Transcript Reconstruct Market _x0002_Boundaries

Create New Markets
 Stop trying to beat the competition
 Red Oceans vs. Blue Oceans
 Red Oceans
 Defined boundaries
 Accepted rules
 Blue Oceans
 Untapped market space
 High growth opportunity
Red vs. Blue
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 a firm’s
activities with its strategic choice of
differentiation or low cost.
Align the whole system of a firm’s
activities in pursuit of differentiation and
low cost.
Value Innovation
 The cornerstone of blue ocean strategy.
 What is value innovation?
 Make the competition irrelevant.
 Create a leap in value.
 Place equal emphasis on value and innovation.
 Value innovation occurs when companies align
innovation with utility, price, and cost positions.
The Strategy Canvas
 Captures the current state of play in the known market
space.
 Propels you to action by reorienting your focus from
competitors to alternatives and from customers to
noncustomers.
Wine Strategy Canvas
Four Actions Framework
Eliminate-Reduce-Raise-Create Grid
Yellow Tail
Three Characteristics of a
Good Strategy
Focus
Divergence
Compelling Tagline
Reach Beyond Existing
Demand
 Companies need to deepen their understanding of the
universe of noncustomers.
 This offers big blue ocean opportunities
 Three Tiers of Noncustomers
 Soon-to-be noncustomers
 Refusing noncustomers
 Unexplored noncustomers
First Tier
 These are the “soon-to-be” noncustomers
 They are labeled as being on the edge of your market
waiting to jump ship.
 They minimally use the current market offerings to get
by as they search for better
 They will eagerly jump ship
 The first tier of noncustomers is an ocean of untapped
demand waiting to be released
Second Tier
 Refusing noncustomers
 People who either do not use or can’t afford to use the
current market offerings
 Their needs are either dealt with by other means or just
ignored
Third Tier
 “Unexplored” noncustomers
 They are usually the farthest away from an industry’s
existing customers
 Have not been targeted or thought of as potential
customers by any player in the industry.
 They belong to other markets.
Go for the Biggest
Catchment
 Focusing on existing customers is good to gain a
competitive advantage, but it is not likely to produce a
blue ocean that expands the market
 Don’t focus on any specific tier
 Look across the tiers
 Focus on the tier that represents the biggest catchment
Get the Strategic Sequence
Right
 Companies need to build their blue ocean strategy in
the sequence of
 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 your adoption hurdles in actualizing
your business idea?
Six Utility Levers
 Customer Productivity, simplicity, convenience, risk, fun and image,
and environmental friendliness
 In each lever you want to find which stage of the buyer experience
model has the biggest blocks.
 The buyer experience model consists of:
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Purchase
Delivery
Use
Supplements
Maintenance
Disposal
Blue Ocean Index
 Companies should build their blue ocean strategy in
the sequence of utility, price, cost, and adoption.
 The BOI provides a simple but robust test of this
system
 This system help to show where they went wrong with
respect to the four criteria
Where did they go wrong
 Philips CD-i- Did not create buyer utility, priced out of
reach from the mass of buyers, took more than 30 minutes
to explain to customers, left no incentive for sales clerks to
sell
 Motorola Iridium-Unreasonably expensive, high production
costs. Provided no attractive utility. Had a poor sales and
marketing team.
 NTT DoCoMo i-mode- (They did right) Ignored the
technology race and brought the internet to cell phones.
Offered exceptional buyer utility with an affordable low
price
Reconstructing Market
Boundaries
 The first principle of blue ocean strategy is to reconstruct
market boundaries to break from competition and create
blue oceans.
 Six Paths of Framework:
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Look across Alternative Industries
Look across strategic groups within industries
Look across the chain of buyers
Look across complementary product and service offerings
Look across functional or emotional appeal to buyers
Look across time
 Personal and Beauty
 House and Home
 Health and Wellness
 Baby and Family
 Pet Care and Nutrition
 By thinking across conventional boundaries of
competition, you can see how to make strategic moves
that reconstruct established market boundaries and
create blue oceans.
 Diversifying the company’s horizons can lead to
uncontested market space and making the competition
irrelevant.
Focus on the Big Picture, not the
numbers
 Instead of a planning strategy which is mainly done by
preparing documents, its better to draw it on a Strategy
Canvas in order to become a blue ocean company.
 By building a company’s strategic planning process around
a strategy canvas, a company and its managers focus their
main attention to the big picture rather than becoming
immersed in numbers and jargon and getting caught up in
operational details.
 Use the four steps of visualizing strategy to help accomplish
creating a strategy canvas.
 Using the Pioneer-Migrator-Settler (PMS) Map at the
corporate level to help visualize strategy.
