new4 bos blue ocean strategy

On Gap Analysis Class on Blue Ocean Strategy

Ziya G. Boyacigiller

This presentation was created and given by Ziya Boyacigiller who was leading Angel Investor and a loved mentor to many young entrepreneurs in Turkey. We have shared it on the web for everyone’s benefit. It is free to use but please cite Ziya Boyacigiller as the source when you use any part of this presentation. For more about Ziya Boyacigiller’s contributions to the start-up Ecosystem of Turkey, please go to www.ziyaboyacigiller.com

“GAP ANALYSIS”Blue Ocean Strategy

How to Create Uncontested Market Space and Make the Competition Irrelevant

Ziya G. BoyacıgillerSabanci UniversitesiYonetim Bilimleri Fakultesi

By W.Chan Kim & Renee Mauborgne

Ziya G. Boyacigiller (c) 2007 3

Why do some companies achieve

sustained high-growth

in revenues and profits?


How Can We

Explain Sustained

Growth & Profits?


Is it the COMPANY?Apple Inc. Growth


How Can We Explain Sustained Growth & Profits? Is it the Company?

No, even excellent companies do not stay that way over time…


Is it the INDUSTRY? Semiconductor Index Growth


How Can We Explain Sustained Growth & Profits? Is it the Industry?

No, even the most favored industries don’t stay attractive over time…


What is Causing Spurts of Growth?Apple Inc. Growth

It is the Strategic Moves !



Strategic Moves are the set of managerial actions and decisions that have delivered products and services that

opened and captured new market space,

with a significant leap in demand.


Line-Extension* vs. Innovation** Compared

Business Launch 86% 14%

62% 38%

39% 61%

Revenue Impact

Profit Impact

Launches within red oceans Launches within blue oceans

(* Sustaining, ** Disruptive, see Innovation Models)


Challenges of Innovation

A new product has to:

1. offer customers exceptional utility 2. at an attractive price, and 3. the company must be able to deliver it at a

tidy profit.

However, uncertainties surrounding innovation are so great even seasoned and insightful managers have a hard time being accurate.

KEY SLIDEKEY

SLIDE

x x x


Venture Capitalist’s Matrix(Benchmark Capital’s Andy Rechliff)

AC

CU

RA

TE B

ET

CONCENSUSYES NO

YES

NO


How can we reduce the risk of innovation?


Conventional Competition Red Oceans competitive market space

Porter’s “Five Forces” says, “don’t get caught in the middle”, compete on:

Cost

or

Differentiation


Blue Ocean Strategysays “can do both” !

value (=benefits for buyer /price )

Value Innovation

simultaneous

Value Innovation leads to creating

Blue Oceans New Markets / No Direct Competition

KEY SLIDEKEY

SLIDE

Cost (=total cost for buyer)


Strategy Canvas of the Short-Haul Airline Industry

Value

Curves

Key Factors of Competition (KFC)

Key-Factors-of-CompetitionKFCs


These are for a given industry, what they compete on and what they invest in (use RPV model).

Example: The wine industry key-factors KFCs are:

• Price per bottle• Refined packaging/bottle image• Above the line-marketing directed to consumers and distributors/retailers• Aging quality of wines• Prestige of the wine’s vineyard and legacy (brand image)• Taste of wine• Diverse range of wine selection

In Class Exercise:

You Start Work in a Design House…

Your 1st assignment is:

Define KFCs for wallet.



“Blue Ocean” shifts the Strategy Canvas of an Industry

To fundamentally shift the strategy canvas of an industry, you must begin by reorienting your strategic focus from

competitors alternatives,

and from

customers noncustomers,

of the industry.

KEY SLIDEKEY

SLIDE


Substitutes vs. Alternatives Substitutes to “eating at an Italian Restaurant”:

All Italian restaurants,

Alternatives* to “eating at an Italian Restaurant”:

(job: satisfy hunger) Kebapci, Burger King, balik-ekmek, even “simit”/bagel

and,

(job: entertainment)Movies, theater, concert, cruzing along the Bosporus, watching TV

(* ALTERNATIVES ARE MEANINGFUL WHEN LINKED TO A “JOB”)


Listen to “noncustomers”?

