recent trends in business strategy-dr.kabaly p subramanian

Recent Trends in Business Strategy

ByDr. Kabaly P Subramanian

Department of Business Studies

Arab Open University

Sultanate of Oman

Words of wisdom

“The competitor to be feared is one who never bothers about you at all, but goes on making his own business all the time”

Henry Ford

Words of wisdom

“It is not the strongest of the species that survive, or the most intelligent, but it is the one most capable of change”

Charles Darwin

Words of wisdom

“The reasonable man adapts himself to the conditions that surround him. The unreasonable man adapts surroundings to himself. All progress depends on the unreasonable man”

George Bernard Shaw

Why do you need to sit through this presentation?

Today’s Challenge : Building organizations that can grow in the world of relentless change and ferocious competition

Survival vs Growth New thinking in strategy helps you to grow Easy to understand and apply Organizations, Nations and Individuals

Multiplicity of explanations

The multiplicity of explanations and prescriptions only shows the complexity of strategic management.

These explanations and prescriptions are not always mutually exclusive

The Manager’s task is to find how these insights combined to build a multidimensional and flexible strategy that is robust to the different assumptions and explanations

Multiplicity of explanations

These explanations and prescriptions can sensitize managers to the different factors they must consider, but cannot provide ready-made and standardized solutions for them to adopt.

BOS

This is a program for managers in search of a practical roadmap to tackle strategic innovation in a systematic and systemic way.

Structure of this presentation

Common understanding on Business Strategy

Video case : 1 To understand the traditional approach to strategy.

Video case : 2 To understand the new approach to strategy

Explanation of this new thinking using Blue Ocean Strategy ( BOS ) principles ,tools and frameworks

Strategy

Sustainable Competitive Advantage Strategy is about organizational change

“A set of decisions and actions leading to sustainable competitive advantage of organizations/firms/businesses”.

Traditional approach to Strategy making analyzing the industry or environmental conditions in which they

operate. assess the strengths and weaknesses of the players they are up

against. With these industry and competitive analyses in mind, they set out

to carve a distinctive strategic position where they can outperform their rivals by building a competitive advantage

chooses either to differentiate itself from the competition for a premium price or to pursue low costs

aligns its value chain accordingly, creating manufacturing, marketing, and human resource strategies in the process.

On the basis of these strategies, financial targets and budget allocations are set.

Logic behind this traditional approach

company’s strategic options are bounded by the environment

Structure shapes strategy This “structuralist” approach, which has its

roots in the structure-conduct -performance

paradigm of industrial organization economics .

(See Industrial Market Structure and Economic Performance, F. M. Sherer ,Chicago:Rand McNally, 1970)

Essence of Traditional approach to 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 choice of differentiation or low cost.

Result

Stiff Competition Thin Margin Low growth Surviving

15

Blue Ocean Strategy Regional Centre 15Red Ocean markets....

Business History

Business history reveals plenty of cases in which firms’ strategies shaped industry structure, from Ford’s Model T to Nintendo’s Wii.

Blue ocean strategy (a new theory of strategy) reflects the fact that a company’s performance is not necessarily determined by an industry’s competitive environment.

Roots of Blue Ocean Strategy

The Blue ocean strategy framework can help companies systematically reconstruct their industries and reverse the structure-strategy sequence in their favor.

Blue ocean strategy has its roots in the emerging school of economics called endogenous growth whose central paradigm posits that the ideas and actions of individual players can shape the economic and industrial landscape. In other words, strategy can shape structure

We call this approach “reconstructionist.”

Reconstructionist approach

Reconstructionist : based on endogenous growth, which traces back to Joseph A Schumpeter's initial observation that the forces that change economic structure and industry landscapes can come from within the system.

Schumpeter argues that innovation can happen endogenously and the main source is the creative entrepreneur. (Steve Jobs, Karsanbhai Patel, C.K.Rajkumar, Jeff Bezos, Mark Zuckerberg, Henry Ford, Herb Kelleher, Anita Roddick, Akio Morito,Mohammed Yunus,…)

19

Blue Ocean Strategy Regional Centre

Red Ocean markets.... Blue Ocean markets....

Structuralist vs Reconstructionist

While the structuralist approach is valuable and relevant, the reconstructionist approach is more appropriate in certain economic and industry settings.

today’s economic difficulties have heightened the need for a reconstructionist alternative.

How to approach?

The first task of an organization’s leadership, therefore, is to choose the appropriate strategic approach in light of the challenges the organization faces.

need to make sure that their organizations are aligned behind it to produce sustainable performance

What is the right approach for you?

There are three factors that determine the right approach:

structural conditions in which an organization operates,

its resources and capabilities, and its strategic mind-set.

