Change Matters Presentation Shared Slides

SIMON/ASSOCIATES/MANAGEMENT/CONSULTANTS
Confidential
Change Matters
Andrea J. Simon, Ph.D.
Shared Slides
2008

Story in Brief
Change Matters—How do you change?
In particular, how can you find a really new
“something” to open up a new market for you.

Incremental Innovation
What you do to
existing products and
services that:
 Improve functionality
 Reduce cost
 Even change
appearance just for
fashion’s sake
Constantly changing
and improving
60 innovations in 60 years

Business Model Innovation
Developed significant
competitive advantage
Deliver products and
services in innovative
ways
That created superior
experiences for their
customers.

Breakthrough Innovation
Significant or radical
departures from
whatever’s already
available in the
market—
discontinuous
innovations.
 They disrupt the
marketplace.
 Disrupt the
organizations that
come up with them.
“The 2007 Chrysler Town & Country
puts more than twenty years of
minivan leadership and innovation on
the road”

New Venture
Changes your Scope of Operations
 Seeks to enhance the prospects by enlarging a
company’s scope of operations into markets that
are so different from its current markets that they
must be addressed as entirely new entities.
 Spin offs
 Subsidiaries
 Acquisitions opening new markets
Often, the future of the company is outside its
current competencies.

GE
 GE was an industrial manufacturing company.
 Transformed itself into a financial services giant where
more than 50% of its revenues and most of its profits come
from financial services.
 “We Bring Good Things to Life” has now become “Imagination at
Work.”

These are close to “Blue Oceans”
Renovation and Innovation within the same
market space.
Benchmarking themselves against the
competition.
Not alternatives, except that mini-van. Tend
to be options within same framework.

Blue Oceans and Red Oceans
What’s happening to make
Blue Ocean Strategy such a
hot topic, the hottest book in
China?
How can you see, feel and
think differently about users
and non-users of your
services?

Innovation and Blue Ocean Strategy
Renée Mauborgne and W. Chan Kim
Created a “Blue Ocean Strategy”
Let’s see what they saw that successful
companies were doing to:
Create new Market Space
Combine Value + Innovation
With Lower Cost structures

Different ways to Renovate or Innovate
 Seeing things in new ways is complex.
 Innovation in Red Oceans come in different
flavors:
 Incremental Innovation
 Business Model Innovation
 Breakthrough or Product Innovation
 New Venture Innovation

Why Seek a Blue Ocean?
Accelerated technological advances
Trade barriers are being dismantled
Unprecedented array of products
Supply is on the rise
Trend toward globalization
Global competition intensifies

Leading to…
Accelerated Commoditization
Niche markets and havens for monopolies
are disappearing
No clear evidence of increase in demand—
Even point to declining populations in developed
markets
Population trends are important here

See it in lots of places
Increasing price wars
Shrinking profit margins
Brands generally becoming similar, or
Overwhelming in their differentiation
Differentiating is becoming more difficult
People increasingly selecting based on price

What is a Blue Ocean?
Blue Oceans are creating and pushing into
new market space, creating solutions to
needs that were not solved that way before.

How did they create the theory “Blue
Ocean Strategy?”
Studied 150 companies
From 1880-2000
>50 industries
Key questions:
How can a company break out of the Red Ocean
of bloody competition?
How can it see, feel, think differently?
How can it sustain high performance?

Not Just another Good Company
Too many companies that were thriving
ended up dying
Atari’s, Data General, Cheesebrough-Pond’s,
Wang
“In Search of Excellence;” “Managing on the
Edge”
2/3 of the greats had fallen within 5 years of
publication of Tom Peter’s best seller.
Even “Built to Last”; “Creative Destruction”

Blue Ocean Strategy argues that…
There is no consistently excellent company
… Likewise, there is no perpetually excellent
industry.
In fact—
Neither industry nor organizational characteristics
explain the distinction between Red Ocean and
Blue Ocean success stories.

Blue Ocean is all about you and your
Strategy!
Success Stories abound in:
 Small and large companies
 Young and old managers
 Attractive and unattractive industries
 Private and Public Companies
Consistent and common pattern among success
stories was all about the Strategic Moves people
made to solve problems differently.
They saw solutions in different ways. And then
made them happen.

All about Strategy
The most appropriate unit of analysis for
explaining the creation of blue oceans is the
strategic move –
the set of managerial actions and decisions
involved in making a major market-creating
business offering.
How they see, feel and think about a customer
and a non-customer is different.

