Overview of the Harvard Business School "Blue Ocean Strategy" process for how to value-innovate to create uncontested new market spaces that make the competition irrelevant. Innovation techniques such as employed by Apple/Amazon/Google and that can be employed in almost any market area. Presentation discusses Red Oceans and Blue Oceans; Value-Innovation; how to create a graphical Strategy Canvas; the Four Actions Framework; the Eliminate-Reduce-Raise-Create grid; the three key Blue Ocean Strategy characteristics of focus, divergence, and a compelling tag line; and the six formulation and execution principals for blue ocean value-innovation.
2. Red Oceans are all industries and products
in existence today. In Red Oceans:
Industry and product boundaries are defined.
Competitive rules are known.
Companies strive to outperform each
other to grab a larger share of demand.
As the market space gets crowded,
prospects for profits and growth shrink.
As products become commodities,
competition turns the red ocean blody.
3. Successfully competing in Red Oceans
will always be important.
Red Oceans are a fact of business life.
Red Oceans have dominated business strategy
for the past 25 years.
How to compete skillfully in Red Oceans
through price, feature, or performance
differentiation is fairly well known.
However, to create new profitable
growth companies need to move
beyond Red Ocean competition.
4. Blue Oceans represent all industries,
products, and product features not in
existence today. Blue Oceans:
Define untapped market space.
Create new customer demand.
Provide opportunity for rapid growth
and high profits.
“Blue Ocean Strategy” provides
frameworks and analytics for the
systematic pursuit and creation of
Blue Ocean products and markets.
5. Red Ocean Strategy Blue Ocean Strategy
Compete in existing market space Create uncontested market space
Beat the competition Make the competition irrelevant
Exploit existing demand Create and capture untapped demand
Make the value-cost trade-off Break the value-cost trade-off
Align activities with strategic choice Align activities in pursuit of both
of either differentiation or low cost differentiation and low cost
Adapt to external trends as they occur Actively shape external trends
6. Costs
Costs
Value-Innovation pursues both
Value
increasing customer value while
Innovation
simultaneously lowering costs.
Customer Value
7. The Strategy Canvas
Graphic depiction of value curves.
The Four Actions Framework
Questions to challenge strategic logic and business models.
The Eliminate-Reduce-Raise-Create Grid
Actions to create and define new value curves.
The 3 Characteristics of a Blue Ocean Strategy
Focus – Divergence – A Compelling Tag Line
The 6 Principals of Blue Ocean Strategy
Formulation and execution principles for value-innovation.
8. Wine Industry Value Curves, late 90’s
High
Premium Wines
Budget Wines
Value
Low
Price Elite High-end Aging Vineyard Wine Wine
Image Marketing Quality Prestige Complexity Range
Strategy Value Points
9. Yellowtail Value Curve, 2003
High
Premium Wines
Budget Wines Yellowtail
Value
Low
Price Above-the-line Vineyard Wine Ease of
Marketing Prestige Range Selection
Elite Aging Wine Easy Fun and
image quality Complexity Drinking Adventure
Strategy Value Points
10. High
Ringling Bros. & Barnum & Bailey
Cirque du Soliel
Smaller
Regional
Circuses
Low
Price Animal Multiple Thrill and Theme Multiple
shows show challenge Production
Star Aisle arena Fun Unique Refined Artistic
performers concessions and venue watching music and
humor environment dance
11. The Strategy Canvas
Graphic concise depiction of product value curves.
The Four Actions Framework
Questions to challenge strategic logic and business models.
The Eliminate-Reduce-Raise-Create Grid
Actions to create and define new value curves.
The 3 Characteristics of a Blue Ocean Strategy
Focus – Divergence – A Compelling Tag Line
The 6 Principals of Blue Ocean Strategy
Formulation and execution principles for value-innovation.
12. Reduce
factors
of limited
value
Eliminate Create
factors factors
of no real never before
value offered
Raise
factors
that improve
value
13. The Strategy Canvas
Graphic concise depiction of product value curves.
The Four Actions Framework
Questions to challenge strategic logic and business models.
The Eliminate-Reduce-Raise-Create Grid
Actions to create and define new value curves.
The 3 Characteristics of a Blue Ocean Strategy
Focus – Divergence – A Compelling Tag Line
The 6 Principals of Blue Ocean Strategy
Formulation and execution principles for value-innovation.
14. Eliminate Raise
• Elitist terminology • Price over budget wines.
and distinctions.
• Retail store involvement.
• Aging Qualities.
• Above-the-line marketing.
