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Blue Ocean Strategy – Part 2
Formulation & Implementation

The science of making competition irrelevant
In Our Previous Webinar
Red Ocean Vs. Blue Ocean
Red Ocean Strategy

Blue Ocean Strategy

Compete in existing market space

Create uncontested / New market space

Beat the competition

Make the competition irrelevant

Create a value – cost trade off

Break the value-cost trade off

Competitive Advantage

Value Innovation

Segment existing customers

Attract noncustomers

Exploit existing demand

Create and capture new demand
Value Innovation
Traditional Companies

Blue Ocean Companies

Price
Eliminate

Price

Reduce
Value Innovation –
Simultaneous pursuit
of high value & Low cost
Create
Value/
product
features

Raise

Value/ product
features

Characteristics of a good Value innovation Strategy
FOCUS: Not to diffuse efforts
across all key factors of
competition.

DIVERGENCE: The shape of the
value curve diverges from those
of other players.

Compelling Tag line : The value
curve can be translated into a
clear, strong, truthful and
compelling TAGLINE.
The Four Actions Framework
REDUCE
Factors that should be well
below the industry
Standard

ELIMINATE
Factors that the industry
takes for granted and need
to be eliminated

Create A
New
Value
Curve

RAISE
Factors that should be
raised above the industry
standard

CREATE
Factors that the industry
has never created
The Strategy Canvas Concept
NETJETS

High

Business / 1st
Class Travel

Relevance Scale

Medium

Low

Commercial
Airline Industry

Price

Dead head
Costs

Hassle free
Travel

Time Savings/
Faster Travel

Flexibility &
Reliability

Jet Ownership

In Flight Service

Attributes of Industry & Competitors
NETJETS

•
•

Commercial Airline
Industry

Business / 1st
Class Travel

The strategy canvas is the central diagnostic and action framework for building a compelling blue
ocean strategy.
The Strategy canvas serves two purposes:
–

–

It captures the current state of play in the known market space. This allows you to know where you

are viz competition
It propels you to action by reorienting your focus:
• From competitors to alternatives

• From customers to non customers of the industry.
Strategic Questions before NetJets
– How to enter into the Aviation Space when the market was dominated by the big Airline groups? 1983
The Red Ocean
•Over 20 domestic And international Airlines competing in the space
•All of them attracted Business Travelers, Holiday travelers and Casual Travelers
•Corporates spent millions on executive travel every year
•All travelers had to go through the long check ins, security checks, hectic flight transfers, congested
airports, Baggage claims ….
•Business Travelers only have the option of Business Class/ First class or corporate Jet
The Blue Ocean
• Identified that Business Travelers are the most frequent and regular flyers
• NETJETS offered Business Travelers “ The convenience of a private Jet at the price of a Airline Ticket”
• NETJETS also provided fractional 1/16 ownership of the aircraft – With no hassles Aircraft Maintenance
• Private Aircraft made available to corporate at 4 hours notice ( much less than flight booking)
• No Hassles or responsibilities of Aircraft Maintenance
• Customized in flight services – Only for the traveler

Created a B2B industry when the entire industry was still B2C
The Story Of Indochino.com
• World’s first Self Service Virtual Suit company
• Customers can choose the fabric, design style and accessories - Online
• Buttons, Lapels, linings, pockets, cuff signature – everything is customizable
• Customers measure themselves and provide fitting details online with video tutorial
• Delivery within 3 weeks (
• If order is less than perfect, Indochino pays for local tailoring or remake sthe suit for free
• Most suits priced under $500 ( Whereas cheap suits cost around $200 and the designer ones around $1500)

Indochino.com

Traditional Apparel / Suit Companies

• Industry divided into five segments
Haute Couture, Luxury, Affordable Luxury, Mainstream
& Discount
• The Traditional companies competed among each other
on the factor like : No of stores, Location of stores –
Premium stores , Premium brand, Range or no of Lines
offered, Hi Fashion Vs customization Vs price Tradeoff
• Marketing & Brand reputation
( Top brands associated with Designer Labels)

•High Customization costs

1)

Indochino.com does not compete in any of the
segment

2) Indochino.com does not get affected by the industry
factors
3) Indochino.com built its brand reputation by delivering
Value
4) Indochino.com outsources all suits to quality and
reputed local and tailor network of Shanghai

Created and Captured a new Market
Demand by focusing on Buyer Utility
The Story Of Zynga
•Founded Zynga in April 2007 with a mission “Connect the world through games”
•Has over 3000 Employees and 270 million customers, 60 mn daily active users
•Largest Social games developer of Facebook
•Now provides games in multiple platforms like:
•Facebook, Myspace, Android, ipad, iphone, yahoo & Farmville.com

Zynga

Traditional Gaming Companies
1) Industry divided into four segments
• Console based games, Online Games, Mobile Games &
Flash Games
2) Console based games dominated the marketplace with 75%
of the revenues.
3) The big three of the gaming dominated 95% of the console
marketplace (sony, Nintendo, Xbox ..)
4) The Traditional gaming companies competed among each
other on the following factors:
Consoles – Type speed, capabilities, No of titles in each genre, Speed
of Title Release – weekly, monthly, Hi end real time graphics, Hi end
accessories

5) Catered only to gamers – Teenage boys to professional
gamers
6) Addictive and had lot of side effects – Too much
violence, addiction, Lack of exercise, not mind stimulating
7) Parents usually did not recommend / buy

Zynga’s Farm Ville
1)

Zynga did not compete in any of the segment or market
player dominance

2) Zynga’s (Farm Ville) did not get affected by the industry
factors
3) Zynga built its brand reputation by sharing and word of
mouth connect
4) Zynga caterered to all – children, parents, professionals …
5) Zynga created a new genre of education / simulation games

Created and captured a new market demand by
focusing on Non Customers
Story Of Khan Academy
•A non-profit educational organization created in 2006 by Salman Khan- A MIT & Harvard Business School Alumni
•Free online collection of more than 3,300 micro lectures
•Most viewed online courses and lectures in the world – Over 172 million total views.
• Over 177 million lessons delivered till date
• Close to quarter billion dollars in donation
• Team size of just 20 people
• Amongst the 100 most influential people of the world