Choosing the right approachA structuralistapproach is a goodfit when

A reconstructionistapproach is agood fit when

Structural conditionsare attractive and theorganization has theresources and capabilitiesto build a distinctiveposition

Structural conditions areattractive but players arewell-entrenched and theorganization lacks theresources or capabilitiesto outperform them

Structural conditions areless than attractive butthe organization has theresources and capabilitiesto outperformcompetitors

Structural conditionsare unattractive andthey work against anorganization irrespectiveof its resources andcapabilities

The organization has abias toward defendingcurrent strategic positionsand a reluctance toventure into unfamiliarterritory

The organization hasan orientation towardinnovation and a willingnessto pursue newopportunities

Why should we consider “Blue Ocean Strategy”?

Many companies finds it useful (Samsung) Countries like Malaysia, Singapore uses this approach

for planning their future. Many strategy experts accepts BOS as an innovative

approach (Walter Kiechel ,2010) Blue-ocean strategy ,work of Kim and Mauborgne is

probably the leading contender for Biggest New Idea in Strategy (Walter Kiechel,2010).

The Authors figure in the 2nd place : 2011 Thinkers 50 Research evidence

Origin of Blue Ocean Strategy

15 years of research, 150 strategic moves spanning 100 years, thirty industries

(Kim and Mauborgne,2005)

ENTERTAINMENT SECTOR

Entertainment Sector (1984)

CIRCUS VIDEO GAMES

THEATRE

TELEVISION BEACHES PARKS

LIVE BANDS MUSIC SHOWS

GAMES

BALLET MOVIES ?

THEME PARKS

SHOPPING MALLS

?

Circus Industry (1980’s)

Ringling Brothers

Barnum and Bailey

Small time circus-3

Small time circus-1

Small time circus-2

?

Small time circus

Big time circus ( Ringling Brothers)

Video:1

Is it easy?

Is it easy to achieve sustainable high performance?

It is not…

Stiff competition Costs escalates Thin profit margin Low growth

Smaller Regional Circus

Ringling Brothers

Capturing existing strategy of competitors

hi

offe

ring

leve

l

loPrice

Fun & Humor Unique VenueAisle Concessions

Multiple Show Arenas Thrills & DangerAnimal Shows

Star Performers

© Kim & Mauborgne 2006

What is the approach behind this strategy?

It is all in “Thinking” or “Mental Models” (Industry Mindset)

Circus is for Children Circus should offer animal act Increase the value (more animal shows, more

popular performers,..) Decrease the value (less animal shows, less

popular perfomers)

Cirque Du Soleil (CDS)


Started in 1984 by a group of street performers.

40 million people,90 countries In less than 20 years CDS has achieved a

level of revenues that took Ringling brothers (the global champion of circus industry) more than one hundred years to attain.

Cirque Du Soleil’s (CDS) offering (Video 2)

How CDS identified and captured Blue

Ocean?

Deciding to Move from Known to Unknown market space

Known Market Space : Circus ( 1984 )

Unknown Market Space : To be named ( 1984 )

Ringling Brothers

Barnum and Bailey

Small time circus-3

Small time circus-1

Small time circus-2

?



Ringling Brothers

Capturing the existing strategy of competitors

hi

offe

ring

leve

l

loPrice



Star Performers


Looking across alternative industries

Theatre Ballet Music

Looking across the Customer to Non-Customers

From children to adults to corporate customers

Segmentation to counter segmentation

Value Innovation

EliminateStar performersAnimal shows

Aisle concession salesMultiple show arenas

RaiseUnique venue

ReduceFun and humor

Thrill and danger

CreateTheme

Refined environmentMultiple productions

Artistic music and dance


Ringling Brothers

Strategy of CDS

hi

offe

ring

leve

l

loPrice



Star Performers

Theme

Refined Viewing Environment

MultipleProductions

Artistic Music & Dance

Cirque du Soleil


Finally, Innovated for Value

How to move into uncontested market space systematically?

Stage 0 : Deciding to move into the uncontested market space

Stage 1 : Visual Awakening Stage 2 : Visual Exploration Stage 3 : Visual Strategizing Stage 4 : Visual Communication

Stage 0 : Deciding to Move from Known to Unknown market space

Known Market Space : Circus ( 1984 )

Unknown Market Space : To be named ( 1984 )

Ringling Brothers

Barnum and Bailey

Small time circus-3

Small time circus-1

Small time circus-2

?


Stage:1 Visual awakening

Compare your business with your competitors by drawing your “as is” strategy canvas.

See where your strategy needs to change


Ringling Brothers

Stage : 1 Visual Awakening ( As is Strategy Canvas )

hi

offe

ring

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Star Performers


Stage : 2 Visual exploration

Go into the field to explore the six paths to create blue oceans

Observe the distinctive advantages of alternative products and services.

