Blue Ocean Strategy
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In their classic book, Blue Ocean Strategy, W. Chan Kim & Renée Mauborgne coined the terms ’red ocean’ and ‘blue ocean’ to describe the market universe. This slide deck provides their revolutionary framework for creating and executing a Blue Ocean Strategy for your business.
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Blue Ocean Strategy
- 1. BLUE OCEAN STRATEGY Jonathan Tan November 21, 2019
- 2. BLUE OCEAN STRATEGY • WHAT ARE RED OCEANS AND BLUE OCEANS? • What is a Blue Ocean Strategy • BLUE OCEAN STRATEGY & SHIFT TOOLS • Value Innovation • Strategy Canvas • Four Actions Framework -ERRC Grid • Six Paths Framework • Pioneer Migrator Settler Map • Three Tiers of Noncustomers • Sequence of Creating a Blue Ocean • Buyer Utility Map • Price Corridor of the Mass • Four Hurdles to Strategy Execution • Tipping Point Leadership • Fair Process • Sequence of Blue Ocean Strategy • Three Key Components Of A Successful Blue Ocean Shift • How To Put Blue Ocean Leadership Into Practice?
- 3. WHAT ARE RED OCEANS AND BLUE OCEANS? • Red oceans are all the industries in existence today • Blue oceans, in contrast, denote all the industries not in existence today – the unknown market space, untainted by competition. In their classic book, Blue Ocean Strategy, W. Chan Kim & Renée Mauborgne coined the terms ’red ocean’ and ‘blue ocean’ to describe the market universe.
- 4. WHAT IS BLUE OCEAN STRATEGY? • Blue ocean strategy is the simultaneous pursuit of differentiation and low cost to open-up a new market space and create new demand. • It is about creating and capturing uncontested market space, thereby making the competition irrelevant. • It is based on the view that market boundaries and industry structure are not a given and can be reconstructed by the actions and beliefs of industry players.
- 5. RED OCEAN VS. BLUE OCEAN STRATEGY
- 8. BLUE OCEAN STRATEGY & SHIFT TOOLS1. Value Innovation 2. Strategy Canvas 3. Four Actions Framework (ERRC Grid) 4. Six Paths Framework 5. Pioneer Migrator Settler Map 6. Three Tiers of Noncustomers 7. Sequence of Creating a Blue Ocean 8. Buyer Utility Map 9. Price Corridor of the Mass 10.Four Hurdles to Strategy Execution 11.Tipping Point Leadership 12.Fair Process 13.Sequence of Blue Ocean Strategy
- 9. 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. 1. VALUE INNOVATION
- 10. Break the value-cost trade-off by answering the following questions: •Which of the factors that the industry takes for granted should be eliminated? •Which factors should be reduced well below the industry’s standard? •What factors should be raised well above the industry’s standard? •What factors should be created that the industry has never offered? VALUE INNOVATION
- 12. The Strategy Canvas serves two purposes: 1. It captures the current state of play in the known market space, which allows users to clearly see the factors that an industry competes on and invests in, what buyers receive, and what the strategic profiles of the major players are. 2. It propels users to action by reorienting their focus from competitors to alternatives and from customers to noncustomers of the industry and allows you to visualize how a blue ocean strategic move breaks away from the existing red ocean reality.