Traditional Education Companies

Khan Academy
1)

1) Industry divided into 2 segments
• Brick & mortar Learning – Schools/ Colleges
• Online learning
2) Learning was centered around students
3) The factors the industry was competing on:
• Student teacher ratio
• Class room Interaction
• Cost of learning / Education
• Interactive Learning

•

•

Khanacademy filled the gaps existing in traditional brick
& mortar school learning
Videos & Exercises to be used as a teaching aid and not
replacement for teacher
Use analytics and technology to figure out the Strengths
& weakness of students

2) Learning is centered around students, teachers and parents
3) Everybody gets equal opportunity / attention/ Learning

4) Smart kids get more attention than other kids

4) Unique Pedagogy • Stop, rewind, understand and then play

5) Focused pedagogy – Teacher talks – Students listen –
Therefore Students learn

5) Analytics drive the understanding of each students strengths
& Weakness

6) Teachers Judge student’s strength / weakness

Created and captured a new market demand by focusing on
functionality & emotional appeal
Moving Forward

Discovering the Principles of Blue
Ocean Strategy
Principles Of Blue Ocean Strategy
Core/Formulation Principles

Formulation Risks

Reconstruct market boundaries

Search Risk

Focus on the big picture, not the numbers

Planning Risk

Reach beyond existing demand

Scale Risk

Get the strategic sequence right

Business Model Risk

Execution Principles

Execution Risks

Overcome key organizational hurdles

Organizational Risk

Build execution into strategy

Management Risk

The formulation principles and execution Principles, work in tandem to minimize risks and maximizing
opportunities.
Reconstructing Market Boundaries

Focus on Big Picture – Not Numbers
Reach Beyond Existing Demand
Getting The Strategic Sequence Right
Overcoming Organizational Challenges
Building Execution Into Strategy
6 Paths Framework
Conventional boundaries in a
competitive marketplace
Competitors in Industry

From competing
within

Look across Alternative
Industries

Competitive Position among
Strategic Groups

Looks across strategic groups

Better serving existing Buyer
Groups

Creating
value across

Looks at Complementary
product / service offerings

Maximizing value with
existing Product
More functions more price /
premium
Adapting to trends & Time
value

•
•
•

Redefines Buyer Groups

Blue
ocean
Strategy

Rethinks Functional
Orientation of Industry
Shapes External trends over
time

Blue oceans can be created by exploring outside of industry boundaries
Break out of the traditional boundaries of the industry to unlock value
“out of the boundaries” thinking framework for unlocking value
6 PATHS: Exploration Outside of Traditional Boundaries
Path 1 - Looking across Alternate Industry
What are the alternative industries to your industry?
Why do buyers trade across to them?
NTT DoCoMo, Federal Express, Southwest Airlines, NetJets

Path 2 – looking across Strategic Groups
What are the strategic groups in your industry?
Why do buyers trade up for the higher group, and why do
they trade down for the lower one?
Polo Ralph Lauren, Curves, Sony Walkman, Toyota Lexus

Path 3 - Looking across chain of buyers
What is the chain of buyers in your industry?
Which buyer group does your industry typically focus on?
If you shifted the buyer group of your industry,
how can you unlock new value?
Novo Nordisk, Bloomberg Terminals, Canon Copiers, Philips Alto

Path 4 – looking across complementary product / service offering
What is the context in which your product or service is used? What
happens before, during, and after? Can you identify the pain points?
How can you eliminate these pain points through a complementary
product or service offering?
Barnes & Noble, Dyson Vacuum Cleaners, Kinépolis Kiné-kids, Zenick
Salick’s Cancer Centers

Path 6 – Looking across Time value of business
What trends have a high probability of impacting your industry, are
irreversible, and evolving in a clear trajectory? How will these trends
impact your industry? Given this, how can you open up unprecedented
customer utility?
Apple Music, Cisco Systems, CNN,
HBO’s “Sex and the City”

Path 5 – Looking across Functional-emotional appeal to buyers
Does your industry focus on functionality or emotional appeal? If you
compete on emotional appeal, what elements can you strip out to make it
functional? If you compete on functionality, what elements can be added
to make it more emotional?
Starbucks, QB House, Direct Line Group, Pfizer’s Viagra
Reconstructing Market Boundaries

Focus on Big Picture – Not Numbers
Reach Beyond Existing Demand
Getting The Strategic Sequence Right
Overcoming Organizational Challenges
Building Execution Into Strategy
•A Typical Strategic plan in an organization today is so very red ocean
• Because Managers formulate the strategy based on current industry, current customers and current
challenges.
• Managers spend majority of their time thinking about profitability, projections, market
shares, segments and revenues based on current industry facts / assumptions.
• Managers are pulled in all directions by their superiors based on limited information & perceptions

•By building a company’s strategic planning process around a strategy canvas, the company can
focus their main attention on the big picture rather than getting immersed in numbers and
jargons.

Ok
Here

Here

Managers
CEOs

Staff
Four Steps of Visualizing Strategy
The four steps that pushes a company’s strategy canvas to blue oceans

Visual
Awakening

• Compare your business
with your competitor’s by
drawing your “as is”
strategy canvas.
• See where your strategy
needs to change.

Visual
Exploration

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

• Observe the distinctive
advantages of alternative
products and services.
• See which factors you
should
Eliminate, Raise, Create, o
r Change.
•DO NOT USE MARKET
RESEARCH

•
•

Visual Strategy
Fair

Visual
Communication

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

• Distribute your beforeand-after strategic profiles
on one page for easy
comparison.
EXPLANATION

• Get feedback on
alternative strategy
canvases from
customers, competitor's
customer, and noncustomers.

