Blue Ocean Strategy.

Blue Ocean Strategy

Accolades Over 2 million copies sold
Translated into over 41 foreign languages – a world record Taught as the major theory of strategy at leading business schools Gives insights to CEOs, Executives, Heads of State and Prime Ministers

Blue Ocean Strategy

Chapter 1: Creating Blue Oceans

Blue Ocean Strategy To improve the quality of our successes we need to study what we did that made a positive difference & understand how to replicate it. Blue Ocean Strategy challenges companies to break out of the red ocean of bloody competition by creating uncontested market space that makes the competition irrelevant. Instead of dividing up existing - and often shrinking - demand and benchmarking competition, blue ocean strategy is about growing demand and breaking away from the competition.

Revamped the dying circus industry
Creating Blue Oceans Cirque Du Soleil Created By Guy Laliberte in 1984 Attained levels of revenue that took the Ringling Brothers and Barnum&Bailey more than 100 years to achieve Revamped the dying circus industry Industry with little room for growth Incorporated many different types of entertainment Very unattractive industry from a strategic standpoint

New Market Space Cirque Du Soleil’s Success Blue Oceans Vs. Red Oceans
Realized that to beat the competition they had to quit trying to beat the competition Blue Oceans Vs. Red Oceans Red Oceans Represent the industries in existence today Industry boundaries competitive rules of the game are known and accepted Companies try to outperform their rivals to attain a larger share of the market Blue Oceans Defined by untapped market space with room for very profitable growth Most are created within red oceans and then expanding boundaries Competition is irrelevant because rules are waiting to be set

Term Blue Oceans is new, but existence is not
Look back 100 years and ask how many of todays industries were unknown then? Automobiles Aviation Music recording Many current multibillion dollar industries today did not exist just thirty years ago. Cell phones Coffee bars Snowboards This trend can be expected to continue, as industries are constantly evolving. 20 years from now what unknown industries will appear? A century old Standard Industrial Classification system published by US census was replaced in 1997 by North American Industry Classification Standard.

Red Ocean Principles Red Ocean Strategy was heavily influenced by Military Strategy Military strategy is about confronting an opponent and fighting over a given “piece of land” To focus on Red Ocean is constraining yourself to the “factors of war”, it is limited Unlike war, the history of the industry shows that the market universe has never been constant; blue oceans have been continuously created over time Red Ocean focus denies distinctive strength of the business world and denies your capacity to created new market space

Profit and Growth Consequences of Creating Blue Oceans

Rising Imperative of Creating Blue Oceans
Accelerated technological advances Globalization Brands becoming increasingly similar

Accelerated Technological Advances
Substantially improved industrial productivity In many industries, the result is that supply exceeds demand.

Globalization Information on products and prices becoming instantly and globally available. Niche markets and havens for monopoly continue to disappear. Supply is on the rise, but there is no evidence of an increase in demand worldwide.

Globalization Results
The result has been accelerated commoditization of products and services, increasing price wars, and shrinking profit margins.

Recent Studies on American Brands
Reveal that for major product and service categories, brands are generally becoming more similar. People selecting more based on Price Sales price becoming more important than brand recognition

From Company and Industry to Strategic Move
How can a company break out of the red ocean of bloody competition? How can it create a blue ocean? Is there a systematic approach to achieve this and thereby sustain high performance?

What do companies have to do with creating blue oceans?
Q: Are there lasting “excellent” or “visionary” companies that continuously outperform the market and repeatedly create blue oceans? A: In short, no. Example: Industry sector performance and success

Industry role in the development of blue oceans
Companies do NOT need to compete head on in a given industry space Industries are constantly being created and expanded Ex. Cirque du Soleil and Under Armour

Strategic Move and its affect on blue ocean development
Strategic move, NOT the company or industry is the correct unit of analysis for explaining blue oceans A set of managerial actions and decisions involved in making a major market-creating business offers. Ex. Hewlett-Packard acquiring Compaq

Strategic Moves Cont. The book analyzed 150 strategic moves in over 30 industries in 12 years. What they found? Industry and company had no distinction between organizations in the red/blue ocean. Myths: Public/Private companies play role in which ocean you live in High tech industries have better chance of creating blue oceans New companies can avoid red oceans Unattractive industries lead companies to live in the red oceans

Value Innovation: The Cornerstone of Blue Ocean Strategy
The defining characteristic of the strategic move that separates successful BOS’s from unsuccessful ones. Creates value for the buyers in a manner that is innovative. Both qualities must be present for value innovation to occur. Value- Meets previously unmet needs for consumers Innovation- Creates utility and/or secures a strong price position Clashes with the traditional thinking that a business strategy must be a choice between differentiation and low-cost. Value innovation provides for both.

