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  1. 1. Blue Ocean Strategy Executives & Departments Heads December 1st, 2016. Session I/III
  2. 2. Blue Ocean Strategy Executives & Departments Heads December 1st, 2016. Session I/III P 1/129
  3. 3. Merriam-webster - A careful plan or method for achieving a particular goal usually over a long period of time. Wikipedia - A high level plan to achieve one or more goals under conditions of uncertainty. Business dictionary 1. A method or plan chosen to bring about a desired future, such as achievement of a goal or solution to a problem. 2. The art and science of planning and marshalling resources for their most efficient and effective use. Definition of Strategy Oxford dictionaries - A plan of action designed to achieve a long-term or overall aim. P 2/129
  4. 4. Definition of Tactic Oxford dictionaries - An action carefully planned to achieve a specific end. Business dictionary - Means by which a strategy is carried out; planned and ad hoc activities meant to deal with the demands of the moment, and to move from one milestone to other in pursuit of the overall goal(s). - In an organization, strategy is decided by the board of directors, and tactics by the department heads for implementation by the junior officers and employees. Merriam-webster - An action or method that is planned and used to achieve a particular goal. Wikipedia - A conceptual action implemented as one or more specific tasks. P 3/129
  5. 5. Examples of Strategy Framework & Tools P 4/129
  6. 6. BOS-Introduction-01 - Blue ocean strategy is based on a decade long study of more than 150 strategic moves spanning more than 30 industries over 100 years. - BOS is based upon analyzing winning business players who created blue oceans and their less successful competitors. Search was done for convergence among the group that created blue oceans and within less successful players caught in the red ocean, and also for divergence across these two groups. Southwest Airlines - Blue Ocean Strategy book has sold over 3.5 million copies and is being published in a record-breaking 44 languages. It is a bestseller across five continents. It has won numerous awards. P 5/129
  7. 7. BOS-Authors Renée Mauborgne The INSEAD Distinguished Fellow and a professor of strategy at INSEAD, the world’s second largest business school. She is also Co-Director of the INSEAD Blue Ocean Strategy Institute. Mauborgne is a member of President Barack Obama’s Board of Advisors .She is also a Fellow of the World Economic Forum. Mauborgne has been consistently ranked in the top 3 in The Thinkers50 listing of the World’s Top Management Gurus. . In 2014, Mauborgne and W. Chan Kim, received the Carl S. Sloane Award for Excellence from the Association of Management Consulting Firms due to the impact their management research has made on the global consulting industry, in 2013 were named among the world’s top five best business school professors in 2013 by MBA Rankings. Both won the 2011 Thinkers50 Strategy Award, and both were selected for the 2011 Leadership Hall of Fame by Fast Company magazine. W. Chan Kim Chair Professor of Strategy and International Management at INSEAD, France and Co-Director of the INSEAD Blue Ocean Strategy Institute. He was a professor at the University of Michigan Business School, USA. He is an advisory member for the European Union and serves as an advisor to several countries. Kim is a Fellow of the World Economic Forum. Kim has been consistently ranked in the top 3 in The Thinkers50 listing of the World’s Top Management Gurus. P 6/129
  8. 8. Red Ocean Vs Blue Ocean Strategy Align the whole system of a firm’s activities WITH ITS STRATEGIC CHOICE of differentiation or low cost. Compete in existing market Beat the competition Make the “value-cost trade off Exploit existing demand Align the whole system of a firm’s activities IN PURSUIT of differentiation or low cost. Create unconte- sted market space Make the competiti on irrelevant Break the “value-cost trade off Create & Capture New demand P 7/129
  9. 9. BOS-Tools Formulation Sequence of Blue Ocean Strategy Buyer Utility Map Pioneer Migrator Settler Map Price corridor of the mass Visualizing Strategy Execution Four Hurdles to Strategy Execution Tipping Point Leadership Fair Process Value Innovation Four Actions Framework ERRC Grid Six Paths Framework Strategy Canvas Analysis and Planning Three Tiers Of NonCustomers P 8/129
  10. 10. BOS-Cornerstone_ Value Innovation 01 Value Innovation {Value + Innovation} Differentiation + Low Cost Creating Greater Value @t Higher Cost. OR Creating Reasonable Value @ Lower Cost. Value Creation {Value – Innovation} Technology innovation (Market Pioneering) Innovation Value Creation Lifts company’s position in the existing Market Space, but doesn’t create Blue Ocean. P 9/129
  11. 11. BOS-Cornerstone_ Value Innovation 02 Eliminate, Reduce, Raise, Create, FactorsIndustryCompeteson. Elements that Industry has (not) never offered. P 10/129
  12. 12. BOS-Red Ocean vs Blue Ocean Compete in existing market Exploit existing demand Racing to beat the competition Create uncontested market space Make the competition irrelevant Create & Capture New demand P 11/129
  13. 13. BOS-Analysis & Planning The Eight Principles Formulation Principles Risk Factor Each Principle Attenuates Reconstruct market boundaries. Search risk (for opportunities). 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 Risk Factor Each Principle Attenuates Overcome key organizational hurdles. Organizational risk. Build execution into strategy. Management risk. Align the value, profit and people propositions. Sustainability risk. Renew Blue Oceans. Renewal risk. P 12/129
  14. 14. BOS-Analytical Tools & Frameworks 01-Analysis & Planning Four Actions Framework ERRC Grid Strategy Canvas Six Paths Framework Three Tiers Of NonCustomers P 13/129
  15. 15. Analysis & Planning BOS-01_Strategy Canvas-01 Diagnostic & Action Framework for building BOS. 1- It shows the strategic profile of an industry by depicting clearly the present & the possible future factors that affects competition among industry players. 2- It shows the strategic profile of current & potential competitors, identifying which factors they invest in strategically. 3- It shows the company’s strategic profile (value curve), depicting how it invests in the factors of competition (present & future). P 14/129
  16. 16. Analysis & Planning BOS-01_Strategy Canvas-02 Focus and Divergence Mission: Cirque du Soleil is an international organization founded in Quebec dedicated to the creation, production and performance of artistic works whose mission is to invoke the imagination, to provoke the senses and to evoke the emotions of people around the world. Goal: In the pursuit of its dreams and in its business practices, Cirque du Soleil strives to position itself in the community as a responsible proponent of change. P 15/129
  17. 17. Analysis & Planning BOS-01_Strategy Canvas-03 Focus and Divergence P 16/129
  18. 18. Analysis & Planning BOS-01_Strategy Canvas-04 P 17/129