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

EXPECTATION : CLARITY

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

This approach mitigates planning risks by investing time & effort to develop a compelling strategy canvas
that is Focused, Divergent & that has a compelling tagline.
Compares the current business attributes with your competitors’ by drawing your “as is” strategy canvas,
and then evaluating where the strategy needs to change.
The PMS Map
•

Pioneers

•

Migrator
•

Settlers
Today
•
•

Pioneers: Businesses that
provide unprecedented value
Settlers: Their business
conforms to the basic value
curve of the industry or me too
industry
Migrators: Improved value but
not innovative idea

Tomorrow

Visualizing strategy helps managers to predict and plan company’s future
This framework can be used to help a company align its internal product portfolios
•
•

Clearly, what companies should be doing is shifting the balance of their future portfolio toward
pioneer
If current portfolio and the planned offerings consist mainly of settlers then the company has low
growth trajectory
Reconstructing Market Boundaries

Focus on Big Picture – Not Numbers
Reach Beyond Existing Demand
Getting The Strategic Sequence Right
Overcoming Organizational Challenges
Building Execution Into Strategy
Reach Beyond Existing Demand
Conventional Companies

Focus on Existing
Customers

Drive for finer
Segmentation

• Retain and guard existing
customers
• Compete for competitor business

• Create a niche by looking at finer
customer preferences
• Dominate with competitive
advantage in segments

Creates enhanced
competiveness among
players – leading to higher
cost of customer
acquisition

Creates small
marketplaces that might
not be scalable and
profitable in long run

Conventional Strategy of companies needs to be challenged
The Three Tiers of Non Customers
Tier 3 Non
Customers
Tier 2 Non
Customers

Tier 3 non customers: “unexplored” non customers who are in markets
distant from yours.

Tier 2 non customers: refusing noncustomers who consciously choose against your market

Tier 1 – Non
Customers
Tier 1 non customers : “soon-to-be” noncustomers who are on the edge of
your market, waiting to jump ship

Non
Customers

Managing the three tiers of Non customers
Tier 1 Non Customers :
Investigate Dissatisfaction
Key commonalities across needs & desires
e.g. PRET A MANGER- British fast food chain

Tier 2 Non Customers:

Go for the Bigger Catchment

Eliminate access barriers
Economic, Functional, Education, Geographical
e.g. JCDecaux – street Furniture

Tier 3 Non Customers:
Remove long held assumption on customer needs & behavior
e.g. US Airforce Joint Strike Fighter and Zynga
How did Zynga effectively utilized this principle?
Tier 1 Non-Customers

Audience

Non Regular players – young
boys & girls bored out of
traditional games

Tier 2 Non-Customers

Casual Players - working
men/ women not enough
time to play

Change 1

Changed genres completely –
from shooting, arcade, racing,
to simulation

Cost of acquisition – free

Change 2

Made social networking fun
and more exciting

Eliminated hassles of consoles,
game titles, accessories,
hardware & setups

Fun lasts longer, with reduced
time and effort

Non serious casual play to relax
/ unwind

Results

Tier 3 Non –Customers

Non Player Parents- women/
housewives
Removed violence

Play with friends and family –
not necessarily together / real
time

No winner – no loser

• Zynga looked across non customers and attracted new buyer groups to
create an industry that did not exist earlier
Reconstructing Market Boundaries

Focus on Big Picture – Not Numbers
Reach Beyond Existing Demand
Getting The Strategic Sequence Right
Overcoming Organizational Challenges
Building Execution Into Strategy
Buyer Utility
Is there a compelling
reason for the mass to
buy?

Is there exceptional buyer utility in
your Business idea?

Yes

No

Price
Is your strategic price
attractive enough to
attract customers?

Sequence of
Blue Ocean
Strategy

Can your costs be
significantly lower
than the current
Industry price?

Are there any
adoption hurdles?
What are the
resistance points?

We will explore the Sequence and the formulation in our
Next webinar using the tools we have explored today

Revenue

Is your price easily accessible to the
mass of buyers?

Yes

No

Cost
Can you attain your cost target to
profit at your Strategic price?

Yes

Costs

No

Adoption
What are the adoption hurdles in
actualizing your business idea? Are
you addressing them upfront?

Yes

Hurdles

No

Commercially
Viable Blue
Ocean Strategy
Buyer Utility Map
A buyer’s experience can usually be broken into a cycle of six stages, running from purchase to
disposal. Each stage encompasses a wide variety of specific experiences. At each stage, managers
need to ask a set of questions to gauge the quality of buyer’s experience.

Purchase

•How long does it
take to find the
product you need?
•Is the place of
purchase
attractive and
accessible?
•How secure is the
transaction
environment?
•How rapidly can
you make a
purchase?

Delivery

Use

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

•Does the
product require
training or
assistance?

•How difficult is it
to unpack and
install the new
product?

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

•Do buyers have
to arrange
delivery
themselves?

•How effective
are the product’s
features and
functions?
•Does the
product or
service deliver far
more power or
options than
required by the
average user? Is
in overcharged
with bells and
whistles?

Supplements

Maintenance

Disposal

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

•Does the
product require
external
maintenance?

•Does use of the
product create
waste items?

•If so, how costly
are they?
•How much time
do they take?
•How easy are
they to obtain?

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

•How easy is it to
dispose of the
product?
•Are there legal
or environmental
issues in
disposing of the
product safely?
•How costly is
disposal?
Uncovering Blocks to Buyer Utility
Uncovering blocks to buyer utility can identify the biggest blocks to buyer experience that stand in the
way of converting noncustomers into customers.

Customer Productivity:

In which stage are the biggest blocks to customer productivity?

Simplicity:

In which stages are the biggest blocks to simplicity?

Convenience:

In which stage are the biggest blocks to convenience?

Risk:

In which stage are the biggest blocks to reducing risks?

Fun and Image:

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

Environmental
Friendliness:

In which stage are the biggest blocks to environmental friendliness?
Testing the Buyer Utility – with Indochino.com
Purchase

Delivery

Use

Supplements

Maintenance

Disposal

Utility Leavers

Is it
Productive for the
buyer?

Does the buyer find it
simple?
Does the buyer find it
Convenient?

