17. Blue Ocean and Read Ocean Strategy PDF

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Slide complete della lezione numero 17 del corso di strategy and marketing dell'anno accademico 2020 / 2021. Blue Ocean and Read Ocean Strategy....

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Blue Ocean and Red Ocean Strategy Giuliano Noci, Dipartimento di Ingegneria Gestionale Politecnico di Milano

Red Ocean vs. Blue Ocean • Red oceans represent all the industries in existence today - the known market space. In red ocean industry boundaries are defined and accepted, and the competitive rules of the game are well understood. Here, companies try to outperform their rivals in order to grab a greater share of existing demand. • Blue oceans denote all the industries not in existence today - the unknown market space, untainted by competition. In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. Sources: W.C. Kim, R. Mauborgne, 2004 K.B. Yip ,Y.S. Lieu, 2009

Blue Oceans • There are two ways to create a blue ocean: •

In a few cases, companies can give rise to completely new industries (as eBay did with the online auction industry)

•

But in most cases, a blue ocean is created from within a red ocean when a company alters the boundaries of an existing industry (as Cirque du Soleil did with the circus industry)

Blue Ocean Strategy The logic behind blue ocean strategy is counterintuitive: It is not about technology innovation. Blue oceans seldom result from technological innovation. Often, the underlying technology already exists - and blue ocean creators link it to what buyers value You do not have to venture into distant waters to create blue oceans. Most blue oceans are created from within, not beyond, the red oceans of existing industries

Red Ocean vs. Blue Ocean Strategy Red Ocean strategy

Blue Ocean strategy

Compete in existing market space. 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 company’s Align the whole system of company’s activities with its strategic choice of activities in pursuit of differentiation differentiation or low cost. and low cost. Source: W. C. Kim, R. Mauborgne, 2004

Six Principles of Blue Ocean Strategy Formulation Principles

Execution Principles

1.Reach beyond existing

5.Overcome key

demand

organizational hurdles

2.Reconstruct market

6.Build execution into

boundaries

strategy

3.Focus on the big picture, not the numbers 4.Get the strategic sequence right

Page : 6

Reach Beyond Existing Demand u

First Tier: “Soon-to-be” noncustomers who are on the edge of your market, waiting to jump ship

u

Second Tier: “Refusing noncustomers who consciously choose against your market.

u

Third Tier: “Unexplored” non customers who are in markets distant from yours.

Third

Blu

ean c O e

Blue Ocean – Go for the Largest Catchment of Non-Customers

Example – Yellow Tail

Traditional Wine:

Yellow Tail:

•An elite, refined image in packaging with heavy use of wine terminology.

•No jargon. Simple and nontraditional label.

•Aging quality.

•Aging is not important. •Vibrant and fun.

•Prestige of a vineyard and its legacy.

•Sweeter and easier to drink.

•Complexity and sophistication of a wine’s taste, such as tannins and oak.

•Only one Red (Shiraz) and one White (Chardonnay).

•A diverse range of wines to cover all varieties of grapes & consumer preferences

Example – Yellow Tail Tier 1 – Wine drinker market

Tier 3 – Anyone that drinks water

Second First Tier Tier

Yellow Tail did not focus on the wine market only

Third Tier

Red Wine X

Tier 2 – “Easier to drink” market, eg., beer, cocktails, soft-drink

Yellow Tail created a Blue Ocean by making its wine more appealing to the bigger population

Reach Beyond Existing Demand

Entertainment Theater Performance

Entertainment Theater

Circus

Circus X

Source: KB Yip/YS Lieu

Page : 10

Example – Nintendo Nintendo Wii Electronic Game Industry

Girls Other Males

Nintendo created a Blue Ocean by reducing the complexity, add the ease of use and fun!

Everyone Else

Young Antisocial Males

Source: KB Yip/YS Lieu

Page : 11

Break the value/cost trade-off: Value Innovation Value innovation is created in the region where a company’s actions favorably affect both its cost structure and its value proposition to buyers. Costs Cost savings are made by eliminating and reducing the factors an industry competes on.

