BLUE OCEAN STRATEGY How to Create Uncontested Market Space and Make the Competition Irrelevant Made by Mrs. Kavita Yogesh Bansal

Creating Blue Oceans New Market Space The universe is composed of two sorts of oceans- Red Oceans and Blue Oceans. The universe is composed of two sorts of oceans- Red Oceans and Blue Oceans. Red Oceans-All the industries in existence today. Blue Oceans-All the industries not in existence today i.e. unknown market space

Blue Oceans are defined by untapped market space, demand creation, and the opportunity for highly profitable growth. In red oceans industry boundaries are defined and accepted, and the competitive rules of the game are known. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set.

The Continuing Creation of Blue Oceans Although the term blue oceans is new, their existence is not. Although the term blue oceans is new, their existence is not. Companies which never existed 50 years back are on zoom today. Similarly, companies which are not in existence today may exist after a few years & we should think about those.

The Impact of Creating Blue Oceans The profit and growth consequences of creating blue oceans. The profit and growth consequences of creating blue oceans. Business launch Revenue Impact Profit Impact 86% 62% 39% 14% 38% 61% Launches within red oceansLaunches for creating blue oceans

From Company & Industry to Strategic Move The study shows that the strategic move, and not the company or the industry, is the right unit of analysis for explaining the creation of blue oceans and sustained high performance. A strategic move is the set of managerial actions and decisions involved in making a major market creating business offering.

Value Innovation: The cornerstone of Blue Ocean strategy Value innovation places equal emphasis on value and innovation. Value without innovation tends to focus on value creation on an incremental scale, something that improves value but is not sufficient to make you stand out in the market place. Value innovation places equal emphasis on value and innovation. Value without innovation tends to focus on value creation on an incremental scale, something that improves value but is not sufficient to make you stand out in the market place.

Innovation without value tends to be technology-driven, market pioneering, or futuristic, often shooting beyond what buyers are ready to accept and pay for. Innovation without value tends to be technology-driven, market pioneering, or futuristic, often shooting beyond what buyers are ready to accept and pay for. Value innovation occurs only when companies align innovation with utility, price, and cost positions. Value innovation occurs only when companies align innovation with utility, price, and cost positions. People who seek to create blue oceans pursue differentiation and low cost simultaneously. People who seek to create blue oceans pursue differentiation and low cost simultaneously.

Red Ocean Strategy Blue Ocean Strategy Compete in existing market space. Create uncontested market space. Exploit existing demand. Create and capture new 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 choice of differentiation or low cost. Align the whole system of a firm’s activities in pursuit of differentiation and low cost.

The Six Principles of Blue Ocean Strategy

Formulation Principles Risk factors each principle attenuates Reconstruct market boundaries Focus on the big picture, not the numbers Reach beyond existing demand Get the strategic sequence right Reduces search risk Reduces planning risk Reduces scale risk Reduces business model risk Execution Principles Risk factors each principle attenuates Overcome key organizational hurdles Build execution into strategy Reduces organizational risk Reduces management risk

Analytical Tools and Frameworks Effective blue ocean strategy should be about risk minimization and not risk taking. Effective blue ocean strategy should be about risk minimization and not risk taking.

The Strategy Canvas The strategy canvas is both a diagnostic and an action framework for building a compelling blue ocean strategy. First 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, & delivery, & what customers receive from the existing competitive offerings in the market.

The Four Actions Framework

A new value curve Reduce Which factors should be reduced well below the industry’s standard? Raise Which factors should be raised well above the industry’s standard? 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?

The Eliminate-Reduce-Raise- Create Grid Eg. [yellow tail]

Eliminate Enological terminology and distinctions Enological terminology and distinctions Aging qualities Aging qualities Above the line marketing Above the line marketingRaise Price versus budget wines Price versus budget wines Retail store involvement Retail store involvement Reduce Wine complexity Wine complexity Wine range Wine range Vineyard prestige Vineyard prestigeCreate Easy drinking Easy drinking Ease of selection Ease of selection Fun and adventure Fun and adventure

Three Characteristics of a Good Strategy 1. Focus: Every great strategy has focus, and a company’s strategic profile, or value curve, should clearly show it.

