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Blue Ocean Strategy: Analytical Tools and Frameworks

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Title: Blue Ocean Strategy: Analytical Tools and Frameworks


1
Blue Ocean StrategyAnalytical Tools and
Frameworks
  • Team 6
  • Jessica Aragon
  • Raynee Bradley
  • John Cayo
  • Kirk Griffith
  • Cole Naylor
  • Jessica Wilson
  • Brandy Wolfe

2
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

3
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.

4
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
5
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.

6
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

7
The Four Actions Framework
  • The four actions framework was developed to
    reconstruct buyer value elements in crafting a
    new curve.

8
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

9
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.

10
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.

11
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.

12
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.

13
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.

14
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.

15
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.

16
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

17
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
18
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
19
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

20
3 Characteristics of a Good Strategy
  • Focus
  • Divergence
  • Compelling Tagline

21
Focus
  • The company does not diffuse its efforts across
    all key factors of competition
  • Value curve should clearly show it

22
Divergence
  • The shape of the value curve diverges from that
    of the competition
  • The value curve of blue ocean strategies always
    stand apart

23
Compelling Tagline
  • Good strategy has a clear-cut and compelling
    tagline
  • Must deliver clear message and advertise and
    offering truthfully

24
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.

25
Cirque du Soleil
  • Set itself apart by applying noncircus themes,
    multiple productions, refined watching
    environment, and artistic music and dance.

26
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

?
27
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

28
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

29
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.

30
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.

31
Summary
  • The Strategy Canvas
  • Four Actions Framework
  • Eliminate, reduce, raise, and create
  • Eliminate-Reduce-Raise-Create Grid
  • Supplementary analytic to the four actions
    framework

32
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

33
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.
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