Value Innovation

Buyer Value

Buyer value is lifted by raising and creating elements the industry has never offered

Six Principles of Blue Ocean Strategy Formulation Principles

Execution Principles

1.Reach beyond existing

5.Overcome

demand

organizational hurdles

2.Reconstruct market

6.Build execution into

boundaries 3.Focus on the big picture,

key

strategy

not the numbers 4.Get the strategic sequence right

Page : 13

Red Ocean vs. Blue Ocean Strategy Look across:

Head-to-head competition

Blue Ocean Creation

Focuses on rivals within its industry

Look across alternative industries

Focuses on competitive position within strategic group

Look across strategic groups within industry

Focuses on better serving the buyer group

Redefines the industry buyer groups

Complementary product and service offerings

Focuses on maximizing the value of product and service offerings within the bounds of its industry

Look across to complementary product and service offerings

Functionalemotional Appeal to Buyers

Focuses on improving price performance within the functional-emotional orientation of its industry

Rethinks the functionalemotional orientation of its industry

Industry Strategic group Buyer group

Time

Focuses on adapting to external trends as Participates in shaping external they occur trends over time

Blue Ocean Strategy Tools

u u

Strategy Canvas

Eliminate-Reduce-RaiseCreate (ERRC) Grid

What is Strategy Canvas? Degree of which each competitor offers/invests in each factor

Value Curves

High Competitor 1

Competitor 2

Offering Level

Mid

Your Company Low

Factor 1

Factor 2

Factor 3

Factor 4

Factor 5

Competing Factors

Factor 6

Factor 7

Factor 8

Graphical Representation of Strategy + Big Picture View + Landscape Scanning + Relative Positioning vs. Competitors

Factors that the industry competes & invests, also potential areas where customer value could be created.

4 Actions Framework Strategically Reduce Cost

Reduce Which factors should be reduced well below the industry's standard?

Eliminate Which of the factors that the industry takes for granted should be eliminated?

Raise

A New Value Curve

Which factors should be raised well above the industry's

Create

Strategically Invest in

Which factors should be created that the industry has never offered?

Eliminate-Reduce-Raise-Create (ERRC) Grid Eliminate

Raise

Reduce

Create

Source: KB Yip/YS Lieu Page : 18

The Strategy Canvas of Cirque du Soleil Eliminate

High

Reduce

Raise

Create

Ringling Brothers

offering level

Cirque du Soleil

Smaller Regional Circus

Low Price

Animal Shows Star Performers

Aisle Concessions

Multiple Show Arenas

Theme

Thrills & Danger Fun & Humor

Unique Venue

Refined Viewing Environment

Multiple Productions Artistic Music & Dance

Source: Kim & Mauborgne 2006

Reconstruct Market Boundaries u

There are 6 pathways to reconstruct the market boundaries Across Alternat. Industry Across Strategic Groups Across Buyer Groups

Red Ocean

Across Complementary Scope of Products & Services Across Functional Emotional Orientation Across Time

Blue Ocean

Across Alternative Industries: BOS Example Alternatives include products or services that have different functions and forms but the same purpose.

Commercial Airline • Pay per use Good • No Maintenance

Corporate Jet

Corporate Jet

Commercial Airlines

• Less Travel Time • Less Hassle • P2P

• Not P2P

Bad

• High Travel Time • Security Concern

1/16 Ownership 50 hrs/yr @ $375k • High Cost

Point-to-point, Faster, Less Hassle, Increase Productivity

Smaller Airplanes, Airport, Less Staff

Strategy Canvas – NetJets

Eliminate

Raise • Speed of travel time • Ease of travel • Flexibility and Reliability • In flight service

Reduce • Price • Need for customers to manage aircraft • Deadhead costs

Create

Strategy Canvas – NetJets

Exercise Develop the strategic canvas and the ERCC grid for a low-cost airline company

Reconstruct Market Boundaries u

There are 6 pathways to reconstruct the market boundaries Across Alternat. Industry Across Strategic Groups Across Buyer Groups

Red Ocean

Across Complementary Scope of Products & Services Across Functional Emotional Orientation Across Time

Blue Ocean

Across Strategic Groups BOS Example uStrategic Groups –Groups of companies within an industry that pursue a

similar strategy. uE.g., Automobiles – Luxury (Mercedes, BMW), Economical (Toyota, Proton). Traditional Health Good

Bad

• Full range exercise and sporting options

• Expensive. • Not easily accessible.

