blue ocean strategy w. chan kim and renee maubourgne edited by chitchai p
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Blue Ocean StrategyBlue Ocean Strategy
W. Chan Kim and Renee W. Chan Kim and Renee MaubourgneMaubourgne
Edited by Chitchai P.Edited by Chitchai P.
GJI, pchitchai@gmail.com 2
AgendaAgenda
1. Blue Ocean Strategy (BOS) Creating Blue Ocean Analytical Tools and Frameworks
2. Formulating Blue Ocean Strategy Reconstruct Market Boundaries Focus on Big Picture Reach Beyond Existing Demand Get Strategic Sequence Right
3. Executing Blue Ocean Strategy Overcome Key Organization Hurdles Build Execution into Strategy Conclusion
GJI, pchitchai@gmail.com 3
AgendaAgenda
1. Blue Ocean Strategy (BOS) Creating Blue Ocean Analytical Tools and Frameworks
2. Formulating Blue Ocean Strategy Reconstruct Market Boundaries Focus on Big Picture Reach Beyond Existing Demand Get Strategic Sequence Right
3. Executing Blue Ocean Strategy Overcome Key Organization Hurdles Build Execution into Strategy Conclusion
1. Blue Ocean Strategy (BOS)
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Creating Blue OceanCreating Blue Ocean
New Market SpaceThe Continuing Creation of Blue OceansThe Impact and Imperative of Crating Blue
OceansFrom Company and Industry to Strategic
MoveValue Innovation: The Cornerstone of BOSThe Six Principles of BOS
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Value Innovation:Value Innovation:The Cornerstone of BOSThe Cornerstone of BOS
Costs
Buyer Value
Value Value InnovationInnovation
The Simultaneous Pursuit of Differentiation and Low Cost
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Red Ocean vs. Blue Ocean Red Ocean vs. Blue Ocean StrategyStrategy
Red Ocean Strategy
Compete in existing market space
Beat the competition
Exploit existing demand
Make the value-cost trade-off
Align the whole system of a firm’s activities with its strategic choices of differentiation or low cost
Focuses on adapting to external trends as they occur
Create uncontested market space
Make the competition irrelevant
Create and capture untapped demand
Break the value-cost trade-off
Align the whole system of a firm’s activities in pursuit of differentiation and low cost
Participates in shaping external trends over time
Blue Ocean Strategy
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The Six Principles of BOSThe Six Principles of BOS
Execution PrinciplesExecution Principles
Overcome key organization hurdles Build execution into strategy
Risk Factor Each Risk Factor Each Principle AttenuatesPrinciple Attenuates
↓ Organization risk↓ Management risk
Formulating PrinciplesFormulating Principles
Reconstruct market boundaries Focus on the big picture, not the numbers Reach beyond existing demand Get the strategic sequence right
Risk Factor Each Risk Factor Each Principle AttenuatesPrinciple Attenuates
↓ Search risk↓ Planning risk↓ Scale risk↓ Business model risk
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Analytical Tools and Analytical Tools and FrameworksFrameworks
Strategy CanvasFour Actions FrameworkEliminate-Reduce-Raise-Create GridThree Characteristics of a Good Strategy
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Strategy CanvasStrategy CanvasUS Wine Industry in the late 1990sUS Wine Industry in the late 1990s
High
Price
Low
Premium Wines
Budget Wines
Winerange
Wine complexity
Vineyard prestige
Agingquality
Above-the-line marketing
Use of enological terminology and distinctions
in wine communication
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Four Actions FrameworkFour Actions Framework
REDUCEREDUCEWhich factors should be
reduced well below the industry’s standards?
CREATECREATEWhich factors should be created that the industry
has never offered?
ELIMINATEELIMINATEWhich of the factors that
the industry take for grantedshould be eliminated?
RAISERAISEWhich factors should be
raised well above the industry’s standard?