Does it reduce buyers'
Risk
Does it have a fun
image association?
Does it have
environment friendly

Buying Experience

• Buyer Utility Score Blocks– Lower than what is prevalent in the current industry
• Therefore Indochino.com raised the Buyer Utility and Experience

Indochino.com
Traditional Suit industry
Exceptional Utility to Strategic Pricing
Three Alternate product / service Types
Same
Form

Different Form &
Function – Same
objective

Different Form –
Same Function

Higher degree of Legal & resource
protection
Difficult to imitate

Viagra

SAP

I phone

Lycra

Mid Level pricing

Price Corridor
of Masses

Some degree of legal & resource
protection

Low degree of legal & resource
Protection

Ford Model T
Air Asi

•

•

Step 1: Identify the Price Corridor of
the Mass.

•
•

Blue oceans approach to price is not Cost + profit
Infact it is Strategic Price – Target Cost

Step 2: Specify the price level within
the price corridor
Strategic Pricing to Target Costing
Strategic Price

•

Target
Profit

•
•

Target Cost

•
Streamlining &
Cost Innovations

Partnering

Unlike traditional companies the
price must be determined first not
the costs.
The costs is determined based on the
target profit intended
Cost is approached as a target for
reduction
Target Costs Can be achieved
through:
– Streamlining Operations
•
•

Price Innovations

– Partnering
•
•

Price ≠ Cost + profit

Outsourcing, digitizing, cloud,
E.g. Apple
Leverage low cost capabilities and reach of
other companies
E.g. SAP who partnered with Oracle, Cape
Gemeni , Accenture etc
Overcoming Adoption Hurdles
•
•

•

•

Perfect business model doesn’t always
guarantee success of a blue ocean idea
A new idea threatens the position of
the company, which can provoke fear
among the three main stakeholders:
employees, business partners, and the
public
Before moving on with a new idea, the
company should communicate the
plan effectively to all stake holders
Use Blue Ocean Idea Index to test the
system

•Failure to address the concerns of employees
can be very expensive
•Make an effort to explain the new idea, Work
out the problems so everyone wins

Employees

General
Public
•Stakeholders need to be confident and know
that there will be no surprises
•Do not let others take charge of your own
debate

Business
Partners
•Possibly more important than
employees
•Resolve by openly discussing the
problem
Reconstructing Market Boundaries

Focus on Big Picture – Not Numbers
Reach Beyond Existing Demand
Getting The Strategic Sequence Right
Overcoming Organizational Challenges
Building Execution Into Strategy
Overcoming Key Organizational Hurdles
• Every change in organization is
encounters 4 hurdles viz. Cognitive,
Resource, Motivational & Political
• Conventional wisdom asserts that
the greater the change, the greater
the resources and time you will
need to bring about results.

Cognitive Hurdle
An Organization Wedded
with Status Quo

Resource Hurdles

Political Hurdles

Limited resources

Opposition from Powerful
Vested Interests

Leveraging tipping point leadership to
align all with the new strategy.
• Transforming the extremes will transform
the masses.
• Focus on acts of disproportionate
influence.
– People, Acts and Activities

Motivational
Hurdles
Unmotivated Staff
Overcoming Hurdles with Tipping point leadership
Cognitive Hurdles
Ride the “Electric Sewer”
(Experience the key challenges yourselves / top
management, before framing the problem)
Meet with Disgruntled Customers
(Ensure you understand the experience of others)

Resource Hurdles

Motivational Hurdles
Zoom in on Kingpins (key influencers)
Identify the Natural Leaders, Skilled and
persuasive
Place kingpins on a fishbowl
(Highlight actions and responsibilities of kingpins
in a transparent & fair process)
Atomize to get the organization to change itself
(Breaking up of objectives, by function and role so
that nobody can say it’s a difficult task)

Political Hurdles

Redistribute resources to your hot spots
(Identify the impactful areas where more
resources are required but not adequate)
Redirect resources from your cold spots
(Identify the non Impactful areas where resources
can be freed)

Engage in horse trading
(Trade resources from others for symbiotic

Who are my devils? Who will fight me? Who will
lose the most
Who are my angels? Who will naturally align with
me? Who will gain the most by the strategic shift?
Reconstructing Market Boundaries

Focus on Big Picture – Not Numbers
Reach Beyond Existing Demand
Getting The Strategic Sequence Right
Overcoming Organizational Challenges
Building Execution Into Strategy
Building execution into Strategy
• During a Strategy execution that requires offering customers a leap in
value :
– People are required to step out of their comfort zones and change the way they have
performed previously
– People can resent having a strategy thrust upon them
– Poor process can ruin Strategy, leading to distrust, non-cooperation and even sabotage.

The Three Principles of Fair process

Engagement

Explanation

Expectation Clarity

• Involving Individuals in strategic decisions that affect them.
• Asking for their inputs and allowing to refute the merits and
demerits of ideas
• Nullifying the assumptions that anyone may have
•Involves explaining as to why the strategic decisions are made as
they are
• What is the core thinking that underlies the strategy

•What are the new rules of the game and therefore the new
responsibilities
• What are the expectations and standards that each will be
judged upon
How fair Process affects People’s Attitudes & behaviors
Strategy
Formulation
Process

Attitudes

Fair Process
Engagement
Explanation
Expectation Clarity

Trust & Commitment

Intellectual &
Emotional Recognition

Trust & Commitment

“ I feel My Opinion Counts”

Behavior

Voluntary Cooperation
“ I will go beyond the call of
Duty”

Strategy
Execution

•

Voluntary cooperation
in execution Strategy

Exceeds Expectations
Self Initiated

Fair process of Strategy ensures a managerial road map that builds
productivity while executing a strategy
BOS Principles Summary
Strategy Execution

Strategy Formulation
Search Risks

Planning Risks

Scale Risks

Business Model
Risks

Organizational
Risks

Management
Risks

6 Paths Approach

Strategic
Planning

Market Sizing

Business
Model

Mobilization

Management
Risks

Reconstruct
Market
Boundaries

Focus on Big
Picture – Not
Numbers

Reach Beyond
Existing
Demand

Getting the
strategic
Sequence
Right

Overcoming
Organization
al hurdles

Building
Execution
into Strategy

•Alternative
Industries
•Strategic groups
•Buyer Groups
•Complementary
Product offerings
•Functional
Emotional
Orientation
•Time

