Blue Ocean Strategy Chapter 4 Focus on the

Blue Ocean Strategy Chapter 4 – Focus on the Big Picture, Not the Numbers Team 1 Chris Athens Ben Baker Chris Bolinger Josh Carver Jordan Guenther Justin Turner Jeff Ward

Focus on the Big Picture, Not the Numbers This principle is key to mitigating the planning risk of investing lots of effort and lots of time but delivering only tactical red ocean moves. p The book has developed an alternative approach which is not based on preparing a document but to draw a STRATEGIC CANVAS. p This is proven to unlock new opportunities and ideas to break away from red oceans (existing markets). p

Focusing On The Big Picture This process helps to analyze the companies strategic position in the marketplace but also helps to chart its future strategy. p By building around the strategy canvas the company and managers focus their main attention on the big picture and not the numbers and operational procedures. p

Strategic Canvas First, it shows a strategic profile of an industry by depicting very clearly the factors that can affect present and future competition. p Second, it shows the strategic profile of current and potential competitors, identifying which factors they invest in strategically. p Finally, it shows the company’s strategic profile (value curve) depicting how it invests in the factors of competition p

Drawing Your Strategy Canvas There are four steps in creating your strategy canvas which is known as: The Four Steps of Visualizing Strategy

1. Visual Awakening Compare your business with your competitors’ by drawing your “as is” strategy canvas. See where your strategy needs to change.

2. Visual Exploration Go into the field to explore the six paths to creating a blue ocean Observe the distinctive advantages and alternative products and services See which factors you should eliminate, create, or change

3. Visual Strategy Fair Draw your “to be” strategy canvas based on insights from the field observations. Get Feedback Use feedback to build the best “to be” future strategy.

Visual Communication Distribute your before and after strategic profiles on page for easy comparison. Support only those projects and operational moves that allow your company to close the gaps to actualize the new strategy.

Step 1: Visual Awakening p Compare your business with your competitors’ by drawing your “as is” strategy canvas p See where your strategy needs to change

Steps Leading to a Visual Awakening p One problem is that executives are often reluctant to accept the need for change p In the past, executives have said that it takes a highly determined leader or a serious crisis in order for them to seek out blue oceans and introduce change

EFS and its Troubles EFS had been struggling for a long time with an ill-defined and poorly communicated strategy p The company was also deeply divided p This conflict made it all the more difficult for EFS to come to grips with its strategic problems p

EFS’s Visual Awakening EFS began the strategy process by bringing together more than twenty senior managers from subsidiaries in Europe, North America, Asia, and Australia and splitting them into two teams p Team 1: create a value curve depicting EFS’s current strategic profile p Team 2: charged with the same task for EFS’s online foreign exchange business p

EFS’s Visual Awakening (Cont. ) The two teams were given 90 minutes , because if EFS had a clear strategy , surely it would emerge quickly p The outcome was a painful experience: p n n Both teams had heated debates about what constituted a competitive factor and what those factors were Different factors were important in different regions

What EFS Learned p p There were defects in the company’s strategy EFS’s two value curves were very similar to those of competitors Neither team could come up with a memorable tagline that was true to the team’s value curve The evidence showed the company’s shortcomings and EFS’s executives could not defend what they had shown to be a weak, unoriginal, and poorly communicated strategy

Visual Awakening Takeaways p When people see a strategy canvas comparing themselves to their competitors, they quickly see where their strategy needs to change p Visual thinking is 20% vision science, 20% cognitive science, 20% psychology, 20% information visualization, 15% show and tell, and about 5% poker.

Step 2 – Visual Exploration

Step 2 (cont) p p To understand customers, non-customers, and end users of a product, you must see how they function in the real world. Companies must put managers face-to-face with the people that make a difference. n n A master painter would not paint a masterpiece based upon a photograph from someone else. Before Mc. Donald’s introduced the Mc. Cafe, they observed analyzed the individuals that go to other coffee shops. Part of the analysis focused on whether these individuals went to Mc. Donalds for food and then went to other establishments for coffee. Through personal interviews, mass surveys, and internal research groups, Mc. Donalds discovered that customers would prefer a high-quality lower price alternative to the chain of Starbucks. Mc. Donalds opened the Mc. Cafe with the same philosophy of tasty options made from quality ingredients, served fast (at a fraction of the cost). Without the face-to-face approach to market research, Mc. Donalds could have set themselves up for failure.

Step 2 (cont)

Step 2 (cont) p According to the writers, Michael Bloomberg did not develop a product of genius, but rather challenged the boundaries of the current business by looking at the needs of end users. n In 1982, he developed a concept that revolutionized the trading market. It integrated the tools and information of stock trading into one and allowed everyone to have near instantaneous data. The Bloomberg machines were released in 1984. With the continued advance of technology and staying current on industry needs, the company has grown by leaps and bounds.

