"Blue Ocean Strategy Business Models"
Firm Theory Kim Valbum – RUC – MEA Blue Ocean Strategy W. Chan Kim & Renée Mauborgne Make the Competition Irrelevant Cirque de Soleil is a success by taking in new customers, combining cirkus/art/ performance at a high price to new customers Value Innovation – a cornerstone The Simultaneous Pursuit of Differentiation and Low Cost Value innovation is created in the region where a company’s actions favorably affect both its cost structure and its value proposition to buyers. Cost savings are made by eliminating and reducing the factors an industry competes on. Buyer value is lifted by raising and creating elements the industry has never offered. Over time, costs are reduced further as scale economies kick in due to the high sales volumes that superior value generates. Red Ocean Versus Blue Ocean Strategy Red Ocean Strategy Blue Ocean Strategy Compete in existing market Create uncontested market space 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 Align the whole system of a firm’s activities with its strategic firm’s activities in pursuit of choice of differentiation or low differentiation and low cost cost. The Six Principles of Blue Ocean Strategy Formulation principles Risk faktor each principle attenuates 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 Risk factor each principle attenuates Overcome key organizational hurdles \/ Organizational risk Build execution into strategy \/ Management risk The Four Actions Framework Eliminate-Reduce-Raise-Create Grid: The case of Cirque du Soleil Eliminate Raise Star performers Unique venue Animal shows Aisle concession sales Multiple show arenas Reduce Create Fun and humor Theme Thrill and danger Refined environment Multiple productions Artistic music and dance Red ocean – six assumptions: Define industry similarly and focus on being best Look through the lens of accepted strategic groups (luxury cars, family cars etc.) and strive to stand out Focus on the same buyer group Define the scope of the products and services offered by their industry similarly Accept their industry’s functional or emotional orientation Focus on the same point in time – and often on current competitive threats – in formulating strategy Blue Ocean – path 1 Look Across Alternative Industries A company competes not only with the other firms in its own industry but also with companies in those other industries that produce alternative products or services Products and services that have different forms but offer the same functionality are often substitutes for each other Alternatives include products or services that have different functions and forms but the same purpose Blue Ocean – path 2 Look Across Strategic Groups Within Industries Blue oceans can often be created by looking across alternative industries, so can they be unlocked by looking across strategic groups. In most industries , the fundamental strategic differences among industry players are captured by a small number of strategic groups The key to creating a blue ocean across existing strategic groups is to break out of the narrow tunnel vision by understanding which factor determine customers’ decisions to trade up or down fron one group to another Blue Ocean – path 3 Look Across the Chain of Buyers In most industries competitors converge around commen definitions – buyers (which involve purchasers, users, influencers etc.) and target customer segments – large vs. small customers etc. By looking across buyer groups, companies can gain new insights into how to redesign their value curves to focus on a previously overlooked set of buyers. Blue Ocean – path 4 Look Across Complementary Product and Service Offerings Few products and services are used in a vacuum. In most cases other products and services affect their value But in most industries, rivals converge within the bounds of their industry’s product and service offerings Untapped value is often hidden in complementary products and services. The key is to define the total solution buyers seek when they choose a product or service. A simple way to do so is to think about what happens before, during, and after your product is used. Blue Ocean – path 5 Look Across Functional/Emotional Appeal to Buyers Competition tends to converge on an accepted notion and on few possible bases of appeal Some industries compete on rational appeal and some on emotional appeal Over time, functionally oriented industries become more functionally oriented; emotional industries become more emotional oriented Industries have trained customers in what to expect – and they answer more for less Emotionally oriented industries offer many extras that add price, but not functionality – customers would welcome simpler, lower-priced and lower- cost business models Functionally oriented industries can stimulate new demand by adding a dose of emotion Blue Oecean – path 6 Look Across Time All industries are subject to external trends that affect their businesses Looking at these trends with the right perspective can show how to