Home Exercise • Low Cost

Traditional Health Club

• Privacy

Womanly Fun

Easy to Use Machine

• Low motivation

Peer Support

• Complicated. • Lack of Privacy

Affordable Home Exercise

>10k Outlets & > 4M members

Strategy Canvas – Curves

Eliminate

Raise • Non threatening same sex environment

Reduce § Price § Amenities § Workout equipment § Availability of Instructors

Create • Womanly fun atmosphere

Strategy Canvas – Curves

Cur ve s

Hom e Exe r cis e Progr am

Tr aditional He alth Clubs

Low

Price

Amenit ies

W orko ut Eq uipment

W o rko ut Time

A v ailab ilty o f ins tr uc t o rs

Enviro nment enc o uraging disc ipline an d mo t ivatio n in exercise

No nthreaten ing same - s ex en viro nmen t

Co nv en ien ce

W o menly fun at mo s p he re

Reconstruct Market Boundaries u

There are 6 pathways to reconstruct the market boundaries Across Alternat. Industry Across Strategic Groups Across Buyer Groups

Red Ocean

Across Complementary Scope of Products & Services Across Functional Emotional Orientation Across Time

Blue Ocean

Across Chain of Buyers BOS Example uThere is a chain of ‘buyers’ who are directly or indirectly involved in the

buying decision. Purchasers – pay for the product or service Users – use the product or service Influencers – influence the decision in the purchase Example : Novo Nordisk - from insulin producer to a diabetes care company Traditionally

Prescribe

Better Medicine

Better Pricing

Insulin Industry

Now

Request

Easy To Use

No Unpleasant Feeling

Across Chain of Buyers BOS Example Nintendo Wii Everyone is a gamer!

Everyone can play! Reduced Graphics

Nintendo initially outsold Sony and Microsoft 6:1. Can’t keep product on shelves!

Family Fun Wii Fit

Increased motion control

Strategy Canvas : Nintendo Wii

Eliminate • Complexity • Movie

Raise

• Game Library • Ease of Use

Reduce

Create

§ Price § Graphics

• Interaction/Group Fun

§ Physics § Online Pay

• Magic Wand

Strategy Canvas : Nintendo Wii

High Nintendo Wii

Game Industry

Low

ice Pr

ics ph ra G

i cs ys Ph O

ne nli

y Pa

ity ex pl m Co

ie ov M e am G

y ar br Li

se Ea

se U f o c ra te In

up ro G n/ tio

n Fu ic ag M

W

d an

Reconstruct Market Boundaries u There

are 6 pathways to reconstruct the market boundaries Across Alternate Industry Across Strategic Groups Across Buyer Groups

Red Ocean

Across Complementary Scope of Products & Services Across Functional Emotional Orientation Across Time

Blue Ocean

Across Complementary Products and Services • Largest EMS (Electronics Manufacturing Services) in the World. • Ranked 132 at Fortune Global with $51B revenue, higher than Intel (188), Motorola (200), Flextronics (292). • Employs 550,000 employees worldwide with design centers/factories at >10 countries. • Make Apple Mac/iPod/iPhone, Intel motherboards, Dell, HP, Sony PlayStation, Nintendo Wii, Microsoft Xbox, cell phones for Nokia/Samsung/Motorola/LG/Sony- Ericsson. • Shenzhen facility at Longhua • Covers about a square mile. • Has its own fire brigade, hospital, swimming pool, restaurants, banks, supermarkets, internet cafe.