Look for “common pain”

for “noncustomers” to

identify your Blue Ocean

opportunities (market gaps)

KEY SLIDEKEY

SLIDE


Look for “common pain”…

Potential / Existing customers

are not happy with the existing

alternatives, yet no other choice

exists…

KEY SLIDEKEY

SLIDE

Everyone you talk is NOT equally useful to you!

You need to identify and classify the people you talk to for getting useful inputs. Ziya G.

Boyacigiller (c) 2007 26


Who are the “noncustomers” we want?

KEY SLIDEKEY

SLIDE

NOTE: “tier” rhymes with “beer”

Listen to these inputs !

Defining Tiers Again… Tier 1:

• Their need for the product/service is so important that they can’t wait, they want it now. So, they already bought an alternative and are using.

They will know best, what they like and don’t like about the alternative they are using now, and possibly about other alternatives they have looked at.



• Their need for the product/service is NOT as important, compared to Tier 1 customers, that although they looked for an alternative to buy, decided to wait, until an acceptable alternative comes to market.

They will know what they like and don’t like about the alternatives they looked at.



• They have not recognized a need for the product/service yet. They have not even looked for alternatives.

They will NOT know what they like and don’t like about the alternatives on the market currently – they can only guess…

➜DO NOT WASTE TIME WITH THEM!


Your 2nd assignment is:

Define a new wallet.

Identify common pains.


In Class Exercise:



Casella Wines (Australian) Looking at alternatives to wine:

Beer, Spirits, Ready-to-Drink Cocktails (which

capture 3 times sales compared to US wine sales)

Mass of US adults (non-consumers) saw wine as a turn-off: Intimidating, pretentious, flavor challenging

These non-consumers are drinking the alternatives big potential market!


Four Actions Framework(how to reconstruct buyer value)

1. Which of the factors that the industry takes for granted should be eliminated? (have no value for customers, or even detract from value)

2. Which factors should be reduced well below the industry’s standard? (overdesigned in race to match or beat competition, overserving customers and increasing cost for no gain)

3. Which factors should be raised well above the industry’s standard? (uncover and eliminate the compromises forced on customers)

4. Which factors should be created that the industry has never offered? (discover entirely new sources of value for buyers and create new customers, shifting strategic pricing of the industry)

dro

ps c

osts

lift

valu

e &

dem

an

dKEY

SLIDEKEY

SLIDE

Your 3rd assignment is:

Create Product Strategy using Four Actions Framework for the wallet.

What is your “tag line”?What is your mission?


In Class Exercise:



[yellow tail]

•Fun, social drink accessible to nonwine drinkers

•Fastest growing brand in the histories of both Australian and US wine industries

•#1 imported wine into USA, surpassing wines of France, Italy

•#1 red wine in 750ml bottle in USA, surpassing California labels

•Sales in about 2 years hit over 4.5million cases

•While competing with 1,600 wineries in the USA !


Strategy Canvas of [yellow tail]


Focus on alternatives & noncustomers

others [yellow tail]Easy drinking

Wine’s complicated taste is difficult to appreciate compared to alternatives

[yellow tail] is soft in taste, with pronounced fruit flavors (easy drinking wine that doesn’t need developed appreciation over time)

Ease of selection

Isles of wine in markets overwhelmed and intimidated customers

Only 2 to choose from (one white/one red (used same bottle design for both to reduce cost)

Fun and adventure

Elite image did not resonate with general public

Australian theme, unusual label, no mention of vineyard or other intimidating wine vocabulary


Eliminate-Reduce-Raise-Create Grid for [yellow tail]

EliminateEnological terminology and distinctionsAging qualitiesAbove-the-line marketing

RaisePrice compared to budget winesRetail store support and involvement

ReduceWine complexityWine range (variety)Vineyard prestige

CreateEasy drinkingEase of selectionFun and adventure (new delightful experience)

KEY SLIDEKEY

SLIDE


I have to apologize, that I just tried a different boxed California cabernet, which tasted like a bad children's fruit drink. I have learned my lesson and will stick to yellow tail merlot! And I must say that I love yellow tail, because my wife loves yellow tail.

I was never a wine drinker until I was introduced to Yellow Tail Chardonnay 3 years ago at a dinner party. I was immediately hooked! Now, there's nothing I look forward to more than coming home from work on a Friday night and pouring myself a glass of Yellow Tail to unwind. It's a standard at parties that I attend and it's always a welcome gift. Thanks for a wonderful product and keep up the good work! Is it Friday yet?

