Blue Ocean Strategy

1. Blue Ocean Strategy W. Chan Kim and Renee Maubourgne Edited by Chitchai P.

2. Agenda • Blue Ocean Strategy (BOS) • Creating Blue Ocean • Analytical Tools and Frameworks • Formulating Blue Ocean Strategy • Reconstruct Market Boundaries • Focus on Big Picture • Reach Beyond Existing Demand • Get Strategic Sequence Right • Executing Blue Ocean Strategy • Overcome Key Organization Hurdles • Build Execution into Strategy • Conclusion

3. Agenda Blue Ocean Strategy (BOS) • Blue Ocean Strategy (BOS) • Creating Blue Ocean • Analytical Tools and Frameworks • Formulating Blue Ocean Strategy • Reconstruct Market Boundaries • Focus on Big Picture • Reach Beyond Existing Demand • Get Strategic Sequence Right • Executing Blue Ocean Strategy • Overcome Key Organization Hurdles • Build Execution into Strategy • Conclusion

4. Creating Blue Ocean • New Market Space • The Continuing Creation of Blue Oceans • The Impact and Imperative of Crating Blue Oceans • From Company and Industry to Strategic Move • Value Innovation: The Cornerstone of BOS • The Six Principles of BOS

5. Value Innovation:The Cornerstone of BOS Costs Value Innovation Buyer Value The Simultaneous Pursuit of Differentiation and Low Cost

6. Red Ocean vs. Blue Ocean Strategy 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 untapped 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 choices of differentiation or low cost Align the whole system of a firm’s activities in pursuit of differentiation and low cost Focuses on adapting to external trends as they occur Participates in shaping external trends over time

7. The Six Principles of BOS • Formulating Principles • Reconstruct market boundaries • Focus on the big picture, not the numbers • Reach beyond existing demand • Get the strategic sequence right • Risk Factor Each Principle Attenuates • Search risk • Planning risk • Scale risk • Business model risk • Execution Principles • Overcome key organization hurdles • Build execution into strategy • Risk Factor Each Principle Attenuates • Organization risk • Management risk

8. Analytical Tools and Frameworks • Strategy Canvas • Four Actions Framework • Eliminate-Reduce-Raise-Create Grid • Three Characteristics of a Good Strategy

9. Strategy CanvasUS Wine Industry in the late 1990s High Premium Wines Budget Wines Low Above-the-line marketing Vineyard prestige Wine range Price Use of enological terminology and distinctions in wine communication Aging quality Wine complexity

10. Four Actions Framework REDUCE Which factors should be reduced well below the industry’s standards? A New Value Curve CREATE Which factors should be created that the industry has never offered? ELIMINATE Which of the factors that the industry take for granted should be eliminated? RAISE Which factors should be raised well above the industry’s standard?

11. Eliminate-Reduce-Raise-Create Grid Case Study: Yellow Tail Eliminate Enological Terminology Aging qualities Above-the-line Marketing Raise Price versus budget wines Retail stores involvement Reduce Wine complexity Wine range Vineyard prestige Create Easy drinking Ease of selection Fun and adventure

12. A New Value Curve –Strategy Canvas of Yellow Tail High Premium Wines [yellow tail] CREATE Budget Wines RAISE REDUCE ELIMINATE Low Above-the-line marketing Vineyard prestige Wine range Ease of selection Price Fun and adventure Use of enological terminology and distinctions in wine communication Aging quality Wine complexity Easy drinking

13. Strategy Canvas: Southwest Airlines High Southwest Airlines Average Airlines Car Transport Low Seating class choice Hub connectivity Friendly Service Speed Frequent Pint-to-point departure Price Meals Lounges

14. Strategy Canvas: Cirque du Soleil High Ringling Bros. & Barnum & Bailey Cirque du Soliel Smaller Regional Circuses Low Multiple show arena Thrill and challenge Theme Multiple Production Price Animal shows Artistic music and dance Refined watching environment Star performers Fun and humor Unique venue Aisle concessions

15. Three Characteristics of a Good Strategy • Focus • Divergence • Compelling Tagline

16. Agenda • Blue Ocean Strategy (BOS) • Creating Blue Ocean • Analytical Tools and Frameworks • Formulating Blue Ocean Strategy • Reconstruct Market Boundaries • Focus on Big Picture • Reach Beyond Existing Demand • Get Strategic Sequence Right • Executing Blue Ocean Strategy • Overcome Key Organization Hurdles • Build Execution into Strategy • Conclusion • Formulating Blue Ocean Strategy

17. Reconstruct Market Boundaries • Path 1: Look Across Alternative Industries • Path 2: Look Across Strategic Groups within Industries • Path 3: Look Across Chain of Buyers • Path 4: Look Across Complementary Products and Service Offerings • Path 5: Look Across Functional or Emotional Appeal to Buyers • Path 6: Look Across Time

18. Strategy Canvas: NetJetsPath1: Alternative Industry High Private Jet Corporate travel NetJet’s Value Curve Commercial Airlines First and Business-Classes travel Low Price (fixed purchase + variable price per flight) Speed of total travel time Ease of travel (include. Check-in, customs, etc. Flexibility and reliability In-flight service Deadhead costs Need for customer to manage aircraft (Aircraft M&A)