Reduce Create
• Wine complexity. • Easy drinking.
• Wine range. • Ease of selection.
• Vineyard prestige. • Fun and adventure
15. Yellowtail Value Curve, 2003
High
Premium Wines
RAISE Budget Wines Yellowtail
Value
CREATE
ELIMINATE
REDUCE
Low
Price Above-the-line Vineyard Wine Ease of
Marketing Prestige Range Selection
Elite Aging Wine Easy Fun and
image quality Complexity Drinking Adventure
“Value Point” Variables
16. Focus Divergence A Compelling Tagline
“The speed of a plane at the price of a car – whenever you need it.”
High
Southwest Airlines
Average
Airlines
Car
Travel
Low
Price Meals Lounges Seating class Hub Friendly Speed Frequent
choice connectivity Service Point-to-
point
departure
17. The Strategy Canvas
Graphic concise depiction of product value curves.
The Four Actions Framework
Questions to challenge strategic logic and business models.
The Eliminate-Reduce-Raise-Create Grid
Actions to create and define new value curves.
The 3 Characteristics of a Blue Ocean Strategy
Focus – Divergence – A Compelling Tag Line
The 6 Principals of Blue Ocean Strategy
Formulation and execution principles for value-innovation.
18. Formulation Principals:
Reconstruct Market Boundaries
Focus on the big picture, not the numbers
Reach beyond existing demand
Get the strategic sequence right
Execution Principals:
Overcome key organization hurdles
Build execution into strategy
19. Path 1: Look Across Alternative Industries
Path 2: Look Across Strategic Groups
within Industries
Path 3: Look Across Chain of Customers
Path 4: Look Across Complementary
Products and Service Offerings
Path 5: Look Across Functional or
Emotional Appeal to Customers
Path 6: Look Across Time
20. Focus Divergence A Compelling Tagline
High
Private Jet
Corporate travel
NetJet’s Value Curve
Commercial Airlines
First and Business-Classes travel
Low
Price (fixed Need for Deadhead Speed of total Ease of travel Flexibility and In-flight
purchase + customer to costs travel time (including reliability service
variable price manage aircraft check-in,
per flight) (Aircraft M&A) customs, etc.)
21. Four Steps of Visualizing Strategy
The Pioneer-Migrator-Settler Map
22. Visual Visual Visual Visual
Awakening Exploration Strategy Fair Communication
• Compare your • Go into the field • Draw your „to be” • Distribute your
business with your to explore the six strategy canvas before-and-after
competitor‟s by paths to creating based on insights strategic profiles
drawing your “as blue oceans. from field on one page for
is” strategy observations. easy comparison.
canvas. • Observe the
distinctive • Get feedback on • Support only
• See where your advantages of alternative strategy those projects
strategy needs to alternative canvases from and operational
change. products and customers, moves that allow
services. competitor's your company to
customer, and non- close the gaps to
• See which factors customers. actualize the new
you should strategy.
Eliminate, Raise, • Use feedback to
Create, or Change. build the best “to
be” future strategy.
24. First Tier: “Soon-to-be” non-
Third
customers who are on the
Tier edge of your market, waiting
Second to jump ship
Tier
First
Your Tier
Second Tier: “Refusing non-
Current
Market
customers who consciously
choose against your market.
Third Tier: “Unexplored” non
customers who are in markets
distant from yours.
25. Customer Viable Blue
Price Cost Adoption Ocean Idea
Utility
Is there Is your price Can you attain What are the
exceptional easily your cost target customer
customer value accessible to to profit at your adoption hurdles
in your idea? the mass of strategic price? in actualizing
buyers? your idea?
26. Formulation Principals:
Reconstruct Market Boundaries
Focus on the big picture, not the numbers
Reach beyond existing demand
Get the strategic sequence right
Execution Principals:
Overcome key organization hurdles
Build execution into strategy
27. Value Innovation does not make sense to the
conventional logic of many companies.
Blue Ocean Strategy may conflict with companies‟ brand image.
Natural monopoly: The market often cannot support a second player.
Patents or legal permits block imitation.
High volume leads to rapid cost advantage for the value innovator,
discouraging followers from entering the market.
Network externalities discourage imitation.
Imitation often require significant political, operational,
and cultural changes.
Companies that value-innovate earn brand buzz and
a loyal customer following that tends to shun imitators.
28. “The reality is that industries never stand
still. Operations improve, markets
expand, and players come and go.
History teaches us that we have a hugely
underestimated capacity to create new
industries and re-create existing ones.”
