Blue Ocean Strategy

GMR Group
Principal Associate -Group Chairman office en GMR Group
30 de Oct de 2020

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Blue Ocean Strategy

  1. Some Impressionistic takes from the book of W.Chan Kim & Renee Mauborgne “ Blue Ocean Strategy” -by Ramki
  2. About the Authors W. Chan Kim is The Boston Consulting Group Bruce D. Henderson Chair Professor of Strategy and International Management at INSEAD business school and Co-Director of the INSEAD Blue Ocean Strategy Institute. Prior to joining INSEAD, he was a professor at the University of Michigan Business School, USA. He has served as a board member as well as an advisor for a number of multinational corporations in Europe, the U.S. and the Asia Pacific region. He is an advisory member for the European Union and serves as an advisor to several countries. Renée Mauborgne is The INSEAD Distinguished Fellow and a professor of strategy at INSEAD, one of the world’s top business schools. She is also Co-Director of the INSEAD Blue Ocean Strategy Institute. Renée Mauborgne along with her colleague Chan Kim was named the #1 Management Thinker in the World by Thinkers50. She is the first woman ever to secure the top spot on the Thinkers50 list of global thought leaders. Renée Mauborgne was also named among the world’s top 5 best business school professors by MBA Rankings.
  3. Prelude  Companies approach market strategy in one of two ways . Most business & governments pursue a market-competing “red ocean strategy,” which focuses on increasing market share in established markets where competition is intense, investment is difficult to procure and margins are slim.  Market-creating companies, on the other hand, adopt a “blue ocean strategy,” whereby, regardless of what is happening in the broader industry, they develop a “new space” that allows business to flourish.  Market-creating companies allow the established industry structure to dictate their strategies, and they don’t challenge the status quo.  Thus, red ocean firms exhaust their resources trying to secure a larger proportion of existing customer demand. By contrast, market-creating companies use their strategies to shape their business environment.  These blue ocean firms focus on generating entirely new demand, expanding the industry as a whole. Red ocean strategy takes one of two approaches to competition:  Sell at the lowest cost or be the most differentiated player in the industry. But if you provide a highly differentiated offering, your costs will be dear and your product less affordable.
  4. Prelude  Whereas red ocean strategy assumes a trade-off between high differentiation and low cost, blue ocean strategy argues you can achieve both at once while creating new demand in a manner that is difficult for competitors to replicate.  The Nintendo Wii exemplifies the blue ocean strategy approach. Video gaming once was a highly competitive red ocean industry with multiple players jockeying for market share.  But Nintendo disrupted the industry with the Wii, a differentiated product. Despite being produced in Japan and the United States, where labor costs are steep, the Wii has a low price point.  It appeals to new market segments, including elderly people and kids who previously opted to play sports ahead of video games. Once upon a time, outdoor advertising also was a “bloody red” industry, and it suffered small profit margins. Ads were confined to billboards erected alongside roads and highways. Then came French company JCDecaux , which employed a blue ocean strategy to dominate the industry. JCDecaux’s advertising can be found in bus shelters, metro stations and airports in cities around the world. It redefined the market, enhancing the service and aesthetics of outdoor advertising.
  5. Blue Ocean Strategy
  6. Understanding Blue Ocean Vs. Red Ocean  Create uncontested market space  Make the competition irrelevant  Create and capture new demand  Break the value-cost trade off  Pursue low cost and differentiation  Compete in existing market space  Beat the competition  Exploit existing demand  Make the value-cost trade off  Pursue low-cost or differentiation How the Blue Ocean Strategy (BOS) differs from the conventional Red Ocean Strategy:
  7. A Blue Ocean represents uncontested market space where there is no or little competition. A Red Ocean is where everyone is competing and markets have well defined boundaries. A Blue ocean strategy creates new where none existed in the past. Blue Ocean Strategy- A Visual Representation
  8. Understanding Market Creation
  9.  A cornerstone of the BOS is Value Innovation, which is essentially the area where a company’s actions concurrently reduce costs and increase its value offering to buyers.  The company saves costs by eliminating and reducing its investments in certain factors that its industry competes on. It increases buyer value by raising and creating new value elements not previously offered by the industry.  The latter may mean a short-term increase in investment, but this will be addressed once economies of scale kick in.  It is about creating a quantum leap in value for your buyers, thereby creating new and uncontested market place. This strategy needs to span across the entire system of a company’s activities. Value Innovation
  10. “Instead of focusing on beating the competition, you focus on making the competition irrelevant by creating a leap in value for buyers and your company, thereby opening up new and uncontested market space…Value innovation is more than innovation. It is about strategy that embraces the entire system of a company’s activities.” Value Innovation