Plan beyond
incremental
improvements using
a visualization
approach
•Visual Awakening
• Visual Exploitation
• Strategy Fair
• Visual
Communication
•Use PMS map to
identify current &
future orientation of
business

•Sequence the
business Model to
capture newly
created value
•Buyer Utility
Mapping
•Pricing & corridors
of Masses
• Cost Targets
based on margins
desired
• Potential
Adoption obstacles

Tipping Point
leadership to
Tackle
• Cognitive hurdles
•Resource Hurdles
•Motivational
Hurdles
• Political Hurdles

Execution
through:
Engagement
•Explanation
•Clarity of
expectations

•Challenge
Conventional
practices
•Consolidate
demand by
focusing on Non
Customers
• Three tiers of
Non Customers
Thank you

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Blue Ocean Strategy - Part 2 - Advanced

  • 1. Blue Ocean Strategy – Part 2 Formulation & Implementation The science of making competition irrelevant
  • 2. In Our Previous Webinar
  • 3. Red Ocean Vs. Blue Ocean Red Ocean Strategy Blue Ocean Strategy Compete in existing market space Create uncontested / New market space Beat the competition Make the competition irrelevant Create a value – cost trade off Break the value-cost trade off Competitive Advantage Value Innovation Segment existing customers Attract noncustomers Exploit existing demand Create and capture new demand
  • 4. Value Innovation Traditional Companies Blue Ocean Companies Price Eliminate Price Reduce Value Innovation – Simultaneous pursuit of high value & Low cost Create Value/ product features Raise Value/ product features Characteristics of a good Value innovation Strategy FOCUS: Not to diffuse efforts across all key factors of competition. DIVERGENCE: The shape of the value curve diverges from those of other players. Compelling Tag line : The value curve can be translated into a clear, strong, truthful and compelling TAGLINE.
  • 5. The Four Actions Framework REDUCE Factors that should be well below the industry Standard ELIMINATE Factors that the industry takes for granted and need to be eliminated Create A New Value Curve RAISE Factors that should be raised above the industry standard CREATE Factors that the industry has never created
  • 6. The Strategy Canvas Concept NETJETS High Business / 1st Class Travel Relevance Scale Medium Low Commercial Airline Industry Price Dead head Costs Hassle free Travel Time Savings/ Faster Travel Flexibility & Reliability Jet Ownership In Flight Service Attributes of Industry & Competitors NETJETS • • Commercial Airline Industry Business / 1st Class Travel The strategy canvas is the central diagnostic and action framework for building a compelling blue ocean strategy. The Strategy canvas serves two purposes: – – It captures the current state of play in the known market space. This allows you to know where you are viz competition It propels you to action by reorienting your focus: • From competitors to alternatives • From customers to non customers of the industry.
  • 7. Strategic Questions before NetJets – How to enter into the Aviation Space when the market was dominated by the big Airline groups? 1983 The Red Ocean •Over 20 domestic And international Airlines competing in the space •All of them attracted Business Travelers, Holiday travelers and Casual Travelers •Corporates spent millions on executive travel every year •All travelers had to go through the long check ins, security checks, hectic flight transfers, congested airports, Baggage claims …. •Business Travelers only have the option of Business Class/ First class or corporate Jet The Blue Ocean • Identified that Business Travelers are the most frequent and regular flyers • NETJETS offered Business Travelers “ The convenience of a private Jet at the price of a Airline Ticket” • NETJETS also provided fractional 1/16 ownership of the aircraft – With no hassles Aircraft Maintenance • Private Aircraft made available to corporate at 4 hours notice ( much less than flight booking) • No Hassles or responsibilities of Aircraft Maintenance • Customized in flight services – Only for the traveler Created a B2B industry when the entire industry was still B2C
  • 8. The Story Of Indochino.com • World’s first Self Service Virtual Suit company • Customers can choose the fabric, design style and accessories - Online • Buttons, Lapels, linings, pockets, cuff signature – everything is customizable • Customers measure themselves and provide fitting details online with video tutorial • Delivery within 3 weeks ( • If order is less than perfect, Indochino pays for local tailoring or remake sthe suit for free • Most suits priced under $500 ( Whereas cheap suits cost around $200 and the designer ones around $1500) Indochino.com Traditional Apparel / Suit Companies • Industry divided into five segments Haute Couture, Luxury, Affordable Luxury, Mainstream & Discount • The Traditional companies competed among each other on the factor like : No of stores, Location of stores – Premium stores , Premium brand, Range or no of Lines offered, Hi Fashion Vs customization Vs price Tradeoff • Marketing & Brand reputation ( Top brands associated with Designer Labels) •High Customization costs 1) Indochino.com does not compete in any of the segment 2) Indochino.com does not get affected by the industry factors 3) Indochino.com built its brand reputation by delivering Value 4) Indochino.com outsources all suits to quality and reputed local and tailor network of Shanghai Created and Captured a new Market Demand by focusing on Buyer Utility
  • 9. The Story Of Zynga •Founded Zynga in April 2007 with a mission “Connect the world through games” •Has over 3000 Employees and 270 million customers, 60 mn daily active users •Largest Social games developer of Facebook •Now provides games in multiple platforms like: •Facebook, Myspace, Android, ipad, iphone, yahoo & Farmville.com Zynga Traditional Gaming Companies 1) Industry divided into four segments • Console based games, Online Games, Mobile Games & Flash Games 2) Console based games dominated the marketplace with 75% of the revenues. 3) The big three of the gaming dominated 95% of the console marketplace (sony, Nintendo, Xbox ..) 4) The Traditional gaming companies competed among each other on the following factors: Consoles – Type speed, capabilities, No of titles in each genre, Speed of Title Release – weekly, monthly, Hi end real time graphics, Hi end accessories 5) Catered only to gamers – Teenage boys to professional gamers 6) Addictive and had lot of side effects – Too much violence, addiction, Lack of exercise, not mind stimulating 7) Parents usually did not recommend / buy Zynga’s Farm Ville 1) Zynga did not compete in any of the segment or market player dominance 2) Zynga’s (Farm Ville) did not get affected by the industry factors 3) Zynga built its brand reputation by sharing and word of mouth connect 4) Zynga caterered to all – children, parents, professionals … 5) Zynga created a new genre of education / simulation games Created and captured a new market demand by focusing on Non Customers
