Blue Ocean Strategy: Analytical Tools and Frameworks

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Blue Ocean StrategyAnalytical Tools and
Frameworks

• Team 6
• Jessica Aragon
• Raynee Bradley
• John Cayo
• Kirk Griffith
• Cole Naylor
• Jessica Wilson
• Brandy Wolfe

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Chapter 2 Analytical Tools and Frameworks

• The Strategy Canvas
• The Four Actions Framework
• The Eliminate-Reduce-Raise-Create Grid
• Three Characteristics of a Good Strategy
• Reading the Value Curves

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The Strategy Canvas

• The strategy canvas is both a diagnostic and an
  action framework for building a compelling blue
  ocean strategy.
• It captures the current state of play in the
  known market space. This allows you to
  understand where the competition is currently
  investing, the factors the industry currently
  competes on in products, service, and delivery,
  and what customers receive from the existing
  competitive offerings on the market.
• The strategic canvas enables companies to see the
  future in the present.

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The Strategy Canvas of the U.S. Wine Industry in
the Late 1990s

• The horizontal axis captures the range of factors
  the industry competes on an
  invests in.
• The vertical axis captures the offering level
  that buyers receive across all these key
  competing factors.
• The value curve then provides a graphic depiction
  of a companys relative performance across its
  industrys factors of competition.

High
Premium Wines
Budget Wines
Low
Wine range
Above-the-line marketing
Vineyard prestige and legacy
Price
Use of enological terminology
Aging quality
Wine complexity
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Explaining value curves

• There are more than 1600 wineries that
  participate in the U.S. wine industry, however
  from the buyers point of view there is enormous
  convergence in their value curves.
• When premium brand wines are plotted on the
  strategy canvas we discover that essentially all
  of them have the same strategic profile.
• They offer a high price and present a high level
  of offering across all factors.
• Their strategic profile follows a classic
  differentiation strategy.
• Budget wines also have the same essential
  strategic profile.
• Their price is low, as is their offering across
  all the key competing factors.
• They follow a low-cost strategy.
• The value curves of premium and low-cost wines
  share the same basic shape. The two strategic
  groups march in lockstep but at different
  altitudes of offering level.

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Shifting the strategy canvas

• To 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 pursue both value and cost, companies need to
  resist focusing on just cost leadership and
  differentiation. Instead they need to focus on
  alternatives and noncustomers. By doing this
  companies are able to gain insight into how to
  redefine the problem the industry faces.
• Research found that many consumers thought wine
  was too complex and that beer, spirits, and
  cocktails, captured three times as many U.S.
  consumer alcohol sales as wine.
• Casella Wines decided to make a fun and non
  traditional wine that was easy to drink for
  everyone.
• To achieve this Casella Wines turned to the
  second basic analytic underlying blue oceans The
  four actions framework

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The Four Actions Framework

• The four actions framework was developed to
  reconstruct buyer value elements in crafting a
  new curve.

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Creating a new value curve

• To break the trade-off between differentiation
  and low cost and to create a new value curve,
  there are four key questions to challenge an
  industrys strategic logic and business model

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

• This question forces you to consider eliminating
  factors that companies in your industry have long
  competed on.

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2. Which factors should be reduced well bellow
the industrys standard?

• This question forces you to determine whether
  products or services have been over designed in
  the race to match and beat the competition.

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3. Which factors should be raised well above the
industrys standard?

• This question pushes you to uncover and eliminate
  the compromises your industry forces customers to
  make.

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

• This questions helps you to discover entirely new
  sources of value for buyers and to create new
  demand.

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Casella Wines Example

• Casella Wines acted on all four actions
  eliminate, reduce, raise, and create- to unlock
  uncontested market space that changed the face of
  the U.S. wine industry in a span of two years.

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Casella Wines

• Created yellow tail-broke from the competition
  and created a blue ocean.
• A social drink accessible to everyone.
• It offers simplicity sweet and fruity, red
  (Shiraz) or white (Chardonay)
• They eliminated everything else.

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Casella Wines

• These actions reduced or eliminated all the
  factors the wine industry had long competed on.
• This also reduced the cost of capital.
• It raised value and created new demand.

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The Eliminate-Reduce-Raise-Create Grid

• Represents the 3rd tool that is key to the
  creation of blue oceans
• Pushes companies not only to ask all four
  questions in the four actions frameworks, but
  also to ACT on all four to create a new value
  curve
• Allows companies to have a full scale view of
  their industry and their niche within it, while
  also highlighting new areas for improvement or
  advancement based on shareholder, customer,
  employee, and industry demands

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The Eliminate-Reduce-Raise-Create Grid
The Case of Yellow Tail Wines
Eliminate Enological Terminology Aging Qualities Above-the-line Marketing Raise Price vs. Budget Wines Retail Store Involvement
Reduce Wine Complexity Wine Range Vineyard Prestige Create Easy Drinking Ease of Selection Fun and Adventure
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The Eliminate-Reduce-Raise-Create Grid
The Case of Cirque du Soleil
Eliminate Star Performers Animal Shows Aisle Concession Sales Multiple Show Arenas Raise Unique Venue
Reduce Fun Humor Thrill Danger Create Theme Refined Environment Multiple Productions Artistic Music Dance
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The Eliminate-Reduce-Raise-Create Grid