Leading to…
Value + Innovation
“A new way of thinking about and executing
strategy that results in the creation of a blue
ocean and a break from the competition.”
Make the competition irrelevant
Aligned with “utility + price + cost position”
Change the “Value-Cost” Trade-off
People-focused

Like Who?

Blue Ocean Case Studies
What did these folks see and do that
differentiated them, creating entirely new
market space solutions? Same problems,
new solutions.
Andre Rieu (video)
(yellow-tail) wine
Cirque du Soleil
Curves

Andre Rieu

What did he see, feel, think and do?
Let’s take a look at his version of classical
music
The music
The costume
The setting
The experience
The feels

What did these folks see?
(yellow-tail) wine

Yellow tail’s Blue Ocean
Casella Wines started out trying to compete in the
luxury, premium wine industry.
 The new general manager, John Soutter, quickly
launched new wines under the Carramar Estate
label.
Undifferentiated, similar to any other Australian
wine, the new products did not pass some of the
most basic marketing tests.
Consumers gave the new wines a cold shoulder and
it flopped painfully.

Interesting industry to tackle
About 1,500 wine brands in US
All the most aggressive wine-producing
countries are well represented
Ninety-six percent of those wine brands sold
less than 100,000 cases in 2002, according
to Impact Databank.
Only 23 wine brands sold at least 2 million
cases each, accounting for 40 percent of a
growing market of 245 million cases.

What did it do?
(yellow tail) ignored the industry established
keys to the promotion of wine as a unique
beverage for the informed wine drinker,
worthy of special occasions.

Focus on the Non-User
Most Important:
Turned non-drinkers into frequent enjoyers.
How?
How do you focus on the non-user to find a
new market space?

See, Feel and Think Differently
“…convert this huge latent demand into real
demand in the form of thriving new
customers, companies need to deepen their
understanding of the universe of
noncustomers.” (Chan and Mauborgne, Blue Ocean
Strategy, page 103)

But how?
 Avoid segmenting current customers into smaller niches
 Avoid focusing on current customers
 Start to do a couple of things that are easy:
 Spend a “Day in the Life of a Non-Customer”
 Take a thought walk among them and see, feel and think about
what they are doing and not doing
 Don’t ask them what they want—try to see how they are solving
problems that you can do better
 Free your mind from its own limits by focusing on non-users and
trying to think about why they don’t use your services or
solutions.

Let’s pretend
What if you were the folks at (yellow tail)
wine?
You have a lot of good tasting wine to sell
Want to sell it to folks who don’t drink wine
What is the thought process to put a strategy
together to go after the non-drinker of wine?

Wine Red Ocean Strategy
High
Low
Vineyard
Prestige
and
Legacy
Use enological
terminology
and distinctions
in wine
communication
Price
Above-
the-line
marketing
Aging
Quality
Wine
Complexity
Budget Wines
Wine
Range
Premium Wines
How to make fun and nontraditional wine that’s easy
to drink for everyone—particularly non-wine
drinkers?

Kim & Mauborgne 2005
Which factors
should be reduced
well below the
industry’s standards
Reduce
A New
Value
Curve
Raise
Which factors should
be raised well
above the
industry’s standard?
Eliminate Create
Which of the factors
that the industry
takes for granted
should be
eliminated?
Which factors
should be created
that the industry
has never offered?
What happens when you think you have
something?

For (yellow tail)…
Eliminate Raise
Enological terminology
and distinctions
Aging qualities
Above-the-line marketing
Price versus budget wines
Retail store involvement
Reduce Create
Wine complexity
Wine range
Vineyard prestige
Easy drinking
Ease of selection
Fun and adventure

Strategy Canvas (yellow tail) wines
High
Low
Price
Use of
Encological
Distinctions
Above-the-
line
Marketing
Aging
Quality
Vineyard
Prestige
Wine
Complexity
Wine
Range
East
Drinking
Ease of
Selection
Fun and
Adventure
Strategy Canvas (yellow tail)
(yellow tail)
Focus
Diversification
Tag Line
Premium Wines
Budget Wines

Results
John Soutter expected to sell 25,000 cases in
2001, the first year Yellow Tail would hit the
market.
Cautious but lucky--the wine sold 9 times as
much!
With its bold branding, a good product and a
very affordable price, the bottles with the fancy
kangaroo leapt off the shelf.

