University of Cagliari, Faculty of Economics, a.a. 2012-13

1. Business Strategy and Policy A course within the II level degree in Managerial Economics year II, semester I, 6 credits Lecturer: Dr Alberto Asquer aasquer@unica.it Phone: 070 6753399 University of Cagliari, Faculty of Economics, a.a. 2012-13

2. Lecture 5 Strategic entrepreneurship and the Blue Ocean Strategy Business Strategy and Policy

3. 1. Strategic entrepreneurship 2. Blue Ocean Strategy 3. An example of Blue Ocean Strategy: [yellow tail] 4. The Strategy Canvass and the Four-Actions Framework 5. Other instances of Blue Ocean Strategy - - - - - - - - - - - - - 6. Summary Introduction

4. The process of seeking opportunities and sources of (sustainable) competitive advantage that lead to superior firm performance Entrepreneurship: the undertaking of innovation in combination with financial and business skills with the aim of accomplishing economic gains Commonly: the start-up of new business ventures Sometimes: the undertaking of corporate ventures (e.g., spin-offs) Strategic entrepreneurship: managing the firm in such a way as to undertake new business ventures that lead to superior performance in the long term It requires creativity, imagination, and opportunities; dealing with risk; stimulating and supporting innovation; managing change; mastering technology; and (sometimes) designing new business models 1. Strategic entrepreneurship

5. Firms may undertake offensive strategies, that are explicitly intended to undercut competitors within the same industry and markets Offensive strategies generally aim to result in higher market share, higher profit margins, and higher growth rate than competitors They consist of... Offering comparable products/services at lower price than competitors Introducing next-generation technology products faster than competitors Imitating ideas and tactics of competitors Focusing attacks to the most lucrative segments of competitors and to the weakest competences of competitor 1. Strategic entrepreneurship

6. In contrast, avoidance strategies relate to steering clear from face-to-face confrontation with competitors (especially, when they are stronger!) Avoidance strategies entail finding ways to enter the market and gain market share in a way that does not (necessarily) harm competitors, therefore making competitors' retaliation more unlikely to happen Strategic entrepreneurship may be conceived as a type of avoidance strategy, insofar as it relates to “inventiveness” to define new approaches to the market that do not necessitate direct confrontation with other firms 1. Strategic entrepreneurship

7. (Kim and Mauborgne, 2005) 2. Blue Ocean Strategy

8. The Fundamentals of a successful strategy: Value Innovation 2. Blue Ocean Strategy Costs Value innovation Value

9. 2. Blue Ocean Strategy Within any given industry, every firm seeks to raise value & cut costs in order to enhance value innovation and outperform the competitors The effect is more competition, i.e., minor profit margins for everyone

10. 2. Blue Ocean Strategy Within any given industry, every firm seeks to raise value & cut costs in order to enhance value innovation and outperform the competitors The effect is more competition, i.e., minor profit margins for everyone A Red Ocean

11. 2. Blue Ocean Strategy A successful strategy consists of “pulling ourself out” of the tough competition by venturing into unchartered “water” where no other competitors are present (yet) A Blue Ocean

12. A comparison between red and blue oceans: 2. Blue Ocean Strategy Red Oceans Compete in existing markets Beat the competition Exploit existing demand Make the value-cost trade off Align the firm value chain to the overall strategy (low cost or differentiation or focus) Blue Oceans Create uncontested market space Make the competition irrelevant Create and capture new demand Break the value-cost trade off Align the firm value chain to seeking both differentiation and low cost

13. 3. An example of Blue Ocean Strategy: [yellow tail]

14. The setting: the US wine industry, in 2000... The third largest aggregate consumption of wine worldwide Highly competitive industry Large share of California-based producers Several imported wines from France, Italy, Spain, Chile, Australia and Argentina Consolidation (8 companies produce more than 75% wine) Stagnant demand Battle for shelf space Rising marketing & advertising costs 3. An example of Blue Ocean Strategy: [yellow tail]

15. The setting: the US wine industry, in 2000... The third largest aggregate consumption of wine worldwide Highly competitive industry Large share of California-based producers Several imported wines from France, Italy, Spain, Chile, Australia and Argentina Consolidation (8 companies produce more than 75% wine) Stagnant demand Battle for shelf space Rising marketing & advertising costs 3. An example of Blue Ocean Strategy: [yellow tail] By and large, not an attractive market