Step 2 (cont) p European Financial Services sent their managers into the field for over 4 weeks. In step 1, the teams had determined that the account relationship managers were the key to success. After step 2, the teams found that the relationship managers were the companies “Achilles heal. ” Customers felt as though the relationship managers were a waste of time. Because of the field research, the two teams were instructed to design 6 new proposals. This made them think

Step 2 (cont) Highland Medical Center 2412 50 th Street (50 th and University)

Step 3: Visual Strategy Fair After two weeks of drawing and redrawing possible new strategies, the internal teams presented their strategy canvases at what we call a visual strategy fair p Attendees included senior corporate executives but consisted mainly of representatives of EFS’s external constituencies p

Step 3: Visual Strategy Fair p The Visual Fair Teams presented all twelve value curves — six by the online group, and six by the offline group n Judges decided their favorites and where asked explain their picks n

Step 3: Visual Strategy Fair p Teams learned: n n n One-third of the teams key factors where only marginal to consumers while another one-third were overlooked or not well articulated during the awakening phase Buyers had a basic set of needs and expected services Regional differences became significant only after problems with the basic needs

Step 3: Visual Strategy Fair Following the Strategy Fair, teams were able to draw a value curve that was a truer likeness of the strategic profile than anything they had produced earlier p More important, the Managers were now in a position to draw a future strategy that would be distinctive as well as speak to a true but hidden need in the marketplace p

Step 3: Visual Strategy Fair p New Value Curve Exhibited the criteria for a successful strategy n Displayed more focus than the previous strategy n Stood apart from the industry’s me-too curves n

Step 3: Visual Strategy Fair p Three Basic Keys n n n Draw your “to be” strategy canvas based on insights from field observations Get feedback on alternative strategy canvases from customers, competitors’ customers and noncustomers Use feedback to build the best “to be” future strategy

Step 4: Visual Communication Communicate “Easy to understand” p Simplicity p Need to see the “What & How” To be able to move from Old to New p Future p

Visual Communication (cont. ) Eliminate Raise Reduce Create p Be able to move from Red Ocean to Blue Ocean Managers hold meetings to go through pictures/diagrams Question yourself Clear Cut Visions p Example: IT Webpage p p p

Visualizing Strategy at Corporate Level Visualizing Strategy -Moving from Red to Blue p Strategy Canvas Example: Samsung Electronics p Value Innovation Programs (VIP) Example: 40 inch LCD p

Pioneer-Migrator-Settler (PMS) Map p All blue ocean companies have been PIONEERS in their industries. n n p Didn’t develop new technologies They instead, pushed customer value to new levels. A Company’s PIONEERS are the businesses that offer value n They are the sources of PROFITABLE GROWTH

Pioneer-Migrator-Settler (PMS) Map p PIONEERS – (Blue Oceans) n Value curves diverge from the competition on the strategy canvas. n Have a mass following of customers SETTLERS – (Red Oceans) n Value curves conform to the basic shape of their industry. n Don’t contribute to future growth. MIGRATORS – (In Between Red and Blue) n Lie in between PIONEERS and SETTLERS n Extend industry’s curve, giving customers more for less, but don’t alter it’s basic shape. n Offer IMPROVED, but not INNOVATIVE value

Pioneer-Migrator-Settler (PMS) Map p A management team pursuing profitable growth should plot the CURRENT and PLANNED portfolio on a PMS Map. SETTLERS = me-too businesses p MIGRATORS = businesses better than most in the marketplace p PIONEERS = Mass following of customers p

Pioneer-Migrator-Settler (PMS) Map p If portfolio = SETTLERS, then… n n n p If portfolio = MIGRATORS, then… n n n p Low growth trajectory Confined to Red Oceans Should push for VALUE INNOVATION Expect reasonable growth Not exploiting all potential for growth Risks being marginalized by value innovative companies If portfolio = PIONEERS, then… n n That’s where you want to be. Great future growth and innovation

Pioneer-Migrator-Settler (PMS) Map PMS Map is valuable for beyond today’s performance. p Conventional strategists consider REVENUE, PROFITABILITY, MARKET SHARE, AND CUSTOMER SATISFACTION to measure a company’s current position. p Should use value and innovation to measure their portfolio p n Without INNOVATION they are stuck in the trap of competitive improvements. But without VALUE customers won’t buy it.

Pioneer-Migrator-Settler (PMS) Map p When pursuing PIONEERS, executives need to be aware that… n n p Though SETTLERS have little growth potential, they are today’s cash generators. On the contrary, PIONEERS have maximum growth potential, but make cash as they grow and expand. THEREFORE, managers’ goal should be to manage a BALANCE between GROWTH and CASH FLOW at a given point in time.

PMS Map

Fortune Brands Company p Behind our brands is a heritage of innovation few can match. In 1795, a grain mill operator named Jacob Beam filled his first barrel of bourbon. . . and more than two centuries later, the bourbon that bears his greatgrandson's name remains true to its unsurpassed authenticity. In 1904, a company founded by a jewelry repairman improved the workplace with the invention of the ring binder. . . and Wilson Jones still sells hundreds of millions of them year after year. In 1924, Master Lock founder Harry Soref invented the laminated padlock. . . and it remains the "Tough Under Fire" market leader today. In 1935, two college class-mates, Phil Young and Fred Bommer, set out to create a superior golf ball; they named it Titleist and began the longest-running success story in golf. In 1937, a young inventor named Al Moen created the single-handle faucet; billions of dollars in sales later, Moen is a household name and our single largest brand. The same spirit of innovation that inspired these pioneers runs through our operations today. We see building our brands for internal growth as our best investment. So to leverage the imagination of our inventors, researchers and developers, we invest heavily in product development to deliver next-generation innovations to consumers. p http: //www. fundinguniverse. com/company-histories/Fortune-Brands-Inc. Company-History. html

Overcoming Strategic Planning Limitations p Today’s managers believe in CONVERSATIONAL STRATEGY instead of DOCUMENTATION, the existing strategic plan. n Documentation includes: analysis and number crunching. Building a picture brings about far better results, and addresses managers’ discontent with existing strategic planning. p BOS believes details will fall into place more easily if one start’s with the big picture of breaking away from the competition, which will bring about a Blue p