Lucky or Smart?
 Production could not follow either. Not only was the
equipment insufficient but additional quantities of wine
had to be bought on the bulk market, further cutting
into Casella's thin margins, estimated at 75 cents per
bottle.
 Nonetheless, Casella Wines sold 200,000 cases of
Yellow Tail wines in 2001, and 2.2 million the following
year.
 They invested in a $2.5 million bottling line to reach
their goal of 4 million cases for 2003.

Execution helps
From a project management perspective, the
launch was nicely planned and helped build
enthusiasm in the take-off phase.
Indeed, retailers received the brightly colored
branded displays on time to promote the new
label and support a successful introduction at
the point of sale.

Cirque du Soleil
How about a non-circus circus?

How about Cirque du Soleil
Strategy Canvases and Cirque du Soleil
Their story is a bit different
Street Jugglers in Canada
Began to see, feel and think differently about the
circus and about traditional theater.
How did their vision look compared with the other
options available for entertainment?
Not a Circus
Not the Theater

©2006 Feld Entertainment,
Inc.
Privacy Policy
dDwxODECITIES ON SALE NOWQUICK NAVIGATION

Price
Star
Performers
Multiple
show
arenas
Animal
Shows
Artistic
music and
dance
Aisle
concessions
Fun &
humor
Multiple
productions
Refined
watching
environment
Theme
Unique
venue
Thrills &
danger
Low
High
Cirque du Soleil Value Curve
Ringling Bros. and Barnum
& Bailey Value Curve
Smaller Regional Circuses
Strategy of Cirque du Soleil

What about Curves?
Saw an audience in need of a solution
Women who did not work out at home nor at
a gym
The first was too cumbersome, no discipline, no
place
The second was too Manly, to isolating and no fun
A new solution -- Curves

Curves
Curves is the largest fitness franchise in the world with 10,000 locations worldwide.
Curves Clubs can be found in over 42 countries, including the United States, Canada,
Europe, South America, The Caribbean, Mexico, Australia, New Zealand, South Africa,
Japan, and we're still growing. We are the first fitness and weight loss facility dedicated
to providing affordable, one-stop exercise and nutritional information for women.
Only one place can give you the strength of over 4 million
women...

What Blue Ocean did Curves find?
Over 4 million members since 1995
Over ten thousand locations world-wide
Most important:
To an audience thought to be oversaturated with
customers who wouldn’t want it.
Really nonusers.

Strategy Canvas of Curves
Price Amenities
Workout
Equipment
Workout
Time
Availability of
Instructors
Environment
encourages
discipline and
motivation
Non-
threatening
Same-Sex
environment
Conveni
ence
Womanly
Environment
Curves
Home
Exercise
Traditional Health Clubs
low
high

What to do?
 Fundamentally shift strategy canvas of an
industry you must begin to reorient your
strategic focus:
 To Value Innovation + Cost Reduction
 And from Customers to Non-users
 From Competitors to Alternatives

Let’s try to build your Strategic Canvas
today and that of your Market Space
High
Low
Strategy Canvas -- Your Company
Down here go each of those attributes/traits/values that matter
to that audience you have using your services or products today

One of my client’s stories
5-High tg/am
sb/jd tg/jd tg/am/jr tg/am/jr jr
3-Medium jr am am/jr sb/jd sb/jd sb
tg/ am/ jr/jd tg/jr/sb/jd tg/am/jr/sb jr
1- Low sb jd tg/am/jd tg/am/sb/jd
Vertical
Integration
Battery
Expertise/
Experience
Charger
Expertise
Wholly Owned
Global
Manufacturing
Customer
Service
Supplier
Relationships
Financial
Stability
CM
relationships Branding
EAC Summary Strategic Canvas

Strategy Canvas of Their Competition
High
RRC/ Microsun/
Nexergy ICC/ Totex Nexergy ICC ICC/Microsun Nexergy
Varta Microsun RRC ICC
Totex Totex Totex Microsun Varta
M-Power Varta Varta RRC M-Power Totex
M-Power/
Microsun
Totex M-Power
Medium Nexergy M-Power/Varta Nexergy Nexergy
Microsun M-Power M-Power
RRC RRC
ICC RRX
Low ICC
Technical
Expertise
Vertical
Integration
On-time
Delivery
Battery
Expertise/
Experience
Charger
Expertise
Global
Manufacturing Flexibility Quality
Cost
Reduction
Quality
Customer
Customer
Service
Competition Strategic Canvas