What customers are saying…

[yellow tales] from Casella web site


Three Characteristics of a Good Strategy

FocusNot trying to excel in all factors of competition

DivergenceNot benchmarking against competitors looking

across alternatives (value curves look different)

Compelling TaglineIs the strategy resulting in a unique and strong tagline (“The essence of a great land…Australia”)

KEY SLIDEKEY

SLIDE


Focused & DivergentFocusedKnowing what-to-do and not-to-do,DivergentUnlike other value curves


Where to Look to Create Blue Oceans (You can focus

* on different areas to identify new opportunities)

1. Looking across Substitute Industries (NetJets)

2. Looking across Strategic Groups within Industries (Curves)

3. Looking across Value Chain of Buyers (Bloomberg)

4. Looking across Complementary Product and Service Offerings (Borders)

5. Looking across Functional Appeal to Buyers (Starbucks)

6. Looking across Emotional Appeal to Buyers (Body Shop)

7. Looking across Time (Intel)

8. Etc. etc.…

(*) Using de Bono terminology, this is “focused creativity technique”.

KEY SLIDEKEY

SLIDE


Strategy Canvas of NetJets(looking across substitute industries)


Strategy Canvas of Curves(looking across strategic groups within industries)


Strategy Canvas of Bloomberg(looking across chain of buyers)


Strategy Canvas of Barnes&Noble and Borders(looking across complementary products & services)


Strategy Canvas of Body Shop(looking across functional or emotional appeal to buyers)


Four Steps to Visualizing Strategy(Why “visual”? Means makes use of “strategy canvas”…)

1-Visual Awakening

2-Visual Exploration

3-Visual Strategy Fair

4-Visual Communication, Execution

Compare your business with your competitors’ by drawing your “as is “ strategy canvas.

See where your strategy needs to change.

Go into the field to explore the six paths to creating blue oceans.

Talk to: your customers, competitors’ customers, noncustomers, end users

Observe the distinctive advantages of alternative products and services.

Discover adoptive hurdles for noncustomers

Draw your “to be” strategy canvas based on insights from field observations.

Get feedback on alternative strategy canvases from: customers, competitors’ customers, noncustomers, end users

Use feedback to build the best “to be” future strategy.

Distribute your before-and-after strategic profiles on one page for easy comparisons.

Support only those projects, and operational moves that allow your company to close the gaps to execute the new strategy.

KEY SLIDEKEY

SLIDE


Challenges of Innovation A new product has to:

1. offer customers exceptional utility 2. at an attractive price, and 3. the company must be able to deliver it at a

tidy profit.

However uncertainties surrounding innovation are so great even seasoned and insightful managers have a hard time being accurate.

Innovation = Creativity + Monetization


Doggone… She had an alarm installed…

difference between Innovation and Invention“In business, innovation can be easily distinguished from

invention.

Invention is the conversion of cash into ideas. Innovation is the conversion of ideas into cash.

This is best described by comparing Thomas Edison with Nikolai Tesla. Thomas Edison was an innovator because he made money from his ideas. Nikolai Tesla was an inventor. Tesla spent money to create his inventions but was unable to monetize them. Innovators produce, market and profit from their innovations. Inventors may or may not profit from their work.”

http://en.wikipedia.org/wiki/Innovation#Distinguishing_from_invention


It takes creative focus to “find a way” to monetize a creative idea.

Entrepreneurs not only need to create a differentiated product or service, but they may also need to create a new business model.

Examples: Apple iTunes 99 cents songs,iPhone Apps



Uncovering the Buyer Experience Cycle

DisposalMaintenanceSupplementsUseDeliveryPurchase

•How long does it take to find the product you need?

•Is the place of purchase attractive & accessible?

•How secure is the transaction environment?

•How rapidly can you make a purchase?

•How long does it take to get the product delivered?

•How difficult is it to unpack and deliver the product?

•Does the product require training or expert assistance?

•Is the product easy to store when not in use?

•How effective are the product’s features and functions?

•Do you need other products and/or services to make this product work?

•If so, how costly and difficult to obtain are they?

•Does the product require external maintenance?

•How easy is it to maintain and upgrade the product?