A New A New Value Value CurveCurve
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Eliminate-Reduce-Raise-Create Grid Eliminate-Reduce-Raise-Create Grid
Case StudyCase Study : : Yellow TailYellow Tail
ReduceReduce
Wine complexityWine range
Vineyard prestige
CreateCreate
Easy drinkingEase of selection
Fun and adventure
EliminateEliminate
Enological TerminologyAging qualities
Above-the-line Marketing
RaiseRaise
Price versus budget winesRetail stores involvement
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A New Value Curve –A New Value Curve –Strategy Canvas of Yellow TailStrategy Canvas of Yellow Tail
High
Price
Easy drinking
Ease of selection
Low
Premium Wines
[yellow tail]
Budget Wines
Fun and adventure
Winerange
Wine complexity
Vineyard prestige
Agingquality
Above-the-line marketing
Use of enological terminology and
distinctions in wine communication
CREATE
REDUCEELIMINATE
RAISE
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Strategy Canvas: Southwest Strategy Canvas: Southwest AirlinesAirlines
High
Price Meals Lounges Seating class choice
Hub connectivity
Friendly Service
Speed Frequent Pint-to-point
departure
Low
Average Airlines
Southwest Airlines
Car Transport
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Strategy Canvas: Cirque du Strategy Canvas: Cirque du SoleilSoleil
High
Price
Star performers
Animal shows
Multiple show arena Fun
and humor
Thrill and challenge
Unique venue
Theme
Low
Ringling Bros. & Barnum & Bailey
Cirque du Soliel
Smaller Regional Circuses
Refined watching
environment
Multiple Production
Artistic music and
dance
Aisle concessions
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Three Characteristics of a Good Three Characteristics of a Good StrategyStrategy
FocusDivergenceCompelling Tagline
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AgendaAgenda
1. Blue Ocean Strategy (BOS) Creating Blue Ocean Analytical Tools and Frameworks
2. Formulating Blue Ocean Strategy Reconstruct Market Boundaries Focus on Big Picture Reach Beyond Existing Demand Get Strategic Sequence Right
3. Executing Blue Ocean Strategy Overcome Key Organization Hurdles Build Execution into Strategy Conclusion
2. Formulating Blue Ocean Strategy
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Reconstruct Market BoundariesReconstruct Market Boundaries
Path 1: Look Across Alternative IndustriesPath 2: Look Across Strategic Groups within
IndustriesPath 3: Look Across Chain of BuyersPath 4: Look Across Complementary
Products and Service OfferingsPath 5: Look Across Functional or
Emotional Appeal to BuyersPath 6: Look Across Time
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Strategy Canvas: NetJetsStrategy Canvas: NetJetsPath1: Alternative IndustryPath1: Alternative Industry
High
Price (fixed purchase +
variable price per flight)
Need for customer to
manage aircraft (Aircraft M&A)
Deadhead costs
Speed of total travel time
Ease of travel (include. Check-in,
customs, etc.
Flexibility and reliability
In-flight service
Low
Private JetCorporate travel
NetJet’s Value Curve
Commercial AirlinesFirst and Business-Classes travel
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Strategy Canvas: QuickFitStrategy Canvas: QuickFitPath2: Strategic GroupPath2: Strategic Group
High
Price
Amenities
Workout equipment (treadmill, weights,
etc)
Workout time
Availability of instructors
Environment encouraging
discipline and motivation in
exercise
Nonthreatening same-sexEnviron-
ment
Convenience
Low
Traditionalhealth clubs
Curves
Home Exercise Program
Womanly fun atmos-
phere
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Strategy Canvas: NABIStrategy Canvas: NABIPath4: Scope of Product/Service OfferingsPath4: Scope of Product/Service Offerings
High
Initial purchase
price
Corrosion Maintenance cost
Fuel consumption
Environmental friendliness
Aesthetic design
Customer friendliness
Low
Average US Transit Bus
NABIHungarian Municipal
Bus Company
Life-Cycle Cost
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Strategy Canvas: QB HouseStrategy Canvas: QB HousePath5: Functional/Emotional OrientationPath5: Functional/Emotional Orientation
High
Price Reservation desk
Extra services
(other than haircutting)
Range of hair
treatments
Hygiene Time savings on
waiting
Time savings on
haircut
High performance”air wash”
system
Low
Average Japanese Barbershop
QB House
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Summary:Summary:Conceiving New Market SpaceConceiving New Market Space
Head-to-Head Competition
Industry
Strategic Group
Buyer Group
Scope of Product or Service Offering
FunctionalEmotional Orientation
Time
Focuses on rivals within its industry
Focuses on competitive position within strategic group
Focuses on better serving the buyer group
Focuses on maximizing the value of product and service offering within the bounds of its industry
Focuses on improving price performance within the functional-emotional orientation of its industry
Focuses on adapting to external trends as they occur
Looks across alternative industries
Looks across strategic groups within industry
Redefines the industry buyer group
Looks across to complementary product and service offerings
Rethinks the functional-emotional orientation of to industry
Participates in shaping external trends over time
Blue Ocean Creation
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Focus on Big PictureFocus on Big Picture
Four Steps of Visualizing StrategyThe Pioneer-Migrator-Settler Map
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Four Steps of Visualizing Four Steps of Visualizing StrategyStrategy
VisualAwakening
VisualExploration
VisualStrategy Fair
VisualCommunication
• Compare your business with your competitor’s 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, Raise, Create, or Change.