- 13. 3. FOUR ACTIONS FRAMEWORK (ERRC GRID)
- 15. 5. SIX PATHS FRAMEWORK
- 17. 7. THREE TIERS OF NONCUSTOMERS
- 18. 8. SEQUENCE OF BLUE OCEAN STRATEGY
- 19. 9. BUYER UTILITY MAP
- 21. 10. THE PRICE CORRIDOR OF THE MASS
- 22. 11. FOUR HURDLES TO STRATEGY EXECUTIO
- 23. To varying degrees, companies may face four types of hurdles to strategy execution. Knowing how to triumph over these organizational hurdles is key to successful strategy execution. W. Chan Kim and Renée Mauborgne identified four key hurdles to strategy execution: 1. The Cognitive Hurdle: Waking employees up to the need for a strategic shift. Red oceans may not be the paths to future profitable growth, but they may have served the organization well historically, so why rock the boat? 2. The Resource Hurdle: It is assumed that the greater the shift in strategy, the greater the resources it requires for execution. 3. The Motivational Hurdle: How do you motivate key players to move fast and tenaciously to carry out a break from the status quo? 4. The Political Hurdle: As one manager put it, “In our organization you get shot down before you stand up.” FOUR HURDLES TO STRATEGY EXECUTION
- 24. Tipping Point Leadership To achieve a strategic shift at low cost, focus on the extremes – the people, acts, and activities that exert a disproportionate influence on performance. Conventional Wisdom The theory of organizational change rests on transforming the mass and these efforts require steep resources and long timeframes. 12. TIPPING POINT LEADERSHIP
- 25. By single-mindedly focusing on points of disproportionate influence, tipping point leadership helps managers topple the four hurdles to strategy execution quickly and at a low cost by answering the following questions: 1. What factors or acts exercise a disproportionately positive influence on breaking the status quo? 2. On getting the maximum bang out of each buck of resources? 3. On motivating key players to aggressively move forward with change? 4. And on knocking down political roadblocks that often trip up even the best strategies? TIPPING POINT LEADERSHIP
- 26. 13. FAIR PROCESS
- 27. 14. SEQUENCE OF BLUE OCEAN STRATEGY
- 28. A blue ocean shift means moving yourself, your team and your organization from cutthroat markets to wide-open new markets in a way that your people own and drive the process. HOW TO SHIFT FROM RED TO BLUE OCEANS?
- 29. THREE KEY COMPONENTS OF A SUCCESSFUL BLUE OCEAN SHIFT PERSPECTIVE The mindset of a blue ocean strategist ROADMAP Market-creating tools and process along with clear guidance on how to apply them CONFIDENCE Humanness that builds people’s confidence at every level to drive and own the process
- 30. A blue ocean is created by opening a new value-cost frontier that is a leap beyond the existing industry productivity curve. It makes competition on the existing frontier irrelevant.
- 31. Focus on the values, qualities and behavioral styles Focus on acts and activities leaders need to undertake Detached from market results people are expected to achieve Leaders’ actions closely connected to market realities Focus mostly on the executive and senior levels Distribute leadership across three management levels Extra time required for leadership practices High impact leadership acts and activities at low cost CONVENTIONAL LEADERSHIP DEVELOPMENT APPROACHES BLUE OCEAN LEADERSHIP vs
- 32. HOW TO PUT BLUE OCEAN LEADERSHIP INTO PRACTICE? •FOLLOW THE FOUR-STEP PROCESS TO CONVERT NONCUSTOMERS INTO CUSTOMERS OF YOUR LEADERSHIP
- 34. Blue Ocean SaaS Example vs
- 35. Q & A
Notas del editor
- The horizontal axis on the strategy canvas captures the range of factors that an industry competes on and invests in, while the vertical axis captures the offering level that buyers receive across all of these key competing factors. A value curve or strategic profile is the graphic depiction of a company’s relative performance across its industry’s factors of competition. The strategy canvas allows your organization to see in one simple picture all the factors an industry competes on and invests in, what buyers receive, and what the strategic profiles of the major players are. It exposes just how similar the players’ strategies look to buyers and reveals how they drive the industry toward the red ocean. Importantly, it creates a commonly owned baseline for change.
- The Four Actions Framework developed by W. Chan Kim and Renée Mauborgne is used to reconstruct buyer value elements in crafting a new value curve or strategic profile. To break the trade-off between differentiation and low cost in creating a new value curve, the framework poses four key questions, shown in the diagram, to challenge an industry’s strategic logic.
- To win in the future companies need to stop trying to beat the competition. The Six Paths Framework developed by W. Chan Kim and Renée Mauborgne allows managers to address the search risk many companies struggle with. It enables them to successfully identify out of the haystack of possibilities that exist, commercially compelling blue oceans by reconstructing market boundaries.
