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Foundations of StrategyPSU MGMT #511

Dave Gartendaveoutside@alum.mit.edu

Week # 5Blue Ocean, Wrap-Up

Creativity in Strategy Development1. Conceive of the external environment as

“design space” in which you develop/adapt your business model

2. Market forces, industry forces, key trends and macroeconomic forces – take stock, and apply to the business model. Very inquiry focused.

3. Overlay of SWOT to assess the business model – a long series of evaluation questions.

4. Blue Ocean lens to evaluate business model canvas – what are you reducing or eliminating? What are you raising or introducing? Start with the Cost, value proposition and Customer Impact portions of the canvas.

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Strategy Formulation

Derived from Blue Ocean Strategy by W. Chan Kim and Renee Mauborgne, HBS, 2004

Red Ocean Blue OceanKnown boundaries Uncontested market space

Increasing competition for existing demand

Redefine the value proposition (“leap in value for

the buyer”)

Globalization reducing niche/protected opportunities…

Competition becomes “irrelevant”

Bloody … Pull in a whole new group of customers

Examples: Model T, Southwest, Cirque de Soliel,

eBay

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Strategy Formulation

Study of business launches in 108 companies…

0% 20% 40% 60% 80% 100%

Profit

Revenue

NewInvestment

“Blue Ocean” “Red Ocean”

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Look across: Examples

Alternative industries

Chain of buyers

Complementary products & services

Functional/emotional appeal of buyers

Time

Strategy Formulation

NetjetsHome Depot

InsulinBloomberg

Movies & babysitting

SwatchStarbucks

Cisco

Reshaping boundaries value innovation

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Strategy FormulationLower Cost Increase Value

What can be eliminated?

What can be reduced below industry levels?

What can be created?

What can be raised above industry levels?

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Strategy FormulationRedefine target toward new market spaceSimultaneously pursue differentiation & low cost to achieve a leap in value (utility)Challenge deep reliance on:

Existing customers Finer and finer segmentation

Focus on non-customers Edge of market Unexplored non-customers

Derived from Blue Ocean Strategy by W. Chan Kim and Renee Mauborgne, HBS, 2004 Buyer value

Costs

ValueInnovation

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Strategy Formulation: Mapping

0

20

40

60

80

100

Price Meals Lounges SeatingChoice

Hubconnection

Friendlyservice

Speed Frequencypoint to

point

High

Low

CarSWA

Major Airline