  19. 19. Analysis & Planning BOS-02_Four Actions Framework-01 A new Value Curve Reduce Which Factors should be reduced below the industry’s standard? Create Which factors should be created that the industry has never/not offered? Raise Which factors should be raised well above the industry’s standard? Eliminate Which of the factors that the industry takes to granted should be eliminated? Eliminate factors that companies in the industry have long competed on while benchmarking one another, often no longer they have value or may even detract from value. Reduce products or services overdesigned in the race to match or beat the competition. Uncover & eliminate compromises industry forces customers to make. Discover new values for buyers, create new demand. Will drop cost structure vis-à-vis competitors. It will shift the strategic pricing of the industry. P 18/129
  20. 20. Analysis & Planning BOS-03_ERRC Grid-01A P 19/129
  21. 21. Analysis & Planning BOS-03_ERRC Grid-01B Eliminate Raise Star Performers Price Animal Shows Aisle Concession Sales Unique Venue Multiple Show Arenas Reduce Create Fun and Humor Theme Refined Environment Thrill and Danger Multiple Productions Artistic Music and Dance P 20/129
  22. 22. Analysis & Planning BOS-03_ERRC Grid-02A Aurora Health Care is an integrated, not-for-profit, and all-for-people health care provider serving communities throughout eastern Wisconsin and northern Illinois. Aurora got its start in 1984 when two established Milwaukee hospitals, St. Luke's Medical Center and Good Samaritan Medical Center, came together to form Aurora Health Care. Today Aurora Healthcare serves communities throughout eastern Wisconsin and northern Illinois, with 15 hospitals, more than 150 clinics and 70 pharmacies in 30 communities. Aurora St Luke’s Medical Center financial model is –roughly- 80% FFS and 20% VBP now; expecting to be 65%FFS/35%VBP in the near future. (Mr. Bradley Kruger, Vice President of Operations) P 21/129
  23. 23. Analysis & Planning BOS-03_ERRC Grid-02B Aurora St. Luke Medical Center applying a blue ocean approach ; they value- innovated their “Transcatheter Aortic Valve Replacement” program (TAVR). Traditionally, in our strategy meetings we spent a lot of time talking about the competition, analyzing their trends, numbers, and drilling down into the procedural details of their volumes. Our goal was to beat the competition and grow by taking their market share. And very often, we cut costs at the expense of value, or improved value at increased costs. Blue ocean strategy inspired me to ask; instead of choosing between lowering costs and improving value and quality, could we achieve differentiated value at lower cost? And I realized that to do so we needed to apply blue ocean strategy. The results:- A leap in value for the patients, a 40% decrease in staffing costs and a spectacular 350% raise in contribution margin. P 22/129
  24. 24. Analysis & Planning BOS-03_ERRC Grid-02C - The physicians and administration at Aurora St. Luke’s partnered with GE Healthcare and the device company Medtronic to redesign the care model. - The objective was to deliver the care faster and with greater precision to patients, thereby greatly reducing the risk for patients associated with a long waiting period or a second-time operation. In the meantime. The redesigned model also significantly lowered the procedure cost. The GE Discovery IGS 730 at Aurora St. Luke’s Medical Center P 23/129
  25. 25. Analysis & Planning BOS-03_ERRC Grid-02D Eliminate Conventional Operating room Switching cost for the patient Reduce Number of teams in the same period of time Number of staff for the procedure. Raise Speed of getting patients to the procedure Quality of the procedure Seamless handover to traditional surgery Create Hybrid ORs combined by a central control room Inter-system pathway Cross system surveillance P 24/129
  26. 26. Analysis & Planning BOS-03_ERRC Grid-03A - The insulin industry, like most of the pharmaceutical industry, focused its attention on the key influencers: doctors, their importance in affecting the insulin purchasing decision of diabetics made them the target buyer group of the industry. - The industry geared its attention and efforts to produce purer insulin in response to doctors’ quest for better medication. By the early 1980s Novo itself had already created insulin that was a chemically exact copy of human insulin. As long as the purity of insulin was the major parameter upon which companies competed, little progress could be made further in that direction and competitive convergence was rapidly occurring. - Novo created a blue ocean by shifting the industry’s longstanding focus on doctors to the users – patients themselves. Regular Human Insulin P 25/129
  27. 27. Analysis & Planning BOS-03_ERRC Grid-03B - The Novo Nordisk case study illustrates how market boundaries can be reconstructed by looking across the chain of buyers, in blue ocean strategy’s six paths framework. Regular Human Insulin NovoPen, the first user-friendly insulin delivery solution. NovoLet, a pre-filled disposable insulin injection pen with a dosing system Innovo, an integrated electronic memory and cartridge based delivery system. P 26/129
  28. 28. Analysis & Planning BOS-03_ERRC Grid-03C P 27/129
  29. 29. Analysis & Planning BOS-04_ERRC Grid-01A Tier3 “Unexplored” Tier2 “Refusing” Tier1 “Soon-to-be” Current Market Tier 1: “Soon-to-be” noncustomers who are on the hedge of the company’s market waiting to jump ship. Current Market: Customers of the company’s industry. Tier 2: “Refusing”; noncustomers who consciously choose against the company’s market. Tier 3: “Unexplored” noncustomers who are in markets distant from the company’s. P 28/129
  30. 30. Analysis & Planning BOS-04_ERRC Grid-01B How Gillette unlocked the three tiers of customers - Early in 1900s, the customers of the industry were “Medium and High income city dwellers” and Barbers. - The main competition between manufacturers was about life lasting razors, forged blade, size of blade and price of the razor. - Shaving was not a common habit, mostly barbers were the one to shave since it was a hassle. - In 1900, less than 26 million people lived in metropolitan cities were barber shops were available. P 29/129
  31. 31. Analysis & Planning BOS-04_ERRC Grid-01C How Gillette unlocked the three tiers of customers Tier3 “Unexplored” Tier2 “Refusing” Tier1 “Soon-to-be” Current Market Tier 1: Occasional shavers (usually go to barber shops). Current Market: “Medium and High income city dwellers” and Barbers. Tier 2: Rural residents (70% of population), they didn’t shave because shaving was considered inconvenient, difficult, unsafe and not in fashion, only for special occasions. Shaving kit was $15.75 while a man’s suit was $12-15. Tier 3: Women (37 million, 12 million between 20-39 age), certainly couldn’t go to barber shops, shaving kits were expensive and unsafe to use.. P 30/129
  32. 32. Analysis & Planning BOS-04_ERRC Grid-01D How Gillette unlocked the three tiers of customers Eliminate Life lasting razors Forged blade Reduce Size of blade Raise Safety Ease of use Create Maintenance-free Fashion & image In 1903, Gillette changed the business model of the industry by inventing the safety razor with disposable blades P 31/129
  33. 33. Analysis & Planning BOS-04_ERRC Grid-01E How Gillette unlocked the three tiers of customers - In 1910, fashion introduce less length for skirts & dresses, hair removal for women started to become fashionable. - Gillette introduced “Milady Décolleté. P 32/129
  34. 34. Analysis & Planning BOS-04_ERRC Grid-01F How Gillette unlocked the three tiers of customers High Low P 33/129
