Blue Ocean Strategy - An overview for TEC Members

Blue Ocean Strategy

An Introduction

Mark Parker
mparker@smartselling.com
© 2011 Smart Selling International Pty Ltd
mparker@smartsocialmedia.com.au

About Me
• TEC-24

• TEC member for 8 years

• 5-year focus on social media
• Social business
• Social CRM
• Social Community
• Smart Selling
• Smartpen – utilised Blue Ocean Strategy to define
uncontested market space
• Smart Social Media

© 2011 Smart Selling International – www.smartsocialmedia.com.au

Today’s Objectives
• Part 1 – Introducing Blue Ocean Strategy

• Part 2 – The Core of BOS

• Questions – the more the better!


What is Strategy
• Three aligned propositions:

Value

People Profit


Red Ocean Versus Blue Ocean Strategy
In the red ocean, differentiation costs because firms compete with the same best-practice
principle. Here, the strategic choices for firms are to pursue either differentiation or low
cost. In the reconstructionist world, however, the strategic aim is to create new best-
practice rules by breaking the existing value-cost trade-off and thereby creating blue
ocean.

Red Ocean Strategy Blue Ocean Strategy
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 Align the whole system of a firm’s
activities with its strategic choice of activities in pursuit of differentiation
differentiation or low cost. and low cost.


Value Innovation
Value innovation is created in the region where a company’s actions
favorably affect both its cost structure and its value proposition to
buyers.

Costs
Cost savings are Buyer value is lifted
made by by raising and
eliminating and creating elements
reducing the the industry has
factors an industry Value
never offered. Over
competes on. Innovation time, costs are
reduced further as
scale economies kick
in due to the high
sales volumes that
superior value
Buyer Value generates.


Three Key Perspectives


Four Steps of Visualising Strategy
The four steps of visualizing strategy builds on the six paths of creating blue
oceans and involves a lot of visual stimulation in order to unlock people’s
creativity. The four steps include visual awakening, visual exploration, visual
strategy creation, and visual communication.

1. Visual Awakening 2. Visual Exploration 3. Visual Strategy 4. Visual
Creation Communication

•Compare your business •Go into the field to explore •Draw your “to be” strategy •Distribute your before-and-
with your competitors’ by the six paths to creating canvas based on insights from after strategic profiles on one
drawing your “as is” blue oceans. field observations. page for easy comparison.
strategy canvas.
•Observe the distinctive •Get feedback on alternative •Support only those projects
•See where your strategy advantages of alternative strategy canvases from and operational moves that
needs to change products and services. customers, competitors’ allow your company to close
customers, and noncustomers. the gaps to actualize the new
•See which factors you strategy.
should eliminate, create, or •Use feedback to build the best
change. “to be” future strategy.


Part 1
Visual Awakening


Visual Awakening Definition
The Visual Awakening serves as a wake-up call for companies to challenge
their existing strategy.

The key tool used here is the “Strategy Canvas”

The strategy canvas is both a diagnostic and an action framework for building
a compelling blue ocean strategy.
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, and delivery,
and what customers receive from the existing competitive offerings on the
market.


The “As-Is” Strategy Canvas
The horizontal axis captures the range of factors the industry competes on an
invests in.
The vertical axis captures the offering level that buyers receive across all these
key competing factors. The value curve then provides a graphic depiction of a
company’s relative performance across its industry’s factors of competition.


The “As-Is” Strategy Canvas


The “As-Is” Strategy Canvas – Consoles
High
Microsoft Xbox

Sony PS2

Nintendo
Game Cube
Low


The “As-Is” Strategy Canvas - Exercise

1. Identify the dominant customer group your industry focuses on.
Label your Strategy Canvas.
2. Identify the key competitive factors your industry competes on to
capture this dominant customer group. Your perspective is your
industry’s.
• There should be five to twelve factors. Price is always the first
factor.
3. Rate your relative offering of each factor. Price is Price, not Value -
an absolute figure; a high price is plotted high, a low price is low.
4. Connect the dots to create your “As Is” Value Curve.
5. Identify your dominant competitors in the industry. Repeat the
process. Do not plot against more than three competitors, preferably
only two – it becomes too cluttered to read.


Buyer Experience Cycle
A buyer’s experience can usually be broken into a cycle of six stages, running more or less
sequentially from purchase to disposal.
Each stage encompasses a wide variety of specific experiences.
At each stage, managers can 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 Does the product Do you need other Does the product Does use of the
take to find the it take to get require training or products and require external product create
product you the product expert assistance? services to make maintenance? waste items?
need? delivered? this product work?
Is the product easy to How easy is it to How easy is it to
Is the place of How difficult is store when not in If so, how costly are maintain and dispose of the
purchase it to unpack use? they? upgrade the product?
attractive and and install the product?
How effective are the How much time do Are there legal
accessible? new product?
product’s features they take? How costly is or
How secure is Do buyers and functions? maintenance? environmental
How easy are they
the transaction have to issues in
Does the product or to obtain?
environment? arrange disposing of the
service deliver far
delivery product safely?
How rapidly can more power or
themselves? If
you make a options than required How costly is
yes, how costly
purchase? by the average user? disposal?
and difficult is
Is in overcharged with
this?
bells and whistles?


