by the
average user? Is
in overcharged
with bells and
whistles?


Uncovering Blocks to Buyer Utility
Uncovering blocks to buyer utility can identify the biggest blocks to buyer experience that stand in the
way of converting noncustomers into customers.

Customer Productivity: In which stage are the biggest blocks to customer productivity?

Simplicity: In which stages are the biggest blocks to simplicity?

Convenience: In which stage are the biggest blocks to convenience?

Risk: In which stage are the biggest blocks to reducing risks?

Fun and Image: In which stage are the biggest blocks to fun and image?

Environmental
In which stage are the biggest blocks to environmental friendliness?
Friendliness:


Testing the Buyer Utility – with Indochino.com

Purchase Delivery Use Supplements Maintenance Disposal

Is it
Productive for the
buyer?
Utility Leavers

Does the buyer find it
simple?

Does the buyer find it
Convenient?

Does it reduce buyers'
Risk

Does it have a fun
image association?

Does it have
environment friendly

Buying Experience
Indochino.com
• Buyer Utility Score Blocks– Lower than what is prevalent in the current industry
• Therefore Indochino.com raised the Buyer Utility and Experience
© 2012 Regalix Inc. Confidential, All Rights Reserved Traditional Suit industry

Exceptional Utility to Strategic Pricing
Three Alternate product / service Types
Different Form &
Same Different Form – Function – Same
Form Same Function objective

Viagra Higher degree of Legal & resource
SAP Lycra protection
Difficult to imitate

Mid Level pricing Some degree of legal & resource
Price Corridor protection
I phone
of Masses

Low degree of legal & resource
Ford Model T Protection
Air Asi

• Step 1: Identify the Price Corridor of • Step 2: Specify the price level within
the Mass. the price corridor

• Blue oceans approach to price is not Cost + profit
• Infact it is Strategic Price – Target Cost

Strategic Pricing to Target Costing

Strategic Price
• Unlike traditional companies the
price must be determined first not
Target the costs.
Profit
• The costs is determined based on the
target profit intended
Target Cost • Cost is approached as a target for
reduction
• Target Costs Can be achieved
Streamlining &
Partnering through:
Cost Innovations
– Streamlining Operations
• Outsourcing, digitizing, cloud,
• E.g. Apple
– Partnering
Price Innovations
• Leverage low cost capabilities and reach of
other companies
• E.g. SAP who partnered with Oracle, Cape
Gemeni , Accenture etc
Price ≠ Cost + profit


Overcoming Adoption Hurdles

• Perfect business model doesn’t always
guarantee success of a blue ocean idea
•Failure to address the concerns of employees
• A new idea threatens the position of can be very expensive
•Make an effort to explain the new idea, Work
the company, which can provoke fear out the problems so everyone wins
among the three main stakeholders:
employees, business partners, and the
public
• Before moving on with a new idea, the Employees
company should communicate the
plan effectively to all stake holders
• Use Blue Ocean Idea Index to test the
system

General Business
Public Partners

•Stakeholders need to be confident and know
that there will be no surprises •Possibly more important than
•Do not let others take charge of your own employees
debate •Resolve by openly discussing the
problem

Overcoming Key Organizational Hurdles

• Every change in organization is Cognitive Hurdle
encounters 4 hurdles viz. Cognitive, An Organization Wedded
with Status Quo
Resource, Motivational & Political
• Conventional wisdom asserts that
the greater the change, the greater
the resources and time you will
need to bring about results. Resource Hurdles Political Hurdles
Limited resources Opposition from Powerful
Vested Interests

Leveraging tipping point leadership to
align all with the new strategy.
• Transforming the extremes will transform
the masses. Motivational
• Focus on acts of disproportionate Hurdles
influence. Unmotivated Staff