•Does use of the product create waste items?

•How easy is it to dispose of the product and waste items?

15/04/23

Abraham Maslow’s

Hierarchy of Needs


The Buyer Utility MapBy locating a new product on one or more of the 36 spaces shown here, one can see how the new idea creates a different utility proposition for existing products.

Six Stages of User Experience CyclePurchase Delivery Use Supplements Maintenance Disposal

Six

Uti

lity

Levers

Environmental

Friendliness

Fun & image

Risks

Convenience

Simplicity

Customer

ProductivityIn which stage are the biggest blocks to customer productivity?

In which stage are the biggest blocks to simplicity?

In which stage are the biggest blocks to convenience?

In which stage are the biggest blocks to reducing risks?

In which stage are the biggest blocks to fun & image?

In which stage are the biggest blocks to environmental friendliness?

KEY SLIDEKEY

SLIDE

15/04/23Thanks to Sahin Tulga / HP Turkiye for sharing this slide... I

h

Examples of InnovationBusiness (monetizer) and Utility (invention) created

Norwich Insurance, Pricing depending on usage time of the rental car– “USE” stage “Tasarruf”

Progressive Insurance, Offering the same prices as competition offers– “PRE-PURCHASE” stage “Productivity”

Cappy Sun, Triangular pyramidal beverage box– “DISCARD” stage “Fun”

Starbucks, Coffee in a comfortable & nice environment– “USE” stage “Fun” and “Image”

DHL, Following up your package through the Internet– “FOLLOW-UP” stage “Ease” and “Security”

HP, Alert to warn that the ink supply is running low– “USE” stage “Productivity”

Maxim, Power Supply Design Software– “PRE-PURCHASE” stage “Productivity”


Sequence of Blue Ocean Thinking

Buyer Utility

Is there exceptional buyer utility in your idea?

Price

Is your price easily accessible to the masses of buyers?

Cost

Can you attain your cost target to profit at your strategic price?

Adoption

What are the adoption hurdles? Are you addressing them up front?

YES

YES

YES

YES

NORETHINK

COMMERCIALLY VIABLE BLUE OCEAN IDEA

NORETHINK

NORETHINK

NORETHINK

KEY SLIDEKEY

SLIDE

Your 4th assignment is:

Improve your utility for the wallet (create new KFCs) by using Utility Matrix.


In Class Exercise:



Conventional Strategic Logic

Value Innovation Strategic Logic

1. Industry Assumptions

Industry conditions are given

Industry conditions can be shaped. (Don’t accept the status quo)

2. Strategic Focus A company should build competitive advantages. The aim is to beat competition.

Competition is not the “benchmark”. A company should pursue a quantum leap in value to dominate the market.

3. Customers A company should retain and expand its customer base through further segmentation and customization, focusing on what customers value.

A value innovator targets the mass of buyers and willingly lets some existing customers go. It focuses on the key commonalities in what customers value.

4. Assets and Capabilities

A company should leverage its existing assets and capabilities.

A company must not be constrained by what it already has. It must ask:”What would we do if we were starting anew?”

5. Product and service offerings

An industry’s traditional boundaries determine the products and services a company offers. The goal is to maximize the value of those offerings.

A value innovator thinks in terms of the total solution customers seek, even if that takes the company beyond its industry’s traditional offerings.

Five Dimensions of Strategy KEY SLIDEKEY

SLIDE

Ziya G. Boyacigiller © 2005

High Growth in Revenues & Profits

Ref: C. Kim/R. Mauborgne

Five Dimensions of Blue-Ocean Strategy

KEY SLIDEKEY

SLIDE

Kinepolis Strategy Map resulting from its

Value InnovationM

on

eti

zati

on

diff

ere

ntia

tion


Over time, competition forces the value curves in an industry to converge.

Success is a voyage, not a destination…


Remember:


How Compaq stayed on top of the server industry?

“We will have to create faster than they can copy us!”


Walt Disney, when his people rush to him in panic when they find out that others are copying Disney Studios’ film animation innovations…

Summarize…

Q&A


new4 bos blue ocean strategy

Small Business & Entrepreneurship

boyacigiller c

competition irrelevant

blue ocean strategy

x x x ziya

sustained growth profits

spurts of growth

sustained highgrowth

challenges of innovation