What was not on there
High x x x x
x x x X
X
Medium
Low
Speed
Innovation, New
Power Solutions
for their New
Products
Driven by their
Customers and
want you to be too
Exclusivity
Batteries are
Competitive
Edge
Price, Good Value
at Best Price China/ Global
Information/
Branding
Access to
Danny/
Techical
Expertise
Charger
Expertise
low cost,
ways to
reduce
costs of
power
Value Elements
Customer Strategic Canvas EAC, Customer, Competition
Customer needs

How to Visualize a Blue Ocean
5-High tg/am
sb/jd tg/jd tg/am/jr tg/am/jr jr
3-Medium jr am am/jr sb/jd sb/jd sb
tg/ am/ jr/jd tg/jr/sb/jd tg/am/jr/sb jr
1- Low sb jd tg/am/jd tg/am/sb/jd
Vertical
Integration
Battery
Expertise/
Experience
Charger
Expertise
Wholly
Owned
Global
Manufactur
ing
Customer
Service
Supplier
Relationship
s
Financial
Stability
CM
relationship
s Branding
speed to
market
help
them be
cutting
edge
innovative
(game
boy)
Customer-
centric
needs
technical
talent
needs
state of
the art
informatio
n
EAC Summary Strategic Canvas
Customer
Needs/Desires

Six Paths to a Blue Ocean
Industry
Strategic group
Buyer group
Scope of product or service
offering
Functional-emotional
orientation of an industry
Time
From Competing
Within
To Creating
Across
Find a new Blue Ocean if you look
across …

Examples to peek your minds
1. Look across industries
 NetJets, fractional ownership
 Not your own jet/not a commercial jet

2.Look across strategic groups within industries
Reconstruct Market Boundaries

3. Look across the chain of buyers
Users
Purchasers
Influencers

4.Look across complementary product and service
offerings

5.Look across functional or emotional appeal to
buyers
This may be what you've been
looking for all your life.
The largest Japan chain barber
shop "QB House" opened three new
shops in Hong Kong.
QB (short for quick barber) offers
10-min just-cut service for HK$50.

6.Look across time—Participate in
shaping trends over time

Shifting the Focus of Strategy
Conventional
Boundaries of
Competition
Head-to-Head Competition Creating New Market Space
Industry Focus on rivals within industry Looks across substitute industries
Strategic Group Focus on competitive position
within strategic group
Looks across strategic groups within
industry
Buyer Group Focuses on better serving the
buyer group
Redefines the buyer group of the
industry
Scope of product or
service offerings
Focuses on maximizing the value
of product and service offerings
within the bounds of its industry
Looks across to complementary
product and service offerings that go
beyond the bounds of its industry
Functional-
emotional
orientation of an
industry
Focuses on improving price-
performance in line with the
functional-emotional orientation of
its industry
Re-thinks the functional-emotional
orientation of its industry
Time Focuses on adapting to external
trends as they occur
Participates in shaping external trends
over time

It’s all about the potential customer
To pursue both value innovation and cost
reduction resist benchmarking
Gain insight into how to redefine the problem
Reconstruct buyer value elements
This is not about offering better solutions than
your rivals--Not about the competition.
It is all about the potential customer.

How can You find a Blue Ocean Strategy?
It is all about the potential customer
 What do you know about your Customers? Non-users?
Their unarticulated desires?
 Have you ever spent a day with them?
 For B2B, about your Customer’s Customers?
 About their needs that they don’t even know they have?
 Are there ways to surprise them? Solutions they have
never imagined?
How do you find a new Blue Ocean Market Space?
Don’t ask them…

Can people see the future?
Henry Ford’s quote:
“If I had asked people how I could improve their
transportation they would have told me to make
their horses go faster.”

Or the Wristwatch
In 1907, newspaper story:
The wristwatch was a fad that was never going to
go very far. The pocket watch was far superior
and here to stay.
But by then, 93,000 wristwatches had been sold in
Germany and the wristwatch was already 50
years old.

Blue Ocean’s Findings
“…customers can scarcely imagine how to
create uncontested market space.”
“And what customers typically want more of
are those product and service features that
the industry currently offers.”
What to do?

How do you find new market space?
 How can you “See, Feel and Think” like a
nonuser?
 How might you discover tacit and explicit
knowledge about market opportunities?
 How to free your own minds from their
resistance to see in new ways?

Anthropology and Ethno-marketing
We are participant observers
Do things like:
Deep hanging out
Video diaries
“Day in the life of a…”
“We make explicit what is implicit. We help
people see patterns that they could not see
before.”

