Blue Ocean Strategy: Innovating in a Down Economy IMCNE Annual Conference “A Recession is a Terrible Thing to Waste” May 5, 2009 Jennifer von Briesen Owner & Principal Frontier Strategy, LLC Source: Blue Ocean Strategy by W. Chan Kim & Renée Mauborgne ©2005

Strategy Over the Years Strengths and Weakness analysis, SWOT (HBS, late 60s) Portfolio approaches (GE, McKinsey, BCG 60-70s) Shareholder value, EVA (80s-90s), Michael Porter (mid 80s) Core Competence, Strategic Intent (Hamel, Prahalad, early 90s) Profit Zone (Adrian Slywotzky, et al) Disruptive technologies (Clay Christensen, late 90s) Value Innovation (Chan Kim, Renée Mauborgne, late 90s). So what’s new about Value Innovation/Blue Ocean Strategy?

What Is A Blue Ocean? New market space Companies expand or go across industry boundaries Competition is irrelevant in the blue uncharted water Significant opportunity for profitable growth Existing market space Industry boundaries are defined and accepted Cutthroat competition means the water is bloody red Growth and profits are restricted Red OceanBlue Ocean Source: Blue Ocean Strategy by W. Chan Kim & Renée Mauborgne ©2005

Core Concept The Simultaneous Pursuit of Differentiation (Superior Buyer Value) and Low Cost Buyer value is increased by raising and creating elements the industry has never offered. Cost Structure Is lowered through eliminating and reducing factors the industry competes on but buyers do not value highly High sales volume creates scale economies and further cost reduction Source: Blue Ocean Strategy by W. Chan Kim & Renée Mauborgne ©2005

Key Principle: Reach Beyond Existing Demand Engage the Three Tiers of Non-Customers Tier 1 Soon-to-be non-customers. In search of better solutions. Tier 2 Are aware of but don’t use your industry’s offerings. Tier 3 Have never thought of your market’s offerings as an option. “Unexplored” customers who have not been targeted or thought of as potential customers by any player in the industry. Source: Blue Ocean Strategy by W. Chan Kim & Renée Mauborgne ©2005

Benchmarking Focuses On Beating The Competition Rather than competing for a share of a contracting market, Value Innovators stimulate the demand side of the economy. “World’s Friendliest Driver” Callaway did not focus on competitors Launched “Big Bertha” in 1991 Dominated the market by capturing share from rivals and expanding the total golf club market e.g., attracted non golf playing sports enthusiasts

86% Why It’s Important The Sources of Profitable Growth Source: Blue Ocean Strategy by W. Chan Kim & Renée Mauborgne ©2005

When Should Blue Ocean Strategy (BOS) Be Used? Best Situations Leadership is committed to investing in innovation for profitable growth and significant cost structure reduction Core business or organization is performing well Strategic, future-focused opportunities are not sacrificed to short- term priorities Leadership embraces new approaches and non-incremental thinking Leadership believes in the need for a well balanced portfolio of offerings/businesses tied to different growth strategies including Pioneers, not just Settlers and Migrators Will BOS be of value to your clients? Frontier Strategy takes clients through an initial audit/ questionnaire

Using BOS for Business Development Think differently about how you position your services in this downturn BOS helps position your functional expertise and services more strategically C-level introductions and conversations Appeal to multiple functions and decision-makers Use Innovation positioning to increase appeal and demand for new project work Corporate innovation isn’t just about new products and top-line revenues, it’s about cost structure and building capabilities too Companies who invest now can make a break from competitors who are hunkering down Plus, connect what you do to a popular, recognized approach for added credibility

Using the BOS Toolkit During Projects BOS Methodology includes unique tools that relate to and can be applied to projects in a variety of areas, e.g., Current situation assessment/audit New product/service development Customer research Competitive analysis Branding Pricing Performance improvement work e.g., Process re-engineering Organizational transformation Restructuring/new staffing models, etc. Systems and infrastructure New operations and business models

Four-Step Blue Ocean Strategy Process 1.Visual Awakening 2.Visual Exploration 3.Visual Strategy Fair 4.Visual Communication Compare your business with your competitors’ 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, create, or change Draw your “to be” strategy canvas based on insights from field observations Get feedback on alternative strategy canvases from customers, non- customers, and competitors’ 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. ENGAGEMENT EXPLANATION EXPECTATION CLARITY Source: Blue Ocean Strategy by W. Chan Kim & Renée Mauborgne ©2005

