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Blue ocean srategy

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Blue ocean strategy
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Blue ocean srategy

  1. 1. BLUE OCEAN STRATEGY How to Create Uncontested Market Space and Make the Competition Irrelevant Made by Mrs. Kavita Yogesh Bansal
  2. 2. Creating Blue Oceans New Market Space The universe is composed of two sorts of oceans- Red Oceans and Blue Oceans. Red Oceans-All the industries in existence today. Blue Oceans-All the industries not in existence today i.e. unknown market space
  3. 3. Blue Oceans are defined by untapped market space, demand creation, and the opportunity for highly profitable growth. In red oceans industry boundaries are defined and accepted, and the competitive rules of the game are known. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set.
  4. 4. The Continuing Creation of Blue Oceans Although the term blue oceans is new, their existence is not. Companies which never existed 50 years back are on zoom today. Similarly, companies which are not in existence today may exist after a few years & we should think about those.
  5. 5. The Impact of Creating Blue Oceans The profit and growth consequences of creating blue oceans. Business launch 86% 14% Revenue Impact 62% 38% Profit Impact 39% 61% Launches within red oceans Launches for creating blue oceans
  6. 6. From Company & Industry to Strategic Move The study shows that the strategic move, and not the company or the industry, is the right unit of analysis for explaining the creation of blue oceans and sustained high performance. A strategic move is the set of managerial actions and decisions involved in making a major market creating business offering.
  7. 7. Value Innovation: The cornerstone of Blue Ocean strategy Value innovation places equal emphasis on value and innovation. Value without innovation tends to focus on value creation on an incremental scale, something that improves value but is not sufficient to make you stand out in the market place.
  8. 8. Innovation without value tends to be technology-driven, market pioneering, or futuristic, often shooting beyond what buyers are ready to accept and pay for. Value innovation occurs only when companies align innovation with utility, price, and cost positions. People who seek to create blue oceans pursue differentiation and low cost simultaneously.
  9. 9. Red Ocean Strategy Blue Ocean Strategy Compete in existing Create uncontested market space. market space. Exploit existing demand. Create and capture new demand. Make the value-cost Break the value-cost trade-off. trade-off. Align the whole system Align the whole system of a firm’s activities with of a firm’s activities in its strategic choice of pursuit of differentiation differentiation or low and low cost. cost.
  10. 10. The Six Principles of Blue Ocean Strategy
  11. 11. Formulation Principles Risk factors each principle attenuates Reconstruct market Reduces search risk boundaries Focus on the big picture, not Reduces planning risk the numbers Reach beyond existing Reduces scale risk demand Reduces business model Get the strategic sequence risk right Execution Principles Risk factors each principle attenuates Overcome key Reduces organizational risk organizational hurdles Build execution into strategy Reduces management risk
  12. 12. Analytical Tools and Frameworks Effective blue ocean strategy should be about risk minimization and not risk taking.
  13. 13. The Strategy Canvas The strategy canvas is both a diagnostic and an action framework for building a compelling blue ocean strategy. First it captures the current state of play in the known market space. This allows you to understand where the competition is currently investing, the factors the industry currently competes on in products, service, & delivery, & what customers receive from the existing competitive offerings in the market.
  14. 14. The Four Actions Framework
  15. 15. Reduce Which factors should be reduced well below the industry’s standard? Eliminate Create Which of the factors that A new Which factors should be the industry takes for value curve created that the granted should be industry has eliminated? never offered? Raise Which factors should be raised well above the industry’s standard?
  16. 16. The Eliminate-Reduce-Raise- Create Grid Eg. [yellow tail]
  17. 17. Eliminate Raise Enological terminology Price versus budget and wines distinctions Retail store Aging qualities involvement Above the line marketing Reduce Create Wine complexity Easy drinking Wine range Ease of selection Vineyard prestige Fun and adventure
  18. 18. Three Characteristics of a Good Strategy 1. Focus: Every great strategy has focus, and a company’s strategic profile, or value curve, should clearly show it.