• Draw your ‘to be” strategy canvas based on insights from field observations.
• Get feedback on alternative strategy canvases from customers, competitor's customer, and 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.
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The PMS MapThe PMS Map
PioneersPioneers
MigratorsMigrators
SettlersSettlers
TodayToday TomorrowTomorrow
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Reach Beyond Existing DemandReach Beyond Existing Demand
First Tier: “Soon-to-be” non-customers who are on the edge of your market, waiting to jump ship
Second Tier: “Refusing non-customers who consciously choose against your market.
Third Tier: “Unexplored” non customers who are in markets distant from yours.
FirstTier
SecondTier
ThirdTier
Your Market
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Get the Strategic Sequence Get the Strategic Sequence RightRight
BuyerUtility
Price Cost AdoptionCommercially Commercially
Viable Blue Viable Blue Ocean IdeaOcean Idea
NO
Is there exceptional buyer
utility in your business idea?
Is your price easily accessible
to the mass of buyers?
NO
Can you attain your cost target to profit at your strategic price?NO
What are adoption hurdles
in actualizing your business idea? Are you
addressing them up front?
NO
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Buyer Utility MapBuyer Utility Map
1
Purchase
2
Delivery
3
Use
4
Supplement
5
Maintenance
6
Disposal
Customer
Productivity
Simplicity
Convenience
Risk
Fun and Image
Environmental
Friendliness
Th
e S
ix U
tilit
y L
eve
ls
The Six Stages of the Buyer Experience Cycle
How long to find the product you
need?
Is the place of purchase
attractive and accessible?
How secure is the transaction
environment?
How rapidly can you make a purchase?
How long to get the product delivered?
How difficult to unpack and install the new product?
Do buyers have to arrange delivery themselves? If yes, how costly
and difficult is this
Training or expertise
assistance required?
Easy to store when not in used?How effective are
features and functions?
Overcharged with bell and whistles?
Need other products to make
it 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?
Require external ME
How easy to maintain and
upgrade?
How costly?
Create waist items?
How easy to dispose?
Legal or environmental
issue of the product disposal?
How costly?
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Price Corridor of the MassPrice Corridor of the Mass
1. Identify the Price Corridor of the mass
2. Specify a Price Level within the Price Corridor
Three alternative product/service types:
Same Form
Different Form
Same Function
Different Form and Function,
Same Objective
Size of circle is proportion to number of buyers that product/service attracts
Upper-level pricing
Mid-level pricing
Low-level pricing
Price Corridor of the Mass
High degree of legal and resource protection
Difficult to Imitate
Some degree of legal and resource protection
Low degree of legal protection
Easy to Imitate
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Profit Model of BOSProfit Model of BOS
The Target Profit
The Strategic Price
The Target Cost
Pricing Innovation
Streamlining and Cost Innovative
Partnering
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AdoptionAdoption
EmployeesPartnersGeneral Public
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AgendaAgenda
1. Blue Ocean Strategy (BOS) Creating Blue Ocean Analytical Tools and Frameworks
2. Formulating Blue Ocean Strategy Reconstruct Market Boundaries Focus on Big Picture Reach Beyond Existing Demand Get Strategic Sequence Right
3. Executing Blue Ocean Strategy Overcome Key Organization Hurdles Build Execution into Strategy Conclusion
3. Executing Blue Ocean Strategy
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Overcome Key Organization Overcome Key Organization HurdlesHurdles
1. Cognitive – Wedded to status quo
2. Political – Opposition from powerful vested interest
3. Motivational – Unmotivated
4. Resource – Limited resource
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Build Execution into StrategyBuild Execution into Strategy
Fair ProcessEngagementExplanation
Expectation clarity
Trust &Commitment“I feel my opinion counts.”
VolunteerCooperation“I’ll go beyond
the call of duty.”
Exceeds ExpectationSelf-Initiated
Strategy Formulation Process
Attitude
Behavior
Strategy Execution
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ConclusionConclusionSustainability and Renewal of Blue Ocean StrategySustainability and Renewal of Blue Ocean Strategy
Imitation Barriers to BOS Value Innovation does not make sense to a company’s
conventional logic. Blue Ocean Strategy may conflict with companies’ brand image. Natural monopoly: The market often cannot support a second
player. Patents or legal permits block imitation. High volume leads to rapid cost advantage for the value innovator,
discouraging followers from entering the market. Network Externalities discourage imitation. Imitation often require significant political, operational, and cultural
changes. Companies that value-innovate earn brand buzz and a loyal
customer following that tends to shun imitators.
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