Value Innovation in Practice
Cirque du Soleil- Their methodology Created value by combining the sophistication of theater with the fun and thrills of the circus. Provided consumers with a product that no one else in the world did. Innovated by doing away with traditional but cost-inefficient offerings typically given by the circus. They identified that it came down to the tent, the clowns, and the stunts. No animals Eliminated the three-ring presentation No star performers

Contrasting Red and Blue Ocean Strategies
Red Ocean Structuralist- Assumes that an industry’s structure cannot be altered and that companies are forced to compete within them. Also known as Environmental Determinism. Beat competition, exploit existing demand, choose between differentiation and low cost. Blue Ocean Reconstructuralist- Considers industry boundaries as things that can be torn down, expanded, and reconstructed. It’s within this created space that the Blue Ocean exists. Render competition irrelevant, create new demand, choose both differentiation and low cost

Formulating and Executing Blue Ocean Strategy
Chapter 2: Introduces the analytical tools and frameworks that are essential for creating and capturing blue oceans. Chapters 3-6: Introduces the principles that drive the successful formulation and implementation of blue ocean strategy and explain how they, along with the analytics, are applied in action. Chapters 7-8: Turn to the principles that drive effective execution of blue ocean strategy. Tipping point leadership, organizational risk, fair process, and management risk are all addressed as new strategies. Chapter 9: Discusses the dynamic aspects of blue ocean strategy- the issues of sustainability and renewal.

Chapter 2: Analytical Tools and Frameworks

The Strategy Canvas Action framework for building Blue Ocean Strategy
Central to the creation of blue oceans. Two purposes: captures the current state of play in the known market space. This lets us understand where the competition is investing and the factors the industry is competing on. It also shows what the customers receive from the competitive offerings. Central to the creation of blue oceans. Two purposes: captures the current state of play in the known market space. This lets us understand where the competition is investing and the factors the industry is competing on. It also shows what the customers receive from the competitive offerings.

The Strategy Canvas It compares core competencies for competition and their level of importance for each player in the market. Strategy Canvas: Diagnostic and Action Framework for building a compelling blue ocean strategy. 1) Captures the current state of the known marketplace Where competition is investing factors of industry competition in products, service, and delivery What customers receive from existing offerings Don’t: Offer a little more for a little less Do: Reorient strategic focus from competitors to alternatives and from customers to noncustomers of the industry. redefine the problem the industry focuses on reconstruct buyer value elements that reside across the industry boundaries To pursue value and cost, you should resist the old logic of benchmarking competitors in the existing field and choosing between differentiation and cost leadership.

How to use it in BOS? Don’t: Offer a little more for a little less
Do: Reorient strategic focus from competitors to alternatives and from customers to noncustomers of the industry. Remove yourself from the “Red Ocean” mindset To pursue value and cost, you should resist the old logic of benchmarking competitors in the existing field and then choosing between differentiation and cost leadership. redefine the problem the industry focuses on reconstruct buyer value elements that reside across the industry boundaries

The Four Actions Framework
To create a new value curve To break the trade-off between differentiation and low cost

2. Reduce Which factors should be reduced well below the industry standard? Eliminate Which factors that the industry takes for granted should be eliminated? A New Value Curve 4. Create Which factors should be created that the industry has not seen before? 3. Raise Which factors should be raised well above the industry standard? Figure 2-2

Eliminate (competition) Factors your industry competes on Change in what buyers value Reduce (competition) Overdesigned products Over served customers Raise (customers) Eliminate compromises Create (customers) New sources of value New demand

McDonald’s Framework Create New Sources of Value: Brand customer care
cost structure its patent target audience Sustainable – the key test of a core competency measures the ability of a firm to continually increase the advantage of the competency over many years. “The world has changed. Our customers have changed. We have to change too." - James R. Cantaloupe, Chairman and CEO, McDonald's, 2003 *

