University of Cagliari, Faculty of Economics, a.a.

2012-13

Business Strategy and Policy

A course within the II level degree in
Managerial Economics
year II, semester I, 6 credits

Lecturer:
Dr Alberto Asquer
aasquer@unica.it
Phone: 070 6753399
 Business Strategy and Policy

Lecture 5

Strategic entrepreneurship
and the Blue Ocean Strategy
Introduction
1. Strategic entrepreneurship

2. Blue Ocean Strategy

3. An example of Blue Ocean Strategy: [yellow tail]

4. The Strategy Canvass and the Four-Actions Framework

5. Other instances of Blue Ocean Strategy

-------------

6. Summary
1. Strategic entrepreneurship
The process of seeking opportunities and sources of (sustainable)
competitive advantage that lead to superior firm performance

Entrepreneurship: the undertaking of innovation in combination with

financial and business skills with the aim of accomplishing economic
gains

Commonly: the start-up of new business ventures

Sometimes: the undertaking of corporate ventures (e.g., spin-offs)

Strategic entrepreneurship: managing the firm in such a way as to

undertake new business ventures that lead to superior performance
in the long term

It requires creativity, imagination, and opportunities; dealing with risk;

stimulating and supporting innovation; managing change; mastering
technology; and (sometimes) designing new business models
1. Strategic entrepreneurship
Firms may undertake offensive strategies, that are explicitly intended
to undercut competitors within the same industry and markets

Offensive strategies generally aim to result in higher market share,

higher profit margins, and higher growth rate than competitors

They consist of...

Offering comparable products/services at lower price than

competitors

Introducing next-generation technology products faster than

competitors

Imitating ideas and tactics of competitors

Focusing attacks to the most lucrative segments of competitors and

to the weakest competences of competitor
1. Strategic entrepreneurship
In contrast, avoidance strategies relate to steering clear from face-to-
face confrontation with competitors (especially, when they are
stronger!)

Avoidance strategies entail finding ways to enter the market and gain
market share in a way that does not (necessarily) harm competitors,
therefore making competitors' retaliation more unlikely to happen

Strategic entrepreneurship may be conceived as a type of avoidance

strategy, insofar as it relates to inventiveness to define new
approaches to the market that do not necessitate direct
confrontation with other firms
2. Blue Ocean Strategy

(Kim and Mauborgne, 2005)

2. Blue Ocean Strategy
The Fundamentals of a successful strategy: Value Innovation

Costs

Value innovation

Value
2. Blue Ocean Strategy

Within any given industry, every firm seeks to raise value & cut costs
in order to enhance value innovation and outperform the competitors

The effect is more competition,

i.e., minor profit margins for everyone
2. Blue Ocean Strategy

Within any given industry, every firm seeks to raise value & cut costs
in order to enhance value innovation and outperform the competitors

The effect is more competition,

i.e., minor profit margins for everyone

A Red Ocean
2. Blue Ocean Strategy

A successful strategy consists of pulling ourself out of the tough

competition by venturing into unchartered water where no other
competitors are present (yet)

A Blue Ocean
2. Blue Ocean Strategy
A comparison between red and blue oceans:

Red Oceans Blue Oceans

Compete in existing markets Create uncontested market space

Beat the competition Make the competition irrelevant

Exploit existing demand Create and capture new demand

Make the value-cost trade off Break the value-cost trade off

Align the firm value chain to Align the firm value chain to
the overall strategy (low cost seeking both differentiation and
or differentiation or focus) low cost
3. An example of Blue Ocean Strategy: [yellow tail]
3. An example of Blue Ocean Strategy: [yellow tail]
The setting: the US wine industry, in 2000...

The third largest aggregate consumption of wine worldwide

Highly competitive industry

Large share of California-based producers

Several imported wines from France, Italy, Spain, Chile, Australia

and Argentina

Consolidation (8 companies produce more than 75% wine)

Stagnant demand

Battle for shelf space

Rising marketing & advertising costs

3. An example of Blue Ocean Strategy: [yellow tail]
The setting: the US wine industry, in 2000...

The third largest aggregate consumption of wine worldwide

Highly competitive industry

Large share of California-based producers rk e t

ve ma
ct i
Several imported wines from France,
n a tt r a
Italy, Spain, Chile, Australia
and Argentina ot a
r ,n
g e
d l a
n
By(8acompanies produce more than 75% wine)
Consolidation

Stagnant demand

Battle for shelf space

Rising marketing & advertising costs

3. An example of Blue Ocean Strategy: [yellow tail]

But...
3. An example of Blue Ocean Strategy: [yellow tail]
But...