  19. 19. 2. Divergence: When a company’s strategy is for me d rea ctiv ely as it
  20. 20. 3. Compelling tagline: A good strategy has a clear-cut and compelling tagline. Eg. Tagline of SouthWest Airlines “The speed of a plane at the price of a car- whenever you need it.”
  21. 21. Some factors showing a company caught in the Red Ocean Overdelivery without payback An Incoherent Strategy Strategic Contradictions An internally driven company
  22. 22. Formulating Blue Ocean Strategy
  23. 23. Reconstruct Market Boundaries
  24. 24. Companies trapped in red oceans tend to do the following: Define their industry similarly and focus on being the best within it. Look at their industries through the lens of generally accepted strategic groups (such as luxury automobiles, economy cars, and family vehicles), and strive to stand out in the strategic group they play in. Focus on the same buyer group, be it the purchaser (as in office equipment industry), the user ( as in clothing industry), or the influencer (as in pharmaceutical industry).
  25. 25. Define the scope of the products and services offered by their industry similarly. Accept their industry’s functional or emotional orientation. Focus on the same point in time-and often on current competitive threats-in formulating strategy.
  26. 26. Six Paths Framework (Pattern for Creating Blue Ocean Strategy)
  27. 27. Path 1: Look Across Alternative Industries. Path 2: Look Across Strategic Groups Within Industries. Path 3: Look Across the Chain of Buyers. Path 4: Look Across Complementary Product and Service Offerings. Path 5: Look Across Functional or Emotional Appeal to Buyers. Path 6: Look Across Time.
  28. 28. Conceiving New Market Space
  29. 29. From Head to Head Competition to Blue Ocean Creation
  30. 30. Head-to-Head Blue Ocean Competition Creation Industry Focuses on rivals Look across within its industry alternative industries Strategic Group Focuses on Looks across competitive position strategic groups within strategic within industry group Buyer Group Focuses on better Redefines the serving the buyer industry buyer group group
  31. 31. Head-to-Head Blue Ocean Competition Creation Scope of product/ Focuses on Looks across to service offering maximizing the complementary value of product & product and service service offerings offerings within the bounds of its industry Functional- Focuses on Rethinks the feo of emotional improving price its industry orientation (feo) performance within the feo of its industry Time Focuses on Participates in adapting to external shaping external trends as they trends over time occur
  32. 32. Focus on the Big Picture, Not the Numbers
  33. 33. Drawing Your Strategy Canvas The Four Steps of Visualizing Strategy
  34. 34. 1.Visual 2. Visual 3. Visual 4. Visual Awakening Exploration Strategy Fair Communication Compare your Go into the Draw your “to Distribute your business with field to explore be” strategy before-and-after your the six paths to canvas based strategic profiles competitors’ by creating blue on insights from on one page for drawing your oceans. field easy ”as is” strategy Observe the observations. comparison canvas. distinctive Get feedback advantages of on alternative Support only See where alternative strategy those projects your strategy products and canvases from and operational needs to services customers, moves that change See which competitors’ allow your factors you customers, & company to should non customers. close the gaps eliminate, create Use feedback to actualize the or change to build the best new strategy. “to be” future strategy.
  35. 35. Reach Beyond Existing Demand The three tiers of Noncustomers First tier Third Second Your market tier tier First tier-”soon to be” noncustomers who are on the edge, waiting to jump ship. Second tier-’’Refusing’’ noncustomers who consciously choose against your market Third tier: ‘’Unexplored’’ noncustomers who are in markets distant from yours
  36. 36. Get the Strategic Sequence Right
  37. 37. Buyer utility Is there exceptional buyer utility No-rethink in your business idea? Yes Price Is your price easily accessible to No-rethink the mass of buyers? Yes Cost Can you attain your cost target No-Rethink to profit at your strategic price? Yes Adoption What are the adoption hurdles in actualizing your business idea? No-Rethink Are you addresing them up front? Yes A commercially viable Blue ocean idea
  38. 38. Testing for Exceptional Utility The Buyer Utility Map
  39. 39. The Six Stages of the Buyer Experience Cycle 1. 2. 3. 4. 5. 6. Purchase Delivery Use Suplemnts mainte Disposal nance Customer Productivity Simplicity Convenience Risk Fun & Image Environmental friendliness
  40. 40. The Buyer Experience Cycle
  41. 41. Purchase Delivery Use How long does it How long does Does the product require take to find the it take to get the training or expert product you product assistance? need? delivered? Is the product easy to store Is the place of How difficult is it when not in use? purchase to unpack and attractive & install the new How effective are the accessible product? product’s features and functions? How secure is Do buyers have the transaction to arrange Does the product or environment? delivery service deliver far more themselves? If power or options than yes, how costly How rapidly can required by the average and difficult is you make a user? Is it overcharged this? purchase? with bells and whistles?
