1. Understanding value Now that you have looked at the various forces, strengths, weaknesses and others…How will a company differentiate from others??

2. Value Chain Analysis Value Chain analysis was first suggested by Michael Porter (1995) as a way of presenting the construction of value as related to end customer. It can:  Increase your competitiveness  Reduce your costs  Improve your market share Bottom Line - improve overall profitability!

4. Resources * * Tangible * * Intangible Capabilities Teams of Resources Teams of Resources Sources of Core Competencies Competitive Advantage Discovering Core Competencies Value Chain Analysis Criteria of Sustainable Advantages Discovering Core Competencies

5. Support Activities Primary Activities Value Chain Analysis Identifying Resources and Capabilities That Can Add Value

6. Support Activities Primary Activities InboundLogistics Value Chain Analysis Identifying Resources and Capabilities That Can Add Value

7. Support Activities Primary Activities InboundLogistics Operations Value Chain Analysis Identifying Resources and Capabilities That Can Add Value

8. Support Activities Primary Activities InboundLogistics Operations OutboundLogistics Value Chain Analysis Identifying Resources and Capabilities That Can Add Value

9. Support Activities Primary Activities InboundLogistics Operations OutboundLogistics Marketing & Sales Value Chain Analysis Identifying Resources and Capabilities That Can Add Value

10. Support Activities Primary Activities InboundLogistics Operations OutboundLogistics Marketing & Sales Service Value Chain Analysis Identifying Resources and Capabilities That Can Add Value

11. Support Activities Primary Activities InboundLogistics Operations OutboundLogistics Marketing & Sales Service Procurement Value Chain Analysis Identifying Resources and Capabilities That Can Add Value

12. Support Activities Primary Activities InboundLogistics Operations OutboundLogistics Marketing & Sales Service Procurement Technological Development Value Chain Analysis Identifying Resources and Capabilities That Can Add Value

13. Support Activities Primary Activities Technological Development Procurement InboundLogistics Operations OutboundLogistics Marketing & Sales Service Human Resource Management Value Chain Analysis Identifying Resources and Capabilities That Can Add Value

14. Support Activities Primary Activities Technological Development Human Resource Management Firm Infrastructure Procurement InboundLogistics Operations OutboundLogistics Marketing & Sales Service Value Chain Analysis Identifying Resources and Capabilities That Can Add Value

15. Support Activities Primary Activities Technological Development Human Resource Management Firm Infrastructure Procurement InboundLogistics Operations OutboundLogistics Marketing & Sales Service MARGIN MARGIN Value Chain Analysis Identifying Resources and Capabilities That Can Add Value

16. Support Activities Primary Activities Outsourcing Technological Development Human Resource Management Firm Infrastructure Procurement InboundLogistics Operations OutboundLogistics Marketing & Sales Service MARGIN MARGIN Strategic Choice to Purchase Some Activities From Outside Suppliers

17. Support Activities Primary Activities Technological Development Human Resource Management Firm Infrastructure Procurement InboundLogistics Operations OutboundLogistics Marketing & Sales Service MARGIN InboundLogistics Operations OutboundLogistics Service Marketing Technological Development Human Resource Management Procurement MARGIN portion more efficiently Firms often purchase a portion of their value-creating activities from specialty external suppliers who can perform these functions more efficientlyOutsourcing Strategic Choice to Purchase Some Activities From Outside Suppliers

18. Resources * * Tangible * * Intangible Capabilities Teams of Resources Teams of Resources Sources of Core Competencies Competitive Advantage Strategic Competitiveness Above-Average Returns Competitive Advantage Gained through Core Competencies Discovering Core Competencies Value Chain Analysis Valuable Rare Costly to Imitate Nonsubstitutable * * * * * Outsource Criteria of Sustainable Advantages Discovering Core Competencies

19. Portfolio Analysis BCG GE

20. BCG

25. Limitations of BCG Matrix The BCG Matrix produces a framework for allocating resources among different business units and makes it possible to compare many business units at a glance. But BCG Matrix is not free from limitations, such as- BCG matrix classifies businesses as low and high, but generally businesses can be medium also. Thus, the true nature of business may not be reflected. Market is not clearly defined in this model. High market share does not always leads to high profits. There are high costs also involved with high market share. Growth rate and relative market share are not the only indicators of profitability. This model ignores and overlooks other indicators of profitability. At times, dogs may help other businesses in gaining competitive advantage. They can earn even more than cash cows sometimes. This four-celled approach is considered as to be too simplistic.

26. 26 General Electric’s Business Screen(GE) A Winners B C Question Marks D F Average Businesses E Winners Losers G H Profit Producers StrongAverageWeak Low Medium High Business Strength/Competitive Position Industry Attractiveness Source: Adapted from Strategic Management in GE, Corporate Planning and Development, General Electric Corporation.