Eliminate-Reduce-Raise-Create Grid
Figure 2-5: The Case of McDonald’s Eliminate Super Size Option Raise Health Standards Reduce Calories in burgers Create Salad Menu

Characteristics of a Good Strategy
Focus Divergence Compelling Tagline

FOCUS Identify key factors of competition Choose one factor
EX. Quality, speed, price, innovation….. Choose one factor Focus on that one factor

Divergence Break out of the common competing Techniques
Ex. Price war, Revolutionize the industry Ex. McDonalds and Starbucks used brand divergence Make changes to the way things done in the industry. Ex. Southwest Airline

Compelling Tagline “The speed of a plane at the price of a car–whenever you need it.” What is a tagline? A short descriptive phrase Tagline should be Short and Clear Truthful Updated Ex. “I'm lovin' it” replacing "We love to see you smile."

Chapter 3: Reconstruct Market Boundaries

Six Paths Framework Six assumptions which many companies build their strategies around Keeps companies trapped in red oceans Companies must break these boundaries to form blue oceans Managers must look across these boundaries Across alternative industries, strategic groups, etc…

Reconstructing Market Boundaries
Creating Blue Oceans Reconstruct market boundaries Identify the possibilities that exist Look at the six paths framework Six paths Six basic approaches to remaking market boundaries Leading companies to visible blue ocean ideas

Path 1: Look Across Alternative Industries
Companies compete with their competitors as well as alternatives to their product or services Substitutes Alternatives -Example: Coca-Cola Substitutes: Pepsi, Dr. Pepper Alternatives: Tap Water, Freshly squeezed fruit or vegetable juice, Wine, Milk, Coffee

Path 1: Look Across Alternative Industries
Buyers implicitly weigh purchasing alternatives, often unconsciously Sellers rarely think about how their customers make trade-offs with alternatives Space between alternative industries provides opportunities for value innovation By focusing on the key factors that lead buyers to trade across alternative industries and eliminating or reducing everything else, you can create a blue ocean of new market space

Examples: Companies Looking Across Alternative Industries
Home Depot: Expertise of professional home contractors at markedly lower prices than hardware stores They have transformed ordinary homeowners into do-it-yourselfers Southwest Airlines: Speed of air travel at price of car travel

Coca-Cola Coca-Cola looked across alternative industries and entered the markets of: Sporting Events Bowling Alleys Movie Theaters Make themselves available to all thirsty consumers

Path 2: Look Across Strategic Groups Within Industries
Unlock Blue Oceans by looking across strategic groups Can be ranked in order by two dimensions: Price and performance

Creating a Blue Ocean Breaking out of a “tunnel vision” focus
Understanding factors driving customer’s decisions to trade up or down from one group to another

Examples: Toyota Lexus High quality luxury, but lower prices
Sony Walkman Inexpensive boom boxes and transistor radios Champion Enterprises Prefabricated Houses and on site developers

Path 3: Look across the chain of buyers
Competitors come together on a common definition of a target buyer There is a chain of buyers Buyers are directly or indirectly involved in the buying decision

Three Buyer Categories
1. Purchasers 2. Users 3. Influencers

Individual companies often target different customer segments
-ex: Large vs small customers An industry typically comes together at a single buyer group Such as: Pharmaceutical industry on influencers: doctors Office equipment industry on purchasers: corporate purchasing department Clothing industry sells predominately to users

When someone challenges industries wisdom about which buyer group to target can lead to new ocean discoveries.

Novo Nordisk Danish insulin producer
Created blue ocean in insulin industry Changed focus from influencers (doctors) to users (patients) Created NovoPen, first user friendly insulin delivery solution Novo Nordisk’s blue ocean strategy shifted the industry landscape. It changed the company from an insulin producer to diabetes care industry.

Bloomberg Until 1980’s Reuters and Telerate dominated online financial information industry Reuters and Telerate focused on purchasers (IT managers) Bloomberg redesigned system catered to traders Made a system that was easy to use: Keyboards labeled in financial terms Two flat panel monitors to see all information Built in analytic capability to run “what it” scenarios

Other Industries Blue Ocean Changes
Canon Shifted from corporate purchasers to users Made small desktop copier industry SAP Shifted focus of business application software from functional user to corporate purchaser Created successful real-time integrated software business Coca Cola focuses heavily on the purchasers and users of the product.