- A useful exercise for a corporate management team pursuing profitable growth is to plot the company’s current and planned portfolios on the Pioneer-Migrator-Settler Map Settlers are defined as me-too businesses, migrators are business offerings better than most in the marketplace, and a company’s pioneers are the businesses that offer unprecedented value. These are a company’s blue ocean strategic moves and are the most powerful sources of profitable growth. They are the only ones with a mass following of customers.
- Typically, to grow their share of a market, companies strive to retain and expand their existing customer base. Although the universe of noncustomers typically offers blue ocean opportunities, few companies have keen insight into who noncustomers are and how to unlock them. To convert this huge latent demand into real demand in the form of new customers, companies need to deepen their understanding of the universe of noncustomers. The first tier of noncustomers is closest to the current market, sitting just on the edge. They are buyers who minimally purchase an industry’s offering out of necessity but are mentally noncustomers of the industry. The second tier of noncustomers is people who refuse to use an industry’s offering. These are buyers who have seen the current offering as an option to fulfill their needs but have decided against participating. The third tier of noncustomers is farthest from the market. They are noncustomers who have never considered the market’s offering as an option. By focusing on key commonalities across these noncustomers and existing customers, companies can understand how to pull them into their new market.
- Companies need to build their blue ocean strategy in the sequence of buyer utility, price, cost, and adoption. This allows them to build a viable business model and ensure that a company profits from the blue ocean it is creating. W. Chan Kim and Renée Mauborgne argue that with an understanding of the right strategic sequence and of how to assess blue ocean ideas against the key criteria in that sequence, companies can dramatically reduce business model risk and ensure that both the company and its customers win as it creates new business terrain. SEQUENCE OF BLUE OCEAN STRATEGY Companies need to build their blue ocean strategy in the sequence of buyer utility, price, cost, and adoption. This allows them to build a viable business model and ensure that a company profits from the blue ocean it is creating. W. Chan Kim and Renée Mauborgne argue that with an understanding of the right strategic sequence and of how to assess blue ocean ideas against the key criteria in that sequence, companies can dramatically reduce business model risk and ensure that both the company and its customers win as it creates new business terrain. Buyer Utility Is there exceptional buyer utility in your business idea? Price Is your price easily accessible to the mass of buyers? Cost Can you attain your cost target to profit at your strategic price? Adoption What are the adoption hurdles in actualizing your business idea? Are you addressing them upfront? A Commercially Viable Blue Ocean Idea © Chan Kim & Renée Mauborgne. All rights reserved. Here Kim and Mauborgne articulate the strategic sequence of creating a commercially viable blue ocean idea. The starting point is buyer utility. Does your offering unlock exceptional utility? Is there a compelling reason for the mass of people to buy it? Second, is your offering priced to attract the mass of target buyers so that they have a compelling ability to pay for your offering? If it is not, they cannot buy it. Nor will the offering create irresistible market buzz. These first two steps address the revenue side of a company’s business model. They ensure that you create a leap in net buyer value. To secure the profit side you need to assess the third element: cost. The cost side of a company’s business model ensures that it creates a leap in value for itself in the form of profit—that is, the price of the offering minus the cost of production. The key question here is: Can you produce your offering at the target cost and still earn a healthy profit margin? You should not let costs drive prices. Nor should you scale down utility because high costs block your ability to profit at the strategic price. When the target cost cannot be met, you must either forgo the idea because the blue ocean won’t be profitable, or you must innovate your business model to hit the target cost. The last step in the sequence is to address adoption hurdles. What are the adoption hurdles in rolling out your idea? Have you addressed these up front? The formulation of blue ocean strategy is complete only when you can address adoption hurdles in the beginning to ensure the successful actualization of your idea.