  35. 35. Analysis & Planning BOS-04_ERRC Grid-01G How Gillette unlocked the three tiers of customers - During WWI, soldiers needed to be shaven to use gas mask. - Gillette sold to the army 3.5 million razors and 32 million blades. - Returning home, these soldiers were seen heroes, shaving began to be fashionable and they had acquired the habit to shave regularly during the war. P 34/129
  36. 36. Analysis & Planning BOS-Characteristics of a successful strategy-01 The Three Characteristics of a Good Strategy P 35/129
  37. 37. Analysis & Planning BOS-Characteristics of a successful strategy-02 When the value curve lacks “Focus”: Cost structure tends to be high & the business model tends to be complex in implementation & execution. X When the value curve lacks “Divergence”: Company strategy will be “me-too”, with no reason to stand apart in te market space.X When the strategy lacks “Compelling Tagline” that speaks to the buyers: It is most likely to be internally driven, i.e. a classic example of innovation for innovation’s sake with no great commercial potential. e.g. Southwest tagline would be successful : The speed of a plan at the price of the car. X P 36/129
  38. 38. Analysis & Planning BOS-Characteristics of a successful strategy-03 Abnormalities Overdelivery without Payback: If the value curve on the strategy canvas is shown to deliver high levels across all factors, it signals that the company is oversupplying to its customers. - Strategic contradictions: Happens when offering high level on one competing factor while ignoring other(s) that support that factor; e.g. investing heavily in making a company’s website easy to use but failing the site’s slow speed of operation. - Internally driven: Labeling the industry competing factor on the strategy canvas should be sated in terms buyers understand and value, operational jargon is to be avoided. e.g. Megahertz instead of speed. P 37/129
  39. 39. Blue Ocean Strategy Executives & Departments Heads December 8th, 2016. Session II/III P 38/129
  40. 40. Functional- emotional orientation Focuses on improving price performance within the functional-emotional orientation of its industry Rethinks the functional emotional orientation of its industry Scope of product or service offering Focuses on maximizing the value of product and service offerings within the bounds of its industry Looks across to complementary product and service offerings Strategic Group Focuses on competitive position strategic group Looks across strategic groups within industry Buyer group Focuses on better serving the buyer group Redefines the industry buyer group Industry Focuses on rivals within its industry Looks across alternative industries Analysis & Planning BOS-04_Six Paths Framework-01 (Reconstruct Market Boundaries) From Head-To-Head Competition To Blue ocean creation Time Focuses on adapting to external trends as they occur Participates in sharing external trends over time P 48/129
  41. 41. Analysis & Planning BOS-04_Six Paths Framework-01A Path 1-Look across alternative industries Fractional Jet Ownership - Purchased by Berkshire Hathaway in 1998 and in less than 20 years it grew its fleet to over 700 aircrafts flying to over 170 countries, now it’s the largest private jet fleet in the world. - NetJet created its blue ocean by looking across alternative industries; focusing on the most lucrative mass of customers in the aviation industry: Corporate travelers. - NetJets success is attributed to its Flexibility, shortened travel time, hassle- free travel experience, increased reliability and strategic pricing. P 49/129
  42. 42. Analysis & Planning BOS-04_Six Paths Framework-01B Path 1-Look across alternative industries Business or First class on a commercial airline Corporate aircraft $ 7 Million Customer (Value) 1. Long Check-in & Security Lines. 2. Hectic flight transfers. 3. Overnight stays. 4. Congested airports Cost (Customer) Corporate Business Traveller Fraction of a Jet $ 400,000 50 Flight hrs/Year Cost (Customer): Less than Corporate aircraft. Higher than Fraction of a Jet. Cost (Customer) Customer (Value) 1. Cut total Travel Time. 2. Reduce hassle of congested airports. 3. Allow for point to point travel. 4. Arrive energized (productivity). 5. Jet is available with 4 hrs notice. Cost (NetJet) Ref. NBAA P 50/129
  43. 43. Analysis & Planning BOS-04_Six Paths Framework-01C1 Path 1-Look across alternative industries P 51/129
  44. 44. Analysis & Planning BOS-04_Six Paths Framework-01C2 Path 1-Look across alternative industries Southwest Airlines Flying in a private Jet for the price of First class The speed of an aircraft at a price of a car transport. P 52/129
  45. 45. Analysis & Planning BOS-04_Six Paths Framework-01D Path 1-Look across alternative industries - Japan 1992; NTT Mobile Communications Network, Inc. took over mobile communications business of the reorganizing Nippon Telegraph and Telephone Corporation (NTT) - NTT DoCoMo asked: what are the distinctive strengths of the internet over cell phones and vice versa? - Internet was reached through computers & laptops, the killer apps at that time were e-mails, simple information (news, weather forecast an telephone directory), entertainment like in games & music entertainment. - The key downside of internet was expensive hardware, nuisance of logging on, fear of giving credit card information online. - While strengths of mobile phones were mobility, voice transmission & ease of use. P 53/129
  46. 46. Analysis & Planning BOS-04_Six Paths Framework-01E Path 1-Look across alternative industries - In 1999; NTT DoCoMo launches “i-mode” phone as world's first mobile Internet-services platform, thus creating a blue ocean of wireless transmission that reconstructed the mobile phone industry & the internet. - NTT DoCoMo broke the trade-off between the two alternatives, not by creating new technology but by focusing on the decisive advantages that the internet has over the cell phone and vice versa. - The “i-mode” phone was priced 25% higher than regular cell phones, but still was less expensive that the hardware needed to access internet (Computers & laptops). - After 10 years (2009), i-mode subscribers climbed to 50 million while revenue from transmission of data, text & images increased from $2.6 million to $17 billion. P 54/129
  47. 47. Analysis & Planning BOS-04_Six Paths Framework-02A Path 2-Look across strategic groups within industry - Curves, the Texas women fitness company, was entering an oversaturated market and began franchising in 1995. In 2005 Curves had more than 2 million members, and ten years later it has nearly ten thousand clubs worldwide serving more than four million members. - Curves created a veritable blue ocean by building on the decisive advantages of two strategic groups in the US fitness industry: Traditional Health clubs Home exercise programs while eliminating & reducing everything else. P 55/129
  48. 48. Analysis & Planning BOS-04_Six Paths Framework-02B Path 2-Look across strategic groups within industry - Traditional Health Club used to offer full range of exercise & sport options, usually in upscale urban locations, usually down town (heavy traffic). - Traditional Health Club had full range of aerobic & training machines, a juice bar, instructors and full locker room with showers and sauna. - Subscription was average $100/month which was not cheap, their customers represented 12% only of population. Investment ran from $500,000 to $1M. - The second strategic group was home exercise programs such as exercise videos, books and magazines, they were less in cost, used at home, required little or no exercise equipment, presented with minimal instructions with illustrations. - Curves found out that women trade up to health club just because when they’re home they get no chance for regular exercising. - Conversely, women use home exercise programs for the time saving, lower costs and privacy. P 56/129