Path 4: Look Across Complementary Product and Service Offerings
Before, During, After -Example: Movie theatre Key: Find the Total Solution Example: Coca-Cola

NABI Hungarian bus company that applied Path 4 to U.S. transit bus industry Competition competed on offering the lowest purchase price for buses But, Designs outdated Delivery times were late Quality was low

NABI Discovered it was costs that came after initial bus was purchased
Maintenance over it’s 12 year cycle Repairs after accidents Fuel usage Wear and tear Rusting Rising demand for cleaner air

NABI Finds Total Solution
Normally made of steel Heavy Corrosive Hard to replace parts after accidents NABI adopted fiberglass when making it’s buses Solution that killed 5 birds with one stone

Fiberglass Buses Cut costs by being corrosion free
Light weight cut fuel consumption and emissions After accidents they didn’t have to replace a whole panel rather they could cut the damaged area and replace it Lighter weight also meant lower powered engines and fewer axles which cut costs And gave more space inside the bus

Other Examples The British Teakettle Barnes & Nobles
Virgin Entertainment Dyson

Path 5: Competition in Industries
Two bases of appeal: functional/rational, emotional Rarely intrinsically one or the other Challenge orientation of industry

QB House Japanese Barber Shop industry
57,000 visitors (1996) to 3.5 million (2002) Created “no-nonsense” haircuts Reduced extra service, time, and costs Improved savings and hygiene

Cemex Cement production industry in Mexico
Launched Patrimonio Hoy program Created Supertanda “Sold a dream” Achieved differentiation while cutting costs

Increased usage of PET recycling
Less energy/resources, preserves fossil fuels

Path 6 By looking at external trends with the right perspective, it can show you how to create blue ocean opportunities. Key insights into blue ocean strategy arise from business insights into how the trend will change value to customers and impact the company’s business model.

3 Principles that are critical to assessing trends across time
1. Must be decisive to your business 2. Must be irreversible 3. Must have a clear trajectory

The Euro Has been evolving along a constant trajectory as it has been replacing Europe’s multiple currencies. It is decisive, irreversible, and clearly developing a trend in financial services. These are the principles upon which blue oceans can be created as the European Union continues to enlarge.

Apple & iTunes Trend of illegally downloading music
This trend was underscored by the fast growing demand for MP3 players Apple capitalized on this decisive trend with a clear trajectory by launching the iTunes online music store in Partnered with 5 major music companies They created a marketplace where you are legally allowed to only download the specific songs. Broke key customer annoyance Apple’s iTunes is unlocking a blue ocean in digital music, with the added advantage of increasing the attractiveness of its already hot iPod player.

Cisco Systems Cisco Systems created a new market space by thing across time trends. Started with a decisive and irreversible trend that had a clear trajectory The growing demand for high-speed data exchange Created high-speed value for customers in a seamless networking environment. 80% of all traffic on the Internet goes through Cisco’s products.

From Head-to-Head Competition to Blue Ocean Creation

Through reconstructing existing market elements across industry and market boundaries, they will be able to free themselves from head-to-head competition in the red ocean.

Chapter 4: Focusing on the Big Picture

The Big Picture Focus on the Big Picture, Not the numbers
Use the strategy canvas Blue Ocean strategies have three qualities Focus Divergence Compelling tagline The book starts off with the idea about looking at the bigger picture. this approach provides an opportunity for a wide range of people to express their creativity that could potentially lead to a blue ocean The strategy canvas is one of the main tools used in this process. By building your strategic planning around the canvas, it allows you to focus on the bigger pictures as opposed to all the numbers. The strategy canvas does three things. It shows the strategic profile of and industry by showing the competitive factors, shows the strategic profile of competitors, and it shows the value curve, showing how you stack up compared to the competition. Blue ocean strategies: focus, divergence, compelling tagline. A good strategy will clearly point out these three distinct things, which will help lead to a blue oecan

Difficulty of the Canvas
Drawing the strategy canvas is not an easy task Four Steps Visual Awakening Visual Exploration Visual Strategy Fair Visual Communication It is difficult to draw a strategy canvas. Managers tend to have an idea of how they are stacking up, but they may be focusing on the wrong competitive offerings. To draw up a good strategy canvas to lead to a blue ocean, there are four steps that should be taken. Step 1 is visual awakening, step 2 is visual exploration, step 3 is visual strategy fair, and the last step is visual communication. These are all important to developing a good working strategy canvas, and im gonna pass it on to….to tell you more about these.

