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Tools for blue ocean strategy

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Tools for blue ocean strategy

  1. 1. BLUE OCEAN STRATEGY TOOLS DR LEE OIWAH MD (UKM)
  2. 2. RED OCEAN VS BLUE OCEAN RED OCEAN BLUE OCEAN Compete in existing market space. Create uncontested market space. Beat the competition. Make the competition irrelevant. Exploit existing demand. Create and capture new demand. Make the value-cost trade-off. Break the value-cost trade-off. Align the whole system of a firm’s activities with its strategic choice of differentiation or low cost. Align the whole system of a firm’s activities in pursuit of differentiation and low cost.
  3. 3. VALUE INNOVATION Cost savings are made by eliminating and reducing the factors an industry competes on. Buyer value is lifted by raising and creating elements the industry has never offered.
  4. 4. VALUE INNOVATION HOW TO BREAK VALUE-COST TRADE-OFF? Which of the factors that the industry takes for granted should be eliminated? Which factors should be reduced well below the industry’s standard? What factors should be raised well above the industry’s standard? What factors should be created that the industry has never offered?
  5. 5. VISUALIZING STRATEGY Visual Awakening Visual Exploration Visual Strategy Fair Visual Communication Compare your business with your competitors’ by drawing your “as is” strategy canvas. See where your strategy canvas 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, reduce 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’ customers, and noncustomers. 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. BENEFITS OF VISUALIZING STRATEGY: • Promote better understanding of other businesses within the coporate portfolio. • Foster the transfer of strategic best practices across units within organisation..
  6. 6. STRATEGY CANVAS The strategy canvas is a central diagnostic tool and an action framework developed by W. Chan Kim and Renée Mauborgne for building a compelling blue ocean strategy. It graphically captures, in one simple picture, the current strategic landscape and the future prospects for a company.
  7. 7. STRATEGY CANVAS o The strategy canvas serves two purposes: i. To capture the current state of play in the known market space, which allows users to clearly see the factors that the industry competes on and where the competition currently invests. ii. To propel users to action by reorienting their focus from competitors to alternatives and from customers to noncustomers of the industry. o The value curve or strategic profile is the basic component of the strategy canvas. It is a graphic depiction of a company’s relative performance across its industry’s factors of competition. A strong value curve has focus, divergence as well as a compelling tagline.
  8. 8. 4 ACTIONS FRAMEWORK Raise Which factors should be raised well above the industry’s standard? Eliminate Which factors that the industry has long competed on should be eliminated ? New Value Curve Create Which factors should be created that the industry has never offered? Reduce Which factors should be reduced well below the industry’s standard? The Four Actions Framework developed by W. Chan Kim and Renée Mauborgne is used to reconstruct buyer value elements in crafting a new value curve or strategic profile.
  9. 9. ERRC GRID The Eliminate-Reduce-Raise-Create (ERRC) Grid developed by W. Chan Kim and Renée Mauborgne is a simple matrix like tool that drives companies to focus simultaneously on eliminating and reducing, as well as raising and creating while unlocking a new blue ocean. Eliminate Which factors that the industry has long competed on should be eliminated ? Raise Which factors should be raised well abovethe industry’s standard? Reduce Which factors should be reduced well below the industry’s standard? Create Which factors should be created that the industry has never offered?
  10. 10. The grid gives companies four immediate benefits: i. It pushes them to simultaneously pursue differentiation and low cost to break the value-cost trade off. ii. It immediately flags companies that are focused only on raising and creating, thereby lifting the cost structure and often over-engineering products and services – a common plight for many companies. iii. It is easily understood by managers at any level, creating a high degree of engagement in its application. iv. Because completing the grid is a challenging task, it drives companies to thoroughly scrutinize every factor the industry competes on, helping them discover the range of implicit assumptions they unconsciously make in competing. BENEFITS OF ERRC GRID
  11. 11. 6 PATHS FRAMEWORK Head-to-Head Competition Blue Ocean Creation Focuses on rivals within its industry Looks across alternative industries Focuses on competitive position within strategic group Looks across strategic groups within industry Focuses on better serving the buyer group Redefines the industry buyer group Focuses on maximizing the value of product and service offerings within the bounds of its industry Looks across to complementary product and service offerings Focuses on improving the price performance within the functional- emotional orientation of its industry Rethinks the functional-emotional orientation of its industry Focuses on adapting to external trends as they occur Participates in shaping external trends over time
  12. 12. PIONEER-MIGRATOR-SETTLER (PMS) MAP Settlers are defined as me-too businesses, migrators are business offerings better than most in the marketplace, and a company’s pioneers are the businesses that offer unprecedented value. These are a company’s blue ocean strategic moves, and are the most powerful sources of profitable growth. They are the only ones with a mass following of customers. If both the current portfolio and the planned offering consist mainly of settlers, the company has a low growth trajectory, is largely confined to red oceans, and needs to push for value innovation. Although the company might be profitable today as its settlers are still making money, it may well have fallen into the trap of competitive benchmarking, imitation, and intense price competition. If current and planned offerings consist of a lot of migrators, reasonable growth can be expected. But the company is not exploiting its potential for growth and risks being marginalized by a company that value-innovates
  13. 13. 3 TIERS OF NON-CUSTOMERS Customers of your industry Soon-to-be non-customers; on the edge of market, waiting to jump ship Refusing non-customers; conciously choosing against your market Unexplored non-customers; in market distant from yours
  14. 14. SEQUENCE OF BLUE OCEAN STRATEGY ■ Buyer Utility Is there exceptional buyer utility in your business idea? ■ Price Is your price easily accessible to the 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 upfront?
  15. 15. BUYER UTILITY MAP
  16. 16. THE PRICE CORRIDOR OF THE MASS
  17. 17. 4 HURDLES TO STRATEGY EXECUTION Cognitive An organization wedded to the status quo Resource Limited Resources Political Opposition from powerful vested interests Motivational
  18. 18. TIPPING POINT LEADERSHIP Conventional Wisdom The theory of organizational change rests on transforming the mass and these efforts require steep resources and long timeframes. Tipping Point Leadership To achieve a strategic shift at low cost, focus on the extremes – the people, acts, and activities that exert a disproportionate influence on performance.
  19. 19. FAIR PROCESS Engagement Explanation Expectation Clarity Engagement means involving individuals in the strategic decisions that affect them by soliciting their input and allowing them to refute the merits of one another’s ideas and assumptions. Engagement communicates management’s respect for individuals and their point of view. The result is better strategic decisions by management and genuine commitment from everyone involved in execution. Explanation means that everyone involved and affected should understand why final strategic decisions are made. An explanation of rationale engenders confidence among employees that managers have considered their opinions and have made decisions impartially in the overall interest of the company, even if their own ideas have been rejected. It also serves as a powerful feedback loop to enhance learning. Expectation clarity requires that after a strategy is set, managers clearly state the new rules of the game. Although the expectations may be demanding, employees know up front the standards by which their work will be judged and the consequences of failure. When people clearly understand expectations, political jockeying and favoritism are minimized, and people can focus on executing the strategy rapidly. Fair process is a concept developed by W. Chan Kim and Renée Mauborgne that builds execution into strategy by creating people’s buy-in up front. When fair process is exercised in the strategy formulation phase, people trust that a level playing field exists, inspiring voluntary cooperation during the execution phase.There are three mutually reinforcing elements that define fair process: engagement, explanation, and clarity of expectation. Whether people are senior executives or shop employees, they all look to these elements. Kim and Mauborgne call them the three Ε principles of fair process.

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