create blue ocean opportunities Insights into blue ocean strategy arise from business insights into how the trend will change value to customers Three principals are critical to assessing trends across time and to form the basis of a blue ocean strategy: 1. These trends must be decisive to your business 2. These trends must be irreversible 3. These trends must have a clear trajectory From Head-to-head Competition to Blue Ocean Creation Head-to-Head Competition Blue Ocean Creation Industry Focuses on rivals within its industry -> Looks across alternative industries Strategic group Focuses on competitive position -> Looks across strategic groups within strategic group within industry Buyer group Focuses on better serving the -> Redefines the industry buyer buyer group group Scope of product Focuses on maximizing the value -> Looks across to complementary or service of product and service offerings product and service offerings offering within the bounds of its industry Functional- Focuses on improving price -> Rethinks the functional-emotional Emotional performance within the functional- orientation of its industry orientation emotional orientation of its industry Time Focuses on adapting to external -> Participate in shaping external trends as they occur trends over time The Four Steps of Visualizing Strategy 1. Visual 2. Visual 3. Visual Strategy 4. Visual Awakening Exploration 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 competitiors’ by paths to creating based on insights strategic profiles on drawing your ”as is” blue oceans from field one page for easy strategy canvas Observe the observations comparison See where your distinctive Get feedback on Support only those strategy needs to advantages of alternative strategy projects and change alternative products canvases from operational moves and services customers, that allow your See which factors competitors’ company to close you should customers, and the gaps to eliminate, create, or noncustomers actualize the new change Use feedback to strategy build the best ”to be” future strategy Testing the Growth Potential of a Portfolio of Businesses The Three Tiers of Noncustomers Third First Tier: ”Soon-to-be” noncustomers Tier who are on the edge of your market, Second Tier waiting to jump ship First Tier Your Second Tier: ”Refusing” noncustomers market who consciously choose against your market Third Tier: ”Unexplored” noncustomers who are in markets distant from yours The Sequence of Blue Ocean Strategy The Buyer Utility Map T The Six Stages of the Buyer Experience Cycle h 1 2 3 4 5 6 e Purchase Delivery Use Supplements Maintenance Disposal Customer Si x productivity Simplicity U ti li Convenience t Risk y L Fun & image e Environmental v friendliness e rs The Buyer Experience Cycle Uncovering the Blocks to Buyer Utility Purchase Delivery Use Supplements Maintenance Disposal Customer Productivity: In which stage are the biggest blocks to customer productivity? Simplicity: In which stage 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 In which stage are the biggest blocks to environment Friendliness: friendliness? The Price Corridor of the Mass The Profit Model of Blue Ocean Strategy The Strategic Price The Target Profit The Target Cost Streamlining and Partnering Cost Innovations Pricing Innovation Blue Ocean Idea (BOI) Index Philips Motorola DoCoMo CD-i Iridium i-mode Japan Utility Is there exceptional utility? Are there compelling - - + reasons to buy your offering? Price Is your price easily accessible to the mass of - - + buyers? Cost Does your cost structure - - + meet the target cost? Adopt Have you addressed - +/- + ion adoption hurdles up front? The Four Organizational Hurdles to Strategy Execution Cognitive Hurdle An organization wedded to the status quo Ressource Hurdle Political Hurdle Limited resources Opposition from powerful vested interests Motivational Hurdle Unmotivated staff Conventional Wisdom vs. Tipping Point Leadership How Fair Process Affects People’s Attitudes and Behavior Strategy Fair Process Formulation Engagement Process Explanation Expectation clarity Attitudes Trust and Commitment ”I feel my opinion counts” Behavior Voluntary Cooperation ”I’ll go beyond the call of duty” Strategy Execution Exceeds Expectation Self-initiated The Execution Consequences of the Presence and Absence of Fair Process in Strategy Making Fair Process Intellectual and Trust and Voluntary Emotional Commitment Cooperation in Recognition Strategy Execution Violation of Fair Intellectual and Distrust and Refusal to Process Emotional Resentment Execute Indignation Strategy Imitation Barriers to Blue Ocean Strategy Value innovation does not make sense to a company’s conventional logic Blue ocean strategy may conflict with other 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 requires significant political, operational, and cultural changes Companies that value-innovate earn brand buzz and a loyal customer following that tends to shun imitators Blue Ocean Strategy ”Don’t Compete with Rivals – Make Them Irrelevant”