  49. 49. Analysis & Planning BOS-04_Six Paths Framework-02C Path 2-Look across strategic groups within industry - Machines were arranged in a circle to facilitate interchange among members. - The QuickFit circuit training system used hydraulic exercise machines, they needed no adjustments, safe and easy to use. - Those machines were specifically designed for women, they reduced impact stress & built strength & muscle. - Members could socialize, talk, support each other, few or no mirrors on the wall, and no men were there to stare at them. - Price (Subscription) fell to $30/month. - Startup investment in Traditional health club 0.5M-1M, Curves $20,000 to 30,000 + 20,000 franchise fee. - Variable costs, personnel, maintenance & rent were dramatically reduced. - The low business Model of Curves made its franchises easy, they mushroomed quickly, were profitable in few months upon recruitment of a 100 members. P 57/129
  50. 50. Analysis & Planning BOS-04_Six Paths Framework-02D Path 2-Look across strategic groups within industry Curves Tagline could be: for the price of a cup of coffee/day, you can obtain the gift of health through proper exercise. P 58/129
  51. 51. Analysis & Planning BOS-04_Six Paths Framework-02E Path 2-Look across strategic groups within industry Toyota’s Lexus carved out a new blue ocean by offering the high quality of the high-end @ a price closer to the lower-end P 59/129
  52. 52. Analysis & Planning BOS-04_Six Paths Framework-03A Path 3-Redefine the industry buyer group - Usually competitors converge around a common definition of who the target buyer is. - In reality, there is a chain of “buyers” who are directly or indirectly involved in the buying decision. - They don’t likely share the same interests, as in case of “Purchasers” who pay for the product /service who may differ from the actual “Users. - And in some cases here there are important “Influencers” as well. - A corporate purchasing agent is more concerned with costs, while corporate user would be more concerned with ease of use. - A retailer may value a manufacturer’s just-in-time stock replenishment and innovative financing rather than consumer who wouldn’t value those things. - Individual companies in an industry target different customer segments, but an industry converges on a single buyer group. P 60/129
  53. 53. Analysis & Planning BOS-04_Six Paths Framework-03B Path 3-Redefine the industry buyer group P 61/129
  54. 54. Analysis & Planning BOS-04_Six Paths Framework-03C Path 3-Redefine the industry buyer group - Canon created the small desktop copier industry by shifting the target customer of the copier industry from corporate purchasers to end users. P 62/129
  55. 55. Analysis & Planning BOS-04_Six Paths Framework-04A Path 4-Look across complementary product/service offerings - Rare products/services are used in a vacuum, in most cases other products/services affect their value. - For example; movie theaters: the ease & cost of getting a baby sitter (or driving the kids to one of the couple’s parents) and parking the car affect the perceived value of going to the movies. - For example, operating & application software are used along computer hardware, some applications may require minimum specifications hardware. - Another example is ground transportation used after the flight which is a part of what the customer needs to travel from one place to another. P 63/129
  56. 56. Analysis & Planning BOS-04_Six Paths Framework-04B Path 4-Look across complementary product/service offerings - NABI is a Hungarian bus company that was acquired by New Flyer (American Bus Manufacturer company). - Competition between manufacturers has been long based upon lowest purchase price, but designed were outdated, delivery times were late, quality was low. - The major customers in the industry are Public Transport Properties (PTPs), municipally owned transportation companies serving fixed-route public bus transportation in major cities or counties. - NABI discovered that the highest cost for municipalities was not the price of the bus per se, but rather the costs post purchase over the 12 years average life cycle: The maintenance, repairs after traffic accidents, fuel usage, wear & tear on parts due to heavy weight, corrosion & rusting and preventive body work to deal & prevent them, last was the new cost rising from the new demands for clean air. P 64/129
  57. 57. Analysis & Planning BOS-04_Six Paths Framework-04C Path 4-Look across complementary product/service offerings - By looking at the total solution of complementary activities, NABI created a bus unlike any seen before in the industry. Fiberglass bodies are corrosion-free. Body repairs became faster, cheaper & easier; simply cut out & solder new materials. Lighter in weight (30-35%) than steel, so reduced fuel consumption. Less fuel consumption led to reduced emissions. Light weight allowed NABI to use lower-powered engines. - Results: Lower manufacturing costs, less operating costs, more space inside the bus and better environmental friendliness level. - NABI charged higher initial purchase price in return for all reduction in operating costs. Municipalities & riders loved NABI buses, ridership expanded by 30%. - Buses were usually made of steel, NABI adopted fiberglass in making its buses killing five birds with one stone: P 65/129
  58. 58. Analysis & Planning BOS-04_Six Paths Framework-04D Path 4-Look across complementary product/service offerings P 66/129
  59. 59. Analysis & Planning BOS-05_Six Paths Framework-01A Path 5-Look across Functional or Emotional Appeal to Buyers - Some industries compete principally on price and function; their appeal is rational. - Other industries compete largely on feelings; their appeal is emotional. transformed the functionally driven budget watch industry into an emotionally driven fashion statement. transformed the emotionally driven industry of cosmetics into a functional, no nonsense house. Pfizer shifted the focus from medical treatment to lifestyle enhancement. turned the coffee industry on its head by shifting its focus from commodity coffee sales to the emotional atmosphere in which customers enjoy their coffee. P 67/129
  60. 60. Analysis & Planning BOS-05_Six Paths Framework-01B Path 5-Look across Functional or Emotional Appeal to Buyers - Pfizer shifted the focus from medical treatment to lifestyle enhancement. - Transformed the functionally driven budget watch industry into an emotionally driven fashion statement. P 68/129
  61. 61. Analysis & Planning BOS-05_Six Paths Framework-01A Path 6-Participate in shaping external trends over time - All industries are subject to external trends that affect their businesses over time, like the rapid rise of the cloud or the global movement toward protecting the environment. - It is not about predicting the future, nobody can, it’s impossible. - Key insights into blue ocean strategy rarely come from projecting the trend itself, they arise from business insights into how the trend will change value to customers and impact the company’s business model. - Three principles are critical to assessing trends across time: 1. Decisive to the business. 2. Irreversible. 3. Have a clear trajectory. - Many trends can be observed at any one time, like a discontinuity for in technology, the rise of a new lifestyle, a change in regulatory or social environments; but usually not all will have a decisive impact on any particular business. P 69/129