Buyer Utility Map
The buyer utility map helps managers look at this issue from the right perspective.
It outlines all the levers companies can pull to deliver exceptional utility to buyers as well as the
various experiences buyers can have with a product or service.

The Six Stages of the Buyer Experience Cycle
1. 2. 3. 4. 5. 6.

Customer
Productivity
The Six Utility Levers

Simplicity

Convenience

Risk

Fun and
Image

Environmental
friendliness


Example – teachers in remote areas
The Six Stages of the Buyer Experience Cycle
1. 2. 3. 4. 5. 6.
No or Will it save What is What is Product life
Customer
Productivity
limited time required required
The Six Utility Levers

retail;
Where to How long How to
Simplicity start install

Don’t have Deliver to Easy to hold Where to Connecting
Convenience
credit card remote get to DET
towns consumables
Risk Damage in Damage Availability Lose the pen
transit or pads

Fun and How to use Do the
Image well accessories
look good
Environmental
friendliness Paper use Lith-Ion
battery


Uncovering Blocks to Buyer Utility
Uncovering blocks to buyer utility can identify the most compelling hot spots to unlock exceptional
utility.
By locating your proposed offering on the thirty-six space of the buyer utility map, you can clearly see
how, and whether the new idea not only creates a different utility proposition from existing offerings
but also removes the biggest blocks to utility 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:


Visual Awakening Summary
This phase is primarily navel gazing

Use a cross section of internal resources so you achieve a real balance of
opinion and insight

Key Tools Used:
1. Strategy Canvas – the As-Is strategy canvas
2. Buyer Utility Map – complex, but a cornerstone of the next phase of
BOS


Part 2
Visual Exploration


Visual Exploration Definition
During Visual Exploration, teams of managers go out into the field to
explore the Six Paths Framework gathering noncustomer insights.

Here they are looking to observe the distinct differences of alternative
products and services to see which factors should be
eliminated, reduced, raised, or created in the company's offerings.
Reduce

Eliminate Create

A New
Value
Curve

Raise


Visual Exploration – Six Paths Analysis
• As we transitioned into the Exploration stage, time was
spent on the Six Paths Analysis – looking across alternate
industries, groups, products and services

• This analysis identified:
• Apple stores – how they harness desire and
enthusiasm – the tribe

• In business, who spends a lot of time taking notes or
minutes?

• How do the sub groups of educators work and
communicate


Three Tiers of Noncustomers
There are three tiers of noncustomers that can be transformed into customers.
They differ in their relative distance from your market.
• The first tier of customers minimally buy an industry’s offering out of necessity.
• The second tier of noncustomers refuse to use your industries offerings.
• The third tier are noncustomers who have never thought of your market’s offerings as
an option.

Third
Second Tier
Tier
First
Tier

Your
Market


Non-Customer Example
• From this study we identified a number of new customer
segments (see diagram).
• Our focus shifted to what barriers existed for these non-
customers


What Did We Hear from Non-Customers?

• What does it do?

• I work in a small rural school. How do we buy one?

• This is my job. Will it help?

• Can I use the pen to create mini tutorials for my
students?

• I work with students from non-English speaking
backgrounds; how will this help?

• Will it work with this third party application?


The ERRC Chart

Reduce
What should be
COST reduced well below
the industry’s
standard?

Eliminate Create
What does the A New What should be
industry take for C
Value created that the
granted that should Curve industry has never
be eliminated ? offered?

Raise
What should be VALUE
raised well above the
industry’s standard?


The ERRC Chart – Why?

The eliminate-reduce-raise-create grid pushes companies not only to ask all four
questions in the four actions framework but also to act on all four to create a new
value curve.
By driving companies to fill in the grid with the actions of eliminating, reducing,
raising, and creating, the grid provides four immediate benefits:
1. It pushes them to simultaneously pursue differentiation and low costs;
2. Identifies companies who are only raising and creating thereby raising
costs;
3. Makes it easier for managers to understand and comply; and
4. It drives companies to scrutinize every factor the industry competes on.