See which factors you should eliminate,create,reduce or raise

Stage : 2 Visual Exploration challenge the boundaries of your industry using the “Six Paths” framework

The “Six Paths” show six systematic patterns for reconstructing market boundaries that have general applicability across industry sectors

To Creating Across

From Competing Within

Industry

Strategic group

Buyer group

Scope of product or service offering

Functional-emotional orientation of an industry

Time

2

11© Kim & Mauborgne; © UCSI Blue Ocean Strategy Regional Centre. All Rights Reserved.

Four Actions framework

Which factors should be reduced well below the industry standard

Which of the factors that the industry takes for granted should be eliminated?

Which factors should be raised well above the industry’s standard?

Which factors should be created that the industry has never offered

A new value

ERRC Grid (example)

EliminateStar performersAnimal shows

Aisle concession salesMultiple show arenas

RaiseUnique venue

ReduceFun and humor

Thrill and danger

CreateTheme

Refined environmentMultiple productions

Artistic music and dance

3.Innovated for Value

Stage : 3 Visual Strategizing

Draw your “to be strategy canvas based on insights from field observations

Get feedback on alternative strategy canvases from customers,competitiors’ customers and non customers.

Use feedback to build the best “to be” future strategy


Ringling Brothers

The Strategy Canvas of Cirque du Soleil (To be)

hi

offe

ring

leve

l

loPrice



Star Performers

Theme

Refined Viewing Environment

MultipleProductions

Artistic Music & Dance

Cirque du Soleil


Reaching beyond existing demand is key to create new market space

• To generate the greatest demand, companies should challenge two conventional company practices: the focus on existing customers and the drive for finer segmentation.

• To maximize the size of their blue oceans, companies need to take a reverse course: instead of concentrating on customers, they need to look to noncustomers and instead of focusing on customer differences, they need to build on powerful commonalities in what buyers value.

• Although the universe of noncustomers typically offers big blue ocean opportunities, few companies have good insight into who noncustomers are and how to unlock them.

• To convert this latent demand into a real one, companies need to deepen their understanding of the universe of noncustomers.

10

The Three Tiers of Noncustomers

© Kim & Mauborgne; © UCSI Blue Ocean Strategy Regional Centre. All Rights Reserved.

Stage 4 : Visual Communication

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

How can we be sure of the existence of a Blue Ocean (uncontested market space)?

History Blue ocean opportunities have been out

there. As they are explored, market universe has

been expanding.

62


Blue Oceans have continuously been created over time…

1920s 1980s 2000s 2010

Samsung 3D TV

Wii (Nintendo)Cirque du soleil

Model T (Ford)

Real-time news (CNN)

Southwest Airlines NTT DoCoMo’i-mode

Curves

[Yellow Tail]

Computing Tabulating Recording Corporation

Palace Theatre (NY 1920)

iPad (Apple)

63


§There is no such thing as a permanently great company, nor a permanently great industry.

But there are permanently great strategic moves…

Red Ocean based logic vs. Blue Ocean based logicRed Ocean approach Blue Ocean approach

Compete in existing market space. Create uncontested market space.

Beat the competition. Make the competition irrelevant.

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.

Launches with Red versus Blue oceans

86%

14%

Business Launch

Revenue Impact

ProfitImpact

62%

38%

39%

61%

BOS Tools

Strategy Canvas Four actions framework ERRC grid

Benefits of strategy canvas

Capture self and competitors strategy Identify value innovation opportunities Communicate your strategy to your

stakeholders.

Benefits of Four actions framework

Guiding framework which forces you to

determine the value adding and non-value adding activities. Also to help you question the industry assumptions.

It provides a compelling reason to innovate.

Benefits of ERRC grid

Pushes you to simultaneously pursue differentiation and low costs.

Helps in avoiding over engineering products and services.

BOS tool set Value Innovation Strategy Canvas Four Actions framework ERRC Grid Three Characteristics of a good strategy Six paths framework to reconstruct market boundaries Four steps of visualizing strategy PMS Map Three tiers of Noncustomers Buyer utility map Blue Ocean Idea index Tipping point leadership Three E principles of Fair process.

Reference

Understanding Strategic Management (2nd edition),Anthony E Henry, Oxford University Press,2011.

Blue Ocean Strategy

W.Chan Kim and Renee Mauborgne

Harvard Business School Press (2005) world wide web

Reference

Blue Ocean Strategy

W.Chan Kim and Renee Mauborgne world wide web

[email protected]

recent trends in business strategy-dr.kabaly p subramanian

Business

roots of blue ocean

strategy explanation

blue ocean strategy

blue ocean markets

red ocean markets

structuralist approach

industrial market structure

endogenous growth