- W. Chan Kim & Renée Mouborgne, authors Blue Ocean Strategy
29. Blue Ocean Strategy web site
http://www.blueoceanstrategy.com
Blue Ocean Strategy book
http://www.amazon.com/Blue-Ocean-Strategy-Uncontested-
Competition/dp/1591396190/ref=sr_1_1?ie=UTF8&s=books&qid=1232733006&sr=1-1
http://mslibrary/Books/Pages/fulfillment.aspx?bib=155469&csId=Library
Blue Ocean Strategy unabridged audio CD
http://www.amazon.com/Blue-Ocean-Strategy-Uncontested-
Competition/dp/1596590688/ref=ed_oe_a
http://mslibrary/Books/Pages/fulfillment.aspx?bib=193896&csId=Library
Questions / Comments
jack.davis@microsoft.com
30. High
OPC
UCF-ToDo
ZIP
Low
ISO Win32 & Enterprise Edit-In-Place SharePoint Downlevel
Standard .NET APIs RM (.NET) (.NET) Handlers Support
Core Quick File-based Shell Shell
Properties Access to View Password Handlers “Save as
(interleaving) Encryption (zip) Package”
Notas do Editor
Pg 4 R
Pg 5 Competing successfully in red oceans will always be important.Red Oceans are a fact of business life.Red Oceans have dominated business strategy for the past 25 years.How to compete skillfully in Red Oceans through productprice, feature focus, or performance (1080i/1080P, 60Hz/120Hz refresh, contrast range) is fairly well known.What are some examples of Red Ocean markets?IPod / ZuneSearch – Google / Yahoo / MicrosoftGame systems: Nintendo (Wii) / Sony Playstation / MS XBoxAirlinesTo create new profit and growth opportunities, companies need to additionally go beyond competing.
Pg 4-5
Red Ocean Strategy(Head to Head) Focuses on rivals within industry Focuses on competitive position within strategic group Focuses on better serving the buyer group Focuses on maximizing the value of product or service offerings within the bounds of its industry Focuses on adapting to external trends as they occur Blue Ocean Strategy Looks across alternative industries Looks across strategic group within industry Redefines the industry buyer group Looks across to complementary product and service offerings Participates in shaping external trends over time
Differentiation Variables Price per bottleElite image – refined image in packaging and labeling announcing wine medals won, and the use of esoteric enological terminology to stress the art and science of wine making.Above-the-line Marketing to raise consumer awareness and encourage distributor and retailers to give prominence to a particular wine house.Aging quality Prestige of the wine’s vineyard and legacy (accolades of the estate, chateaux, and historic age of the establishment).Wine Complexity and sophistication of a wine’s taste (such things such as tannins, oak, breadth)Wine Range of wines to cover all varieties of grapes consumer preferences from Chardonnay to Merlot, etc.
Castella Wines, Australia used Blue Ocean principals to define their value curve and break into the US market as the fastest growing label and best-selling wine of 2003.Rather than competing head-to-head they reengineered the market strategy.They recognized a new potential customers – current cocktail and beer drinkers.These new customers care principally about easy drinking taste, ease of selection, and fun.Based on customer analysis, Castella streamlined it’s wine’s taste to be a bit sweeter and fruiter.Castella completely jettisoned the wine industry’s traditional elitist appeal based on complex taste, aging, brand prestige, awards, and vineyard location.Yellowtail made selection easy by offering only two types – a red and a white.“If you’re having meat, pick red; anything else, pick white.”And it made the wine fun and adventuresome by tying its marketing to an Australian outback theme.
To break the Red Ocean focus on differentiation and low cost, ask four key questions to challenge an industry’s or product’s strategic logic and business model.Which industry or product factors are taken for granted and can be eliminated?Which industry or product factors can be reduced without affecting value?Which industry or product factors should be raised to improve value?Which industry or product factors never before can be created to offer new value?
