Download - Blue Ocean Strategy Intro Revised
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Creating Blue Oceans
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The Book and the Authors
Prof Renee Mauborgne
© JOHN ABBOTT
Prof Chan Kim
© JOHN ABBOTT
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™AccoladesOver 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
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New Market Space
Red oceans and blue oceans make up market universe
Red oceans: all industries in existence
= known market space
Blue oceans: all industries not in existence
= unknown market space
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Red Oceans vs. Blue OceansRed oceans
Industry boundaries defined and acceptedCompetitive rules of game knownCompanies try to outperform rivals; cutthroat competitionAs market space gets crowded, prospects for profit and growth
reducedProducts become commoditiesRed ocean strategy is a market-competing strategy
Blue oceansUndefined market space, demand creation, opportunity for highly
profitable growthMost are created from within red oceans by expanding existing
industry boundariesRules of game waiting to be setCompetition irrelevantBlue ocean strategy is a market-creating strategy
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The Rising Imperative of Creating Blue Oceans
Supply is exceeding demand in most industriesglobal competition is intensifyingProblems:
Accelerated commodization of products and services
Increasing price warsShrinking profit margins
Red oceans becoming bloodier, need to be concerned with creating blue oceans
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The Continuing Creation of Blue Oceans
Blue oceans have been around for some time; a feature of business life
Industries never stand still, constantly evolving
Significant expansion of blue oceans over years
So why the focus on red ocean strategy?Corporate strategy influenced by military strategy
Need to create new market space that is uncontested
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The Impact of Creating Blue Oceans
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From Company and Industry to Strategic Move
Are there lasting visionary companies that continuously outperform the market and create blue oceans?
Found success of these model companies was a result of industry sector performance, not companies themselves
Strategic move used as unit of analysis (rather than company or industry)
Strategic move: the set of managerial actions and decisions involved in making a major market-creating business offering
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™Value Innovation: The
Cornerstone of Blue Ocean Strategy
• Creators of blue oceans follow value innovation
• Value Innovation– Equal emphasis on value
and innovation– Defies value-cost trade-off
of competition-based strategy
– Successful value innovation:• Drives down costs while
driving up buyers’ value• Uses a whole-system
approach• Follows reconstructionist
view
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™Red Ocean Vs. Blue Ocean
• 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 choice of differentiation or low cost
• Create uncontested market space
• Make the competition irrelevant
• Create and capture new demand
• Break the value-cost trade-off
• Align the whole system of a firm’s activities in pursuit of differentiation and low cost
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Formulating and Executing Blue Ocean Strategy
Six Principles of Blue Ocean StrategyReconstruct market boundaries
Focus on the big picture, not the numbers
Reach beyond existing demand
Get the strategic sequence right
Overcome key organizational hurtles
Build execution into strategy
The remaining chapters will give you the principles and generalized frameworks to succeed in blue oceans
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Take Aways
Red ocean strategy is a market-competing strategy, while blue ocean strategy is a market-creating strategy
As red oceans are becoming bloodier, we need to create more blue oceans
“The only way to beat the competition is to stop trying to beat the competition!”
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The Six Principles of Blue Ocean Strategy
Formulation Principles Risk factor each principle attenuates
Reconstruct market boundaries
Focus on the big picture, not the numbers
Reach beyond existing demand
Get the strategic sequence right
Search risk
Planning risk
Scale risk
Business model risk
Evaluation principles Risk factor each principle attenuates
Overcome key organizational hurdles
Build execution into strategy
Organizational risk
Management risk
This figure highlights the six principles driving the successful formulation and execution of blue ocean strategy and the risks that these principles attenuate.
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Points of view
Business often look at the industry from a structuralist (supply) point of view
What if we looked at the industry from a reconstructionist (demand) point of view?
Market boundaries are not viewed as given, but could be reconstructed to unlock new demand
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™Example: A highly competitive Industry
The American Wine Industry
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™What the industry offersPremium Wines Budget Wines
Massive Choice
Polarised Strategic Groups
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™American Wine Industry3rd 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 stagnant31st in the world in per capita consumption!
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™American Wine IndustryTop 8 producers had 75% of the market; 1600
had the remaining 25%
$ millions spent in marketing - Titanic battles – intense competition
Severe price pressure
The dominant growth strategy was towards premium wines – more complexity, better image, more prestigious vineyards, number of medals won at wine festivals.
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™What wine customers 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)
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What are people looking for in a wine?
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Segmentation of Market and Brands
Low Involvement High Involvement
Easy Going Enjoyers Aspirationals Appreciators Connoisseurs
Glass with friends
Least care choosing a wine
Not wine preferrers
Price is a strong influencer
Everyday enjoymentTo relax/unwindStick with limited list of known brandsChoose in-storeNot interested in wine language
Influenced by major brand advertising
Image importantWine preferrers (sic)Varietal knowledgeInterested in some wine languageEnjoy trying new wines
Visit wineries / read wine articles
Want to discover wineKnowledge of wine regionsFrequently buy >$10 winesJoin wine clubsDon’t stick to known brands
Ideal wine is complex & interesting
Sophisticated drinkerDiscerning wine tastes Don’t decide in storeHave a cellarLess influenced by specials/ promotions
Actively pursue wine knowledge
Brand: Lindemans Rosemount Estate Wolf Blass Penfolds
Demographic: M/F: 50/50 Age: 35-49
M/F: 30/70; Age: 30-40
M/F: 70/30; Age: 35-50
Age: 40+
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Four Steps of VisualizingFour Steps of Visualizing
1. Visual Awakening
2. Visual Exploration
3. Visual Strategy Fair
4. Visual Communication
•Compare your business with your competitors’ by drawing your “as is” 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” canvas based on insights from field observations
•Get feedback on alternative strategy canvases from customers, competitors’ customers, 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 gaps and actualize the new strategy
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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
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Four Actions Framework + Eliminate/Reduce/Raise/Create Grid
The four actions framework offers an technique that breaks the trade-off between differentiation and low cost and to create a new value curve. It answers the four key questions of what industry takes for granted and needs to be eliminated; what factors need to be reduced below industry standards; what factors need to be raised above industry standards; and what should be created that the industry has never offered.
