Blue Ocean Strategy Analytical Tools and Frameworks

1. Blue Ocean StrategyAnalytical Tools and Frameworks June 2, 2009

2. Introduction • Effective blue ocean strategy should be about risk minimization, not risk taking. • Looks closely at US wine industry

3. US Wine Industry • Intense Competition • 75% of US wine is produced by top 8 companies • Leaves last 25% to be produced by remaining 1600 wineries • Mounting price pressure • Increasing bargaining power by retailers, distributors • Flat demand

4. Critical Questions • Two critical questions remain with wine market • How do you break out of the bloody competition? • How do you open up and capture a blue ocean? • The Answer • Analytical tools and frameworks

5. Overview • The Strategy Canvas • The Four Actions Framework • The Eliminate-Reduce-Raise-Create Grid • 3 Characteristics of a Good Strategy • Reading the Value Curves

6. The Strategy Canvas

7. The Strategy Canvas • Both a Diagnostic and Action framework • Wine Example • Value Curve

9. The Four Actions Framework

10. The Four Actions Framework Reduce Which factors should be reduced well below the industry’s standard? Eliminate Which of the factors that the industry takes for granted should be eliminated? Create Which factors should be created that the industry has never offered? A New Value Curve Raise Which factors should be raised well above the industry’s standard?

11. [yellow tail]

12. [yellow tail] • Created three new factors in the wine industry – easy drinking, easy to select, fun and adventure • Eliminated and Reducedfactors the wine industry long competed on – tannins, oak, complexity, and aging • Raisedprice versus budget wines and retail involvement

13. The Four Actions Framework: Ipod • Which of the factors that the industry takes for granted should be eliminated? • The need for cds/ cassette tapes • The need for batteries • Which factors should be reduced well below the industry’s standard? • The size of music players

14. The Four Actions Framework: Ipod • Which factors should be created that the industry has never offered? • The transfer of music from multiple sources • Portability: cars, stereos, headphones, computers, shoes, jackets • Which factors should be raised well above the industry’s standard? • Mass storage capacity • Quality in sound

15. Eliminate-Reduce-Raise-Create Grid

16. Eliminate Enological terminology and distinctions Aging qualities Above-the-line marketing Reduce Wine complexity Wine range Vineyard prestige Eliminate-Reduce-Raise-Create GridYellow Tail Raise • Price versus budget wines • Retail store involvement Create • Easy drinking • Ease of selection • Fun and adventure

17. Eliminate Star performers Animal shows Aisle concession sales Multiple show arenas Reduce Fun and humor Thrill and danger Eliminate-Reduce-Raise-Create GridCirque du Soleil Raise • Unique venue Create • Theme • Refined environment • Multiple productions • Artistic music and dance

18. 3 Characteristics of a Good Strategy

19. Three Characteristics of a Good (Blue Ocean) Strategy • Focus • Divergence • Compelling Tagline

20. Focus • A company’s conviction to its strategy • Example: Southwest Airlines • Strategy: competing more with the car than with other airlines • Without focus, investments would have strayed to mirror those of established airlines • Example: [yellowtail] • Strategy was to sell to average consumer • Focus allowed company to dismiss critics from wine community

21. Divergence • The basis of finding a Blue Ocean • Retroactively forming a strategy throws companies right into Red Oceans • Benchmarking is widely used in the business community, but perpetuates the same cycles

22. Divergence Examples • Southwest Airlines • Common practices of other airlines? -Meals -Lounges -Seating class choices • Common practices of Southwest? -Friendly Service -Speed -Frequent point-to-point departure • New ideas born from four actions of eliminating, reducing, raising, and creating • [yellow tail] • Diverge from prestige of wine drinking to create easy drinking product

23. Compelling Tagline • Simple but crucial • Must deliver a clear, truthful message • Should highlight divergent characteristics • Example: Southwest Airlines • Taglines change with advertising campaigns • However, one thing remains the same - Southwest always highlights its different culture • Example: [yellowtail] • “a fun and simple wine to be enjoyed everyday” • Highlights strategic profile

24. Reading the Value Curves

25. Types of Tools and Frameworks • Companies Caught in the Red Ocean • Overdelivery without Payback • An Incoherent Strategy • Strategic Contradictions • An Internally Driven Company

26. Companies Caught in Red Ocean • When Value Curves Converge • Company is caught in the Red Ocean • Strategy is trying to outdo its competitors

27. Overdelivery Without Payback • Does the company’s market share and profitability reflect these investments? • If not, the company might be oversupplying its customers

28. An Incoherent Strategy • Inconsistency with growth and decline • Reflects an organization with divisional and functional silos • The strategy is based on independent sub strategies that do not distinguish the company or provide a clear strategic vision

29. Strategic Contradictions • Are there strategic contradictions? • Offering a high level on one competing factor while ignoring others that support that factor • Example: • Investing heavily in a web site that is very user-friendly, but not improving the speed of the site’s operation

30. An Internally Driven Company • Is the strategic vision of the company built on an “outside-in” perspective, which is driven by demand • Or an “inside-out” perspective, which is driven by operations

31. Sum It Up!

32. Conclusion Analytical Tools & Frameworks: • Strategy Canvas: - drawing the value curve • Four Actions Framework: - breaking trade-off between differentiation and low cost and creating a new value curve • Eliminate-Reduce-Raise-Create Grid: - pushes companies to act • 3 Characteristics of a Good Strategy: - Focus, Divergence, & Compelling Tagline • Reading the Value Curves: - Caught in the Red Ocean, Overdelivery without Payback, an Incoherent Strategy, Strategic Contradictions, and an Internally Driven Company

33. Take Aways • The point where these analytic techniques and the six principles of creating blue ocean meet is the point where a company begins to break out of their red ocean and into a blue ocean.