BOS Example - Foxconn Repair & Servicing Repair & Servicing Logistics & Distribution Distribution

Conventional EMS Mass Production

Mass Production

Prototyping

Logistics VI Part Sourcing & Production Inventory Control Prototyping

Design

Sourcing

Vertical Integration (VI) Model

Design

Source: KB Yip/YS Lieu Page : 36

Strategy Canvas - Foxconn High

Foxconn

Other EMSes

Low

st Co

ss ne e iv ti t pe m Co

T

gy olo n h ec

s es oc r P

y er l iv e D

Q

lity ua rti Ve

l ca

I

r eg nt

n io at

Source: KB Yip/YS Lieu Page : 37

Reconstruct Market Boundaries u There

are 6 pathways to reconstruct the market boundaries Across Alternate Industry Across Strategic Groups Across Buyer Groups

Red Ocean

Across Complementary Scope of Products & Services Across Functional Emotional Orientation Across Time

Blue Ocean

Across Functional or Emotional Appeal BOS Example – QB House uSome industries compete principally on price and function - their

appeal is rational. uOther industries compete largely on feelings - their appeal is emotional. • Pricey • Extras • Feelings

• Simple • Low Cost Functional

Emotional

Traditional Hair Saloon QB House • Emotional Service -> None • Hair Wash -> Air Wash • $9

• Hot Towels • Tea/Coffee • Special Hair /Skin Treatments • $27 - $45

Reconstruct Market Boundaries u

There are 6 pathways to reconstruct the market boundaries Across Alternat. Industry Across Strategic Groups Across Buyer Groups

Red Ocean

Across Complementary Scope of Products & Services Across Functional Emotional Orientation Across Time

Blue Ocean

Across Time BOS Example – iTunes

Apple launched iTunes online music store

Napster started online music file sharing service

1999

Apple teamed up with major Music & Picture Companies § Sell Individual song / entire album § 30 sec free listening § Strategically price

> 2 billion illegally music flies were being traded every month

2003

§ iTunes had sold > 4 billion songs § 20 million songs on Dec 25, 2007

2008

Source: KB Yip/YS Lieu

Across Time uA

video sharing website for upload, view and share video clips

u User

can post video 'responses' and subscribe to content feeds

u Created

in mid-February 2005 by three former PayPal employees

u Uses

Adobe Flash technology to display a wide variety of usergenerated video content u Acquired by Google in Nov 2006 for $1.6B

It is the third visited website after Google and Facebook

Strategy Canvas – YouTube Eliminate • Need for HTML know-how • Hassle of undergoing numerous steps

Raise • Web space allotted per user

• Fees Reduce § Uploading / downloading time

Create • Ease of Use technology • FLV technology • Ready-made website • Social networking • Video tags & Search

Source: KB Yip/YS Lieu

Strategy Canvas – YouTube High YouTube

Ordinary Webhosting Low

Page : 44

Six Principles of Blue Ocean Strategy Formulation Principles

Execution Principles

1.Reach beyond existing

5.Overcome key

demand

organizational hurdles

2.Reconstruct market

6.Build execution into

boundaries 3.Focus on the big picture,

strategy

not the numbers 4.Get the strategic sequence right

Page : 45

Four Steps of Visualizing Strategy The four steps of visualizing strategy builds on the six paths of creating blue oceans and involves a lot of visual stimulation in order to unlock people’s creativity. The four steps include visual awakening, visual exploration, visual strategy fair, and visual communication. 1.

Visual Awakening

2.

Visual Exploration

• Compare your business with your competitors’ by drawing your “as is”

• Go into the field to explore the six paths to creating blue oceans

strategy canvas

• Observe the distinctive advantages of alternative products and services

• See where your strategy needs to change

• See which factors you should eliminate, create, or change

3.

Visual Strategy Fair

4.

Visual Communication

• Draw your “to be” strategy canvas based on insights from field observations

• Distribute your beforeand-after strat...