  • 10. Story Of Khan Academy •A non-profit educational organization created in 2006 by Salman Khan- A MIT & Harvard Business School Alumni •Free online collection of more than 3,300 micro lectures •Most viewed online courses and lectures in the world – Over 172 million total views. • Over 177 million lessons delivered till date • Close to quarter billion dollars in donation • Team size of just 20 people • Amongst the 100 most influential people of the world Traditional Education Companies Khan Academy 1) 1) Industry divided into 2 segments • Brick & mortar Learning – Schools/ Colleges • Online learning 2) Learning was centered around students 3) The factors the industry was competing on: • Student teacher ratio • Class room Interaction • Cost of learning / Education • Interactive Learning • • Khanacademy filled the gaps existing in traditional brick & mortar school learning Videos & Exercises to be used as a teaching aid and not replacement for teacher Use analytics and technology to figure out the Strengths & weakness of students 2) Learning is centered around students, teachers and parents 3) Everybody gets equal opportunity / attention/ Learning 4) Smart kids get more attention than other kids 4) Unique Pedagogy • Stop, rewind, understand and then play 5) Focused pedagogy – Teacher talks – Students listen – Therefore Students learn 5) Analytics drive the understanding of each students strengths & Weakness 6) Teachers Judge student’s strength / weakness Created and captured a new market demand by focusing on functionality & emotional appeal
  • 11. Moving Forward Discovering the Principles of Blue Ocean Strategy
  • 12. Principles Of Blue Ocean Strategy Core/Formulation Principles Formulation Risks Reconstruct market boundaries Search Risk Focus on the big picture, not the numbers Planning Risk Reach beyond existing demand Scale Risk Get the strategic sequence right Business Model Risk Execution Principles Execution Risks Overcome key organizational hurdles Organizational Risk Build execution into strategy Management Risk The formulation principles and execution Principles, work in tandem to minimize risks and maximizing opportunities.
  • 13. Reconstructing Market Boundaries Focus on Big Picture – Not Numbers Reach Beyond Existing Demand Getting The Strategic Sequence Right Overcoming Organizational Challenges Building Execution Into Strategy
  • 14. 6 Paths Framework Conventional boundaries in a competitive marketplace Competitors in Industry From competing within Look across Alternative Industries Competitive Position among Strategic Groups Looks across strategic groups Better serving existing Buyer Groups Creating value across Looks at Complementary product / service offerings Maximizing value with existing Product More functions more price / premium Adapting to trends & Time value • • • Redefines Buyer Groups Blue ocean Strategy Rethinks Functional Orientation of Industry Shapes External trends over time Blue oceans can be created by exploring outside of industry boundaries Break out of the traditional boundaries of the industry to unlock value “out of the boundaries” thinking framework for unlocking value
  • 15. 6 PATHS: Exploration Outside of Traditional Boundaries Path 1 - Looking across Alternate Industry What are the alternative industries to your industry? Why do buyers trade across to them? NTT DoCoMo, Federal Express, Southwest Airlines, NetJets Path 2 – looking across Strategic Groups What are the strategic groups in your industry? Why do buyers trade up for the higher group, and why do they trade down for the lower one? Polo Ralph Lauren, Curves, Sony Walkman, Toyota Lexus Path 3 - Looking across chain of buyers What is the chain of buyers in your industry? Which buyer group does your industry typically focus on? If you shifted the buyer group of your industry, how can you unlock new value? Novo Nordisk, Bloomberg Terminals, Canon Copiers, Philips Alto Path 4 – looking across complementary product / service offering What is the context in which your product or service is used? What happens before, during, and after? Can you identify the pain points? How can you eliminate these pain points through a complementary product or service offering? Barnes & Noble, Dyson Vacuum Cleaners, Kinépolis Kiné-kids, Zenick Salick’s Cancer Centers Path 6 – Looking across Time value of business What trends have a high probability of impacting your industry, are irreversible, and evolving in a clear trajectory? How will these trends impact your industry? Given this, how can you open up unprecedented customer utility? Apple Music, Cisco Systems, CNN, HBO’s “Sex and the City” Path 5 – Looking across Functional-emotional appeal to buyers Does your industry focus on functionality or emotional appeal? If you compete on emotional appeal, what elements can you strip out to make it functional? If you compete on functionality, what elements can be added to make it more emotional? Starbucks, QB House, Direct Line Group, Pfizer’s Viagra
  • 16. Reconstructing Market Boundaries Focus on Big Picture – Not Numbers Reach Beyond Existing Demand Getting The Strategic Sequence Right Overcoming Organizational Challenges Building Execution Into Strategy
  • 17. •A Typical Strategic plan in an organization today is so very red ocean • Because Managers formulate the strategy based on current industry, current customers and current challenges. • Managers spend majority of their time thinking about profitability, projections, market shares, segments and revenues based on current industry facts / assumptions. • Managers are pulled in all directions by their superiors based on limited information & perceptions •By building a company’s strategic planning process around a strategy canvas, the company can focus their main attention on the big picture rather than getting immersed in numbers and jargons. Ok Here Here Managers CEOs Staff
  • 18. Four Steps of Visualizing Strategy The four steps that pushes a company’s strategy canvas to blue oceans Visual Awakening • Compare your business with your competitor’s by drawing your “as is” strategy canvas. • See where your strategy needs to change. Visual Exploration • Go into the field to explore the six paths to creating blue oceans. • Observe the distinctive advantages of alternative products and services. • See which factors you should Eliminate, Raise, Create, o r Change. •DO NOT USE MARKET RESEARCH • • Visual Strategy Fair Visual Communication • Draw your ‘to be” strategy canvas based on insights from field observations. • Distribute your beforeand-after strategic profiles on one page for easy comparison. EXPLANATION • Get feedback on alternative strategy canvases from customers, competitor's customer, and noncustomers. • Support only those projects and operational moves that allow your company to close the gaps to actualize the new strategy. EXPECTATION : CLARITY • Use feedback to build the best “to be” future strategy. This approach mitigates planning risks by investing time & effort to develop a compelling strategy canvas that is Focused, Divergent & that has a compelling tagline. Compares the current business attributes with your competitors’ by drawing your “as is” strategy canvas, and then evaluating where the strategy needs to change.
