Blue Ocean Strategy

Prof. Santanu Ray Chief Mentor, Bengal Institute of Business Studies E-mail: santanu.ray@bibs.co.in

Blue Ocean Strategy is

A New Approach to Strategy and Innovation with its Logic & Key Principles

A Process Methodology

A Comprehensive Set of Tools & Frameworks

Three Major Components of Blue Ocean Strategy

Value Innovation

Tipping Point Leadership

Fair Process

Red Oceans of Bloody Competition

Know market space of existing industries Industry boundaries and competitive rules are defined and accepted Search for competitive advantage in head-to-head competition Fight for market share from existing demand Products becoming commodities Low growth and over-crowded industries Shrinking profit pool
Many companies are stuck here, as the primary focus of strategy work has been on competition-based, red ocean strategies

Key Characteristics of Blue Oceans

Found new space to work in Challenged traditional, accepted views of their industries Focused on understanding non-customers:
Identified commonalities across customers and non customers

Looked for new, or expand existing demand Buyers perceived big increases in value Companies achieved dramatic reductions in costs Substantially higher growth and expanding profit pool

Distinct characteristics of Red Ocean and Blue Ocean Strategies

Red Ocean Strategy

Compete space in existing

Blue Ocean Strategy

uncontested market

marketCreate space

Beat the competition Exploit existing demand Make the value/cost trade-off

Make the competition irrelevant Create and capture new demand Break the value/cost trade-off a of

Align the whole system of aAlign the whole system of companys activities with itscompanys activities in pursuit strategic choice of differentiationdifferentiation and low cost or low cost

Value Innovation is a Cornerstone of Blue Ocean Strategy

Costs

Value Innovation

The Simultaneous Pursuit of Differentiation and Low Cost

Buyer value

Defies the most commonly-accepted dogma of competition-based strategy the value-cost trade-off

Pioneer-Migrator-Settler (PMS) Map

Pioneers
Value Innovators

10%

Migrator
Value Improvements

30%

Settler
Me-too Businesses

60%
Current Portfolio Planned Portfolio

The Four Actions Framework for Creating a New Value Curve

Raise
What factors should be raised well beyond the industry standard?

Eliminate
What factors should be eliminated that the industry has taken for granted?
New Value curve

Create
What factors should be created that the industry has never offered?

Reduce
What factors should be reduced well below the industry standard?

ERRC GRID

Eliminate
What factors should be eliminated that the industry has taken for granted?

Raise
What factors should be raised well beyond the industry standard?

Reduce
What factors should be reduced well below the industry standard?

Create
What factors should be created that the industry has never offered?

Characteristics of a Good Strategy

FOCUS:
If everything is high, there is no focus

DIVERGENCE:
Different from competition

COMPELLING TAG LINE:

Reach Beyond Existing Demand

The Three Tiers of Noncustomers
Third Tier Second Tier First Tier

First Tier Soon-tobe

On the edge of your market, ready to jump ship

Second Tier Refusing Third Tier Unexplored

Consciously choose against your market

Your Market

Unconsciously choose other markets

Six Generic Stages of the Buyer Experience Cycle

Purchase Delivery Use Supplements Maintenance Disposal

How long How long Does the product does it take does it take require training to find the to get the or expert product you product assistance? need? delivered? Is the product Is the place How difficult easy to store of purchase is it to when not in use? attractive unpack and How effective and install the are the products accessible? new product? features and How secure Do buyers functions? is the have to Does the product transaction arrange or service environment? delivery deliver far more themselves? How rapidly power or options If yes, how can you than required by costly and make a the average difficult is purchase? user? Is it this? overcharged with bells and whistles?

Do you need Does this other product products and require services to external make this maintenance? product How easy is work? it to maintain If so, how and upgrade costly are the product? they? How costly is How much the time do they maintenance? take? How much pain do they cause? How easy are they to obtain?

Does the use of the product create waste items? How easy is it to dispose of the waste product? Are legal there or

environmental

issues in disposing of the product safely? How costly is the disposal?

The Six Paths Framework for Creating Uncontested Market Space

1. Looking across alternative industries 2. Looking across strategic groups within industries Looking across the chain of buyers

3.