European Financial Services
European Financial Services (EFS) is 150 year old service that adopted this method of developing strategy. Because of the strategy it yielded a 30% revenue boost in the first year. Is the example company used in the book.

Step 1: Visual Awakening
Problems Its common mistake to discuss changes in strategy before resolving difference of opinion about the current state of play. Executives are reluctant to accept the need for change Compare side by side with your competitors by drawing your “as is” strategy See where your strategy needs to be changed.

Step 2: Visual Exploration
Explore the six paths to creating a blue ocean. 1. Look across alternative industries 2. Look across strategic group within industry 3. Redefine the industry buyer group. 4. Look across to complementary products and service offerings. 5. Rethink the functional-emotional orientation of its industry. 6. Participate in shaping external trends over time.

Step 2: Visual Exploration cont.
Observe the advantages of alternative products and services. See what factors your should eliminate, create, or change. EFS sent managers to find information about how to create a blue ocean.

Step 3: Visual Strategy Fair
EFS held a visual strategy fair where both teams presented their strategy canvases Attendees ranged from noncustomers to senior corporate executives 12 strategies were presented and after each judge was given 5 sticky notes to place next to their favorite and explain why they did not vote for the other value curves

Visual Strategy Fair Results
1/3 of what they thought were key competitive factors, were marginal to customers 1/3 were not well articulated or had been overlooked in the visual awakening phase Executives needed to reassess assumptions, such as EFS’s separation of its online and traditional business Following the strategy fair, the teams were able to draw a value curve that was a truer likeness of the existing strategic profile than anything they had produced earlier. By collapsing its online and traditional businesses into one compelling offering, EFS substantially cut the operational complexity of its business model, making systematic execution far easier.

EFS Eliminate-Raise-Reduce-Create Grid
Relationship Management Raise Ease of use Security Accuracy Speed Market Commentary Reduce Account executives Corporate dealers Create Confirmation Tracking

Step 4: Visual Communication
EFS gave every employee a one-page picture showing its new and old strategic profiles so that everyone could see where to focus their efforts to create a compelling future. The new picture became a reference point for all investment decisions. Only ideas that would help EFS move from the old to the new value curve were approved.

Visualizing Strategy at the Corporate Level
When businesses presents their strategy canvases to one another, they deepen their understanding of the other businesses in the corporate portfolio. Creation of the Value Innovation Program (VIP) Center Various business units come together to typically discuss strategy canvases.

PMS Map A visualizing strategy can help managers see future growth and profits. Company’s are sorted into three different categories. Pioneers- Blue ocean strategist most powerful source of profitable growth. Value curve diverges from competition. Settlers- Have a “me to” approach to business, stuck in the red ocean. Value curve conforms to the basic shape of the industry. Migrators- “more for less business approach, offer improved value but no innovative value. The try to extend the industries value curve

Innovation!! The more settlers the better opportunity to value-innovate and create a blue ocean.

PMS MAP Shift your future growth to pioneers
Settlers generate cash but marginal growth. Pioneers have much growth potential as a offset of growth. Managers should manage their portfolios wisely with a balance between profitable growth and cach flows.

Overcoming the Limitations of Strategic Planning
Ideal Strategic Planning: Collective wisdom building Conversational Building the big picture Creative component Motivational/invoking willing commitment Existing Strategic Planning: Top-down or bottom-up planning Solely documentation-driven Number-crunching exercises Strictly analysis-driven Bargaining-driven/producing negotiated commitment Managers are often unhappy with existing strategic planning—the core activity of strategy.