  • 19. The PMS Map • Pioneers • Migrator • Settlers Today • • Pioneers: Businesses that provide unprecedented value Settlers: Their business conforms to the basic value curve of the industry or me too industry Migrators: Improved value but not innovative idea Tomorrow Visualizing strategy helps managers to predict and plan company’s future This framework can be used to help a company align its internal product portfolios • • Clearly, what companies should be doing is shifting the balance of their future portfolio toward pioneer If current portfolio and the planned offerings consist mainly of settlers then the company has low growth trajectory
  • 20. Reconstructing Market Boundaries Focus on Big Picture – Not Numbers Reach Beyond Existing Demand Getting The Strategic Sequence Right Overcoming Organizational Challenges Building Execution Into Strategy
  • 21. Reach Beyond Existing Demand Conventional Companies Focus on Existing Customers Drive for finer Segmentation • Retain and guard existing customers • Compete for competitor business • Create a niche by looking at finer customer preferences • Dominate with competitive advantage in segments Creates enhanced competiveness among players – leading to higher cost of customer acquisition Creates small marketplaces that might not be scalable and profitable in long run Conventional Strategy of companies needs to be challenged
  • 22. The Three Tiers of Non Customers Tier 3 Non Customers Tier 2 Non Customers Tier 3 non customers: “unexplored” non customers who are in markets distant from yours. Tier 2 non customers: refusing noncustomers who consciously choose against your market Tier 1 – Non Customers Tier 1 non customers : “soon-to-be” noncustomers who are on the edge of your market, waiting to jump ship Non Customers Managing the three tiers of Non customers Tier 1 Non Customers : Investigate Dissatisfaction Key commonalities across needs & desires e.g. PRET A MANGER- British fast food chain Tier 2 Non Customers: Go for the Bigger Catchment Eliminate access barriers Economic, Functional, Education, Geographical e.g. JCDecaux – street Furniture Tier 3 Non Customers: Remove long held assumption on customer needs & behavior e.g. US Airforce Joint Strike Fighter and Zynga
  • 23. How did Zynga effectively utilized this principle? Tier 1 Non-Customers Audience Non Regular players – young boys & girls bored out of traditional games Tier 2 Non-Customers Casual Players - working men/ women not enough time to play Change 1 Changed genres completely – from shooting, arcade, racing, to simulation Cost of acquisition – free Change 2 Made social networking fun and more exciting Eliminated hassles of consoles, game titles, accessories, hardware & setups Fun lasts longer, with reduced time and effort Non serious casual play to relax / unwind Results Tier 3 Non –Customers Non Player Parents- women/ housewives Removed violence Play with friends and family – not necessarily together / real time No winner – no loser • Zynga looked across non customers and attracted new buyer groups to create an industry that did not exist earlier
  • 24. Reconstructing Market Boundaries Focus on Big Picture – Not Numbers Reach Beyond Existing Demand Getting The Strategic Sequence Right Overcoming Organizational Challenges Building Execution Into Strategy
  • 25. Buyer Utility Is there a compelling reason for the mass to buy? Is there exceptional buyer utility in your Business idea? Yes No Price Is your strategic price attractive enough to attract customers? Sequence of Blue Ocean Strategy Can your costs be significantly lower than the current Industry price? Are there any adoption hurdles? What are the resistance points? We will explore the Sequence and the formulation in our Next webinar using the tools we have explored today Revenue Is your price easily accessible to the mass of buyers? Yes No Cost Can you attain your cost target to profit at your Strategic price? Yes Costs No Adoption What are the adoption hurdles in actualizing your business idea? Are you addressing them upfront? Yes Hurdles No Commercially Viable Blue Ocean Strategy
  • 26. Buyer Utility Map A buyer’s experience can usually be broken into a cycle of six stages, running from purchase to disposal. Each stage encompasses a wide variety of specific experiences. At each stage, managers need to ask a set of questions to gauge the quality of buyer’s experience. Purchase •How long does it take to find the product you need? •Is the place of purchase attractive and accessible? •How secure is the transaction environment? •How rapidly can you make a purchase? Delivery Use •How long does it take to get the product delivered? •Does the product require training or assistance? •How difficult is it to unpack and install the new product? •Is the product easy to store when not in use? •Do buyers have to arrange delivery themselves? •How effective are the product’s features and functions? •Does the product or service deliver far more power or options than required by the average user? Is in overcharged with bells and whistles? Supplements Maintenance Disposal •Do you need other products and services to make this product work? •Does the product require external maintenance? •Does use of the product create waste items? •If so, how costly are they? •How much time do they take? •How easy are they to obtain? •How easy is it to maintain and upgrade the product? •How costly is maintenance? •How easy is it to dispose of the product? •Are there legal or environmental issues in disposing of the product safely? •How costly is disposal?
  • 27. Uncovering Blocks to Buyer Utility Uncovering blocks to buyer utility can identify the biggest blocks to buyer experience that stand in the way of converting noncustomers into customers. Customer Productivity: In which stage are the biggest blocks to customer productivity? Simplicity: In which stages are the biggest blocks to simplicity? Convenience: In which stage are the biggest blocks to convenience? Risk: In which stage are the biggest blocks to reducing risks? Fun and Image: In which stage are the biggest blocks to fun and image? Environmental Friendliness: In which stage are the biggest blocks to environmental friendliness?
  • 28. Testing the Buyer Utility – with Indochino.com Purchase Delivery Use Supplements Maintenance Disposal Utility Leavers Is it Productive for the buyer? Does the buyer find it simple? Does the buyer find it Convenient? Does it reduce buyers' Risk Does it have a fun image association? Does it have environment friendly Buying Experience • Buyer Utility Score Blocks– Lower than what is prevalent in the current industry • Therefore Indochino.com raised the Buyer Utility and Experience Indochino.com Traditional Suit industry