  62. 62. Analysis & Planning BOS-05_Six Paths Framework-02A Path 6-Participate in shaping external trends over time In the late 1990s, Apple observed the flood of illegal music file sharing programs as: By 2003, more than 2 billion illegal music files were being traded/month. At that time, buying a CD album (legally); it costed an average of $19. The demand on MP3 players was rising & increasing rapidly, like Apple hit iPod. P 70/129
  63. 63. Analysis & Planning BOS-05_Six Paths Framework-02B Path 6-Participate in shaping external trends over time iTunes made an agreement with 5 major music companies to offer legal, easy to use and flexible †„†„†„Žà la carte song downloads. iTunes allowed buyers to freely browse 200,000 songs, listen to 30 second sample, and download an individual song for 99 cents or an entire album for $9.99; they broke a customer annoyance factor that was the need to buy an entire album for one song, and customers get their need legally. Moreover, iTunes music editors included a number of added features usually found in physical music stores like Best Love Songs, celebrity playlists and Billboard charts. The sound quality was higher than any illegally shared music because iTunes were encoding songs in a format called AAC which was superior to MP3. P 71/129
  64. 64. Analysis & Planning BOS-05_Six Paths Framework-03 Path 6-Participate in shaping external trends over time CNN created the first real-time 24 hour global news network based upon the rising tide of globalization. When CNN entered the US news market; it induced a strategic reversal and market share upset. ABS, CBS and NBC –though had historically strong market shares- were devastated. P 72/129
  65. 65. Analysis & Planning BOS-05_Six Paths Framework-04 Path 6-Participate in shaping external trends over time - Cisco’s insight to create a blue ocean was as much about value innovation as it was about technology. - The world was hampered by slow data rates & incompatible computer networks, the number of internet users was doubling every 100 days. - Cisco routers, switches and other networking devices were designed to create breakthrough value for customers, offering fast data exchange in a seamless networking environment. P 73/129
  66. 66. Blue Ocean Strategy Executives & Departments Heads December 15th, 2016. Session III/III P 74/129
  67. 67. Formulation Sequence of Blue Ocean Strategy Buyer Utility Map Pioneer Migrator Settler Map Price corridor of the mass Visualizing Strategy P 75/129
  68. 68. - Compare your business with competitors by drawing “as is” canvas. - See where your strategy needs to change. - Draw the “to be” strategy. - Get feedback on alternative strategy canvas from customers, competitors’ customers and noncustomers. - Use the feedback to build the best “to be’ future strategy. - Go into the field to explore the six paths. - Observe the distinctive advantages of alternative products & services. - See which factors you should Eliminate, Reduce, Raise &/or Create. - Distribute “Before- and-after strategic profiles on one page for easy comparison. - Support only those projects and operational moves that allow company to actualize the new strategy. Visual Exploration Visual Awakening Formulation-BOS-01_Visualizing Strategy-01 Focus on the big picture Not the numbers VisualStrategyFair VisualCommunication P 76/129
  69. 69. Formulation-BOS-01_Visualizing Strategy-01A European Financial Services Co._vs_Clearskies__Visual awakening EFS began the strategy process by bringing together more than twenty senior managers from subsidiaries in Europe, North America, Asia and Australia and splitting them into 2 teams. - One team was responsible to produce a value curve describing EFS’s current strategic profile in its traditional corporate foreign exchange business relative to its competitors. - The other team was charged with the same task for EFS’s emerging online foreign exchange business. 90 mns - Both teams had heated debates about what constituted a competitive factor and what the factors were. Debates included differences arising from different regions and even for different customer segments. - For example; Europeans argued that “consulting services on risk management” were crucial, while Americans stressed “value of speed” and “ease of use”. P 77/129
  70. 70. Formulation-BOS-01_Visualizing Strategy-01B European Financial Services Co._vs_Clearskies __Visual awakening - The 2 teams completed the assignment and presented in a general meeting of all participants: - Traditional & online value curves demonstrated a lack in Focus, means the Co. was spending in diverse and numerous factors in both businesses. - The two curves are very similar to those of competitors. - Presence of contradictions was clear in the heavy investment in making the website easy to use (it –even-won awards), but speed was overlooked, resulting in one of the slowest websites in the business; while Clearskies website was attracting customers and converting them to sales. P 78/129
  71. 71. Formulation-BOS-01_Visualizing Strategy-02 European Financial Services Co._vs_Clearskies __Visual exploration - EFS sent its managers into the field for 4 weeks to explore the six paths framework, each manager was to interview and observe 10 people involved in corporate foreign exchange: new customers, lost customers, customers of EFS competitors and even members of companies that didn’t yet use corporate foreign exchange services but might in the future, such as internet based companies with a global reach like Amazon.com. - The field research overturned many of the conclusions managers had reached in the first step of strategy creation process; and to everyone’s astonishment, the factor customers valued most was getting speedy confirmation of transactions , which only one manager had previously suggested as important. - Returning to the drawing board, each team had to draw six new value curve using the “six path framework”, where each curve had to show a strategy that make the company stand out in its market. - For each strategy the teams had to come up with a compelling tagline, this second phase took 2 weeks. P 79/129
  72. 72. Formulation-BOS-01_Visualizing Strategy-03A European Financial Services Co._vs_Clearskies __Visual strategy fair 2 Hours - Teams presented their new strategy canvas; attendees were: senior corporate executives, noncustomers, customers of competitors, and some of the most demanding customers of EFS. - Each curve was to be presented in 10 mns, i.e. the whole fair took 2 hours. The pictures were hung on the walls for audience to easily see them. - After the 12 strategies were presented, each judge (an invited attendee) was given 5 sticky notes and told to put them next to his/her favorites. - After posting the notes, the judges were asked to explain their picks and why they didn’t vote for the other curves. - Teams realized that one third of the factors they thought of value to customers, were not. Another third was not well articulated or had been overlooked in the “awakening” phase. - They also learned that buyers from all markets had a basic set of needs & expected similar services. P 80/129
