Blue Ocean Strategy Book Review Meghan Davidson Berklye

Blue Ocean Strategy Book Review Meghan Davidson Berklye Dominguez Justin Pickard Michael Simpson Justin Vargas

Cirque du Soleil � Canada’s Largest Cultural Exports � Created by Guy Laliberte in 1984 � Global champion of the circus industry � Circus/Theatre Hybrid

Red/Blue Ocean Comparison � Represents all the industries in existence today. � The known market � Industry boundaries are defined and accepted, and the competitive rules of the game are known � Competition-based Red Ocean • • • Represents all the industries NOT in existence today The unknown market It is defines by untapped market space, demand creation, and the opportunity for highly profitable growth Innovation-based Unlimited busniess opportunities Blue Ocean

Why create Blue Oceans?

Value Innovation � The cornerstone of Blue Ocean Strategy. � Focuses on making the competition irrelevant by creating a leap in value for buyers and your company, thereby opening up new and uncontested market space. � Occurs by aligning innovation with utility, price and cost positions.

Value Innovation

Blue Oceans vs. Red Oceans • • • 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 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 Red Ocean

Chapter 2 Analytical Tools and Framework

Analytical Tools and Frameworks • Strategy Canvas – Strategy canvas is both a diagnostic and an action framework for building a compelling blue ocean strategy. It serves two purposes: • Captures current state of play in the known market space • Captures the offering level that buyers receive across these competitive factors – The value curve is a graphic depiction of a company’s relative performance across its industry’s factors on competition.

Four Actions Framework

Eliminate-Reduce-Raise-Create Grid It pushes them to simultaneously pursue differentiation and low cost to break the value-cost trade off. � It immediately flags companies that are focused only on raising and creating and thereby lifting the cost structure and often overengineering products and services - a common plight in many companies. � It is easily understood by managers at any level, creating a high level of engagement in its application. � Because completing the grid is a challenging task, it drives companies to robustly scrutinize every factor the industry competes on, making them discover the range of implicit assumptions the make unconsciously in competing. �

ERRC Grid

Characteristics of a Good Strategy � Focus ◦ A firm does not diffuse its efforts across all key factors of competition � Divergence ◦ Diverge from the other players � Compelling Tagline ◦ Strategic profile is clear; a fun simple to follow slogan Ex: Nike: Just do it!

Ch. 3 -Reconstruct Market Boundaries � Reconstruct market boundaries to break from the competition and create blue oceans � Successfully identify blue ocean opportunities that exist � Six Path Framework pattern for creating blue oceans

Path 1 & Path 2 �A company not only competes with other firms in their industry but also with companies in those other industries that produce alternative products or services � Ex: Net. Jets and airlines � Blue Oceans can be unlocked by looking at groups of companies within an industry that pursue a similar strategy Path 1: Look Across Alternative Industries Path 2: Look Across Strategic Groups within Industries

Path 3 & Path 4 � The purchasers who pay for the product or service may differ from the actual users, and in some cases there are important influencers as well. � Untapped value is often Path 3: Look Across the Chain of Buyers Path 4: Look Across Complementary Product & Service offering hidden in complementary products and services � Services in products have been traditionally defined � Ex: Phillips and British Teakettle

Path 5 & Path 6 � Competition in industry based on rational and emotional appeal � Companies who challenge appeals can find new market space � Ex: Quick Beauty House and haircuts � All industries are subject to external trends that affect business over time, and looking at trends with right perspective can show you blue ocean opportunities Path 5: Look Across Functional or Emotional Appeal to Buyers Path 6: Look Across Time

Ch. 4 -Focusing on the Big Picture, Not the Numbers � Focusing on the big picture and not numbers is key to mitigating risk � Drawing your strategy canvas is important to identifying the key factors of competition � Four Steps of visualizing strategy is important to unlock people’s creativity

Step 1 & Step 2 � Compare your business with your competitors by drawing your “as is” strategy canvas � See where your strategy needs to change � Go into field to explore the six paths to create blue ocean � Observe the distinct advantages and alternatives products and services � See which factors you should eliminate, create, or change Step 1: Visual Awakening Step 2: Visual Exploration

Step 3 & Step 4 � Draw your “to be” strategy 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 Step 3: Visual Strategy Fair Step 4: Visual Communication 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

Ch. 4 -Focusing on the Big Picture, Not the Numbers Cont. � Visualizing strategy at the corporate level ◦ Using the Strategy Canvas ◦ Using the Pioneer-Migrator-Settler Map � Overcoming planning the limitations of strategic ◦ Should be creative driven, and more motivational , invoke willing commitment,

Reach Beyond Existing Demand

Three tiers of noncustomers � First tiers noncustomers ◦ These are “soon to be” customers Pret A Manger is a British fast food company who located a growing number of first tier noncustomers.