27. Portfolio Strategies PROTECT AND REFOCUS  Manage for current earnings  Concentrate on attractive segments  Defend strengths BUILD SELECTIVELY  Invest heavily in most attractive segments  Build up ability to counter competition  Emphasize profitability by raising productivity PROTECT POSITION  Invest to grow at maximum digestible rate  Concentrate effort on maintaining strength MANAGE FOR EARNINGS  Protect position in most profitable segments  Upgrade product line  Minimize investment SELECTIVITY/MANAGE FOR EARNINGS  Protect existing program  Concentrate investments in segments where profitability is good and risk is relatively low INVEST TO BUILD  Challenge for leadership  Build selectively on strengths  Reinforce vulnerable areas DIVEST  Sell at time that will maximize cash value  Cut fixed costs and avoid investment meanwhile LIMITED EXPANSION OR HARVEST  Look for ways to expand without risk; otherwise, minimize investment and rationalize operations BUILD SELECTIVELY  Specialize around limited strengths  Seeks ways to overcome weaknesses  Withdraw if indications of sustainable growth are lacking Weak Medium Strong Low Medium High COMPETITIVE POSITION MARKET or OPPORTUNITY ATTRACTIVENESS Source: Marketing Management, 7 th Edition – Philip Kotler Harvest/DivestSelectivity/Earnings Invest/Grow

28. 28 The Book and the Authors Prof Renee Mauborgne © JOHN ABBOTT Prof Chan Kim © JOHN ABBOTT

29. 29 What is the Blue Ocean? High profit growth at low risk Industries not in existence today Untapped market demand Unknown market space

30. 30 Example: A highly competitive Industry The American Wine Industry

31. 31 What the industry offers Premium WinesBudget Wines Massive Choice Polarised Strategic Groups

32. 32 American Wine Industry 3 rd largest in world: worth $20 billion Californian makes 66% - the rest is from Italy, France, Spain, Chile, Argentina, Australia Exploding number of new wines – new vineyards in Oregon, Washington, New York  Customer base stagnant  31st in the world in per capita consumption!

33. 33 American Wine Industry Top 8 producers had 75% of the market; 1600 had the remaining 25% $ millions spent in marketing - Titanic battles – intense competition Sever price pressure The dominant growth strategy was towards premium wines – more complexity, better image, more prestigious vineyards, number of medals won at wine festivals.

34. Case Study: [yellowtail] Yellow tail created a wine that broke out of the red ocean by creating a wine that: – Appealed to beer and spirits drinkers by being fun and unpretentious as well as to wine drinkers – Had a less complex, sweeter and smooth taste – Was easy to select as it did not focus on prestige, aging, etc. – They eliminated all factors that the wine industry had long competed on

35. 3 Characteristics of a Good Strategy It is focused; it is not diffused across all potential aspects of the market The shape of the value curve diverges from any potential competitors It has a compelling tagline

36. 36 What people said … “It is too confusing and complex” – Wine descriptions and terminology – The shopping experience – The lack of clear guidance on what to buy and drink Thus, massively intimidating for ‘noncustomers’ (the large majority of the US population who were not wine drinkers)

37. 37 Yellow Tail created a Blue Ocean Premium Budget Creating a Blue Ocean

38. 38 Yellow Tail Only 2 types initially – Chardonnay and Shiraz Fruity, soft on palette, sweet-ish – great for those who had not drunk wine before Same bottle for red and white – low logistics costs Simple vibrant packaging – lower case letters/kangaroo Un-intimidating They were selling “The essence of a great land … Australia” – ie they were not selling the wine Australian clothing for the retail staff – they enthusiastically promoted a wine they could understand.

39. 39 Yellow Tail Strategy Eliminated: Oenological terminology and distinctions, Aging qualities, Above the line marketing Reduced: Wine complexity, Wine range, Vineyard prestige Raised: Price versus Budget Wines, Simplicity of retail store environment, Enthusiasm of Sales People Created: Easy drinking, Ease of selection, Sense of fun and adventure

40. 40 Fun and adventurous Very high High Normal Low Very low Non- existent Above-the-line- marketing Aging quality Ease of selection Easy drinking Vineyard prestige and legacy Wine complexity Use of enological terminology and distinctions in wine communication Wine range Yellow Tail Value Curve Price “The Essence of a Great Land” Three Tests of a Blue Ocean Strategy: 1) Focussed 2) Divergent 3) Compelling Tagline

41. 41 Results No 1 imported wine (outsells France and Italy) Fastest growing imported wine in the history of the USA industry – New consumers of wine – Jug drinkers trade up – Premium wine drinkers trade down Industry criticizes them mercilessly at first  Now wine press blurb gives it a “best buy” for value; winning wine awards.