  11. Strategy Canvas  This is a tool to capture the current state of play in the marketplace, so you can understand:  Where the competition is currently investing  How the industry currently competes -(in products, service, delivery)  What customers receive from existing competitors in the market “To fundamentally shift the strategy canvas of an industry, you must begin by reorienting your strategic focus from competitors to alternatives, and from customers to noncustomers of the industry… to gain insight into how to redefine the problem the industry focuses on and thereby reconstruct buyer value elements that reside across industry boundaries.” Analysing the Market –Tools & Frameworks
  12. Your BOS Strategy Curve should:  Look significantly different from existing competitors’;  Involve cutting back and/ or eliminating competition factors that were taken for granted in your industry (thereby reducing cost); and  Involve raising and/or creating new competition factors that your industry doesn’t offer (thereby increasing differentiation). Strategy Canvas
  13. Case Study -Cirque du Soleil ( A Circus Company)
  14. Example :Strategy Canvas -Cirque du Soleil  Cirque du Soleil is one of those examples they used to show the relevance of Blue Ocean Strategy. How did Cirque du Soleil manage to become a successful and prominent player in the declining circus Industry?  While other circuses were focusing on benchmarking similar traditional circuses in order to steal market share from a shrinking demand pool, Cirque du Soleil reinvented the circus experience by eliminating and reducing factors that were costly and didn’t add much value to customers anymore.  They for example quit using animals during their shows. Apart from the increasing public discomfort people had with the use of animals, it was also very expensive to feed, move and train animals for the show.  Eliminating this factor alone was therefore a massive improvement in Value Innovation.
  15. Example :Strategy Canvas -Cirque du Soleil
  16. Example :Strategy Canvas -Cirque du Soleil  In addition, Cirque du Soleil wanted to elevate the customer experience by focusing on adults as well instead of the usual focus on kids. They therefore borrowed elements from Broadway shows in order to make the shows more theatrical and magical.  Funny enough, because of these changes Cirque du Soleil was able to strategically raise the prices of their tickets to match those of the theater industry. Through both differentiation and low-cost Cirque du Soleil jumped out of the Red Ocean of the circus industry and created a new Blue Ocean concept that was never seen before.
  17. Four Action Framework-The Case of Cirque du Soleil  Theme  Refined environment  Multiple productions  Artistic music and dance Eliminate Reduce RaiseCreate  Star performers  Animal shows  Aisle concession sales  Multiple show arenas  Fun and humor  Thrill and danger  Unique venue
  18.  The book also highlights 3 components of a good strategy:  Focus : Do not diffuse your efforts across all factors of competition  Divergence : The shape of your value curve looks totally different from other players’  Tagline : The tagline must deliver not only a clear message but advertise your offering truthfully 3 Components of a good Strategy
  19.  4 Action Framework & ERCC grid - 2 tools can be used in conjunction with the Strategy Canvas to develop a strategy that will create an uncontested market space.  The Four Action Framework is used to break the trade-off between differentiation and low cost to create a new value curve, using 4 key questions to challenge an industry’s logic and business model: 4 Action Framework & ERRC Grid Four Action Framework “There are four key questions to challenge an industry’s strategic logic and business model.” ERRC Grid “The grid pushes companies not only to ask all four questions in the four actions framework but also to act on all four to create a new value curve.”
  20. ERRC Grid Eliminate-Reduce-Raise-Create (ERRC) Grid pushes companies to specify the actions that they can eliminate and reduce, so they can communicate their strategy internally and take concrete action.
  21.  Plotting your company’s current and planned portfolios gives you perspective on your potential for growth. Your businesses or offerings fall into 3 key categories:  Settlers : Me-too offerings/businesses  Migrators : Offerings/businesses above market average  Pioneers : Offerings/businesses of unprecedented value  Pioneers are the drivers of your BOS and your most powerful sources of profitable growth, but settlers are typically today’s cash generators. Your goal is to have a balanced portfolio for current and future cash flow and growth. The Pioneer-Migrator-Settler (PMS) Map
  22. The Pioneer-Migrator-Settler (PMS) Map
  23. The Buyer Utility Map  This map shifts the focus to buyers, helping to identify the utility spaces that a product or service can potentially fill. The Buyer Experience Cycle (BEC) outlines the 6 stages of buyers’ experience, with a range of experiences within each stage. The utility levers cut across stages of the buyers’ experience.  Managers can use the map to consider ways to offer new/ different utility, and also ways to remove barriers that hinder conversion of non-consumers to consumers. Exceptional utility is achieved when the offering removes the greatest blocks to utility across the entire buyer experience cycle. This gives customers a compelling reason to use the product.