Chapter 5: Reach Beyond Existing Demand

Introduction Focus on maximizing size of Blue Ocean being created
Companies must challenge two conventional strategies Focus on existing customers Drive for finer segmentation Finer segmentation often creates smaller target markets

Maximizing Size of Blue Oceans
Companies must focus on noncustomers Build commonalities in buyer’s value Example: Callaway Golf Focused on why people weren’t playing golf Found it was too difficult to hit the ball Introduced their product Big Bertha

The Goal The Goal: Find insight to get noncustomers to become customers Example: Coca Cola

The Three Tiers First: Buyers who minimally purchase your industry offering=Necessity Second: Buyers who have seen what’s offered but don’t use. Example: Callaway Third: Have never thought of your market or industry offerings

Graphic Representation

First-Tier Noncustomers
Soon-to-be noncustomers are those who minimally use the current market offerings to get by as they search for something better Upon finding better alternative, they eagerly jump ship Tend to sit on the edge of the market

Market Results Market grows stagnant as soon-to-be noncustomers increase This develops an opportunity for untapped demand waiting to be released

Key Commonalities First-tier noncustomer had three commonalities
Wanted lunch Wanted it fresh and healthy Wanted it at a reasonable price

The Lesson Noncustomers tend to offer far more insight on how to unlock and grow a Blue Ocean than relatively content-existing customers

Second-Tier Noncustomers
Refusing noncustomers Don’t use/can’t afford current market offerings Find them unacceptable or beyond their means

Third-Tier Noncustomers
Farthest from your current customers These are unexplored noncustomers Customers have not been targeted or seen as potential customers by any player in the industry Tooth whitening example

Go for the Biggest Catchment
No set rule on which tier of noncustomers to focus on Focus tier that represents the biggest catchment at the time Explore if there are overlapping commonalities across all three tiers

Go for the Biggest Catchment
Companies focus on retaining existing customers and seek further market segmentation This strategy is not likely to create a Blue Ocean The point is to challenge the existing, taken for granted strategic orientations

Maximizing Scale of Blue Ocean
Reach beyond demand to noncustomers De-segment opportunities to formulate new strategies If no strategies are found, move on to exploit differences among existing customers

Central Idea It is not enough to maximize the size of the Blue Ocean you are creating A profit must be reached to create a win-win outcome

Chapter 6: Get the Strategic Sequence Right

The Right Strategic Sequence
Buyer Utility Price Cost Adoption Sarah

Steps Utility- is there a reason to buy it?
If no, Park idea or rethink Price- price should not determine purchase Should still attract buyers These two address revenue side of a business model and ensure a leap in buyer value Buyer Value=Utility-Price Sarah

Steps cont. Cost- can you produce the product at target cost and still have a healthy profit margin? Strategic Price= Price easily accessible to the mass of target buyers Cost should not drive prices, change idea or innovate Adoption hurdles- done in the beginning to ensure success Key because of significant departure from red oceans Sarah

Buyer Utility Map Outlines levers companies can pull to deliver exceptional utility to buyers as well as experiences can have with the product or service Identify range of spaces product of service may fill Sarah

Six Stages of the Buyer Experience Cycle
From purchase to disposal Each stage managers can ask a set of questions to gauge quality of experience Purchase- how long to find? Placement? Secure transaction environment? Timely? Delivery- Time? Unpack/Install difficulty? Arrange delivery/difficulty? Use- Training? Storage? Effective? Bells and whistles? Supplements- Need other parts/costs? Time? Pain? Maintenance- Required? Upgrade easy? Cost? Disposal- Create waste? Disposal easiness? Legal issues? Cost? Sarah

The Six Utility Levers Utility Levers: the ways companies can unlock exceptional utility for buyers. Coleman

The Utility Levers Customer productivity Simplicity Convenience Risk
Fun and image Environmental friendliness Coleman

The Price Corridor of the Mass
Ashton

Identify the Price Corridor of the Mass
Different form, Same function: Many companies that create blue oceans attract customers from other industries who use a product or services that performs the same function as the new one but takes a very different physical form. Different form and function, Same objective: Listing the croups of alternative products and services allows mangers to see the full range of buyers they can poach from other industries as well as from nonindustrial. Ashton In setting a price all companies look first at the products and services that most closely resemble their idea in terms of form. Typically they look at other products and services in their industry. Companies must also understand price sensitivities of those people who will be comparing the new product or service with a host of very different-looking products and services offered outside the group of traditional competitors Different form: Many companies that create blue oceans attract customers from other industries who use a product or services that performs the same function as the new one but takes a very different physical form. Model T looked like the horse-drawn carriage. Had the same core function: transportation for individuals and families. Had a different form: which was live animal for power versus machine. Different form and function: Listing the croups of alternative products and services allows mangers to see the full range of buyers they can poach from other industries as well as from nonindustrial. Some Companies lure customers from further away. Cirque Du Soleil diverted customers from a wide range of evening activities. Having done this managers should then graphically plot the prices and volume of these alternatives.