2000, Casella Wines introduced [yellow tail] in the US

2001, about 112,000 cases were sold

2002, it became the fastest growing brand in the histories of both the
Australian and the US wine industry; it was number one imported
wine into the US (more than French and italian wines)

2003, it became number one red wine in 750ml bottle sold in the US
(more than the same Californian wines)

2005, about 7,500,000 cases sold

3. An example of Blue Ocean Strategy: [yellow tail]
But...

2000, Casella Wines introduced [yellow tail] in the US

2001, about 112,000 cases were sold

2002, it became the fastest growing brand in the histories of both the
Australian and the US wine industry; it was
o i t? number one imported
wine into the US (more than Frenchy d
and italian wines)
idhe
t
w d
Ho
2003, it became number one red wine in 750ml bottle sold in the US
(more than the same Californian wines)

2005, about 7,500,000 cases sold

4. The Strategy Canvass and the Four-Actions Framework
Some tools for analysis within the Blue Ocean Strategy:

The Strategy Canvass

The Four-Actions Framework

4. The Strategy Canvass and the Four-Actions Framework
A fresh way to picture the industry structure: the strategy canvas

High

Premium wines

Low Budget wines

Price Technical Noticeable Aging Vineyard Wine Wine

distinctions marketing quality prestige complexity range

Dimensions
of competition
4. The Strategy Canvass and the Four-Actions Framework
A fresh way to design innovative products: the four-actions framework

Reduce
Which factors should be
reduced well below the
industry's standards?

Eliminate Create
Which of the factors that the Which factors should be
industry takes for granted
A new created that the industry has
should be eliminated? value curve never offered?

Raise
Which factors should be
raised well above the
industry's standards?
4. The Strategy Canvass and the Four-Actions Framework
A fresh way to design innovative products: the four actions framework
Wine complexity
Reduce Wine range
Vineyard prestige
Which factors should be
reduced well below the
industry's standards?

Eliminate Create
Which of the factors that the Which factors should be
industry takes for granted
A new created that the industry has
should be eliminated? value curve never offered?

Complex enological terms Easy drinking

Relevance of aging quality Ease of selection
Noticeable marketing Raise Fun & adventure
Which factors should be
raised well above the
industry's standards?

Price (vs. budget wines)

Retail store involvement
4. The Strategy Canvass and the Four-Actions Framework
The design of a new product: [yellow tail]

High

Premium wines

Budget wines

Low

Price Technical Noticeable Aging Vineyard Wine Wine

distinctions marketing quality prestige complexity range

Dimensions Easy drink, ease of selection,

of competition fun and adventure
4. The Strategy Canvass and the Four-Actions Framework

(www.yellowtailwine.com)
4. The Strategy Canvass and the Four-Actions Framework

(www.yellowtailwine.com)
4. The Strategy Canvass and the Four-Actions Framework
Some features of the [yellow tail] strategy:

No heavy marketing & advertising investments

No significant resource of distinctive capability

No remarkably different or innovative product (it's a wine!)

While...

Reframing of the wine product experience in consumers' perception

Appeal to non-wine consumers

Positioning [yellow tail] as something not commensurable with other

wines (is it a wine?)
5. Other instances of Blue Ocean Strategy
Nintendo's Wii (2006) It created a radically different
game concept' with respect to
the traditional (i.e., joystick or
gamepad based) videogame
consoles

It attracted those who were

traditionally non-gamer' (e.g.,
parents) and offered new social
venues for entertainment
5. Other instances of Blue Ocean Strategy
Dell's computers (1990s) It created a radically different
retail and delivery system (i.e.,
direct sales at low cost,
customisable machines, and
about 4 days delivery time)
with respect to competitors

It attracted those who had not

bought computers before
because of ease of access,
customisation, and low price
5. Other instances of Blue Ocean Strategy
6. Summary
Main points

Strategic entrepreneurship consists of firms' efforts to undertake new

business ventures that lead to superior performance in the long term

Firms may undertake offensive strategies to undercut competitors

within the same industry and markets, or avoidance strategies to steer
clear of direct confrontation with competitors

Blue Ocean Strategy provides an intellectual and methodological

approach to designing strategies intended to guide firms into markets
where competition is less intense

Key tools are the Strategy Canvass and the Four-Actions Framework