- The Buyer Utility Map, developed by W. Chan Kim and Renée Mauborgne, helps to get managers thinking from a demand-side perspective. It outlines all the levers companies can pull to deliver exceptional utility to buyers as well as the various experiences buyers can have with a product or service. This mindset helps managers identify the full range of utility spaces that a product or service can potentially fill. It has two dimensions: The Buyer Experience Cycle (BEC) and the Utility levers. The Buyer Experience Cycle (BEC): A buyer’s experience can usually be broken into a cycle of six stages, running more or less sequentially from purchase to disposal. Utility levers: Cutting across the stages of the buyer’s experience are what we call utility levers – the ways in which companies unlock utility for their customers. By locating a new offering on one of the spaces of the buyer utility map, managers can clearly see how, and whether, the new idea creates a different utility proposition from existing offerings but also removes the biggest blocks to utility that stand in the way of converting noncustomers into customers. In our experience, managers all too often focus on delivering more of the same stage of the buyer’s experience. This approach may be reasonable in emerging industries, where there is plenty of room for improving a company’s utility proposition. But in many existing industries, this approach is unlikely to produce a market-shaping blue ocean strategy.
- The Price Corridor of the Target Mass developed by W. Chan Kim and Renée Mauborgne is a tool managers can use to determine the right price to unlock the mass of target buyers. When setting a strategic price for a product or service, managers must evaluate the trade-offs that buyers consider when making their purchasing decision, as well as the level of legal and resource protection that will block other companies from imitating their offering. To set the strategic price, first identify the price corridor of the target mass, that is, the price range that attracts the mass of target buyers. Key to determining the strategic price is for managers to understand the price sensitivities of buyers who will be comparing the new offering with a host of very different-looking products and services offered outside the group of traditional competitors. For example, buyers can choose between several movie theaters, but they can also decide to go to restaurants and bars. Managers should consider two categories of products/services that are beyond an industry’s boundaries in identifying the price corridor of the mass: products and services that take different forms but perform the same function, and products and services that have different forms and functions but serve the same objective. Next, determine how high or low the strategic price should be set within the corridor without inviting imitation from competition. A company must consider two sets of factors: the level of legal and resource protection the new offering has to block imitation, and secondly the degree to which the company owns some exclusive asset or core capability that can also block imitation. The higher the level of protection against imitation, the higher the strategic price can be within the price range that still attracts the mass of target buyers. For example, if the product or service has strong patents and hard-to-imitate service capabilities one can use upper-boundary strategic pricing to attract the mass of buyers. On the other hand, if a manager is uncertain about their patent and asset protection they should consider pricing somewhere in the middle to lower end of the corridor.
- FOUR HURDLES TO STRATEGY EXECUTION Once a company has developed a blue ocean strategy with a profitable business model, the next challenge is strategy execution. The challenge of execution exists, of course, for any strategy. Companies, like individuals, often have a tough time translating thought into action whether in red or blue oceans. But, compared with red ocean strategy, this can be especially difficult for blue ocean strategy as it represents a significant departure from the status quo. To varying degrees, companies may face four types of hurdles to strategy execution. Knowing how to triumph over these organizational hurdles is key to successful strategy execution. W. Chan Kim and Renée Mauborgne identified four key hurdles to strategy execution: The Cognitive Hurdle: Waking employees up to the need for a strategic shift. Red oceans may not be the paths to future profitable growth, but they may have served the organization well historically, so why rock the boat? The Resource Hurdle: It is assumed that the greater the shift in strategy, the greater the resources it requires for execution. The Motivational Hurdle: How do you motivate key players to move fast and tenaciously to carry out a break from the status quo? The Political Hurdle: As one manager put it, “In our organization you get shot down before you stand up.”