• Four Immediate Benefits
• Pushes to simultaneously pursue differentiation
  and low costs to break the value-cost trade-off
• Immediately flags companies that are focused only
  on raising and creating, and thereby lifting cost
  structure which often leads to over engineering
  products and services
• Easily understood by managers at any level, thus
  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 in the industry competes on, making
  them discover the range of implicit assumptions
  they make unconsciously when competing

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3 Characteristics of a Good Strategy

• Focus
• Divergence
• Compelling Tagline

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Focus

• The company does not diffuse its efforts across
  all key factors of competition
• Value curve should clearly show it

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Divergence

• The shape of the value curve diverges from that
  of the competition
• The value curve of blue ocean strategies always
  stand apart

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Compelling Tagline

• Good strategy has a clear-cut and compelling
  tagline
• Must deliver clear message and advertise and
  offering truthfully

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Southwest Airlines

• Focus emphasized only 3 factors friendly
  service, speed, and frequent point-to-point
  departures.
• Divergence pioneered point-to-point travel
  between mid-sized cities
• Compelling tagline could be something like The
  speed of a plane at the price of a car-whenever
  you need it.

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Cirque du Soleil

• Set itself apart by applying noncircus themes,
  multiple productions, refined watching
  environment, and artistic music and dance.

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Reading the Value Curve

• The value curve can reveal strategic knowledge on
  the current and future status of an industry.
• Provide insight
• Revealing Factors
• A Blue Ocean Strategy
• Company Caught in the
• Red Ocean
• Overdelivery Without Payback
• Incoherent Strategy
• Strategic Contradictions
• Internally or Externally Driven

?
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Reading the Value Curve contd

• A Blue Ocean Strategy
• Q Does a business deserve to be a winner?
• Right Track Focus, Divergence, and a Compelling
  Tagline.
• Initial test of commercial viability of blue
  ocean ideas
• Ex
• Wrong Track
• Lack of Focus High cost structure/Complex
  business model
• Lack of Divergence Strategy is me-too with no
  reason to stand apart.
• Lack of Compelling Tagline Internally driven
  with no great commercial potential or takeoff
  capability.
• (i.e. innovation for innovations sake)
• Ex Europe

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Reading the Value Curve contd

• Company Caught in the Red Ocean
• Q Does the value curve converge with
  competitors?
• Yes Strategy tends to be trying to outdo
  competition on cost or quality.
• Signals slow growth or luck if the business is in
  an industry that is growing.
• Divergence
• Overdelivery Without Payback
• Q Does the companys market share and
  profitability reflect these investments?
• Oversupplying customers with
• value adding elements. Premium wines
• Solution Value-Innovate to create divergence.
• Eliminate and reduce NOT raise and create.
• yellow-tail

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Reading the Value Curve contd

• Incoherent Strategy
• Q Does the value curve look like a zig-zag with
  no rhyme or reason?
• (Low-High-Low-Low-High-Low-High)
• Independent Substrategies
• Reflection of an organization with divisional or
  functional silos.
• Although they may keep businesses running,
  collectively they do little to distinguish the
  company from competitors or provide a clear
  vision.
• Strategic Contradictions
• Q Are there strategic contradictions?
• Areas where a company is offering a high level on
  one competing factor while ignoring others that
  support that factor.
• Ex Investing heavily in making a companys
  website easy to use, but failing to correct the
  sites slow speed of operation.
• Ex Petroleum Station Company offering less for
  more
• Fewer services than competitors at a higher
  price.
• Ex Price and range of lumberyards,
• while offering consumer classes.

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Reading the Value Curve contd

• An Internally Driven Company
• Q How does a company label the industrys
  competing factors?
• i.e. megahertz vs. speed (or) thermal water
  temperature vs. hot water
• Comparable to writing with an active voice
  using short, simple sentences.
• Q Are the competing factors stated in terms
  buyers can understand and value, or operational
  jargon?
• Outside in (driven by demand)
• Inside out (operationally driven)
• Analyzing the language helps a company
• understand how far it is from creating
• industry demand.

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Summary

• The Strategy Canvas
• Four Actions Framework
• Eliminate, reduce, raise, and create
• Eliminate-Reduce-Raise-Create Grid
• Supplementary analytic to the four actions
  framework

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Summary contd

• Three Characteristics of a Good Strategy
• Focus, Divergence, Compelling Tagline
• Reading the Value Curves
• A Company Caught in the Red Ocean
• Overdelivery Without Payback
• An Incoherent Strategy
• Strategic Contradictions
• An Internally Driven Company

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References

• About curves. Curves.com. 25 January 2009.
  lthttp//www.curves.comgt.
• Lasher, Lemuel. Blue Ocean Strategy. CSC.com.
  25 January 2009. lthttp//www.csc.com/cscworld/0720
  05/dep/br001.htmlgt.
• Mendonza, Morice. In search of blue oceans AOL
  (Europe). Knowledge.insead.edu. 25 January 2009.
  lthttp//knowledge.insead.edu/aoleurope.cfmgt.