Cool Results
Xerox green button
Huggies
Ericson phones
Mariott redesign of their lobbies
Paco Underhill and “Why we buy”
Creativegood.com and how we shop online

How could you do it?
Tools for your tool kit are right in front of you
so often.
Case studies tell us that we might be looking
at that space but cannot see it.
What to do?

Team-work
“Thought Walks”
Innovation Swat Team that roams through
the communities often of different cultures,
looking for ideas to evoke and enrich and to
engage with.
Look, ask questions, think about how
something can be changed, innovate.
Black Books—everyone has one.

Finding cool ideas
 Idea hunting—seeking
out and creating new
ideas
 Idea hunting
expeditions, look
across the industries,
across other groups
 Scenario Planning—
early indicators of
something happening
 Technology road
maps

Or other ways…
 White space mapping
to find segments that
are underserved or un-
served
 Brainstorming
 Idea rooms
 Idea Vaults-online
databases
 After-action reviews

Let’s try one: Reverse Assumption Exercises
Reverse Assumption Exercises to free the brain
from those barrier to seeing in new ways
Let’s pair up in teams.
Select one of your companies to use as a case.
Here is how a Reverse Assumption Exercise
works.

Reverse Assumption Exercise
List all the major elements of your company
from a customer’s perspective
For each element, select its opposite
Then using the opposites as a new company,
discuss as many ways as you can how you
could do the opposite from what you think
you do today.

Reverse Assumptions for a Restaurant
Today Opposite
Menus No Menus
Serve food Don’t serve food
Pay for food Don’t pay for food
Sit at tables Don’t sit at tables

A new kind of restaurant
Today Opposite New Element
Menus No Menus Owner comes out and tells us
what he found at the market today
for our meal
Serve food Don’t serve food Bring your own food and we
entertain you—picnic style
Pay for food Don’t pay for food Rent the space for a period of time
and we give you free food
Sit at tables Don’t sit at tables Chairs set up like a stadium and
you watch oversized TV’s with
exclusive entertainment on them

Your turn
Let’s try a reverse assumption exercise and
see what might happen.

Blue Ocean Strategy Discovery Process
1. Starts with a view of core values you believe
matter to your customers and how you and
options (competitors and other options)
compare to you.
2. Get out there and “See, Feel, Think” like a
customer and non-customer.
3. Redefine that strategy canvas to find new
market space that isn’t filled already.
4. Test, test, test and learn.

Let’s Review -- the Blue Ocean Strategy
Not easy
Not common practice in management
Not intuitive
Not just about innovation and creativity
All about alignment, people, execution and
strategy
But really necessary

The Four Steps of Visualizing Strategy
Visual Awakening Visual Exploration Visual Strategy Fair Visual Communications
Compare your
Business with
competitors’ by
drawing your “as
is” strategy canvas.
See where your
strategy needs to
change.
Go into the field
to explore the six
paths to creating
blue oceans.
Observe the
Distinctive
advantages of
alternative
products and
services.
See which factors
you should
eliminate, create,
or change
Draw your “to be”
strategy canvas
based on insights
from field
observations.
Get feedback on
alternative
strategy canvases
from customers,
competitors’
customers, and
non-customers.
Use feedback to
build the best “to
be” future strategy.
Distribute your
before-and-after
strategic profiles on
one page for easy
comparison.
Support only those
projects and
operational moves
that allow our
company to close the
gaps to actualize the
new strategy

Red Ocean Strategy Blue Ocean Strategy
Compete in existing marketplace 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 whole system of a firm’s
activities with its strategic choice of
differentiation or low cost
Align the whole system of a firm’s
activities in pursuit of differentiation and
low cost
Blue Oceans vs. Red Oceans

Getting the Right Sequence
Blue Ocean Idea!
BUYER UTILITY – Is there exceptional buyer utility in our idea?
PRICE – Is our price easily accessible to the mass of buyers?
COST – Can we attain our cost target to profit adequately at our
strategic price?
ADOPTION – What are the adoption hurdles in actualizing our
business idea? Are we addressing them up front?
Blue Ocean Strategy

Freeing your minds
Neurosciences—this is tough
Change is Pain
Blue Ocean Strategy is trying to help you get
there as well.
How to break out of what you think and know
today and see something different for
tomorrow?

Should I Think about the Blue Ocean?
Because it might be your future
Competitiveness of firm really depends on it.
Customers recognize innovations as new
sources of value and expect them, shop for
them enthusiastically.
Those that fail to innovate often fail to
survive.
But maybe you can find a new Blue Ocean…

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