Presentation on theme: "Blue Ocean Strategy: Analytical Tools and Frameworks"— Presentation transcript:
1 Blue Ocean Strategy: Analytical Tools and Frameworks Team 6:Jessica AragonRaynee BradleyJohn CayoKirk GriffithCole NaylorJessica WilsonBrandy Wolfe
2 Chapter 2: Analytical Tools and Frameworks The Strategy CanvasThe Four Actions FrameworkThe Eliminate-Reduce-Raise-Create GridThree Characteristics of a Good StrategyReading the Value Curves
3 The Strategy CanvasThe 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 strategic canvas enables companies to see the future in the present.
4 The Strategy Canvas of the U.S. Wine Industry in the Late 1990s 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.HighPremium WinesBudget WinesLowAbove-the-line marketingVineyard prestige and legacyWine rangePriceUse of enological terminologyAging qualityWine complexity
5 Explaining value curves There are more than 1600 wineries that participate in the U.S. wine industry, however from the buyer’s point of view there is enormous convergence in their value curves.When premium brand wines are plotted on the strategy canvas we discover that essentially all of them have the same strategic profile.They offer a high price and present a high level of offering across all factors.Their strategic profile follows a classic differentiation strategy.Budget wines also have the same essential strategic profile.Their price is low, as is their offering across all the key competing factors.They follow a low-cost strategy.The value curves of premium and low-cost wines share the same basic shape. The two strategic groups march in lockstep but at different altitudes of offering level.
6 Shifting the strategy canvas To shift the strategy canvas of an industry, you must begin by reorienting your strategic focus from competitors to alternatives, and from customers to noncustomers of the industry.To pursue both value and cost, companies need to resist focusing on just cost leadership and differentiation. Instead they need to focus on alternatives and noncustomers. By doing this companies are able to gain insight into how to redefine the problem the industry faces.Research found that many consumers thought wine was too complex and that beer, spirits, and cocktails, captured three times as many U.S. consumer alcohol sales as wine.Casella Wines decided to make a fun and non traditional wine that was easy to drink for everyone.To achieve this Casella Wines turned to the second basic analytic underlying blue oceans: The four actions framework
7 The Four Actions Framework The four actions framework was developed to reconstruct buyer value elements in crafting a new curve.
8 Creating a new value curve To break the trade-off between differentiation and low cost and to create a new value curve, there are four key questions to challenge an industry’s strategic logic and business model:
9 1. Which of the factors that the industry takes for granted should be eliminated? This question forces you to consider eliminating factors that companies in your industry have long competed on.
10 2. Which factors should be reduced well bellow the industry’s standard? This question forces you to determine whether products or services have been over designed in the race to match and beat the competition.
11 3. Which factors should be raised well above the industry’s standard? This question pushes you to uncover and eliminate the compromises your industry forces customers to make.
12 4. Which factors should be created that the industry has never offered? This questions helps you to discover entirely new sources of value for buyers and to create new demand.
13 Casella Wines ExampleCasella Wines acted on all four actions – eliminate, reduce, raise, and create- to unlock uncontested market space that changed the face of the U.S. wine industry in a span of two years.
14 Casella WinesCreated yellow tail-broke from the competition and created a blue ocean.A social drink accessible to everyone.It offers simplicity: sweet and fruity, red (Shiraz) or white (Chardonay)They eliminated everything else.
15 Casella WinesThese actions reduced or eliminated all the factors the wine industry had long competed on.This also reduced the cost of capital.It raised value and created new demand.