  73. 73. Formulation-BOS-01_Visualizing Strategy-03B European Financial Services Co._vs_Clearskies __Visual strategy fair Eliminate Relationship Management The relationship managers were thought one of the main competitive assets of EFS in the “awakening” session. Reduce Account executives. Both were thought to be their main competitive assets Corporate dealers. Raise Ease of use. Security. Accuracy. Speed. Market commentary. Create Confirmation. Tracking. Conclusion of “Visual strategy fair” P 81/129
  74. 74. Formulation-BOS-01_Visualizing Strategy-03C European Financial Services Co._vs_Clearskies __Visual strategy fair Conclusion of “Visual strategy fair” P 82/129
  75. 75. Formulation-BOS-01_Visualizing Strategy-04A European Financial Services Co._vs_Clearskies __Visual communication - The last step was to communicate in a way that can be easily understood by any employee. - EFS distributed the one page picture showing its new and old strategic profiles so that every employee could see: - Where the company stood and where it had to focus its efforts to create a compelling future. - The direct managers who participated in developing the strategy held meetings with their direct reports (subordinates) to walk them through the picture, explaining and focusing on what needed to be eliminated, reduced, raised and created. - Employees were so motivated by the “clear game plan” that many pinned up a version of the strategy canvas in their cubicles as a reminder of EFS’s new priorities and the gaps they needed to close. - The new picture became a reference point for all investment decisions. Only those ideas that would help EFS move from the old to the new value curve were given the “go-ahead”. P 83/129
  76. 76. Formulation-BOS-01_Visualizing Strategy Samsung Electronics - Samsung Electronics institutionalized the use of strategy canvas in its key business creation decisions by establishing the Value Innovation Program (VIP) Center since 1998. - The VIP center is a 5 story building where core cross-functional team members meet & discuss strategic projects, focusing on strategy canvas. - More than 2,000 people/year cycle through the VIP center to hammer out detailed specifications for new products; designers, engineers, planners & programmers gather for days and sometimes months. - Since the VIP center was established; Samsung sales grew from $16.6 billion in 1998 to $216.7 billion in 2013. - Samsung Electronics is now ranked as one of the top-ten most valuable global brands. P 84/129
  77. 77. Formulation-BOS-01_Visualizing Strategy Samsung Electronics P 85/129
  78. 78. Formulation-BOS-02_PMS Map Pioneer-Migrator-Settler Map Settlers Today Testing the growth potential of a portfolio of business Migrators Pioneers Tomorrow Pioneers: the businesses that offer unprecedented value, they are the blue ocean offerings and represent the most powerful sources of profitable growth. Settlers: they are the “me-too” businesses, they are the cash (main income) generator, but they –generally- do not contribute much to company’s future growth. Migrators: these businesses are of a potential that lays in between “Pioneers” and “Settlers’. - The more an industry is populated with “Settlers”, the greater is the opportunity to value-innovate and create blue ocean of new market space. - Tooth whitening was considered a service provided by dentists. When Oral care consumer product companies delivered safe, high-quality, low cost tooth whitening solutions, market exploded; those companies unlocked the 3rd tier noncustomers and created Pioneer business. P 86/129
  79. 79. Formulation-BOS-03_Right strategic sequence Buyer Utility Is there exceptional buyer utility in your business idea? Price Is your price easily accessible to the target mass of buyers? Cost Can you attain your cost target to profit at your strategic price? Adoption What are the adoption hurdles in actualizing your business idea? Are you addressing them up front? A commercially viable Blue Ocean Idea. Yes Yes Yes Yes No-Rethink No-Rethink No-Rethink No-Rethink P 87/129
  80. 80. Formulation-BOS-03_Right strategic sequence-01A Buyer UtilityThesixutilitylevers P 88/129
  81. 81. Formulation-BOS-03_Right strategic sequence-01B Buyer utility__The Buyer Experience Cycle P 89/129
  82. 82. Formulation-BOS-03_Right strategic sequence-01C Buyer utility The Buyer Experience Cycle (Hospital) P 90/129
  83. 83. FormulationBOS-03_Right strategic sequence-01D The Buyer utility - Iridium, the global satellite phone company backed by Motorola (MOT), filed for bankruptcy in 1999, after the company had spent $5 billion to build and launch its infrastructure of satellites to provide worldwide wireless phone service. - The service had been such a failure that it only had 10,000 subscribers. This was due to : - Because Iridium's technology depended on line-of-sight between the phone antenna and the orbiting satellite, subscribers were unable to use the phone inside moving cars, inside buildings, and in many urban areas. - The cellular phone business had started to take hold as its infrastructure was built out in most of the large developed countries. - Technical difficulties with Iridium's first handsets. - An Iridium handset cost $3,000 and talk time was as much as $5 a minute. Cellular service was not as broadly available, but it was far less expensive. P 91/129
  84. 84. Formulation-BOS-03_Right strategic sequence-01E The Buyer utility - The “Philips CD-I” was an engineering marvel, promoted as the “Imagination Machine”; it was: a video machine, music system, game player, and teaching tool, all wrapped in one. - It had a difficult interface that people could not understand how to use it without a significant investment in time and complicated manuals. - Managers responsible for Philips CD-I and Motorola Iridium were impressed by their new technology, they acted on the assumption that bleeding-edge technology is equivalent to bleeding-edge utility for buyers, which is rarely the case. - Unless the technology makes buyers’ lives dramatically simpler, more convenient, more productive, less risky or more fun and fashionable; it will not attract the masses. P 92/129
  85. 85. Formulation-BOS-03_Right strategic sequence-01F The Buyer utility - More than 500 automakers in US were focused on building custom-made luxury cars for the wealthy. - In terms of “Buyer utility”, the entire industry focused on “image” in the use phase, which is one of the 36 utility spaces. - Industry was overlooking convenience in use phase, roads were muddy and bumpy. - Second block to utility was maintenance since it was hand made, it needs experts to fix them which was expensive. - Ford T model eliminated those 2 blocks; it came with one color (Black), less options, not handcrafted (assembly lines), durable & designed to travel easily over dirt roads and in rain, in short , it was made for everyday use not for weekends in the country side. P 93/129