- The conventional theory of organizational change rests on transforming the mass. So change efforts are focused on moving the mass, requiring steep resources and long time frames — luxuries few executives can afford. Tipping point leadership developed by W. Chan Kim and Renée Mauborgne, by contrast, takes a reverse course. To change the mass it focuses on transforming the extremes: the people, acts, and activities that exercise a disproportionate influence on performance. By transforming the extremes, tipping point leaders are able to change the core fast and at low cost to execute their new strategy. TIPPING POINT LEADERSHIP The conventional theory of organizational change rests on transforming the mass. So change efforts are focused on moving the mass, requiring steep resources and long time frames — luxuries few executives can afford. Tipping point leadership developed by W. Chan Kim and Renée Mauborgne, by contrast, takes a reverse course. To change the mass it focuses on transforming the extremes: the people, acts, and activities that exercise a disproportionate influence on performance. By transforming the extremes, tipping point leaders are able to change the core fast and at low cost to execute their new strategy. Conventional WisdomThe theory of organizational change rests on transforming the mass and these efforts require steep resources and long timeframes. Tipping Point LeadershipTo achieve a strategic shift at low cost, focus on the extremes – the people, acts, and activities that exert a disproportionate influence on performance. © Chan Kim & Renée Mauborgne. All rights reserved. Hence, contrary to conventional wisdom, mounting a massive challenge is not about putting forth an equally massive response where performance gains are achieved by proportional investments in time and resources. Rather, it is about conserving resources and cutting time by focusing on identifying and then leveraging the factors of disproportionate influence in an organization. By single-mindedly focusing on points of disproportionate influence, tipping point leadership helps managers topple the four hurdles to strategy execution quickly and at a low cost by answering the following questions: What factors or acts exercise a disproportionately positive influence on breaking the status quo? On getting the maximum bang out of each buck of resources? On motivating key players to aggressively move forward with change? And on knocking down political roadblocks that often trip up even the best strategies?
- Fair process is a concept developed by W. Chan Kim and Renée Mauborgne that builds execution into strategy by creating people’s buy-in up front. When fair process is exercised in the strategy formulation phase, people trust that a level playing field exists, inspiring voluntary cooperation during the execution phase. There are three mutually reinforcing elements that define fair process: engagement, explanation, and clarity of expectation. Whether people are senior executives or shop employees, they all look to these elements. Kim and Mauborgne call them the three Ε principles of fair process.
- Companies need to build their blue ocean strategy in the sequence of buyer utility, price, cost, and adoption. This allows them to build a viable business model and ensure that a company profits from the blue ocean it is creating. W. Chan Kim and Renée Mauborgne argue that with an understanding of the right strategic sequence and of how to assess blue ocean ideas against the key criteria in that sequence, companies can dramatically reduce business model risk and ensure that both the company and its customers win as it creates new business terrain. Here Kim and Mauborgne articulate the strategic sequence of creating a commercially viable blue ocean idea. The starting point is buyer utility. Does your offering unlock exceptional utility? Is there a compelling reason for the mass of people to buy it? Second, is your offering priced to attract the mass of target buyers so that they have a compelling ability to pay for your offering? If it is not, they cannot buy it. Nor will the offering create irresistible market buzz. These first two steps address the revenue side of a company’s business model. They ensure that you create a leap in net buyer value. To secure the profit side you need to assess the third element: cost. The cost side of a company’s business model ensures that it creates a leap in value for itself in the form of profit—that is, the price of the offering minus the cost of production. The key question here is: Can you produce your offering at the target cost and still earn a healthy profit margin? You should not let costs drive prices. Nor should you scale down utility because high costs block your ability to profit at the strategic price. When the target cost cannot be met, you must either forgo the idea because the blue ocean won’t be profitable, or you must innovate your business model to hit the target cost. The last step in the sequence is to address adoption hurdles. What are the adoption hurdles in rolling out your idea? Have you addressed these up front? The formulation of blue ocean strategy is complete only when you can address adoption hurdles in the beginning to ensure the successful actualization of your idea.
- To successfully shift from red oceans of bloody competition to blue oceans of new market space depends on three key components: Having the right perspective, A clear roadmap with market-creating tools Building people’s confidence at every level to drive and own the process
- The classic productivity frontier defines the existing boundary of an industry, the highest level of value and the corresponding costs an organization can achieve, given currently available technology and business best practices.