The eliminate-reduce-raise-create grid pushes companies not only to ask all four questions in the four actions framework but also to act on all four to create a new value curve. By driving companies to fill in the grid with the actions of eliminating, reducing, raising, and creating, the grid provides four immediate benefits: it pushes them to simultaneously pursue differentiation and low costs; identifies companies who are only raising and creating thereby raising costs; makes it easier for managers to understand and comply; and it drives companies to scrutinize every factor the industry competes on.
Eliminate
Enological terminology and distinctions
Aging qualities
Above-the-line marketing
Raise
Price versus budget wines
Retail Store involvement
Reduce
Wine complexity
Wine range
Vineyard prestige
Create
Easy drinking
Ease of selection
Fun and adventure
A New
Value Curve
Reduce
Eliminate Create
Raise
Which factors should be reduced well below industry standards?
Which factors should be created that the industry has never offered?
Which factors should be raised well above the industry’s standard?
Which of the factors that the industry takes for granted should be eliminated?
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ERRC Grid yellow tailThe Case of yellow tail
Eliminate
Enological terminology & distractionsAging qualities
Above-the-line marketing
Raise
Price versus budget winesRetain store involvement
Reduce
Wine complexityWine Range
Vineyard prestige
Create
Easy drinkingEase of selectionFun & adventure
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To Be Canvas
• Eliminate
• Reduce
• Raise
• Create
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™Yellow TailOnly 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.
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Value Innovation of [yellow tail]
Utility proposition(customers, distributors and retailers)
•Creating of a social drink that is accessible to anyone
•Easy drinking, ease of selection, sense of fun and adventure
•Limit number of SKUs
•Price to move at volume
Price proposition •Targeted at the mass of customers
•Priced against the alternative (6-pack)
Cost structure•Elimination of working capital tied up in aging wines
•Fast product turnover
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™ResultsNo 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.
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The Case of Cirque du SoleilThe Case of Cirque du Soleil
Cirque du Soleil achieved rapid growth in a Cirque du Soleil achieved rapid growth in a declining industry with low profit potentialdeclining industry with low profit potential
Cirque du Soleil created uncontested new Cirque du Soleil created uncontested new market space that made the competition market space that made the competition irrelevant irrelevant
If you don’t know them you can see some atIf you don’t know them you can see some athttp://www.youtube.com/watch?v=M4lAPI5BAukhttp://www.youtube.com/watch?v=M4lAPI5BAuk
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Example: Cirque du SoleilExample: Cirque du Soleil
Instead of simply trying to outpace the Instead of simply trying to outpace the competition, Cirque du Soleil offered people competition, Cirque du Soleil offered people both the fun and thrill of the circus and the both the fun and thrill of the circus and the intellectual sophistication of the theaterintellectual sophistication of the theater
Because of this, Cirque du Soleil appealed to Because of this, Cirque du Soleil appealed to both circus customers and noncustomersboth circus customers and noncustomers
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Example: Cirque du SoleilExample: Cirque du Soleil
Each show, like a theater production, had its Each show, like a theater production, had its own unique theme and storylineown unique theme and storyline
This allowed customers to return to the show This allowed customers to return to the show more frequentlymore frequently
They also did away with the traditional high-They also did away with the traditional high-priced concessions and vendors thereby priced concessions and vendors thereby cutting costscutting costs
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Example: Cirque du SoleilExample: Cirque du Soleil
Cirque du Soleil effectively combined the best Cirque du Soleil effectively combined the best of both the circus and the theater while of both the circus and the theater while eliminating everything elseeliminating everything else
This allowed them to achieve both This allowed them to achieve both differentiation and low costdifferentiation and low cost
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Eliminate-Reduce-Raise-CreateEliminate-Reduce-Raise-Create
EliminateEliminate
Star Performers
Animal shows
Aisle concession sales
Multiple show arenas
RaiseRaise
Unique venues
ReduceReduce
Fun and humor
Thrill and danger
CreateCreate
Theme
Refined environment
Multiple productions
Artistic music and dance
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The Strategy Canvas The Strategy Canvas of Cirque du Soleilof Cirque du Soleil
hi
offe
ring
leve
l
loPrice
Fun & Humor Unique VenueAisle Concessions
Multiple Show Arenas Thrills & DangerAnimal Shows
Star Performers
Theme
Refined Viewing Environment
MultipleProductions
Artistic Music & Dance
Cirque du Soleil
ReduceEliminate Raise Create
© Kim & Mauborgne 2006
Ringling Brothers
Smaller Regional Circus
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Key Takeaways Three tiers of non-customers:
1: buyers who purchase your industry offerings out of necessity; will jump ship if given an opportunity.
2: buyers who purchase alternative offerings that serve the same function
3: people who don’t consume even the alternatives to your offerings
Non-customer demand is unlocked by providing new buyer utilities, at a price that attracts a mass of buyers, given target costs.
Buyers could be not only end-users, but also other participants in a value chain (e.g. distributors)