  42. 42. Supplements Maintenance Disposal Do you need Does the Does use of the other products product require product create & services to external waste items? make this maintenance? product work? How easy is it How easy is it to dispose of If so, how to maintain & the product? costly are they? upgrade the product? Are there legal How much time or do they take? How costly is environmental maintenance? issues in disposing of the How much pain do they cause? product safely? How easy are How costly is they to obtain? disposal?
  43. 43. Uncovering the Blocks to Buyer Utility
  44. 44. Purchase Delivery Use Suppleme Maintena Disposal nts nce Customer Productivity: in which stages are the biggest blocks to customer productivity? Simplicity: in which stages are the biggest blocks to simplicity? Convenience: In which stages are the biggest blocks to convenience? Risk: In which stages are the biggest blocks to reducing risks? Fun & Image: In which stages are the biggest blocks to fun & image? Environmental friendliness: In which stages are the biggest blocks to environmental friendliness?
  45. 45. From Exceptional Utility to Strategic Planning Step 1: Identify the Price corridor of the Mass Step 2: Specify a Level Within the Price Corridor
  46. 46. From Strategic Pricing to Target Costing The Profit Model of Blue Ocean Strategy
  47. 47. The Strategic Price The Target Profit The Target Cost Streamlining & Cost innovations Partnering Pricing Innovations
  48. 48. Adoption Of Blue Ocean Idea Before moving further and investing in the new idea, the company must first overcome such fears by educating the following people- Employees Business Partners The General Public
  49. 49. Executing Blue Ocean Strategy
  50. 50. Overcome Key Organizational Hurdles The Four Organizational Hurdles to Strategy Execution
  51. 51. Cognitive Hurdle An organization wedded to the status quo Political Hurdle Resource Hurdle Opposition from Limited resources powerful vested interests Motivational Hurdle Unmotivated Staff
  52. 52. Building Execution into Strategy A company is not only Top Management, nor is it only middle management. A company is everyone from the top to the front lines. The company must create a culture of trust & commitment that motivates people to execute the agreed strategy.
  53. 53. The power of fair process How Fair Process Affects People’s Attitudes and Behavior
  54. 54. Fair Process Strategy Engagement Formulation Explanation Process Expectation clarity Trust and Attitudes Commitment “I feel my opinion counts” Voluntary Co-operation “I’ll go beyond the call Behavior of duty” Exceeds expectations Self- Initiated Strategy execution
  55. 55. The Three E Principles of Fair Process There are three mutually reinforcing elements that define fair process- 1. Engagement 2. Explanation 3. Clarity of Expectation
  56. 56. The execution consequences of the presence and absence Of fair process in strategy making Voluntary Intellectual & Trust & Cooperation in Fair Process Emotional Commitment Strategy Recognition execution Intellectual & Refusal to Violation of Fair Distrust & Emotional Execute Process Resentment Indignation Strategy
  57. 57. Imitation Barriers to Blue Ocean Strategy Value innovation does not make sense to a company’s conventional logic. Blue ocean strategy may conflict with other companies’ brand image. Natural monopoly: The market often cannot support a second player. Patents or legal permits block imitation. Network externalities discourage imitation.
  58. 58. Imitation Barriers to Blue Ocean Strategy contd… High volume leads to rapid cost advantage for the value innovator, discouraging followers from entering the market. Imitation often requires significant political, operational, & cultural changes. Companies that value-innovate earn brand buzz & a loyal customer following that tends to shun imitators.
  59. 59. Blue Ocean Strategy Written by W.Chan Kim Renee Mauborgne