This provides a straightforward way to identify where the mass of target buyers is and what prices these buyers are prepared to pay for the products and services currently in use. Southwest Airlines has a prices corridor of the mass covered the group of people paying, on average, $400 to by an economy-class short-haul ticket to about $60 for the cost of going the same distance by car. Ashton The price bandwidth that captures the largest groups of target buyers is the price corridor of the mass. Key here is not to pursue pricing against the competition within an industry but rather to pursue pricing against the competition and alternatives across industries and nonindustrial.

Specify a Level Within the Price Corridor
Degree to which the product or services is protected legally through patents or copy rights Degree to which the company owns some exclusive asset or core capability, such as an expensive production plant, that can block imitation. Ashton The second part of the tool helps managers determine how high a prices they can afford to set within the corridor without inviting competition from imitation products or services. Dyson is able to charge a high unit price for its products thanks to strong patents and hard-to-imitate service capabilities. On the other hand companies with uncertain patent and asset protection should consider pricing somewhere in the middle of the corridor. As for companies that have no protection they must set a relatively low price. Southwest Airlines (doesn't’t have a service that isn't patentable and required no exclusive assets it ticket prices fell into the lower boundary of the corridor. The price corridor of the mass not only signals the strategic pricing zone central to pulling in on ocean of new demand but also signals how you might need to adjust your initial price estimates to achieve this.

From Strategic Pricing to Target Costing
To maximize the profit potential of a blue ocean idea, a company should start with the strategic price and then deduct its desired profit from the price to arrive at the target cost. Ashton Target costing, the next step in the strategic sequence, addresses the profit side of the business model. Part of the challenge of meeting the target cost is addressed in building a strategic profile that has not only divergence but also focus, which makes a company strip out costs. Southwest saved money by offering short flights, Quick turn around, one class ( taking out specialties to first class)

From strategic pricing to target costing
Addresses the profit side of the business model Strip out costs Model T – Assembly line Three principal levers to hit the cost target Jessica

First Principal Lever Streamlining operations
Introducing cost innovations from manufacturing to distribution Swatch Jessica

Second Principal Lever
Partnering with other companies Trying to carry out all activities themselves Fast and effective securing of capabilities Sometimes these first two levers are not enough to hit target cost Jessica

Third Principal Lever Changing the pricing model of the industry
Videotapes– from selling to renting Even after target cost is met, pricing innovation may still be pursued Jessica

Stakeholders No matter the business model success isn’t guaranteed in a blue ocean idea. Fear and resistance may arise from: Employees Business Partners The General Public Kevin

Employees Explain the changes to the employees, address potential threats and how those will be resolved. Example: Merrill Lynch announcing online brokerage service. Kevin

Business Partners Those that have a vested interest want to know how the implementation of a new business idea will effect current revenues from existing offerings. Example: Southwest offering international flights Kevin

The General Public Hesitation among the general public can be triggered by a product that is very new and innovative; therefore threatening social or political norms. Example: Monsanto producing genetically modified foods. Kevin

Blue Ocean Idea Index Philips CD-I Motorola Iridium
DoCoMo i-mode Japan Utility Is there exceptional utility? Are there compelling reasons to buy your offering? - + Price Is your price easily accessible to the mass of buyers? Cost Does your cost structure meet the target cost? Adoption Have you addressed adoption hurdles up front? +/- Kevin

Chapter 7: 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 Motivational Hurdle Unmotivated staff Resource Hurdle Limited resources

New York Police Department in the Early 1990s
Murder-rate at all-time high New Yorkers under siege Frozen police budget Officer moral was at rock bottom Budget cuts, dilapidated equipment, and corruption within the department

Tipping Point Leadership in Action
Bill Bratton turned NYC into the safest large city in the U.S. Felony crime fell 39% Murder-rate fell 50% Theft-rate fell 35% Public confidence in the NYPD jumped from 37% to 73% Crime rates continued to fall after Bratton left

Tipping Point Theory Beliefs and energies of critical mass of people create an epidemic movement toward an idea Concentration, not diffusion Focus on identifying and leveraging the factors of disproportionate influence in an organization

Key Questions Answered by Tipping Point Leaders
What factors or acts exercise a disproportionately positive influence on… Breaking the status quo? Getting the maximum bang out of each buck of resources? Motivating key players to aggressively move forward with change? Knocking down political roadblocks that often trip up even the best strategies?