The ERRC Grid for Smartpen
• Our field research led us to develop the following Four
Action Framework

Eliminate Raise

Above the line advertising Price
Product range
Post-sales support

Reduce Create

Social media footprint
Purchase order options
Multi-channel communications


The ERRC Grid for Wii
• Nintendo created a ERRC grid as follows

Eliminate Raise

Design aesthetics
Game titles

Reduce Create

Hi-res graphics Motion
Non-gaming functionality Fun friendly games
Processing power


Sequence of Blue Ocean Strategy
An important part of blue ocean strategy is Buyer utility
to “get the strategic sequence right.” Is there exceptional buyer utility in your
business idea? No-- Rethink
This sequence fleshes out and validates
Yes
blue ocean ideas to ensure their
commercial viability. Price
Is your price easily accessible to the
This can then reduce business model risk. mass of buyers?
No-- Rethink
In this model, potential blue ocean ideas
Yes
must pass through a sequence of buyer
utility, price, cost, and adoption. Cost
Can you attain your cost target to profit
At each step there are only two options: a at your strategic price?
No-- Rethink
“yes” answer, in which case the idea may
pass to the next step, or “no”. If an idea Yes

receives a no at any point, the company can Adoption
either park the idea or rethink it until you
What are the adoption hurdles in
get a yes. actualizing your business idea? Are
you addressing them up front? No-- Rethink

Yes

A Commercially
Viable Blue Ocean
Idea

Price Corridor of the Mass
This tool helps managers find the right price for an irresistible offer, which, by the
way, isn’t necessarily the lower price. The tool involves two distinct buy interrelated
steps.
The first step involves identifying the price corridor of the mass which deals with
customer price sensitivity and pricing strategies of products offered outside the group
of traditional competitors. The second step deals with specifying a level within the
price corridor which factors in legal protection and exclusive assets.
Step 1: Identify the price corridor of Step 2: Specify a price level within the price
the mass. corridor.

Three alternative product/service types:
Different form and
Same Different function, same
form form, same objective
function

High degree of legal and resource
protection
Difficult to imitate

Some degree of legal and resource
Price Corridor of protection
Mid-level pricing
the Mass
Low degree of legal and resource
protection
Easy to imitate


Part 3
Visual Strategy Creation


Visual Strategy Creation
The penultimate step is the Visual Strategy Creation.

Here teams begin to draw their "to be" strategy canvases based on
insights from the Visual Awakening and Visual Exploration stages.

The strategy fair invites senior corporate executives, external
constituencies―the kinds of people met during the teams' field work,
including noncustomers and customers of competitors.

The objective is for each team to present their various alternative
strategy canvases and gain feedback to build the best possible "to be"
future strategy canvas.


Nintendo Wii “To-Be” canvas

High
Nintendo Wii
Sony PS2

Microsoft Xbox

Low


Nintendo

“We are not competing against Sony or Microsoft.

We are battling the indifference of people who have no
interest in video games.

We want to appeal to mothers who do not want consoles in
their living rooms, and to the elderly and young women.”

- Iwata Satoru, Nintendo President, Fortune Magazine 6/11/2007


Visual Strategy Creation – To-Be Canvas

• Through a series of iterations a To Be Strategy Canvas was
developed


Part 4
Execution


Execution of a Blue Ocean Strategy
Blue Ocean Strategy completes the overall strategy process by
providing two additional tools to aide execution:

• Fair Process - builds execution into strategy by creating people's
buy-in up front. When fair process is exercised in the strategy
making process, people trust that a level playing field exists. This
inspires them to cooperate voluntarily in executing the resulting
strategic decisions.

• Tipping Point Leadership - To change the mass it focuses on
transforming the extremes: the people, acts, and activities that
exercise a disproportionate influence on performance. By
transforming the extremes, tipping point leaders are able to change
the core fast and at low cost to execute their new strategy.


Fair Process Principles

Engagement

Explanation

Expectations
Clarity


Execution Consequences

Presence of Fair Process

Voluntary
Intellectual &
Trust & Cooperation in
Fair Process Emotional
Commitment Strategy
Recognition
Execution

Absence of Fair Process

Intellectual & Refusal to
Violation of Fair Distrust &
Emotional Execute
Process Resentment
Indignation Strategy


Tipping Point Leadership
- Kingpins wielding disproportionate influence
- Fishbowl management

Motivational

Execution
Political Failure Cognitive
- Consigliere - Experiences, not numbers
- Angels & Devils

Resource
- Hot & Cold Spots
- Horse trading


Summary


Blue Ocean Strategy - Summary
Blue Ocean Strategy completes the overall strategy process
by providing two additional tools to aide execution:

• Visual Awakening - serves as a wake-up call for
companies to challenge their existing strategy.

• Visual Exploration – go out into the field to explore the
Six Paths Framework gathering noncustomer insights.

• Visual Strategy Creation - teams begin to draw their "to
be" strategy canvases based on insights from the Visual
Awakening and Visual Exploration stages.


Napster vs iTunes

1999 iTUNES
2003


Blue Ocean Strategy - Summary

iTUNES
 Value  Value
 Profit  Profit
 People  People


Key Contacts re Blue Ocean Strategy
• Blue Ocean Strategy Australia
• Andrew Nelson – (0404) 870 305,

• andrewnelson@ucsiblueoceanstrategy.com

• http://au.linkedin.com/in/andrewnelsonau

• Robynne Berg – (good friend of Tim Martin)
• robynne@bergconsulting.com.au

• BOS LinkedIn Group
• http://linkd.in/BOS-Aust


Blue Ocean Strategy - An overview for TEC Members

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