Pg 39-40A good tagline must not only deliver a clear message but must also advertise the offering truthfully.A way to test the effectiveness and strength of a strategy is to look at whether it contains a strong and authentic tagline.Yellowtail: “a fun and simple wine to be enjoyed every day”Cirque du Soleil: “We’ve reinvented the circus”
Pg 37-40Three Characteristics of a Great Strategy Initial litmus tests of viabilityFocusA great strategy has focus that its value-curve clearly shows.The strategy does not diffuse its efforts across all factors of competition.Companies that invest across the board let their competitor’s moves set their agenda – the result is costly business models.DivergenceThe shape of the value-curve diverges from other players.(a result of not benchmarking competitors, instead looking across alternatives.)Strategies that follow the competition have little or no uniqueness.Use the Four Actions Framework to assess Eliminate-Reduce-Raise-Create actions to define a strategy that stands apart.A Compelling TaglineThe tagline of the profile is clear and compelling.The tagline must not only deliver a clear message but must also advertise the offering truthfully.Yellowtail: “a fun and simple wine to be enjoyed every day”Cirque du Soleil: “We’ve reinvented the circus”Southwest: “The speed of a plane at the price of a car – whenever you need it.”A strong and authentic tagline is a good way to test the effectiveness and strength of a strategy. (p 40)Focus / Divergence / Compelling Tagline (p 42)When a value-curve lacksfocus, its cost structure tends to be high and its business model complex to implement and execute.When it lacksdivergence, the strategy is a “me-too”, with no reason to stand apart in the marketplace.When it lacks a compelling tagline that speaks to customers, the strategy is likely to be internally driven or a classis example of innovation for innovation’s sake but with no great comercial potential and no natural take-off capability.
Path 6. Look Across Time (p75-76) Three principals to assess trends across time:The trend must be decisive to your businessThe trend must be irreversible, e.g. consolidation of currencies into the Euro e.g. illegal music sharing to a legitimized approach – iPod/iTunesThe trend must have a clear trajectory
Pg 37-40Three Characteristics of a Great Strategy Initial litmus tests of viabilityFocusA great strategy has focus that its value-curve clearly shows.The strategy does not diffuse its efforts across all factors of competition.Companies that invest across the board let their competitor’s moves set their agenda – the result is costly business models.DivergenceThe shape of the value-curve diverges from other players.(a result of not benchmarking competitors, instead looking across alternatives.)Strategies that follow the competition have little or no uniqueness.Use the Four Actions Framework to assess Eliminate-Reduce-Raise-Create actions to define a strategy that stands apart.A Compelling TaglineThe tagline of the profile is clear and compelling.The tagline must not only deliver a clear message but must also advertise the offering truthfully.Yellowtail: “a fun and simple wine to be enjoyed every day”Cirque du Soleil: “We’ve reinvented the circus”Southwest: “The speed of a plane at the price of a car – whenever you need it.”
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Pg 96-97The more a market is populated Settlers, the greater the opportunity to value-innovate and create a blue ocean of new market space.
Where to look for new value-innovation ideas? NEW CUSTOMERS1-OPC “Current Market”: Customers currently using OPC Customers who would use OPC if they new more about it2-OPC “Refusing non-Customers”: IPP – downlevelForeFront Server Security – downlevel PRS – container locking3-OPC “Unexplored Customers”: Developers wanting ZIP (add “Zip import” API option? ) end-users (“Send to > Compressed (zipped) Folder”) (Replace Shell’s current Zip API’s with Packaging API’s?)
What are adoption hurdles in actualizing your business idea? Are you addressing them up front?
Pg 185-188Value Innovation does not make sense to many company’s conventional logic. Ex. CNN was initially ridiculed by NBC, CBS, and ABC. (24 hour news? Who would watch?).Blue Ocean Strategy may conflict with companies’ brand image. Ex. Body Shop by shunning models, promises of eternal youthful beauty, and expensive packaging left major cosmetic houses actionless by invalidating old business models.Natural monopoly: A market often cannot support a second major player. Ex. A town or city being able to support only one megaplex theaterPatents or legal permits block imitation.High volume leads to rapid cost advantage for the value innovator. Ex. Wal-martNetwork externalities discourage imitation. Ex. eBayImitation often require significant political, operational, and cultural changes. Ex. Competing with Southwest Airlines would mean major changes in routing planes, retraining staff, plus changing marketing, prices, and culture.Companies that value-innovate earn brand buzz and a loyal customer following that tends to shun imitators. Ex. Apple iPod and Quicken. People generally dislike and tend to avoid copycat imitators.Network externalities, e.g eBay
Pg 6Go forth and value-innovate!
To add:Relational referencingShell Handlers for:PropertiesIFilterThumbnailsPreview HandlerSignature HandlerOPC Customers and Potential Customers1-OPC “Current Market”: Customers currently using OPC Customers who would use OPC if they new more about it2-OPC “Refusing non-Customers”: IPP – downlevelForeFront Server Security – downlevel PRS – container locking3-OPC “Unexplored Customers”: Developers wanting ZIP (add “Zip import” API option? ) end-users (“Send to > Compressed (zipped) Folder”) (Replace Shell’s current Zip API’s with Packaging API’s?)