Break Through the Cognitive Hurdle
Hardest battle is to make people aware of the need for a strategic shift and to agree on its causes Common way was to point to numbers and then set and achieve better results Not a good idea Tipping point leaders focus on the act of disproportionate influence Make people experience the need for change in two ways

Jump the Resource Hurdle
Most leaders face limited resources Trim their goals and demoralize the work force They fight for more resources from the bank and shareholders Tipping point leaders concentrate on multiplying the value of resources they have Three factors of disproportionate influence that can be leveraged to free up resources while multiplying value Hot Spots Cold Spots Horse trading

Jumping the Motivational Hurdle
For a new strategy to become a movement, people must not only recognize what needs to be done, but they must also act on that insight in a sustained and meaningful way. How can you motivate the mass of employees fast and at low cost? Focus on three factors of influence in motivating employees: Kingpins Fishbowl Management Atomization

Overcoming Politics in the Workplace
“Inescapable reality of corporate and public life” Higher chance of change = strings pulled tighter 3 disproportionate influence factors to overcome politics

3 Influence factors Angels- most to gain from strategic shift
Devils – most to lose from strategic shift Consigliere- politically adept and highly respected insider

Challenge Conventional Wisdom
Traditionally told to convert the mass of people during change Instead transform the extremes Focus on acts with disproportionate influence

Chapter 8: Build Execution into Strategy

6th Principle “To build people’s trust and commitment deep in the ranks and inspire their voluntary cooperation, companies need to build execution into strategy from the start.” Attitudes and Behavior Must appeal to employees “Hearts and Minds” for strategy to hold. Risk: Distrust, Noncooperation, Sabotage

Overview Main idea: Management must include employees in execution from the start and allowing them to help (create/build) the strategy so they will follow it with their “Hearts & Minds”. What Fair Process is and its importance. The Effects of Poor Process. Incorporating it into Blue Oceans Strategy.

Poor Process Can Ruin Strategy Execution

Fair Process How does implementing fair process allow for building execution into strategy? Based on the principles of procedural justice as explored in psychology. Term that explains the phenomenon where the strict adherence to an outcome determining system is considered equally as important as the quality of the ruling reached through said system. Satisfaction and commitment to the ruling increases when procedural justice was followed. Creates confidence and builds people’s trust. Which principles provide for this?

Three E Principles These elements must be present for fair process to emerge. Any combination not including all three is insufficient. Engagement- Involving low level employees in the strategic development process. Allows for the refinement of strategies and invests the strategy executors into the strategy itself. Explanation- Explaining why certain strategic decisions were made to those involved. Creates confidence in the strategy by increasing people’s understanding of it and builds trust in management. Expectation (clarity)- Setting clear objectives and milestones, as well as creating a system of evaluation for strategy executors. The clarity of the objectives here is more important than their subjective fairness.

Why Does Fair Process Matter?
-It all comes down to Intellectual and Emotional recognition

Intellectual Recognition
-Recognizing individuals ideas that are sought after and given thoughtful reflection. -When individuals feel recognized for their intellectual worth, they are willing to share their knowledge.

Emotional Recognition
-Treating individuals with full respect and dignity and appreciating them for their work -When individuals are treated with emotional recognition they feel emotionally tied to the strategy and inspired to give their all.

Violation of Fair Process
-If individuals are NOT treated as though their knowledge is value, they will feel intellectual indignation and will NOT share their ideas and expertise. -They will reject others intellectual worth and work as well. -If emotional worth is not recognized will feel angry and not invest their energy into their actions. -They will drag their feet and apply counter-efforts, like sabotage, as in Elco’s Chesters plant.

Fair Process and Blue Ocean Strategy
Commitment, Trust, and Voluntary cooperation Why companies have been successful in Blue ocean industries and why companies have failed Fair Process How do we create Commitment, trust and voluntary cooperation? People tend to be committed to the strategy even when the outcome is not certain

Blue Ocean Strategy.

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