  86. 86. Formulation-BOS-03_Right strategic sequence-02A Price - Usually, companies take a reverse course in pricing, first testing the waters for a new product or service by targeting novelty-seeking, price insensitive customers at the launch of a new business idea, over time they drop prices to attract mainstream buyers. - Another way to do it is to know from the start what price will quickly capture the mass of target buyers and –in the same time- block or limit the “Free Riding”. - One of the Blue Ocean tools is “Price Corridor of the Target Mass”, it helps managers find the right price for an irresistible offer, it’s not necessarily the lower price. - This tool involves two distinct interrelated steps. P 94/129
  87. 87. Formulation -BOS-03_Right strategic sequence-02B Price_Price corridor of the target mass__Alternatives - Same form: all companies look first at the products/services that most closely resemble their idea in terms of form. - Different form, same function: A product/service that performs the same function or bears the same core utility but takes a very different form. - A horse-drawn carriage had the same core utility as the car: transportation of individuals & families. - Ford with its model T, converted horse-drawn carriage (auto noncustomers) to customers by pricing against horse-drawn carriage. - Different form and function, same objective: Cirque du soleil diverted customers from a wide range of evening activities. - Bars and restaurants have few physical features in common with a circus, they also serve a distinct function by providing conversational and gastronomical pleasure which a very different experience from the visual entertainment that a circus offers. - Yet although such differences, all share the same objective: a night out. P 95/129
  88. 88. Mid-level pricing Formulation-BOS-03_ Price_Price corridor of the target mass - Step1: Identify the price corridor of the target mass. - Step2: Specify a price level within the price corridor. Three alternative product/service types Different form and function, same objective Same Form Different form, same function Price corridor of the target mass Size of circle is proportional to number of buyers that product/service attracts High degree of legal and resource protection, Difficult to imitate. Some degree of legal and resource protection. Low degree of legal and resource protection, easy to imitate. The price bandwidth that captures the largest group of target buyers is the price corridor of the target mass. P 96/129
  89. 89. Formulation -BOS-03_ Right strategic sequence-03A Target costing The profit model of blue ocean strategy The strategic price The target profit The target cost Streamlining & cost innovations Partnering Price Innovation P 97/129
  90. 90. Formulation -BOS-03_ Right strategic sequence-03B Cost_Target costing To maximize the profit of a blue ocean idea, company should start with the strategic price then deduct its desired profit margin from the price to arrive at the target cost. (Cost Innovation) - To hit the cost target, companies have 3 principle levers: 1- Introducing cost innovations from manufacturing to distribution, as well as streamlining operations. 2- Partnering: IKEA seeks lowest cost by partnering with 2,000 manufacturing companies in more than 50 countries to produce 20,000 IKEA items. - Can the product or service’s raw material be replaced by unconventional one(s); e.g. from metal to plastic; or shifting a call center from UK to Bangalore, or can the physical location be shifted from prime real estate location to lower cost locations (Curves, Home Depot, Walmart, IKEA and Southwest Airlines by shifting from major to secondary airports). 3- Changing the “pricing model” used: NetJets changed the price model from Jets To “timeshare” model. - Others models are “slice-share” in financial services and Freemium in digital offerings (software). P 98/129
  91. 91. Formulation -BOS-03_ Right strategic sequence-03C Cost_Cost Innovation The Swiss watch company Swatch was able to innovate a cost structure 30% lower than any other watch company in the world. - The chairman set up a project team to determine the strategic price for Swatch. - Market fact: High-precision quartz watches from Japan and Hong Kong were capturing the mass market for an average of about $75/piece. - Swatch set the price at $40, so that: 1. People could buy multiple “Swatches” as fashion accessories. 2. This price will block competitors, since $40 will leave no profit margin for Japanese or Hong Kong companies to copy Swatch and undercut its price. - The Swatch project team worked backwards to reach the target cost: 1. The team determined the margin to support marketing and services. 2. Instead of using metal & leather, they used plastic. 3. Swatch engineers simplified the design of the inner workings and reduced the number of parts from 150 to 51 parts. 4. Engineers developed a new assembly technique; e.g. used ultrasonic welding instead of screws. - The direct labor costs dropped from 30% to 10% of total costs. P 99/129
  92. 92. Formulation -BOS-03_ Right strategic sequence-04 Adoption 1- Employees When Merrill Lynch’s management announced plans to create an online brokerage service, its stock price fell 14% as reports emerged of resistance and infighting within the company’s large retail brokerage division. 2- Business partners When SAP developed ASAP methodology to gain access for mid. & small businesses, its consulting partners who benefited from lengthy implementations were not happy. SAP consultants convinced them that although ASAP methodology will reduces implementation time, but they will gain access to a new client data base & penetrate a new segment. 3- The General Public Organ transplants in Islamic countries at its beginning. P 100/129
  93. 93. Formulation & Execution-BOS-03_ Blue Ocean Idea Index (BOI) P 101/129
  94. 94. Execution Four Hurdles to Strategy Execution Tipping Point Leadership Fair Process P 102/129
  95. 95. Execution-BOS-01_Four Hurdles-01A P 103/129
  96. 96. Execution-BOS-01_Four Hurdles-01C Cognitive Hurdle An organization wedded to the status Quo Motivational Hurdle Unmotivated staff Political Hurdle Opposition from powerful vested interests Resource Hurdle Limited Resources Hot spots Cold spots Horse Trading Zoom on kingpins Put kingpins in a fish bowel Make people see and experience harsh reality firsthand. Meet with disgruntled customers. Leverage your angels and silence your devils. Atomization P 104/129
  97. 97. Execution-BOS-01_Four Hurdles-01D Cognitive Hurdles-01 Cognitive Ride the electric sewer Case: New York subway reeked of fear, young street gangs , harassers and aggressive beggars patrolled the cars, the citizens boycotted the system and called it the “Electric sewer”. Members of New York City Transit Police Dept. did nothing since only 3% of the city major crimes happened on the subway. Bratton: Starting with himself, he made top & middle brass ride the sewer day & night. Although statistics may have told the police that the subway is safe, now they see what every New Yorker faced every day. The police could no longer evade the ugly truth. Cognitive Superiors Case: MBTA board decided to purchase small squad cars that would be cheaper to buy and to run. Bratton: He invited the MBTA for a tour to see the district. Bratton picked him in a small car just like the ones that were being ordered. He jammed the seats up front to let the manager feel how little legroom a six foot cop would get, especially if a criminal is in the back seat. Bratton also put his belt, cuffs and gun, asked the manager to put his belt too. In 2 hours the manager wanted out and Bratton got the larger cars his new strategy demanded. Make people see and experience harsh reality firsthand. P 105/129