  • 29. Exceptional Utility to Strategic Pricing Three Alternate product / service Types Same Form Different Form & Function – Same objective Different Form – Same Function Higher degree of Legal & resource protection Difficult to imitate Viagra SAP I phone Lycra Mid Level pricing Price Corridor of Masses Some degree of legal & resource protection Low degree of legal & resource Protection Ford Model T Air Asi • • Step 1: Identify the Price Corridor of the Mass. • • Blue oceans approach to price is not Cost + profit Infact it is Strategic Price – Target Cost Step 2: Specify the price level within the price corridor
  • 30. Strategic Pricing to Target Costing Strategic Price • Target Profit • • Target Cost • Streamlining & Cost Innovations Partnering Unlike traditional companies the price must be determined first not the costs. The costs is determined based on the target profit intended Cost is approached as a target for reduction Target Costs Can be achieved through: – Streamlining Operations • • Price Innovations – Partnering • • Price ≠ Cost + profit Outsourcing, digitizing, cloud, E.g. Apple Leverage low cost capabilities and reach of other companies E.g. SAP who partnered with Oracle, Cape Gemeni , Accenture etc
  • 31. Overcoming Adoption Hurdles • • • • Perfect business model doesn’t always guarantee success of a blue ocean idea A new idea threatens the position of the company, which can provoke fear among the three main stakeholders: employees, business partners, and the public Before moving on with a new idea, the company should communicate the plan effectively to all stake holders Use Blue Ocean Idea Index to test the system •Failure to address the concerns of employees can be very expensive •Make an effort to explain the new idea, Work out the problems so everyone wins Employees General Public •Stakeholders need to be confident and know that there will be no surprises •Do not let others take charge of your own debate Business Partners •Possibly more important than employees •Resolve by openly discussing the problem
  • 32. Reconstructing Market Boundaries Focus on Big Picture – Not Numbers Reach Beyond Existing Demand Getting The Strategic Sequence Right Overcoming Organizational Challenges Building Execution Into Strategy
  • 33. Overcoming Key Organizational Hurdles • Every change in organization is encounters 4 hurdles viz. Cognitive, Resource, Motivational & Political • Conventional wisdom asserts that the greater the change, the greater the resources and time you will need to bring about results. Cognitive Hurdle An Organization Wedded with Status Quo Resource Hurdles Political Hurdles Limited resources Opposition from Powerful Vested Interests Leveraging tipping point leadership to align all with the new strategy. • Transforming the extremes will transform the masses. • Focus on acts of disproportionate influence. – People, Acts and Activities Motivational Hurdles Unmotivated Staff
  • 34. Overcoming Hurdles with Tipping point leadership Cognitive Hurdles Ride the “Electric Sewer” (Experience the key challenges yourselves / top management, before framing the problem) Meet with Disgruntled Customers (Ensure you understand the experience of others) Resource Hurdles Motivational Hurdles Zoom in on Kingpins (key influencers) Identify the Natural Leaders, Skilled and persuasive Place kingpins on a fishbowl (Highlight actions and responsibilities of kingpins in a transparent & fair process) Atomize to get the organization to change itself (Breaking up of objectives, by function and role so that nobody can say it’s a difficult task) Political Hurdles Redistribute resources to your hot spots (Identify the impactful areas where more resources are required but not adequate) Redirect resources from your cold spots (Identify the non Impactful areas where resources can be freed) Engage in horse trading (Trade resources from others for symbiotic Who are my devils? Who will fight me? Who will lose the most Who are my angels? Who will naturally align with me? Who will gain the most by the strategic shift?
  • 35. Reconstructing Market Boundaries Focus on Big Picture – Not Numbers Reach Beyond Existing Demand Getting The Strategic Sequence Right Overcoming Organizational Challenges Building Execution Into Strategy
  • 36. Building execution into Strategy • During a Strategy execution that requires offering customers a leap in value : – People are required to step out of their comfort zones and change the way they have performed previously – People can resent having a strategy thrust upon them – Poor process can ruin Strategy, leading to distrust, non-cooperation and even sabotage. The Three Principles of Fair process Engagement Explanation Expectation Clarity • Involving Individuals in strategic decisions that affect them. • Asking for their inputs and allowing to refute the merits and demerits of ideas • Nullifying the assumptions that anyone may have •Involves explaining as to why the strategic decisions are made as they are • What is the core thinking that underlies the strategy •What are the new rules of the game and therefore the new responsibilities • What are the expectations and standards that each will be judged upon
  • 37. How fair Process affects People’s Attitudes & behaviors Strategy Formulation Process Attitudes Fair Process Engagement Explanation Expectation Clarity Trust & Commitment Intellectual & Emotional Recognition Trust & Commitment “ I feel My Opinion Counts” Behavior Voluntary Cooperation “ I will go beyond the call of Duty” Strategy Execution • Voluntary cooperation in execution Strategy Exceeds Expectations Self Initiated Fair process of Strategy ensures a managerial road map that builds productivity while executing a strategy
  • 38. BOS Principles Summary Strategy Execution Strategy Formulation Search Risks Planning Risks Scale Risks Business Model Risks Organizational Risks Management Risks 6 Paths Approach Strategic Planning Market Sizing Business Model Mobilization Management Risks Reconstruct Market Boundaries Focus on Big Picture – Not Numbers Reach Beyond Existing Demand Getting the strategic Sequence Right Overcoming Organization al hurdles Building Execution into Strategy •Alternative Industries •Strategic groups •Buyer Groups •Complementary Product offerings •Functional Emotional Orientation •Time Plan beyond incremental improvements using a visualization approach •Visual Awakening • Visual Exploitation • Strategy Fair • Visual Communication •Use PMS map to identify current & future orientation of business •Sequence the business Model to capture newly created value •Buyer Utility Mapping •Pricing & corridors of Masses • Cost Targets based on margins desired • Potential Adoption obstacles Tipping Point leadership to Tackle • Cognitive hurdles •Resource Hurdles •Motivational Hurdles • Political Hurdles Execution through: Engagement •Explanation •Clarity of expectations •Challenge Conventional practices •Consolidate demand by focusing on Non Customers • Three tiers of Non Customers