Three tiers cont. � Second tier noncustomers ◦ These are “refusing” noncustomers. Customers either find the offering unacceptable of beyond their means. ◦ JCDecaux example • Third tier noncustomers These are “unexplored” noncustomers. Teeth whitening example

Get the Strategic Sequence Right

Ch. 6 cont. � Testing for exceptional Utility � From Exceptional Utility to Strategic Pricing ◦ Step 1: Identify the Price Corridor of the Mass ◦ Step 2: Specify a Level Within the Price Corridor • From Strategic Pricing to Target Costing

Ch. 6 cont. � From Utility, Price, and Cost to Adaptation ◦ Employees ◦ Business Partners ◦ The General Public • The Blue Ocean Idea Index

Chapter 7 Overcome Key Organizational Hurdles

Tipping Point Leadership � There are four hurdles managers face once a blue ocean company has developed. These hurdles are cognitive, limited resources, motivation, and politics. � Tipping point leadership is necessary to overcome these hurdles. � This style of leadership allows you to overcome these four hurdles at low cost and fast while winning employees’ support in executing a break from the status quo. � Bill Bratton of the NYPD

Break Through the Cognitive Hurdle � Tipping point leaders make people aware of the need for a strategic shift and instead of relying on numbers to break through the cognitive hurdle, they make people experience the need for change in two ways: ◦ Ride the “electric sewer” ◦ Meet with disgruntled customers

Jump the Resource Hurdle � After organization members realize the need for change, then leaders are faced on the problem of limited resources. � Tipping point leaders concentrate on multiplying the value of the resources they have. There are three factors of disproportionate influence that leaders can use: ◦ Redistribute resources to your hot spots ◦ Redirect resources from your cold spots ◦ Engage in horse trading

Jump the Motivational Hurdle � Then there is the need to execute blue ocean strategy by motivating employees and doing all this with limited resources. � Follow three factors of disproportionate influence in motivating employees: ◦ Zoom in on kingpins ◦ Place kingpins in a fishbowl ◦ Atomize to get the organization to change itself

Knock Over the Political Hurdle � It is impossible to escape organizational politics in corporate and public life. � In order to overcome these political forces, focus on three disproportionate influence factors: ◦ Secure a consigliere on your top management team ◦ Leverage your angels ◦ Silence your devils

Chapter 8 Build Execution Into Strategy

The Power of Fair Process � The sixth principle of blue ocean strategy is in order to build people’s trust and commitment and inspire their voluntary cooperation, companies need to include execution into strategy from the start. � Poor processes can ruin strategy execution. � When procedural justice was exercised, people were more satisfied with the outcome and their commitment.

The Three E Principles of Fair Process � Three mutually reinforcing elements define fair process and all members of a corporation look to these. They are: ◦ Engagement ◦ Explanation ◦ Expectation clarity

Intellectual and Emotional Recognition � Fair process matters to individuals’ emotional and intellectual recognition. � It is important for people to feel recognized for their ideas and thoughts, and then they want to share more of their knowledge and give more of their efforts. � On the other hand, if fair process is violated, people don’t feel the need to give effort, expand ideas and knowledge, or listen to others’ insights.

Fair Process and Blue Ocean Strategy � Voluntary cooperation, commitment, and trust are intangible capital. � People’s confidence in one another is higher when they have trust. � With commitment, people are willing to give up their own interests for the better interest of the company. � Companies that have successfully executed a blue ocean strategy say it would have been possible without these things.

Chapter 9: Conclusion: The Sustainability and Renewal of Blue Ocean Strategy � Once a company creates a blue ocean, sooner or later imitators will follow � As the original company and the early imitators succeed and expand the blue ocean, more companies will jump in. � This raises the question: when should a company reach out to create another blue ocean

Barriers to Imitation �A blue ocean strategy brings with it considerable barriers to imitation ◦ Blue ocean strategy may conflict with other companies’ brand image -- ex: The Body Shop ◦ Natural monopoly -- ex: Kinepolis ◦ Patents or legal permits block imitation ◦ High volume leads to rapid cost advantage for the value innovator, discouraging followers from entering the market --ex: Wal-Mart ◦ Network externalities discourage imitation --ex: e. Bay ◦ Imitation often requires significant political, operational and cultural changes --ex: southwest airlines ◦ Companies that value-innovate earn brand buzz and a loyal customer following that tends to shun imitators -- ex: Microsoft

Barriers to Imitation cont. � As you can see the barriers are high and that is why we have seldom rapid imitation of the blue ocean strategy � Also blue ocean strategy is a system approach that requires not only getting each strategic element right but also aligning them in an integral system to deliver value innovation � Therefore, imitating a system is not easy

When to Value-Innovate Again � Eventually almost every blue ocean strategy will be imitated � You need to stay away from trying to compete with the new competition or over time your value curve will begin to converge with your competition � To avoid competing, you need to monitor value curves on the strategy canvas---it alerts you to reach out for another blue ocean when your value curve begins to converge with those of the competition, and prevents you from starting a new blue ocean when there is still a huge profit to be collected

When to Value-Innovate Again � As rivalry intensifies, bloody competition commences and the ocean will turn red � As competitors value curve converges toward yours, you should begin reaching out for another value innovation to create a new blue ocean

conclusion � The six principle of blue ocean strategy should serve as essential pointers for every company thinking about its future strategy if it aspires to lead the increasingly overcrowded business world � Companies should go beyond competing for share to creating blue oceans and how to make competition irrelevant