  98. 98. Execution-BOS-01_Four Hurdles-01E Cognitive Hurdles-02 - In the late 1970’s, Boston police district 4 was experiencing a serious surge of crimes. - Public was increasingly intimidated and residents were selling their homes and leaving. - The police force felt they’re doing a fine job since KPIs were fine; 911 response times were down and crime arrests were high. - Police officers couldn’t understand the reason for disgruntled residents (customers). - Bratton: arranged a series of town hall meetings between the police force and residents. Meetings revealed that although officers were appreciated for short response times and their record in solving major crimes, but those efforts went unnoticed because the public felt victimized and harassed by the constant minor irritants: winos, panhandlers and graffiti. - The meetings led to a change in police priorities focusing on the blue ocean strategy of “Broken windows”. Crime went down and the neighborhood felt safe again. Meeting with disgruntled customers P 106/129
  99. 99. Hot spots: Execution-BOS-01_Four Hurdles-02A Resource Hurdles-01 Instead of focusing on getting more resources, tipping point leaders concentrate on multiplying the value of the resources they have. Activities that have low resource input but high potential performance gains. Cold spots: Activities that have high resource input but low performance impact. Trading horses: Trading one unit’s excess resource(s) for another unit’s excess resources to fill remaining resource gaps. P 107/129
  100. 100. Execution-BOS-01_Four Hurdles-02A Motivational Hurdles Kingpins are –relatively- a small number of people who are natural leaders, who are well respected and persuasive, or who have the ability to unlock or block resources. These are the key influencers. As in bowling, hitting them straight on, all the other pins come toppling down. Zoom in on Kingpins Place Kingpins In a fishbowl Motivate the “kingpins” in a sustained and meaningful way. Make kingpins actions and inactions well visible to others, as transparent as are fish in a bowl of water (fishbowl management). Atomization As sensitive as it is, but doable; break strategy into simple and clear tasks that every employee can understand, then relate it to each unit to do its task(s) as perfect as possible, no more (Effectiveness & efficiency). P 108/129
  101. 101. Execution-BOS-01_Four Hurdles-02A Political Hurdles The more likely change becomes, the more fiercely and vocally negative influencers –both internal and external- will fight for their positions and earnings; such resistance can seriously damage and even derail the strategy execution process. Tipping point leaders focus on 3 disproportionate influence factors: those who have the most to gain from the strategic shift. Leverage “Angels”: (BOS Supporters) Silence “Devils”: (BOS Detractors) those who have the most to loose from the strategic shift. Get a “consigli„†ère” From the management team, politically adept, non biased, respected insider who can predict in advance who will fight and who will support. P 109/129
  102. 102. Execution-BOS-02_Fair process_EEE Strategy formulation Process Fair Process (EEE) Engagement. Explanation. Expectation clarity. Attitudes Trust & commitment “I feel my opinion counts”. Behavior Voluntary cooperation “I’ll go beyond the call of duty”. Strategy execution Exceeds expectations Self initiated. How Fair process affects people’s attitudes and behavior P 110/129
  103. 103. Case: Starbucks service deterioration P 111/129
  104. 104. Starbucks service deterioration _ By: Prof. Myers-Tierney - Founded in 1971, one small coffee shop in Seattle. Specialized in whole beans, focused on coffee purists. -Howard Shultz’s idea with Starbucks mid 1980’s was to create a chain of coffeehouses with: 1. Product differentiation of specialty “Live coffee”. 2. Service or customer intimacy with an “experience”. 3. An atmosphere of a “Third place” to add to work and home alternatives. -In 1992: 140 stores in Northwest + Chicago and Starbucks went public. - By 2002, there were 5,000 stores around the globe. P 112/129
  105. 105. Starbucks service deterioration _ By: Prof. Myers-Tierney Starbucks in 1992 Brand Perceptions Best coffee, classy, upscale, a “Third place”. Consumption Patterns Tendency to linger, ritualistic consumption, Looking to self- indulge. Target Customer Sophisticated, affluent coffee lover, embracing the “live coffee” lifestyle. - In contrast to the way Starbucks management viewed the company, 2002 research indicated that “customers did perceive many independent coffee houses as a “third place” while Starbucks was seen more as a convenient, quick and consistently good coffee provider”. P 113/129
  106. 106. Starbucks service deterioration _ By: Prof. Myers-Tierney What went wrong? Background and Problems - Customer satisfaction was declining due to the time to be served (SGH_Patient journey, late clinic or inconsistent attendance?) - Customer satisfaction was declining due to employee attitude (SGH_Customer service & clinic’s receptionists?) - Many other chains competed directly with Starbucks, and many other chains could at anytime enter retail specialty coffee sales (Dunkin Donuts and many similar retail food stores). - Starbucks was expanding store opening as rapidly as possible (almost 3/day), it cannibalized existing stores sales. - There were very little image and product differentiation between Starbucks and competing chains (Differentiation & Value innovation?). - Unexpectedly & against company expectations; new customers were younger, less educated, in lower income brackets, had less frequent visits and had a different perception of Starbucks. P 114/129
  107. 107. Starbucks service deterioration _ By: Prof. Myers-Tierney Customers’ Experience-01 P 115/129
  108. 108. Starbucks service deterioration _ By: Prof. Myers-Tierney Customers’ Experience-02 P 116/129
  109. 109. Starbucks service deterioration _ By: Prof. Myers-Tierney Customers’ Experience-03 P 117/129
  110. 110. Starbucks service deterioration _ By: Prof. Myers-Tierney Too little experienced Labor Baristas have no time to chat Grumpy employees Employee turnover Lots of new customers acquisitions Tendency to order Hand- crafted drinks + Desire for customization Long lines Grumpy Customers New product complexity Complex orders Leave before ordering Don’t come back as often Less of a “Third place” attachment (Diminished loyalty) Order something simple rather than complex (Lower ticket value) P 118/129
  111. 111. Starbucks service deterioration _ By: Prof. Myers-Tierney Options & Solutions 1. Investment of $40 million annually to increase speed of service (expected impact=customer satisfaction, translated to sales). 2. Alter the product mix, change is determined depending on store size and location. 3. Process of measuring service performance (Categories: Speed of Service, Cleanliness, Product Quality). 4. Retail expansion (New stores in new markets, geographically cluster stores in existing markets). 5. Product innovation. 6. Service innovation(Starbucks store Value card). Starbucks Options Starbucks Solutions 1. Starbucks should pursue all of these alternatives. 2. Starbucks appears to consider competition as minimal, and they are somewhat insulated. Earnings: -2003: revenues up 25%. -2004: plan to open 1,300 stores. -Long term goal: 10K in US, 15K international. P 119/129
  112. 112. P 129/129