42. 42 Conventional Logic Blue Ocean Logic Industry Assumption Industry conditions are givenIndustry condition can be shaped. Summary Strategic Focus Build competitive advantages to beat the competition. Create a quantum leap in buyer value to dominate the market. CustomersRetain and expand the customer base through further segmentation and customization. Think in terms of embracing customer differences. Go for the mass of buyers and willingly let some existing customers go. Think in terms of embracing key customer value commonalities.

43. 43 Conventional Logic Blue Ocean Logic Summary Assets & Capabilities Think in terms of a company’s existing assets and capabilities. Build on what it has. Think free from a company’s existing assets and capabilities. Ask, what if we start anew? Product/ Service offerings Think in terms of products/services offered by the industry. Seek to maximize the value of these offerings. Think in terms of buyers’ solution even if that transcends the industry. Seek to solve buyers’ major bottlenecks/chief compromises in using the products/services of the industry.

44. 44 What factors should be eliminated that the industry has taken for granted? Eliminate What factors should be reduced well below the industry standard? Reduce What factors should be created that the industry has never offered? Create What factors should be raised well beyond the industry standard? Raise Four Actions to create a Blue Ocean

45. Four Actions: Eliminate/Reduce/Raise/Create Which of the factors that the industry takes for granted should be eliminated? Which should be reduced? Which should be raised well above standard? Which factors should be created that have not existed before?

46. Case study: Cirque du Soleil Other circuses focused on: Benchmarking the competition High-profile “stars”, which increased costs but who were largely unknown to the general public Traditional venue Traditional audiences

47. Case study: Cirque du Soleil Cirque du Soleil focused on:  Creation of a hybrid between the circus and the theatre  Retention of the symbolic and glamorous aspects of circus, such as the tent and the more breathtaking aspects, such as acrobats  Incorporation of more comfort, sophistication, elegance and theatrical plots; this brought not only the richness of theatre but a whole new demographic of customers  It looked across market boundaries and created new ones.

48. Balanced Scorecard and strategy implementation

49. Implementation of Strategy Many companies have introduced a Balanced Scorecard to manage the implementation of their strategies

50. PRE READ: Balanced Scorecard (Kaplan and Norton)

51. The Balanced Scorecard The balanced scorecard translates an organization’s mission and strategy into a set of performance measures that provides the framework for implementing its strategy It is called the balanced scorecard because it balances the use of financial and nonfinancial performance measures to evaluate performance

53. Balanced Scorecard Perspectives 1.Financial 2.Customer 3.Internal Business Perspective 4.Learning and Growth

54. The Financial Perspective Evaluates the profitability of the strategy Uses the most objective measures in the scorecard The other three perspectives eventually feed back into this dimension

55. The Customer Perspective Identifies targeted customer and market segments and measures the company’s success in these segments

56. The Internal Business Prospective Focuses on internal operations that create value for customers that, in turn, furthers the financial perspective by increasing shareholder value Includes three sub processes: 1.Innovation 2.Operations 3.Post-sales service

57. The Learning & Growth Perspective Identifies the capabilities the organization must excel at to achieve superior internal processes that create value for customers and shareholders

58. The Balanced Scorecard Flowchart

59. Balanced Scorecard Illustrated

60. Strategy and the Balanced Scorecard, Illustrated

61. Common Balanced Scorecard Measures

62. Balanced Scorecard Implementation Must have commitment and leadership from top management Must be communicated to all employees

63. Features of a Good Balanced Scorecard Tells the story of a firms strategy, articulating a sequence of cause-and-effect relationships: the links among the various perspectives that describe how strategy will be implemented Helps communicate the strategy to all members of the organization by translating the strategy into a coherent and linked set of understandable and measurable operational targets

64. Features of a Good Balanced Scorecard Must motivate managers to take actions that eventually result in improvements in financial performance – Predominately applies to for-profit entities, but has some application to not-for-profit entities as well Limits the number of measures, identifying only the most critical ones Highlights less-than-optimal tradeoffs that managers may make when they fail to consider operational and financial measures together

65. Balanced Scorecard Implementation Pitfalls Managers should not assume the cause-and- effect linkages are precise: they are merely hypotheses Managers should not seek improvements across all of the measures all of the time Managers should not use only objective measures: subjective measures are important as well

66. Balanced Scorecard Implementation Pitfalls Managers must include both costs and benefits of initiatives placed in the balanced scorecard: costs are often overlooked Managers should not ignore nonfinancial measures when evaluating employees Managers should not use too many measures

67. THANK YOU