16. But... 3. An example of Blue Ocean Strategy: [yellow tail]

17. But... 2000, Casella Wines introduced [yellow tail] in the US 2001, about 112,000 cases were sold 2002, it became the fastest growing brand in the histories of both the Australian and the US wine industry; it was number one imported wine into the US (more than French and italian wines) 2003, it became number one red wine in 750ml bottle sold in the US (more than the same Californian wines) 2005, about 7,500,000 cases sold 3. An example of Blue Ocean Strategy: [yellow tail]

18. But... 2000, Casella Wines introduced [yellow tail] in the US 2001, about 112,000 cases were sold 2002, it became the fastest growing brand in the histories of both the Australian and the US wine industry; it was number one imported wine into the US (more than French and italian wines) 2003, it became number one red wine in 750ml bottle sold in the US (more than the same Californian wines) 2005, about 7,500,000 cases sold 3. An example of Blue Ocean Strategy: [yellow tail] How did they do it?

19. Some tools for analysis within the Blue Ocean Strategy: 4. The Strategy Canvass and the Four-Actions Framework The Strategy Canvass The Four-Actions Framework

20. A fresh way to picture the industry structure: the strategy canvas 4. The Strategy Canvass and the Four-Actions Framework High Premium wines Budget wines Low Price Technical distinctions Noticeable marketing Aging quality Vineyard prestige Wine complexity Wine range Dimensions of competition

21. A fresh way to design innovative products: the four-actions framework 4. The Strategy Canvass and the Four-Actions Framework Reduce Which factors should be reduced well below the industry's standards? Create Which factors should be created that the industry has never offered? Eliminate Which of the factors that the industry takes for granted should be eliminated? A new value curve Raise Which factors should be raised well above the industry's standards?

22. A fresh way to design innovative products: the four actions framework 4. The Strategy Canvass and the Four-Actions Framework Wine complexity Wine range Vineyard prestige Reduce Which factors should be reduced well below the industry's standards? Create Which factors should be created that the industry has never offered? Eliminate Which of the factors that the industry takes for granted should be eliminated? A new value curve Easy drinking Ease of selection Fun & adventure Complex enological terms Relevance of aging quality Noticeable marketing Raise Which factors should be raised well above the industry's standards? Price (vs. budget wines) Retail store involvement

23. The design of a new product: [yellow tail] 4. The Strategy Canvass and the Four-Actions Framework High Premium wines Budget wines Low Price Technical distinctions Noticeable marketing Aging quality Vineyard prestige Wine complexity Wine range Dimensions of competition Easy drink, ease of selection, fun and adventure

24. 4. The Strategy Canvass and the Four-Actions Framework (www.yellowtailwine.com)

25. 4. The Strategy Canvass and the Four-Actions Framework (www.yellowtailwine.com)

26. Some features of the [yellow tail] strategy: No heavy marketing & advertising investments No significant resource of distinctive capability No remarkably different or innovative product (it's a wine!) While... Reframing of the wine product experience in consumers' perception Appeal to non-wine consumers Positioning [yellow tail] as something “not commensurable” with other wines (is it a wine?) 4. The Strategy Canvass and the Four-Actions Framework

27. Nintendo's Wii (2006) 5. Other instances of Blue Ocean Strategy It created a radically different “game concept”' with respect to the traditional (i.e., joystick or gamepad based) videogame consoles It attracted those who were traditionally “non-gamer”' (e.g., parents) and offered new social venues for entertainment

28. Dell's computers (1990s) 5. Other instances of Blue Ocean Strategy It created a radically different retail and delivery system (i.e., direct sales at low cost, customisable machines, and about 4 days delivery time) with respect to competitors It attracted those who had not bought computers before because of ease of access, customisation, and low price

29. 5. Other instances of Blue Ocean Strategy

30. 6. Summary Main points Strategic entrepreneurship consists of firms' efforts to undertake new business ventures that lead to superior performance in the long term Firms may undertake offensive strategies to undercut competitors within the same industry and markets, or avoidance strategies to steer clear of direct confrontation with competitors Blue Ocean Strategy provides an intellectual and methodological approach to designing strategies intended to guide firms into markets where competition is less intense Key tools are the Strategy Canvass and the Four-Actions Framework