  24. The 6 Stages of Buyer Experience Cycle
  25.  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.  Managers 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 6 Stages of Buyer Experience Cycle
  26. Formulating Blue Ocean Strategy – 4 Key Principles Reconstruct Market Boundaries  Examine how the market is currently performing and competing, then create a strategy that is drastically different from the rest of the players.  The book outlines 6 paths you can take to identify blue ocean opportunities and reconstruct your market boundaries.
  27. Formulating Blue Ocean Strategy – 4 Key Principles Look across alternative industries:  These include products or services that have different functions and forms, but serve the same purpose. Look across strategic groups within industries:  i.e. those pursuing similar strategies. Draw on the distinctive strengths from different groups and eliminate and reduce everything else. Look across the chain of buyers:  Consider whether your industry focuses on the purchasers, users and influencers of a product or service. Identify if there is potential to unlock new value by shifting the customer focus. .
  28. Formulating Blue Ocean Strategy – 4 Key Principles Look across complementary product and service offerings:  Identify the context in which your product is used, including what happens before, during and after your product is used. That can shed light on the pain points you can eliminate. Look across functional or emotional appeal to buyers:  Consider how your industry competes primarily, then see if there are elements you can strip out of emotional appeal to compete functionally, or elements you can add to functional appeal to compete emotionally. Look across time:  Identify trends that have a high probability of impacting your industry, are irreversible and evolving in a clear trajectory, and participate in shaping external trends over time.
  29. Reach Beyond Existing Demand To maximize the size of the blue ocean, you need to look to 3 tiers of non-consumers. Focus on the tier that represents the biggest catchment at the time, but also explore and build on overlapping commonalities that applies to different tiers of non-consumers:  First tier : “Soon-to-be” non-consumers who are at the edge of your market, waiting to jump ship  Second tier : “Refusing” non-consumers who consciously choose against your market  Third tier : “Unexplored” non-consumers who are in markets distant from yours
  30. Getting the Strategic Sequence Right There are 4 key steps that must be covered, to develop a robust strategy. If the answer is “no” to any of the steps, you need to re- work the strategy until the item is addressed:
  31. Focus on the Big Picture Visualize your Strategy to unlock the creativity of people within your organization, help them see the blue oceans, and communicate the strategy for effective execution. This includes 4 components:  Visual Awakening  Visual Exploration  Visual Strategy Fair  Visual Communication
  32. Executing Blue Ocean Strategy  Overcome Key Organizational Hurdles  BOS represents a huge shift from status quo, the challenge of execution is amplified. The book recommends using the approach of “tipping point leadership” to overcome the 4 key hurdles to change:  Cognitive Hurdle (waking up employees to the need for change):  Rather than rely on numbers to convey the message, tipping point leaders focus on making people see and experience the harsh reality firsthand, in 2 ways:  Get managers to face the worst operational problems  Get managers to meet with their most disgruntled customers  Resource Hurdle (executing a strategic shift with fewer resources):  Rather than try to secure more resources, tipping point leaders focus on multiplying the value of the resources they have, in 3 ways:  Redistribute resources to hot spots  Redirect resources from cold spots  Horse-trade resources you don’t need for those that you need.
  33. Executing Blue Ocean Strategy  Motivational Hurdle (motivating key players to move fast & tenaciously):  Instead of trying to win over everyone, tipping point leaders focus on 3 areas of disproportionate influence :  Zoom in on Kingpins (key influencers)  Use fishbowl management for Kingpins (spotlight on their actions)  Atomize the challenge to bits that are relatable and attainable  Political Hurdle (overcoming age and treachery):  These can be overcome through 3 ways:  Leverage your angels  Silence your devils  Secure a consigliore in your top management team
  34. Executing Blue Ocean Strategy  Build Execution into Strategy  There will always be resistance to change, and much more so with BOS, as it pushes people out of their comfort zones and challenges past practices. To minimize the risk of distrust, non-cooperation and even sabotage, the book recommends a “fair process” in making and executing strategy. The Fair Process involves 3 “E Principles”:  Engagement:  Involving individuals in the strategic decisions that affect them  Explanation:  Helping everyone involved and affected to understand why the decisions are made as they are  Expectation Clarity:  Stating clearly the new rules of the game after a strategy is set
  35. Companies -Blue Ocean Strategic Moves
  36.  Businesses that employ “red ocean strategy” accept their industries’ prevalent strategies as given and compete for a larger slice of market share of existing markets.  Companies that take a “blue ocean strategy” approach create new, uncontested markets by extending their reach and appealing to new customers.  Red ocean companies endeavor to win existing markets through low price or differentiation. Competition is fierce and profits are limited.  Blue ocean companies can combine low costs with high differentiation to appeal to new, untapped market segments.  The Nintendo Wii exemplifies blue ocean strategy. The Wii created new demand among large swathes of the population who traditionally didn’t play video games. Key Take away…
  37.  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 Imitation Barriers to Blue Ocean Strategy
  38. Summary
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