Blue Ocean slides (1)

Blue Ocean Strategy Strategic entrepreneurship The process of seeking opportunities and sources of sustained competitive advantage that lead to superior firm performance Entrepreneurship: the undertaking of innovation in combination with financial and business skills with the aim of accomplishing economic gains Commonly: the start-up of new business ventures Sometimes: the undertaking of corporate ventures (e.g., spin-offs) Strategic entrepreneurship: managing the firm in such a way as to undertake new business ventures that lead to superior performance in the long term It requires creativity, imagination, and opportunities; dealing with risk; stimulating and supporting innovation; managing change; mastering technology; and (sometimes) designing new business models Strategic entrepreneurship Firms may undertake offensive strategies, that are explicitly intended to undercut competitors within the same industry and markets Offensive strategies generally aim to result in higher market share, higher profit margins, and higher growth rate than competitors They consist of Offering comparable products/services at lower price than competitors Introducing next-generation technology products faster than competitors Imitating ideas and tactics of competitors Focusing attacks to the most lucrative segments of competitors and to the weakest competences of competitor Strategic entrepreneurship In contrast, avoidance strategies relate to steering clear from face-toface confrontation with competitors (especially, when they are stronger!) Avoidance strategies entail finding ways to enter the market and gain market share in a way that does not (necessarily) harm competitors, therefore making competitors' retaliation more unlikely to happen Strategic entrepreneurship may be conceived as a type of avoidance strategy, insofar as it relates to “inventiveness” to define new approaches to the market that not necessitate direct confrontation with other firms Background Applications Framework Blue Ocean Strategy Importance to Business Create Uncontested Market Space Implementation Invent and Capture New Demand Considerations Examples Customer Value + Low Cost Background Applications Framework Blue Ocean Strategy Importance to Business Implementation Considerations Examples Advances in technology Brand Similarity and price competition Price Wars and Shrinking Profit Margins Improved Productivity Why Blue Ocean Strategy must be Considered Greater manufacturing capacities Globalization effects Background Applications Framework Implementation Considerations Examples Blue Ocean Strategy Core Principles Grounded in Data • 10 year study/150 strategic moves • 30 industries/100 years Pursues Differentiation + Low Cost • “and-and” not “either-or” • Reduce competing factors/create new factors Creates Uncontested Market Space • Make competition irrelevant • Look outside the boundaries Tools and Frameworks • Underlying frameworks exist as a guide • Built on common strategic patterns of Blue Ocean Strategy Background Applications Framework Implementation Blue Ocean Strategy For Innovation and Growth Value Innovation vs Innovation ∗ Innovation: tech-driven, market pioneering, futuristic ∗ Value Innovation: align innovation with utility, price, cost position 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 Considerations Examples Background Applications Framework Implementation Considerations Examples Blue Ocean Strategy vs Traditional Competitive Strategies ∗ Traditional Competitive Strategies: ∗ Cost Leadership (Ex: Walmart) ∗ Differentiation (Ex: BMW) ∗ Focus Strategy (Ex: LinkedIn) ∗ Traditional Competitive Strategy vs Blue Ocean Strategy ∗ Competitive Advantage - Porter’s Five Forces / Generic Strategies ∗ Blue Ocean Strategy is a: ∗ Value Innovation Strategy – competes in an uncontested market space ∗ “Combination Strategy”: pursue differentiation while controlling costs ∗ Achieved via the delivery of features that have a highest marginal benefit to customer needs Red Ocean Vs Blue Ocean •Compete in existing market space •Beat the competition •Exploit existing demand •Make the value-cost tradeoff •Align the whole system of a firm’s activities with its strategic choice of differentiation or low cost • Create uncontested market space • Make the competition irrelevant • Create and capture new demand • Break the value-cost tradeoff • Align the whole system of a firm’s activities in pursuit of differentiation and low cost An example of Blue Ocean Strategy: [yellow tail] The setting: the US wine industry, in 2000 The third largest aggregate consumption of wine worldwide Highly competitive industry Large share of California-based producers Several imported wines from France, Italy, Spain, Chile, Australia and Argentina Consolidation (8 companies produce more than 75% wine) Stagnant demand Battle for shelf space Rising marketing & advertising costs An example of Blue Ocean Strategy: [yellow tail] The setting: the US wine industry, in 2000 The third largest aggregate consumption of wine worldwide Highly competitive industry Large share of California-based producers Several imported wines from France, Italy, Spain, Chile, Australia and Argentina Consolidation (8 companies produce more than 75% wine) Stagnant demand