– People, Acts and Activities


Overcoming Hurdles with Tipping point leadership
Cognitive Hurdles Motivational Hurdles
Zoom in on Kingpins (key influencers)
Identify the Natural Leaders, Skilled and
Ride the “Electric Sewer” persuasive
(Experience the key challenges yourselves / top
Place kingpins on a fishbowl
management, before framing the problem)
(Highlight actions and responsibilities of kingpins
Meet with Disgruntled Customers in a transparent & fair process)
(Ensure you understand the experience of others)
Atomize to get the organization to change itself
(Breaking up of objectives, by function and role so
that nobody can say it’s a difficult task)

Resource Hurdles Political Hurdles

Redistribute resources to your hot spots
(Identify the impactful areas where more
resources are required but not adequate)
Who are my devils? Who will fight me? Who will
Redirect resources from your cold spots
lose the most
(Identify the non Impactful areas where resources
Who are my angels? Who will naturally align with
can be freed)
me? Who will gain the most by the strategic shift?
Engage in horse trading
(Trade resources from others for symbiotic

Building execution into Strategy
• During a Strategy execution that requires offering customers a leap in
value :
– People are required to step out of their comfort zones and change the way they have
performed previously
– People can resent having a strategy thrust upon them
– Poor process can ruin Strategy, leading to distrust, non-cooperation and even sabotage.

The Three Principles of Fair process
• Involving Individuals in strategic decisions that affect them.
Engagement • Asking for their inputs and allowing to refute the merits and
demerits of ideas
• Nullifying the assumptions that anyone may have

•Involves explaining as to why the strategic decisions are made as
they are
Explanation • What is the core thinking that underlies the strategy

•What are the new rules of the game and therefore the new
responsibilities
Expectation Clarity • What are the expectations and standards that each will be
judged upon

How fair Process affects People’s Attitudes & behaviors

Strategy Fair Process
Engagement Intellectual &
Formulation
Process Explanation Emotional Recognition
Expectation Clarity

Attitudes
Trust & Commitment Trust & Commitment
“ I feel My Opinion Counts”

Behavior Voluntary Cooperation Voluntary cooperation
“ I will go beyond the call of
Duty”
in execution Strategy

Strategy Exceeds Expectations
Execution Self Initiated

• Fair process of Strategy ensures a managerial road map that builds
productivity while executing a strategy

BOS Principles Summary
Strategy Formulation Strategy Execution
Business Model Organizational Management
Search Risks Planning Risks Scale Risks
Risks Risks Risks

Strategic Business Management
6 Paths Approach Market Sizing Mobilization
Planning Model Risks

Getting the
Reconstruct Focus on Big Reach Beyond Overcoming Building
strategic
Market Picture – Not Existing Organization Execution
Sequence
Boundaries Numbers Demand al hurdles into Strategy
Right

Plan beyond
incremental •Sequence the
•Alternative improvements using business Model to
Industries a visualization •Challenge capture newly
Tipping Point
•Strategic groups approach Conventional created value
leadership to Execution
•Buyer Groups •Visual Awakening practices •Buyer Utility
Tackle through:
•Complementary • Visual Exploitation •Consolidate Mapping
• Cognitive hurdles Engagement
Product offerings • Strategy Fair demand by •Pricing & corridors
•Resource Hurdles •Explanation
•Functional • Visual focusing on Non of Masses
•Motivational •Clarity of
Emotional Communication Customers • Cost Targets
•Use PMS map to Hurdles expectations
Orientation • Three tiers of based on margins
identify current & • Political Hurdles
•Time Non Customers desired
future orientation of • Potential
business Adoption obstacles


Get in Touch

 Forefront of Innovation  visit: www.regalix.com
 Digital Marketing Services
 Technology Enabled Services  If you have any questions about this webinar please
 Regalix Labs feel free to get in touch with the speaker Pavan Kumar,
pavan@regalix-inc.com
 Multi-disciplinary Leadership Team & Strong Advisory
Board, 175+ Team

 Fortune 500 and Venture Backed Customers (B2B and
B2C)

 Global Operations: HQ in Silicon Valley, 4 Offices

 Industry Recognition

39

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