Blue Ocean Strategy Core Tools (1) Pioneer-Migrator-Settler Map Finding the most promising possibilities for growth across a portfolio of service offerings (2) Strategy Canvas and Value Curves Graphically depicting how a company configures its offerings to deliver customer benefits relative to other industry players (3) Six Paths and Four Actions Frameworks for discovering new ideas which can lead to future value curves Source: Blue Ocean Strategy by W. Chan Kim & Renée Mauborgne ©2005

Drawing the Strategy Canvas Decide the relevant market and offering scope to draw Focus on the buyer/customer Put Price as the first factor of competition and rate it on an absolute value basis Carefully identify and discuss the factors and agree on definitions Try to streamline and simplify for visual clarity Group related factors Group similar competitors Reorder the factors Draw multiple potential to-be value curves and test them Example Strategy Canvas: Curves Customer: Consumer

Four Actions for Creating New Value Curves Source: Blue Ocean Strategy by W. Chan Kim & Renée Mauborgne ©2005

Example 1: Southwest Southwest High Low Relative Offering Level Key Elements of Product, Service and Delivery MealsLoungesFriendly Service Seating Class Choices Hub Connectivity Frequent Point-to- Point Departures SpeedPrice Average Airlines e.g. US Airways Car Southwest’s Value Curve Shows Its Blue Ocean Strategy Characteristics of Focus, Divergence and a Compelling Tagline. Tagline: “The speed of a plane at the price of a car – whenever you need it.” Source: Blue Ocean Strategy by W. Chan Kim & Renée Mauborgne ©2005

Example 2: NetJets Focus on the key factors that lead buyers to trade across industries and eliminate or reduce everything else. High Low Relative Offering Level Key Elements of Product, Service and Delivery Need for customers to manage aircraft (aircraft mgmt. and admin.) Deadhead costs Flexibility and Reliability Speed of total travel time East of travel (incl. check-in, customs, etc.) In-flight service Price (fixed purchase plus variable price per flight) Private Jet (Corporate Travel) Commercial Airlines (First & Business Class) NetJets “The convenience of a private jet at the price of a commercial airline ticket.” Source: Blue Ocean Strategy by W. Chan Kim & Renée Mauborgne ©2005

Example 3: Joint Strike Fighter (F-35) The JSF Program Offered A Superior Fighter Plane For All Three Branches At A Lower Cost. High Low Relative Offering Level Key Elements of Product, Service and Delivery Design Customization Weapons customization StealthMission Customization AgilityDurabilityMaintainabilityPrice Air Force (F-22) JSF (F-35) Counter- measures STOVL Source: Blue Ocean Strategy by W. Chan Kim & Renée Mauborgne ©2005

Defense Aerospace Industry Traditional View: Three Branches With Unique Needs For Planes Air ForceNavyMarines LightweightTwo enginesSTOVL (Short Take Off Vertical Landing) Design customization Integrated avionicsTwo seatsLightweight StealthLarge wingsShort wings Supercruise engineDurabilityCountermeasures Long-distance AgilityMaintainability Air-air armamentsLarge/flexible weapons payloads Weapons customization Fixed internal weapons payload Air-air and air- ground armaments Air-ground armaments Electronic warfare An aircraft built for every mission Mission customization The JSF eliminated or reduced all existing competing factors other than those shaded yellow. It questioned these differences and found the key commonalities across the three branches. Source: Blue Ocean Strategy by W. Chan Kim & Renée Mauborgne ©2005

3 Things You Can Do Tomorrow 1.Think about non-customers in your business and in your clients’ industries. Who are the untapped “soon-to-be”, “refusing”, and “unexplored” non- customers? Create at least one hypothesis about their needs that could be a Blue Ocean opportunity. 2.Draw an “As Is” Strategy Canvas for your or your client’s organization (with value curves for you and other industry competitors/alternatives) and assess opportunities and threats. Does your value curve have focus, divergence and a compelling tagline? 3.Start investigating your industry regarding the cost drivers and offering levels on each of the factors of competition that you identified on your Strategy Canvas. What factors can be reduced, eliminated, raised and created to create a new value curve?

(508) “There exist limitless opportunities in every industry. Where there is an open mind, there will always be a frontier.” Charles Kettering