Battle for shelf space Rising marketing & advertising costs An example of Blue Ocean Strategy: [yellow tail] But 2000, Casella Wines introduced [yellow tail] in the US 2001, about 112,000 cases were sold 2002, it became the fastest growing brand in the histories of both the Australian and the US wine industry; it was number one imported wine into the US (more than French and italian wines) 2003, it became number one red wine in 750ml bottle sold in the US (more than the same Californian wines) 2005, about 7,500,000 cases sold An example of Blue Ocean Strategy: [yellow tail] But 2000, Casella Wines introduced [yellow tail] in the US 2001, about 112,000 cases were sold 2002, it became the fastest growing brand in the histories of both the Australian and the US wine industry; it was number one imported wine into the US (more than French and italian wines) 2003, it became number one red wine in 750ml bottle sold in the US (more than the same Californian wines) 2005, about 7,500,000 cases sold The Strategy Canvas and the Four-Actions Framework A fresh way to design innovative products: the four actions framework Reduce Which factors should be reduced well below the industry's standards? Eliminate Which of the factors that the industry takes for granted should be eliminated? Complex enological terms Relevance of aging quality Noticeable marketing Wine complexity Wine range Vineyard prestige A new value curve Raise Which factors should be raised well above the industry's standards? Price (vs budget wines) Retail store involvement Create Which factors should be created that the industry has never offered? Easy drinking Ease of selection Fun & adventure The Strategy Canvass and the Four-Actions Framework The design of a new product: [yellow tail] High Premium wines Budget wines Low Price Technical distinctions Noticeable marketing Aging quality Vineyard prestige Dimensions of competition Wine complexity Wine range Easy drink, ease of selection, fun and adventure ERRC Grid of [yellow tail] The Case of yellow tail Eliminate Raise Enological terminology & distractions Aging qualities Above-the-line marketing Price versus budget wines Retain store involvement Reduce Create Wine complexity Wine Range Vineyard prestige Easy drinking Ease of selection Fun & adventure Value Innovation of [yellow tail] Utility proposition •Creating of a social drink that is accessible to anyone •Easy drinking, ease of selection, sense of fun and (customers, distributors and adventure retailers) •Price to move at volume Price proposition •Targeted at the mass of customers Cost structure •Elimination of working capital tied up in aging wines •Fast product turnover The Strategy Canvas and the Four-Actions Framework Some features of the [yellow tail] strategy: No heavy marketing & advertising investments No significant resource of distinctive capability No remarkably different or innovative product (it's a wine!) While Reframing of the wine product experience in consumers' perception Appeal to non-wine consumers Positioning [yellow tail] as something “not commensurable” with other wines (is it a wine?) Background Applications Framework Implementation Examples: Wine Industry (2000) Step 1: Examine the industry and its customers What was working: ∗ Wine was perceived as a refined, high-end drink What was not working: ∗ Industry consisted of either premium or budget wines ∗ To younger, casual drinkers, wine seemed intimating and old-fashioned ∗ Younger and casual drinkers were a disengaged market Step 2: Decide which features to add and eliminate Add Underserved Features: ∗ Simple taste ∗ Affordable prices ∗ Marketing focused on fun, adventure, and simplicity Eliminate Unnecessary Features: ∗ Prestige marketing ∗ Complex taste ∗ High prices Step 3: Results In years (2003), Yellow Tail became US’ #1 selling wine A reinvention of wine-drinking as trendy, modern, and fun 13 Considerations Examples Background Applications Framework Implementation Examples: Smartphone Industry (2007) Step 1: Examine the industry and its customers What was working: ∗ Raw technology was already available (CPU, screens etc.) What was not working: ∗ Software were not user-friendly ∗ Poor cellphone web-browsing capabilities ∗ Cellphones lacked useful third-party Apps Step 2: Decide which features to add and eliminate Add Underserved Features: ∗ Software ease of use ∗ Hardware quality and aesthetics ∗ Availability of third-party Apps Eliminate Unnecessary Features: ∗ Excessive customizability of hardware and software ∗ A high megapixel camera ∗ Lots of different cellphone models Step 3: Results Apple became a leader in the smartphone industry within years 12 Considerations Examples ... industry and allows you to visualize how a blue ocean strategic move breaks away from the existing red ocean reality Four actions to create a Blue Ocean Raise What factors should be raised well... frameworks exist as a guide • Built on common strategic patterns of Blue Ocean Strategy Background Applications Framework Implementation Blue Ocean Strategy For Innovation and Growth Value Innovation vs... LinkedIn) ∗ Traditional Competitive Strategy vs Blue Ocean Strategy ∗ Competitive Advantage - Porter’s Five Forces / Generic Strategies ∗ Blue Ocean Strategy is a: ∗ Value Innovation Strategy