Blue Ocean Strategy Book Review
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Transcript of Blue Ocean Strategy Book Review
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Blue Ocean StrategyBook Review
Meghan DavidsonBerklye Dominguez
Justin PickardMichael Simpson
Justin Vargas
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Canada’s Largest Cultural Exports Created by Guy Laliberte in 1984 Global champion of the circus industry Circus/Theatre Hybrid
Cirque du Soleil
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Red/Blue Ocean Comparison
Red Ocean Blue Ocean
Represents all the industries in existence today.
The known market Industry boundaries
are defined and accepted, and the competitive rules of the game are known
Competition-based
• Represents all the industries NOT in existence today
• The unknown market• It is defines by untapped
market space, demand creation, and the opportunity for highly profitable growth
• Innovation-based• Unlimited busniess
opportunities
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Why create Blue Oceans?
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The cornerstone of Blue Ocean Strategy. Focuses on making the competition
irrelevant by creating a leap in value for buyers and your company, thereby opening up new and uncontested market space.
Occurs by aligning innovation with utility, price and cost positions.
Value Innovation
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Value Innovation
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Blue Oceans vs. Red Oceans
Blue Ocean Red Ocean
• Create uncontested market space
• Make the competition irrelevant
• Create and capture new demand
• Break the value-cost trade-off
• Align the whole system of a firm’s activities in pursuit of differentiation and low-cost
• Compete in existing market space
• Beat the competition• Exploit existing demand• Make the value-cost
trade-off• Align the whole system
of a firm’s activities with its strategic choice of differentiation or low cost
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Chapter 2
Analytical Tools and Framework
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• Strategy Canvas– Strategy canvas is both a diagnostic and an
action framework for building a compelling blue ocean strategy. It serves two purposes:• Captures current state of play in the known market
space• Captures the offering level that buyers receive
across these competitive factors– The value curve is a graphic depiction of a
company’s relative performance across its industry’s factors on competition.
Analytical Tools and Frameworks
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Four Actions Framework
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It pushes them to simultaneously pursue differentiation and low cost to break the value-cost trade off.
It immediately flags companies that are focused only on raising and creating and thereby lifting the cost structure and often overengineering products and services - a common plight in many companies.
It is easily understood by managers at any level, creating a high level of engagement in its application.
Because completing the grid is a challenging task, it drives companies to robustly scrutinize every factor the industry competes on, making them discover the range of implicit assumptions the make unconsciously in competing.
Eliminate-Reduce-Raise-Create Grid
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ERRC Grid
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Focus◦ A firm does not diffuse its efforts across all key
factors of competition Divergence
◦ Diverge from the other players Compelling Tagline
◦ Strategic profile is clear; a fun simple to follow slogan Ex: Nike: Just do it!
Characteristics of a Good Strategy
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Reconstruct market boundaries to break from the competition and create blue oceans
Successfully identify blue ocean opportunities that exist
Six Path Framework pattern for creating blue oceans
Ch.3-Reconstruct Market Boundaries
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Path 1 & Path 2
Path 1: Look Across Alternative Industries
Path 2: Look Across Strategic Groups within Industries
A company not only competes with other firms in their industry but also with companies in those other industries that produce alternative products or services
Ex: NetJets and airlines
Blue Oceans can be unlocked by looking at groups of companies within an industry that pursue a similar strategy
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Path 3 & Path 4
Path 3: Look Across the Chain of Buyers
Path 4: Look Across Complementary Product & Service offering
The purchasers who pay for the product or service may differ from the actual users, and in some cases there are important influencers as well.
Untapped value is often hidden in complementary products and services
Services in products have been traditionally defined
Ex: Phillips and British Teakettle
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Path 5 & Path 6
Path 5: Look Across Functional or Emotional Appeal to Buyers
Path 6: Look Across Time
Competition in industry based on rational and emotional appeal
Companies who challenge appeals can find new market space
Ex: Quick Beauty House and haircuts
All industries are subject to external trends that affect business over time, and looking at trends with right perspective can show you blue ocean opportunities
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Focusing on the big picture and not numbers is key to mitigating risk
Drawing your strategy canvas is important to identifying the key factors of competition
Four Steps of visualizing strategy is important to unlock people’s creativity
Ch.4-Focusing on the Big Picture, Not the Numbers
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Step 1 & Step 2
Step 1: Visual Awakening Step 2: Visual Exploration
Compare your business with your competitors by drawing your “as is” strategy canvas
See where your strategy needs to change
Go into field to explore the six paths to create blue ocean
Observe the distinct advantages and alternatives products and services
See which factors you should eliminate, create, or change
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Step 3 & Step 4
Step 3: Visual Strategy Fair
Step 4: Visual Communication
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 your company to close the gaps to actualize the new strategy
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Visualizing strategy at the corporate level◦ Using the Strategy Canvas◦ Using the Pioneer-Migrator-Settler Map
Overcoming the limitations of strategic planning ◦ Should be creative driven, and more
motivational , invoke willing commitment,
Ch.4-Focusing on the Big Picture, Not the Numbers Cont.
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Reach Beyond Existing Demand
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First tiers noncustomers◦ These are “soon to be” customers
Pret A Manger is a British fast food company who located a growing number of first tier noncustomers.
Three tiers of noncustomers
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Second tier noncustomers◦ These are “refusing” noncustomers. Customers
either find the offering unacceptable of beyond their means.