 All the details will fall into place more easily if the
managers start with the big picture of how to break away
from the competition.
 Strategic planning is one of the most important business
exercises because it keeps the company moving in a
positive direction.
 The Big Picture process allows managers and employees to
look at their business from a much larger, more strategic
way than focusing on just the details
 Could very well be the basis of a company’s industry
strategy, based on the fact it helps shape a persons image
of what kinds of businesses do they want to be in
 Four hurdles to strategy execution:
 Cognitive: red oceans are comfortable, but may not be path
to future profitable growth
 Limited resources: resources are being cut
 Motivation: motivate key players to break from status quo –
this takes time that managers don’t have
 Politics: internal and external resistance to change
Tipping Point Leadership
 Flip conventional wisdom by using tipping point leadership
 Allows you to overcome 4 hurdles fast and at low cost, and
wins employees’ backing for change to break from status
quo
Example: NYPD
 Builds on reality that there are people, acts, and activities
that exercise a disproportionate influence on performance
Break Through Cognitive
Hurdle
 Ride the “Electric Sewer”
 Come face-to-face with worst operational problems
 Meet with Disgruntled Customers
 Get managers out of office to see operational horror;
listen to customers firsthand
Jump the Resource Hurdle
 Redistribute Resources to Your Hot Spots
 Reallocate staff to where the work is needed
 Redirect Resources from Your Cold Spots
 Engage in Horse Trading
 Trade resources you don’t need for those you do need
Jump the Motivational
Hurdle
 Zoom in on Kingpins
 Focus efforts of change on key influencers in the
organization – natural leaders who are well respected and
persuasive
 Place Kingpins in a Fishbowl
 Shine spotlight on actions in repeated and highly visible way
 Actions and inaction are made transparent so that everyone
can see who is shining and who is lagging
 Atomize to Get the Organization to Change Itself
 Relates to framing of the strategic challenge
 People need to believe that strategic challenge is attainable
Knock Over the Political
Hurdle
 Secure a Consigliere on Your Top Management
Team
 Along with strong functional skills such as marketing,
operations, and finance, tipping point leaders also engage
a consigliere
 Leverage Your Angels and Silence Your Devils
 Don’t fight alone; create a win-win outcome for both
detractors and supporters
 Challenge Conventional Wisdom
 Tipping point leadership changes mass by focusing on
extremes: people, acts, and activities
 Sixth principle of blue ocean strategy
 To build people’s trust and commitment deep in the ranks
and inspire their voluntary cooperation, companies need to
build execution into strategy from the start.
 Allows companies to minimize management risk of
distrust, noncooperation, and sabotage.
 Poor process can ruin strategy execution
The Power of Fair Process
 When fair process is exercised in strategy-making process,
people trust that a level playing field exists.
 Three E Principles of Fair Process
 Engagement
 Explanation
 Expectation clarity
 Why does fair process matter?
 Intellectual and emotional recognition
 Individuals seek recognition of their value as human beings
 They seek recognition that their ideas are sought after and
given thoughtful reflection
Fair Process and Blue
Ocean
 Commitment, trust, and voluntary cooperation are
intangible capital, not merely attitudes or behaviors
 When there is trust, there is heightened confidence in
one another’s intentions and actions
 When there is commitment, people are willing to
override personal self-interest in the interests of the
company
Barriers to Imitation
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Some are operational, some are cognitive
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More often than not, blue ocean strategy will go without credible challenges for 10-15 years
Ex: Cirque de Soleil, Southwest Airlines, FedEx, Home Depot
Types of barriers:
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Innovation does not make sense on conventional strategic logic
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Brand image conflict
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Natural monopoly – size of market cannot support another player
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Patents or legal permits
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High volume generated by value innovation leads to rapid cost advantages, placing imitators at
ongoing cost disadvantage
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Network externalities
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Politics resisting change
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When company offers leap in value, it creates brand buzz that competitors can rarely overcome
When to Value-Innovate
Again
 Eventually almost every BOS will be imitated
 To avoid trap of competing, monitor value curves on strategy
canvas
 When company’s value curve still has focus, divergence, and
compelling tagline, RESIST temptation to value-innovate
again and focus on lengthening, widening, and deepening
your rent stream through operational and geographical
expansion
 As rivalry intensifies and total supply exceeds demand, and
competitors’ value curves begin to converge with yours, reach
out for a new blue ocean
Takeaways
 6 principles of blue ocean strategy in this book should
serve as essential pointers for every company thinking
about its future strategy
 Because companies already understand how to
compete in a red ocean, they need to learn how to
make competition irrelevant
 Creating blue oceans is not a static achievement but a
dynamic process