- Blue Ocean Leadership involves a four-step process that allows leaders to gain a clear understanding of just what changes it would take to bring out the best in their people, while conserving their most precious resource: TIME
- To explain the map, it is important to start at the top, realizing that there is a wide gulf in organizations between the potential and realized talent within. According to Gallup’s State of the Global Workplace report*, the majority of employees in the countries surveyed around the world are disengaged, merely doing what it takes to get by, or actively disengaged and acting out their discontent in unproductive ways. These disengaged employees are effectively the noncustomers of leadership. Key Differences While leaders don’t intentionally leave untapped talent and employee potential on the table, their understanding of this issue is key to turning the situation around. To do that, it’s important that leaders and HR directors start by understanding the principles underlying blue ocean leadership. These are: that leadership should be connected to market realities; be focused on acts and activities that have a direct and measurable impact on performance; be distributed across the organization; and, to be achievable, should focus as much on what leaders should eliminate and reduce in what they do as on what acts and activities they should raise and create to achieve a step change in leadership strength. Without eliminating and reducing to create room on leaders’ plates, few have the time to up their game even if they wanted to (the left of the diagram). As we illustrate, this is different from conventional leadership approaches (red oceans). We have observed that leadership approaches used in firms are often focused on personal qualities and behavioral styles that are hard to change and are detached from what firms stand for in the eyes of customers and from the market results employees are expected to achieve. Using blue ocean leadership to connect to the market, the people who face market realities every day are asked for their direct input on the acts and activities of their leaders, and what they need from their leaders to effectively serve customers. Starting the process Blue ocean leadership is based on a four-step process. Before making changes in leadership, it is important for the organization to understand where leadership stands today and where it is falling short. This is done by creating the “As-Is Leadership Canvas”, which creates a company-wide conversation on what actions actually absorb leaders’ time at each level. From there, organizations should: Apply the blue ocean leadership grid to determine which activities should be eliminated, reduced, raised or created. Develop alternative “To-Be Leadership Profiles” Present To-Be Leadership Canvases at a “Leadership Fair” Select “To-Be Leadership Profiles” The bottom of the diagram provides a high-level understanding of how the four-step process is executed, who drives the process, and how it achieves high performance fast and at low cost while gaining employees’ commitment for change. Making the change The development of To-Be Leadership Profiles will have given organizations the ability to see the changes needed. Once the leadership reality is realized, a case for change can be made (right side of the diagram). Operating on the blue ocean leadership foundation, the leadership actions of frontline and middle managers will be reset, giving senior leaders the ability to delegate more and spend more time charting the company’s future rather than focusing on day-to-day operations. It will also liberate, coach and empower middle management, making them less controlling and nervous of acting alone. The frontline managers will spend less time trying to please the boss and more time serving customers. While leadership is by no means an exact science, rethinking the acts and activities of senior managers can free them from forms, reporting and dealing with day-to-day operational issues to focus on strategy and communication. With more empowerment, frontline managers can make decisions and spend less time reporting upwards on all aspects of the day-to-day. Together, this can unlock high performance at the top and unleash an ocean of unrealized talent and energy on the front lines.
- Intuit created a blue ocean with its Quicken financial software package by looking across substitute industries and reconstructing boundaries across them. To sort out their personal finances people can buy and install a financial software package, hire a CPA, or simply use pencil and paper. The software, the CPA, and the pencil are largely substitutes for each other. They have very different forms but serve the same function: helping people manage their financial affairs. Instead of benchmarking the competition, Intuit created a blue ocean by looking to the pencil as the chief alternative to personal financial software to develop Quicken software. Intuit focused on bringing out both the decisive advantages that financial software had over the pencil – speed and accuracy; and the decisive advantages that the pencil had over software – simplicity of use and low price – and eliminated or reduced everything else. With Quicken’s user-friendly interface resembling the familiar checkbook, it was faster and more accurate than the pencil, yet almost as simple to use. The program eliminated the accounting jargon and the sophisticated features traditional financial software offered, offering only the few basic functions that most customers use. The product was so simple, easy to use, fun and productive that buyers fell in love with it. Moreover, simplifying the software cut costs. Neither the pencil nor other software packages could compete. Today, more than thirty years on, Quicken still remains the number-one-selling personal financial software. Microsoft tried for years to dislodge Intuit’s value innovation, but after nearly thirty years of efforts and investment, it finally threw in the towel and ceased operations of its contender, Microsoft Money, in 2009.