4. Looking across complementary product and service offerings 5. Looking across functional or emotional appeal to buyers 6. Looking across time

New Value Curves

Key Activities in Visualising Strategy Process

Visual Awakening Visual Exploration Visual Strategy Fair Visual Comms

Draw as-is strategy canvas Identify where strategy needs to change

Go to the filed to explore the six paths to creating blue oceans Observe distinct advantages alternative products services

Draw to-be strategy canvas based on insights from filed observations Get feedback from customers, competitors customers and non-customers Use feedback to build the best future strategy

Validate to-be value curves Select curves out value to roll-

of &

Develop plan to communicate Blue Ocean Strategy

Talk to noncustomers Assess which factors to eliminate, create or change

Get the Strategic Sequence Right

Steps to a commercially-viable Blue Ocean idea Buyer Utility
Is there exceptional buyer utility in your business idea?

Price

Is your price easily accessible to the mass of buyers?

Cost

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

Adoption

What are the adoption hurdles in actualising your idea? Are you addressing them upfront?

Overcome Key Organizational Hurdles

Cognitive Hurdle

An organization wedded to status quo

Resource Hurdle
Limited resources

The Four Organizational Hurdles To Strategy Execution

Motivational Hurdle
De-motivated staff

Political Hurdle
Opposition from powerful vested interests

Blue Ocean Strategy does not appear to make logical sense Need to unlearn and discard entrenched ideas and viewpoints Different people, skills, tools, and processes High expectations for success

Conventional Wisdom Versus Tipping Point Leadership

Build Execution into Strategy

The Three E Principles of Fair Process
Involve individuals Communicate respect for individuals

Engagement

Explanation

Understand rationale for strategic decisions Build trusts in managers intentions

Expectation Clarity

State new rules of the game clearly Focus on executing rapidly

Fair Process Minimises Risks of Executing Blue Ocean Strategy

How fair Process Affects peoples Attitudes and Behaviour Fair Process
Strategy Formulation Process

Engagement Explanation Expectation Clarity

Attitudes

Trust and Commitment

I feel my opinion counts

Behaviour

Ill go beyond the call of duty

Voluntary Cooperation

Strategy Execution

Exceeds Expectation
Self-initiated

Managing Risks in Formulating and Executing Blue Ocean Strategy

Formulation Principles
Reconstruct market boundaries Focus on the big picture, not the numbers Reach beyond existing demand Get the strategic sequence right

Risk Factor Attenuated

Sear risk Planning risk Scale risk Business model risk

Execution Principles
Overcome key organisational hurdles Build execution into strategy

Risk Factor Attenuated

Organisational risk Management risk

Systematically maximising the opportunities, while simultaneously minimising the risks of Blue Ocean Strategies

The Blue Ocean Strategy Family of Concepts From Formulation to Results

Cognitive Hurdle Resource Hurdle

Tipping Point Leadership

Motivational Hurdle

Political Hurdle Strategic Outcome

Create Uncontested market space

Strategic Logic
Red Ocean Blue Ocean

Visualizing Strategy Process

Visual Awakening Visual Exploration
Six-Path ERRC BUM Non-customers Visual Exploration Workshop

Visual Strategy Fair

Strategic Profiles Visual Strategy Fair

Visual Comm
External Validation BOI Validation workshop

Make the competition irrelevant Reach beyond existing demand Deliver superior value and low cost simultaneously

PMS
Tools, frameworks and principles

Framework As-is Strategy Canvas

Internal &

Impact

Fair Process

Sustained Profitable growth

Sustaining and Renewing Blue Ocean Strategy

Barriers to Imitation of Blue Ocean Strategy

A companys conventional, Red Ocean logic Brand image conflict High volume leads to rapid cost advantage Network externalities Transformation challenges Brand buzz and loyalty

Key Takeaways
1. Blue oceans will remain the dominant engine of sustained, profitable growth 2. Key principles for Blue Ocean Innovation :
Reconstruct market boundaries Expand beyond existing demand Break the value-cost trade-off Focus on disproportionate influence factors Build execution into strategy

1. With the easily-accessible Blue Ocean Strategy approach, key principles, tools and process, most organizations and executives can innovate and create Blue Oceans