Title: Blue Ocean Strategy: Analytical Tools and Frameworks
1Blue Ocean StrategyAnalytical Tools and
Frameworks
- Team 6
- Jessica Aragon
- Raynee Bradley
- John Cayo
- Kirk Griffith
- Cole Naylor
- Jessica Wilson
- Brandy Wolfe
2Chapter 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
3The 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.
4The 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
5Explaining 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.
6Shifting 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
7The Four Actions Framework
- The four actions framework was developed to
reconstruct buyer value elements in crafting a
new curve.
8Creating 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
91. 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.
102. 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.
113. 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.
124. 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.
13Casella 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.
14Casella 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.
15Casella 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.
16The 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
17The 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
18The 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
19The 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
203 Characteristics of a Good Strategy
- Focus
- Divergence
- Compelling Tagline
21Focus
- The company does not diffuse its efforts across
all key factors of competition - Value curve should clearly show it
22Divergence
- The shape of the value curve diverges from that
of the competition - The value curve of blue ocean strategies always
stand apart
23Compelling Tagline
- Good strategy has a clear-cut and compelling
tagline - Must deliver clear message and advertise and
offering truthfully
24Southwest 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.
25Cirque du Soleil
- Set itself apart by applying noncircus themes,
multiple productions, refined watching
environment, and artistic music and dance.
26Reading 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
?
27Reading 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
28Reading 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
-
29Reading 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.
-
30Reading 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.
31Summary
- The Strategy Canvas
- Four Actions Framework
- Eliminate, reduce, raise, and create
- Eliminate-Reduce-Raise-Create Grid
- Supplementary analytic to the four actions
framework
32Summary 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
33References
- 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.