16 The Eliminate-Reduce-Raise-Create Grid Represents the 3rd tool that is key to the creation of blue oceansPushes companies not only to ask all four questions in the four actions frameworks, but also to ACT on all four to create a new value curveAllows companies to have a full scale view of their industry and their niche within it, while also highlighting new areas for improvement or advancement based on shareholder, customer, employee, and industry demands
17 The Eliminate-Reduce-Raise-Create Grid The Case of: Yellow Tail WinesEliminateEnological TerminologyAging QualitiesAbove-the-line MarketingRaisePrice vs. Budget WinesRetail Store InvolvementReduceWine ComplexityWine RangeVineyard PrestigeCreateEasy DrinkingEase of SelectionFun and Adventure
18 The Eliminate-Reduce-Raise-Create Grid The Case of: Cirque du SoleilEliminateStar PerformersAnimal ShowsAisle Concession SalesMultiple Show ArenasRaiseUnique VenueReduceFun & HumorThrill & DangerCreateThemeRefined EnvironmentMultiple ProductionsArtistic Music & Dance
19 The Eliminate-Reduce-Raise-Create Grid Four Immediate Benefits:Pushes to simultaneously pursue differentiation and low costs to break the value-cost trade-offImmediately flags companies that are focused only on raising and creating, and thereby lifting cost structure which often leads to over engineering products and servicesEasily understood by managers at any level, thus creating a high level of engagement in its applicationBecause completing the grid is a challenging task, it drives companies to robustly scrutinize every factor in the industry competes on, making them discover the range of implicit assumptions they make unconsciously when competing
20 3 Characteristics of a Good Strategy FocusDivergenceCompelling Tagline
21 FocusThe company does not diffuse its efforts across all key factors of competitionValue curve should clearly show it
22 DivergenceThe shape of the value curve diverges from that of the competitionThe value curve of blue ocean strategies always stand apart
23 Compelling TaglineGood strategy has a clear-cut and compelling taglineMust deliver clear message and advertise and offering truthfully
24 Southwest AirlinesFocus: emphasized only 3 factors – friendly service, speed, and frequent point-to-point departures.Divergence: pioneered point-to-point travel between mid-sized citiesCompelling tagline: could be something like “The speed of a plane at the price of a car-whenever you need it.”
25 Cirque du SoleilSet itself apart by applying noncircus themes, multiple productions, refined watching environment, and artistic music and dance.
26 Reading the Value Curve The value curve can reveal strategic knowledge on the current and future status of an industry.Provide insightRevealing Factors:A Blue Ocean StrategyCompany Caught in theRed OceanOverdelivery Without PaybackIncoherent StrategyStrategic ContradictionsInternally or Externally Driven✕
27 Reading the Value Curve cont’d A Blue Ocean StrategyQ: Does a business deserve to be a winner?Right Track: Focus, Divergence, and a Compelling Tagline.*Initial test of commercial viability of blue ocean ideasEx:Wrong Track:Lack of Focus – High cost structure/Complex business modelLack of Divergence – Strategy is “me-too” with no reason to stand apart.Lack of Compelling Tagline – Internally driven with no great commercial potential or takeoff capability.(i.e. innovation for innovations sake)Ex: *Europe
28 Reading the Value Curve cont’d Company Caught in the Red OceanQ: Does the value curve converge with competitors?Yes = Strategy tends to be trying to outdo competition on cost or quality.Signals slow growth or luck if the business is in an industry that is growing.Divergence:Overdelivery Without PaybackQ: Does the company’s market share and profitability reflect these investments?Oversupplying customers withvalue adding elements. *Premium winesSolution: Value-Innovate to create divergence.Eliminate and reduce NOT raise and create.[yellow-tail]
29 Reading the Value Curve cont’d Incoherent StrategyQ: Does the value curve look like a zig-zag with no rhyme or reason?(Low-High-Low-Low-High-Low-High)Independent SubstrategiesReflection of an organization with divisional or functional silos.Although they may keep businesses running, collectively they do little to distinguish the company from competitors or provide a clear vision.Strategic ContradictionsQ: Are there strategic contradictions?Areas where a company is offering a high level on one competing factor while ignoring others that support that factor.Ex: Investing heavily in making a company’s website easy to use, but failing to correct the site’s slow speed of operation.Ex: Petroleum Station Company “offering less for more”Fewer services than competitors at a higher price.Ex: *Price and range of lumberyards,while offering consumer classes.
30 Reading the Value Curve cont’d An Internally Driven CompanyQ: How does a company label the industry’s competing factors?i.e. megahertz vs. speed (or) thermal water temperature vs. hot water*Comparable to writing with an active voice using short, simple sentences.Q: Are the competing factors stated in terms buyers can understand and value, or operational jargon?Outside in (driven by demand)Inside out (operationally driven)Analyzing the language helps a companyunderstand how far it is from creatingindustry demand.
31 Summary The Strategy Canvas Four Actions Framework Eliminate, reduce, raise, and createEliminate-Reduce-Raise-Create GridSupplementary analytic to the four actions framework
32 Summary cont’d Three Characteristics of a Good Strategy Focus, Divergence, Compelling TaglineReading the Value CurvesA Company Caught in the Red OceanOverdelivery Without PaybackAn Incoherent StrategyStrategic ContradictionsAn Internally Driven Company
33 References“About curves.” Curves.com. 25 January <http://www.curves.com>.Lasher, Lemuel. “Blue Ocean Strategy.” CSC.com. 25 January <http://www.csc.com/cscworld/072005/dep/br001.html>.Mendonza, Morice. “In search of blue oceans: AOL (Europe).” Knowledge.insead.edu. 25 January <http://knowledge.insead.edu/aoleurope.cfm>.