2. Divergence: When a company’s strategy is formed reactively as it tries to keep up with the competition. On the strategy canvas, therefore, reactive strategists tend to share the same strategic profile. In contrast, the value curves of blue ocean strategists always stand apart In contrast, the value curves of blue ocean strategists always stand apart

3. Compelling tagline: A good strategy has a clear-cut and compelling tagline. Eg. Tagline of SouthWest Airlines “The speed of a plane at the price of a car- whenever you need it.”

Some factors showing a company caught in the Red Ocean Overdelivery without payback An Incoherent Strategy Strategic Contradictions An internally driven company

Formulating Blue Ocean Strategy

Reconstruct Market Boundaries

Companies trapped in red oceans tend to do the following: Define their industry similarly and focus on being the best within it. Look at their industries through the lens of generally accepted strategic groups (such as luxury automobiles, economy cars, and family vehicles), and strive to stand out in the strategic group they play in. Focus on the same buyer group, be it the purchaser (as in office equipment industry), the user ( as in clothing industry), or the influencer (as in pharmaceutical industry).

Define the scope of the products and services offered by their industry similarly. Accept their industry’s functional or emotional orientation. Focus on the same point in time-and often on current competitive threats-in formulating strategy.

Six Paths Framework (Pattern for Creating Blue Ocean Strategy)

Path 1: Look Across Alternative Industries. Path 2: Look Across Strategic Groups Within Industries. Path 3: Look Across the Chain of Buyers. Path 4: Look Across Complementary Product and Service Offerings. Path 5: Look Across Functional or Emotional Appeal to Buyers. Path 6: Look Across Time.

Conceiving New Market Space

From Head to Head Competition to Blue Ocean Creation

Head-to-Head Competition Blue Ocean Creation Industry Focuses on rivals within its industry Look across alternative industries Strategic Group Focuses on competitive position within strategic group Looks across strategic groups within industry Buyer Group Focuses on better serving the buyer group Redefines the industry buyer group

Head-to-Head Competition Blue Ocean Creation Scope of product/ service offering Focuses on maximizing the value of product & service offerings within the bounds of its industry Looks across to complementary product and service offerings Functional- emotional orientation (feo) Focuses on improving price performance within the feo of its industry Rethinks the feo of its industry Time Focuses on adapting to external trends as they occur Participates in shaping external trends over time

Focus on the Big Picture, Not the Numbers

Drawing Your Strategy Canvas The Four Steps of Visualizing Strategy

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, competitors’ customers, & 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.

Reach Beyond Existing Demand The three tiers of Noncustomers First tier Your market Second tier Third tier First tier-”soon to be” noncustomers who are on the edge, waiting to jump ship. Second tier-’’Refusing’’ noncustomers who consciously choose against your market Third tier: ‘’Unexplored’’ noncustomers who are in markets distant from yours

Get the Strategic Sequence Right

Buyer utility Is there exceptional buyer utility in your business idea? Price Is your price easily accessible to the mass of buyers? Cost Can you attain your cost target to profit at your strategic price? Adoption What are the adoption hurdles in actualizing your business idea? Are you addresing them up front? A commercially viable Blue ocean idea No-rethink No-Rethink Yes

Testing for Exceptional Utility The Buyer Utility Map

The Six Stages of the Buyer Experience Cycle Customer Productivity Simplicity Convenience Risk Fun & Image Environmental friendliness Purchase Delivery Use Suplemnts mainte Disposal nance