◦ JCDecaux example• Third tier noncustomers
These are “unexplored” noncustomers. Teeth whitening example
Three tiers cont.
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Get the Strategic Sequence Right
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Testing for exceptional Utility From Exceptional Utility to Strategic Pricing
◦ Step 1: Identify the Price Corridor of the Mass◦ Step 2: Specify a Level Within the Price Corridor• From Strategic Pricing to Target Costing
Ch.6 cont.
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From Utility, Price, and Cost to Adaptation◦ Employees◦ Business Partners◦ The General Public
• The Blue Ocean Idea Index
Ch. 6 cont.
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Chapter 7Overcome Key Organizational Hurdles
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There are four hurdles managers face once a blue ocean company has developed. These hurdles are cognitive, limited resources, motivation, and politics.
Tipping point leadership is necessary to overcome these hurdles.
This style of leadership allows you to overcome these four hurdles at low cost and fast while winning employees’ support in executing a break from the status quo.
Bill Bratton of the NYPD
Tipping Point Leadership
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Tipping point leaders make people aware of the need for a strategic shift and instead of relying on numbers to break through the cognitive hurdle, they make people experience the need for change in two ways:◦ Ride the “electric sewer”◦ Meet with disgruntled customers
Break Through the Cognitive Hurdle
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After organization members realize the need for change, then leaders are faced on the problem of limited resources.
Tipping point leaders concentrate on multiplying the value of the resources they have. There are three factors of disproportionate influence that leaders can use:◦ Redistribute resources to your hot spots◦ Redirect resources from your cold spots◦ Engage in horse trading
Jump the Resource Hurdle
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Then there is the need to execute blue ocean strategy by motivating employees and doing all this with limited resources.
Follow three factors of disproportionate influence in motivating employees:◦ Zoom in on kingpins◦ Place kingpins in a fishbowl◦ Atomize to get the organization to change itself
Jump the Motivational Hurdle
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It is impossible to escape organizational politics in corporate and public life.
In order to overcome these political forces, focus on three disproportionate influence factors:◦ Secure a consigliere on your top management
team◦ Leverage your angels◦ Silence your devils
Knock Over the Political Hurdle
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Chapter 8Build Execution Into Strategy
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The sixth principle of blue ocean strategy is in order to build people’s trust and commitment and inspire their voluntary cooperation, companies need to include execution into strategy from the start.
Poor processes can ruin strategy execution. When procedural justice was exercised,
people were more satisfied with the outcome and their commitment.
The Power of Fair Process
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Three mutually reinforcing elements define fair process and all members of a corporation look to these. They are:◦ Engagement◦ Explanation◦ Expectation clarity
The Three E Principles of Fair Process
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Fair process matters to individuals’ emotional and intellectual recognition.
It is important for people to feel recognized for their ideas and thoughts, and then they want to share more of their knowledge and give more of their efforts.
On the other hand, if fair process is violated, people don’t feel the need to give effort, expand ideas and knowledge, or listen to others’ insights.
Intellectual and Emotional Recognition
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Voluntary cooperation, commitment, and trust are intangible capital.
People’s confidence in one another is higher when they have trust.
With commitment, people are willing to give up their own interests for the better interest of the company.
Companies that have successfully executed a blue ocean strategy say it would have been possible without these things.
Fair Process and Blue Ocean Strategy
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Once a company creates a blue ocean, sooner or later imitators will follow
As the original company and the early imitators succeed and expand the blue ocean, more companies will jump in.
This raises the question: when should a company reach out to create another blue ocean
Chapter 9: Conclusion: The Sustainability and Renewal of Blue Ocean Strategy
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A blue ocean strategy brings with it considerable barriers to imitation◦ Blue ocean strategy may conflict with other companies’ brand
image -- ex: The Body Shop◦ Natural monopoly -- ex: Kinepolis◦ Patents or legal permits block imitation ◦ High volume leads to rapid cost advantage for the value
innovator, discouraging followers from entering the market --ex: Wal-Mart
◦ Network externalities discourage imitation --ex: eBay◦ Imitation often requires significant political, operational and
cultural changes --ex: southwest airlines◦ Companies that value-innovate earn brand buzz and a loyal
customer following that tends to shun imitators -- ex: Microsoft
Barriers to Imitation
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As you can see the barriers are high and that is why we have seldom rapid imitation of the blue ocean strategy
Also blue ocean strategy is a system approach that requires not only getting each strategic element right but also aligning them in an integral system to deliver value innovation
Therefore, imitating a system is not easy
Barriers to Imitation cont.
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Eventually almost every blue ocean strategy will be imitated
You need to stay away from trying to compete with the new competition or over time your value curve will begin to converge with your competition
To avoid competing, you need to monitor value curves on the strategy canvas---it alerts you to reach out for another blue ocean when your value curve begins to converge with those of the competition, and prevents you from starting a new blue ocean when there is still a huge profit to be collected
When to Value-Innovate Again
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As rivalry intensifies, bloody competition commences and the ocean will turn red
As competitors value curve converges toward yours, you should begin reaching out for another value innovation to create a new blue ocean
When to Value-Innovate Again
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The six principle of blue ocean strategy should serve as essential pointers for every company thinking about its future strategy if it aspires to lead the increasingly overcrowded business world
Companies should go beyond competing for share to creating blue oceans and how to make competition irrelevant
conclusion