Blue Ocean slides (1)

Create Uncontested Market Space Invent and Capture New Demand Customer Value + Low Cost Blue Ocean Strategy Importance to Business... ∗ Traditional Competitive Strategies: ∗ Cost Lea

Blue Ocean Strategy

Strategic entrepreneurship

competitive advantage that lead to superior firm performance

Entrepreneurship: the undertaking of innovation in combination with

financial and business skills with the aim of accomplishing economic gains

Commonly: the start-up of new business ventures

Sometimes: the undertaking of corporate ventures (e.g., spin-offs)

Strategic entrepreneurship: managing the firm in such a way as to

in the long term

It requires creativity, imagination, and opportunities; dealing with risk; stimulating and supporting innovation; managing change; mastering technology; and (sometimes) designing new business models

Strategic entrepreneurship

Firms may undertake offensive strategies, that are explicitly intended

to undercut competitors within the same industry and markets

higher profit margins, and higher growth rate than competitors

They consist of

Offering comparable products/services at lower price than

competitors

Introducing next-generation technology products faster than

competitors

Imitating ideas and tactics of competitors

Focusing attacks to the most lucrative segments of competitors and

to the weakest competences of competitor

Strategic entrepreneurship

face-to-face confrontation with competitors (especially, when they are

Strategic entrepreneurship may be conceived as a type of avoidance

approaches to the market that do not necessitate direct

confrontation with other firms

Create Uncontested Market Space

Invent and Capture New Demand

Customer Value + Low

Cost

Blue Ocean Strategy

Importance to Business

Blue Ocean Strategy

Importance to Business

Why Blue Ocean Strategy must be Considered

Advances in technology

Improved Productivity

Greater manufacturing capacities

Globalization effects

Price Wars and Shrinking Profit Margins

Brand Similarity and price competition

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Background Applications Framework Implementation Considerations Examples

Blue Ocean Strategy

Core Principles

1 Grounded in Data

• 10 year study/150 strategic moves

• 30 industries/100 years

2 Pursues Differentiation + Low Cost

• “and-and” not “either-or”

• Reduce competing factors/create new factors

3 Creates Uncontested Market Space

• Make competition irrelevant

• Look outside the boundaries

4 Tools and Frameworks

• Underlying frameworks exist as a guide

• Built on common strategic patterns of Blue Ocean Strategy

∗ Innovation: tech-driven, market

pioneering, futuristic

∗ Value Innovation: align innovation

with utility, price, cost position

Blue Ocean Strategy

For Innovation and Growth

Value Innovation vs Innovation

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Background Applications Framework Implementation Considerations Examples

Cost savings are made by eliminating and

reducing the factors an industry competes on.

Buyer value is lifted by raising and creating

elements the industry has never offered.

∗ Traditional Competitive Strategies:

∗ Cost Leadership (Ex: Walmart)

∗ Differentiation (Ex: BMW)

∗ Focus Strategy (Ex: LinkedIn)

∗ Traditional Competitive Strategy vs Blue Ocean Strategy

∗ Competitive Advantage - Porter’s Five Forces / Generic Strategies

∗ Blue Ocean Strategy is a:

∗ Value Innovation Strategy – competes in an uncontested market space

∗ “Combination Strategy”: pursue differentiation while controlling costs

∗ Achieved via the delivery of features that have a highest marginal benefit to customer needs

Blue Ocean Strategy vs

Traditional Competitive Strategies

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 off

trade-• Align the whole system of a firm’s activities in pursuit of differentiation and low cost

Blue Ocean Strategy

Four Actions Framework - ERRC Grid

Four key questions to challenge an industry's strategic logic and business model

Strategy Canvas

Strategy Canvas is a central diagnostic tool and an action framework that graphically captures the current strategic landscape and the future

prospects for an organization.

The strategy canvas serves two purposes:

1 It captures the current state of play in the known market space, which allows users to clearly see the factors that an industry

competes on and invests in, what buyers receive, and what the strategic profiles of the major players are.

2 It propels users to action by reorienting their focus from competitors to alternatives and

from customers to noncustomers of the

industry and allows you to visualize how a blue ocean strategic move breaks away from the existing red ocean reality.