The Buyer Experience Cycle

How long does it take to find the product you need? Is the place of purchase attractive & accessible How secure is the transaction environment? How rapidly can you make a purchase? Purchase How long does it take to get the product delivered? How difficult is it to unpack and install the new product? Do buyers have to arrange delivery themselves? If yes, how costly and difficult is this? Delivery Does the product require training or expert assistance? Is the product easy to store when not in use? How effective are the product’s features and functions? Does the product or service deliver far more power or options than required by the average user? Is it overcharged with bells and whistles? Use

Do you need other products & services to make this product work? If so, how costly are they? How much time do they take? How much pain do they cause? How easy are they to obtain? Supplements Does the product require external maintenance? How easy is it to maintain & upgrade the product? How costly is maintenance? Maintenance Does use of the product create waste items? How easy is it to dispose of the product? Are there legal or environmental issues in disposing of the product safely? How costly is disposal? Disposal

Uncovering the Blocks to Buyer Utility

PurchaseDeliveryUse Suppleme nts Maintena nce Disposal Customer Productivity: in which stages are the biggest blocks to customer productivity? Simplicity: in which stages are the biggest blocks to simplicity? Convenience: In which stages are the biggest blocks to convenience? Risk: In which stages are the biggest blocks to reducing risks? Fun & Image: In which stages are the biggest blocks to fun & image? Environmental friendliness: In which stages are the biggest blocks to environmental friendliness?

From Exceptional Utility to Strategic Planning Step 1: Identify the Price corridor of the Mass Step 2: Specify a Level Within the Price Corridor

From Strategic Pricing to Target Costing The Profit Model of Blue Ocean Strategy

The Strategic Price The Target Profit The Target Cost Streamlining & Cost innovationsPartnering Pricing Innovations

Adoption Of Blue Ocean Idea Before moving further and investing in the new idea, the company must first overcome such fears by educating the following people- Before moving further and investing in the new idea, the company must first overcome such fears by educating the following people-Employees Business Partners The General Public

Executing Blue Ocean Strategy

Overcome Key Organizational Hurdles The Four Organizational Hurdles to Strategy Execution

Cognitive Hurdle An organization wedded to the status quo Political Hurdle Opposition from powerful vested interests Resource Hurdle Limited resources Motivational Hurdle Unmotivated Staff

Building Execution into Strategy A company is not only Top Management, nor is it only middle management. A company is everyone from the top to the front lines. A company is not only Top Management, nor is it only middle management. A company is everyone from the top to the front lines. The company must create a culture of trust & commitment that motivates people to execute the agreed strategy.

The power of fair process How Fair Process Affects People’s Attitudes and Behavior

Strategy Formulation Process Fair Process Engagement Explanation Expectation clarity Attitudes Trust and Commitment “I feel my opinion counts” Behavior Voluntary Co-operation “I’ll go beyond the call of duty” Strategy execution Exceeds expectations Self- Initiated

The Three E Principles of Fair Process There are three mutually reinforcing elements that define fair process- There are three mutually reinforcing elements that define fair process- 1. Engagement 2. Explanation 3. Clarity of Expectation

The execution consequences of the presence and absence Of fair process in strategy making Fair Process Intellectual & Emotional Recognition Trust & Commitment Voluntary Cooperation in Strategy execution Violation of Fair Process Intellectual & Emotional Indignation Distrust & Resentment Refusal to Execute Strategy

Imitation Barriers to Blue Ocean Strategy Value innovation does not make sense to a company’s conventional logic. Blue ocean strategy may conflict with other companies’ brand image. Natural monopoly: The market often cannot support a second player. Patents or legal permits block imitation. Network externalities discourage imitation.

Imitation Barriers to Blue Ocean Strategy contd… High volume leads to rapid cost advantage for the value innovator, discouraging followers from entering the market. Imitation often requires significant political, operational, & cultural changes. Companies that value-innovate earn brand buzz & a loyal customer following that tends to shun imitators.

Blue Ocean Strategy Written by W.Chan Kim Renee Mauborgne