Blue Ocean Strategy: An introduction

INNOVATION A KEY STRATEGIC FACTOR?YES BUT the question is:HOW TO GUIDE THE INNOVATION PROCESS

The traditional strategic mindsetCost leadership vs. differentiation

Cost leadershipRequires :

Economies of scaleEconomies of scopeLearning effectsVertical integrationBest locationNetwork economies (Qwerty Windows)Large market shares==> Huge investments

DifferentiationRequires :Act upon customer value chain ==> One should know it ...

2. Increase the perceived performance for the customer==> One should know what is important for him...

Differentiation and customers value chainCustomer value chain+ COST- ADVANTAGESPriceOther considerationsTimeEasynessEx: distance to travelEx: Time to cookEx :Ease of useEx: Anxiety to buy

Ex : Packaging to garbage

The aim of differentiation1. Differentiation imply extra costs

2. Diffrentiation allows higher prices

3. Higher prices generate higher margin ==> More profits

Examples of differentiationImportant for : THE CUSTOMER Ex: Quality of cucumber or the pull-cucumber ?Ex: A remote control with more functions orwith 4 functions ?Ex:To have a meal on board or to pay his ticket 50 euros?Ex:To have a top of line lawn mower motor ora easy starter ?

The traditional strategic mindsetCost leadership OR differentiationAs opposites

The blue ocean strategic mindsetCost leadership AND differentiationAs complements

One step beyond: the blue oceanInstead of searching differentiation in your traditional ocean

Create a new (blue) ocean, where your are aloneOne step beyond: the blue ocean

The cornerstone: Value innovation

Red vs. blue ocean

Tools to build a blue ocean strategyThe strategic canvasThe key success factors in an industry (range of factors the industry competes on and invests in)The value curve (the companys relative performance across its industrys factors of competition)==> Often reveals strategic groups of companies that, from the market point of view are all different in the same way.

EXAMPLE OF STRATEGIC CANVASCIRQUE DU SOLEIL

Comments on the strategic canvasBenchmarking competition becomes irrelevantSo is extensive market research because customers cannot imagine how to crate uncontested market space ==> Offer me more for less.Focus should shift from competitors to alternatives and from customers to non-customers ==> reconstruct buyer value elements across industry boundaries.

Tools to build a blue ocean strategyThe four actions frameworkReduceWhich factors should be reduced well below the industrys standard?EliminateWhich of the factors that the industry takes for granted should be eliminated?CreateWhich factors should be created that the industry never offered?RaiseWhich factors should be raised well above the industrys standard?Drop cost structureLift buyer value

Characteristics of a good strategyFocus (do not diffuse efforts across all key factors)If not ==> No cost leadership.Divergence (search uniqueness)If not ==> No differentiationTagline that speaks to the market (deliver a clear and truthfully message)If not ==> Internally driven (innovation for innovation)

==> COMES BACK TO THE MISSION DEFINED IN THE STRATEGIC PLAN

Building a blue ocean strategy: The six paths frameworkPath 1: Look across alternative industriesAlternatives are products/services that offer the same functionnality/core utilitySpace between industries provides opportunities for value innovation.What are the alternatives industries in my business? Why do customers trade across them?Ex. NetJet (planes time sharing) Le Cirque du Soleil

Building a blue ocean strategy: The six paths frameworkPath 2: Look across strategic groups within industriesStrategic groups (SG) are companies that pursue a similar strategy.SG are often defined on two dimensions (price and performance).What are the strategic groups in your industry? Why do customers trade across them?Ex. Ryanair

Building a blue ocean strategy: The six paths frameworkPath 3: Look across the chain of buyersChallenge the conventional wisdom about which buyer group to target.What are the chain of buyers in your industry? Which group industry typically focus on? Could you shift to another group?Ex. Novo Nordisk (Insulin care)

Building a blue ocean strategy: The six paths frameworkPath 4: Look across complementary products/servicesFew products are used in a vacuum.Other products/services affect their value.What is the context in which your product/service is used? What happend before, during and after? What are the pain points? Ex. Dyson (vaccum cleaners)

Building a blue ocean strategy: The six paths frameworkPath 5: Look across functional or emotional appeal to buyersOften industries function on emotional or rational appeal.Often industries train customers in what to expect (more of the same for less).Does your industry compete on functionality or emotional appeal? What elements of it can you strip out to modify the conventional wisdom? Ex. Swatch (watches) Icarus (Steel)

Building a blue ocean strategy: The six paths frameworkPath 6: Look across timeAll industries are influenced by key trends.These trends influence the value chain of customers and companies business models.They should be decisive, irreversible and have a clear trajectory.Most companies are reactive instead of proactive. products/services affect their value.What key trends influence my industry? How do they impact my industry? Ex. ITunes (Online music library)

Economic model of blue ocean strategyWhat is my strategic price?To attract mass marketTo limit the risk of competitionTarget costCost reduction and innovationPartnerships