19. Strategy Canvas: QuickFitPath2: Strategic Group High Curves Home Exercise Program Traditional health clubs Low Availability of instructors Nonthreatening same-sex Environ- ment Womanly fun atmos-phere Price Workout equipment (treadmill, weights, etc) Workout time Environment encouraging discipline and motivation in exercise Convenience Amenities

20. Strategy Canvas: NABIPath4: Scope of Product/Service Offerings High NABI Hungarian Municipal Bus Company Average US Transit Bus Low Initial purchase price Fuel consumption Environmental friendliness Aesthetic design Customer friendliness Maintenance cost Corrosion Life-Cycle Cost

21. Strategy Canvas: QB HousePath5: Functional/Emotional Orientation High QB House Average Japanese Barbershop Low Range of hair treatments Hygiene Time savings on waiting Time savings on haircut High performance”air wash” system Extra services (other than haircutting) Price Reservation desk

22. Blue Ocean Creation Looks across alternative industries Looks across strategic groups within industry Redefines the industry buyer group Looks across to complementary product and service offerings Rethinks the functional-emotional orientation of to industry Participates in shaping external trends over time Summary:Conceiving New Market Space Head-to-Head Competition Industry Focuses on rivals within its industry Strategic Group Focuses on competitive position within strategic group Buyer Group Focuses on better serving the buyer group Scope of Product or Service Offering Focuses on maximizing the value of product and service offering within the bounds of its industry Functional Emotional Orientation Focuses on improving price performance within the functional-emotional orientation of its industry Time Focuses on adapting to external trends as they occur

23. Focus on Big Picture • Four Steps of Visualizing Strategy • The Pioneer-Migrator-Settler Map

24. Four Steps of Visualizing Strategy Visual Awakening Visual Exploration Visual Strategy Fair Visual Communication • Compare your business with your competitor’s by drawing your “as is” strategy canvas. • See where your strategy 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, Raise, Create, or Change. • Draw your ‘to be” strategy canvas based on insights from field observations. • Get feedback on alternative strategy canvases from customers, competitor's customer, and non-customers. • 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.

25. The PMS Map Pioneers Migrators Settlers Today Tomorrow

26. First Tier: “Soon-to-be” non-customers who are on the edge of your market, waiting to jump ship Second Tier: “Refusing non-customers who consciously choose against your market. Third Tier: “Unexplored” non customers who are in markets distant from yours. Your Market Reach Beyond Existing Demand Third Tier Second Tier First Tier

27. Get the Strategic Sequence Right Buyer Utility Price Cost Adoption Commercially Viable Blue Ocean Idea Is there exceptional buyer utility in your business idea? Is your price easily accessible to the mass of buyers? Can you attain your cost target to profit at your strategic price? What are adoption hurdles in actualizing your business idea? Are you addressing them up front? NO NO NO NO

28. Buyer Utility Map The Six Stages of the Buyer Experience Cycle How long to find the product you need? How long to get the product delivered? Need other products to make it work? Require external ME Training or expertise assistance required? Create waist items? How rapidly can you make a purchase? How difficult to unpack and install the new product? How easy to maintain and upgrade? Easy to store when not in used? How much time do they take? How easy to dispose? Is the place of purchase attractive and accessible? How effective are features and functions? How easy are they to obtain? Do buyers have to arrange delivery themselves? If yes, how costly and difficult is this If so, how costly are they? The Six Utility Levels How secure is the transaction environment? Overcharged with bell and whistles? How costly? How costly? How much pain do they cause? Legal or environmental issue of the product disposal?

29. Upper-level pricing Mid-level pricing Low-level pricing Price Corridor of the Mass Identify the Price Corridor of the mass Specify a Price Level within the Price Corridor Three alternative product/service types: High degree of legal and resource protection Difficult to Imitate Price Corridor of the Mass Some degree of legal and resource protection Low degree of legal protection Easy to Imitate

30. Profit Model of BOS The Strategic Price The Target Profit The Target Cost Streamlining and Cost Innovative Partnering Pricing Innovation

31. Adoption • Employees • Partners • General Public

32. Agenda • Blue Ocean Strategy (BOS) • Creating Blue Ocean • Analytical Tools and Frameworks • Formulating Blue Ocean Strategy • Reconstruct Market Boundaries • Focus on Big Picture • Reach Beyond Existing Demand • Get Strategic Sequence Right • Executing Blue Ocean Strategy • Overcome Key Organization Hurdles • Build Execution into Strategy • Conclusion • Executing Blue Ocean Strategy

33. Overcome Key Organization Hurdles • Cognitive – Wedded to status quo • Political – Opposition from powerful vested interest • Motivational – Unmotivated • Resource – Limited resource

34. Build Execution into Strategy Strategy Formulation Process Fair Process Engagement Explanation Expectation clarity Trust &Commitment “I feel my opinion counts.” Attitude Volunteer Cooperation “I’ll go beyond the call of duty.” Behavior Exceeds Expectation Self-Initiated Strategy Execution

35. ConclusionSustainability and Renewal of Blue Ocean Strategy Imitation Barriers to BOS • Value Innovation does not make sense to a company’s conventional logic. • Blue Ocean Strategy may conflict with companies’ brand image. • Natural monopoly: The market often cannot support a second player. • Patents or legal permits block imitation. • High volume leads to rapid cost advantage for the value innovator, discouraging followers from entering the market. • Network Externalities discourage imitation. • Imitation often require significant political, operational, and cultural changes. • Companies that value-innovate earn brand buzz and a loyal customer following that tends to shun imitators.