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

An example of Blue Ocean Strategy: [yellow tail]

The third largest aggregate consumption of wine worldwide

Highly competitive industry

Large share of California-based producers

Several imported wines from France, Italy, Spain, Chile, Australia and Argentina

Consolidation (8 companies produce more than 75% wine)

Stagnant demand

Battle for shelf space

Rising marketing & advertising costs

An example of Blue Ocean Strategy: [yellow tail]

The setting: the US wine industry, in 2000

The third largest aggregate consumption of wine worldwide

Highly competitive industry

Large share of California-based producers

Several imported wines from France, Italy, Spain, Chile, Australia and Argentina

Consolidation (8 companies produce more than 75% wine)

Stagnant demand

Battle for shelf space

Rising marketing & advertising costs

An example of Blue Ocean Strategy: [yellow tail]

But

2000, Casella Wines introduced [yellow tail] in the US

2001, about 112,000 cases were sold

2002, it became the fastest growing brand in the histories of both the Australian and the US wine industry; it was number one imported

wine into the US (more than French and italian wines)

2003, it became number one red wine in 750ml bottle sold in the US (more than the same Californian wines)

2005, about 7,500,000 cases sold

An example of Blue Ocean Strategy: [yellow tail]

But

2000, Casella Wines introduced [yellow tail] in the US

2001, about 112,000 cases were sold

2002, it became the fastest growing brand in the histories of both the Australian and the US wine industry; it was number one imported

wine into the US (more than French and italian wines)

2003, it became number one red wine in 750ml bottle sold in the US (more than the same Californian wines)

2005, about 7,500,000 cases sold

The Strategy Canvas and the Four-Actions Framework

A fresh way to design innovative products: the four actions framework

A new value curve

Reduce

Which factors should be reduced well below the industry's standards?

Raise

Which factors should be raised well above the industry's standards?

Eliminate

Which of the factors that the

industry takes for granted

Complex enological terms

Relevance of aging quality

Noticeable marketing

Easy drinking Ease of selection Fun & adventure

Wine complexity Wine range

Vineyard prestige

Price (vs budget wines)

4 The Strategy Canvass and the Four-Actions Framework

The design of a new product: [yellow tail]

Aging quality

Vineyard prestige

Wine complexity

Wine range

High

Low

Premium wines

Budget wines

Easy drink, ease of selection,

fun and adventure

ERRC Grid of [yellow tail]

The Case of yellow tail Eliminate

Enological terminology & distractions

Aging qualities Above-the-line marketing

Create

Easy drinking Ease of selection Fun & adventure

Value Innovation of [yellow tail]

•Price to move at volume

Price proposition •Targeted at the mass of customers

Cost structure •Elimination of working capital tied up in aging wines•Fast product turnover

The Strategy Canvas and the Four-Actions Framework

Some features of the [yellow tail] strategy:

No heavy marketing & advertising investments

No significant resource of distinctive capability

No remarkably different or innovative product (it's a wine!)

Examples:

Wine Industry (2000)

Step 1: Examine the industry and its customers

What was working:

∗ Wine was perceived as a refined, high-end drink

What was not working:

∗ Industry consisted of either premium or budget wines

∗ To younger, casual drinkers, wine seemed intimating and

old-fashioned

∗ Younger and casual drinkers were a disengaged market

Step 2: Decide which features to add and eliminate

Add Underserved Features:

∗ Simple taste

∗ Affordable prices

∗ Marketing focused on fun, adventure, and simplicity

Eliminate Unnecessary Features:

∗ Prestige marketing

∗ Complex taste

∗ High prices

Step 3: Results

In 3 years (2003), Yellow Tail became US’ #1 selling wine

 A reinvention of wine-drinking as trendy, modern, and fun

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Background Applications Framework Implementation Considerations Examples

Step 1: Examine the industry and its customers

What was working:

∗ Raw technology was already available (CPU, screens etc.)

What was not working:

∗ Software were not user-friendly

∗ Poor cellphone web-browsing capabilities

∗ Cellphones lacked useful third-party Apps

Step 2: Decide which features to add and eliminate

Add Underserved Features:

∗ Software ease of use

∗ Hardware quality and aesthetics

∗ Availability of third-party Apps

Eliminate Unnecessary Features:

∗ Excessive customizability of hardware and software

∗ A high megapixel camera

∗ Lots of different cellphone model s

Other instances of Blue Ocean Strategy

Nintendo's Wii (2006)

“game concept”' with respect to the traditional (i.e., joystick or gamepad based) videogame consoles

It attracted those who were traditionally “non-gamer”' (e.g., parents) and offered new social venues for entertainment

Other instances of Blue Ocean Strategy

retail and delivery system (i.e., direct sales at low cost,

customisable machines, and about 4 days delivery time) with respect to competitors

It attracted those who had not bought computers before

because of ease of access, customisation, and low price

To implement a Blue Ocean Strategy:

∗ You don’t need to be Steve Jobs or Elon Musk

∗ But, you do need to:

serves and doesn’t serve

really need

to be addressed, while minimizing features that have been

over-served

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