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BLUE OCEAN STRATEGY SIMULATION (BOSS)

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BLUE OCEAN STRATEGY SIMULATION INTRODUCTION TO ROUND BLUE-1 I will first briefly introduce the STRATX Company. * * * I will first briefly introduce the STRATX Company. – PowerPoint PPT presentation

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Title: BLUE OCEAN STRATEGY SIMULATION (BOSS)


1
BLUE OCEAN STRATEGY SIMULATION
INTRODUCTION TO ROUND BLUE-1
2
YOUR ROLE OVER THE NEXT YEAR

3
ROUND BLUE-1 IS ONE YEAR LONG
  • Round Blue-1 starts in Year 44 and is one-year
    long
  • Your role is to assist the new Executive Team in
    creating a Blue Ocean

4
MIKE DOLPHIN IS NOMINATED CEO OF BLUE BUDDIES
  • Mike is very interested in the Blue Ocean
    Strategy theory and convinces the Executive Team
    to try to create a Blue Ocean
  • Mike and the Executive Team discuss what they
    should do and make two vital decisions
  • To focus just on the Product (rather than Service
    and Delivery) for the moment
  • To begin by conducting their own Visual
    Exploration of the market, focusing more on
    noncustomers of the industry than existing
    customers.

5
YOU WILL HAVE TO ACCOMPLISH SIX MAIN TASKS
  • To draw the current competitor Value Curves,
    discuss the shape of all Curves and draw a
    conclusion about the industry this step is
    called Visual Awakening
  • To read and debate the outcome of the Visual
    Exploration conducted by the Executive Team
  • To develop one or several To-Be ERRC grids and
    their associated Strategy Canvases.
  • Select a final set of Competing Factors to create
    a Blue Ocean product offering and adjust the
    levels of the Value Factors on Strategy Canvas to
    be able to unlock maximum demand
  • To decide on how to allocate your total budget
    across your Red Ocean product, your newly created
    Blue Ocean product, and Corporate Projects
  • To make the necessary decisions to launch your
    Blue Ocean product in the market, including
    price, production numbers, marketing investment
    and the degree of geographical expansion.

6
BLUE OCEAN CREATION PROCESS
7
MORE ON THE SIX PATHS

8
SIX PATHS TO BLUE OCEAN STRATEGY
THE SIX WAYS TO RECONSTRUCT INDUSTRY
Alternative Industries
Strategic groups
To Creating Across
From Competing Within
Buyer/user groups
Scope of product or service offering
Functional-emotional orientation of an industry
Time
9
PATH ONE INDUSTRY
  • Ask
  • What are the alternative industries to your
    industry?
  • Why do buyers trade across to these?
  • Example
  • Netjets
  • Cirque du Soleil
  • André Rieu

10
PATH TWO STRATEGIC GROUP
  • Ask
  • What are the strategic groups in your industry?
  • Why do buyers trade up to the higher cost/quality
    groups, and why do they trade down for the lower
    ones?
  • Example
  • Curves

11
PATH THREE CHAIN OF BUYERS
  • Ask
  • What is the chain of buyers/users/decision
    influencers in your industry?
  • Which buyer group does your industry typically
    focus on?
  • If you shifted the buyer group of your industry,
    could you create new value and unlock new
    demand?
  • Example
  • Novo Nordisk

12
PATH FOUR COMPLEMENTARY PRODUCTS SERVICES
  • Ask
  • What is the context in which your product or
    service is used? What happens before, during, and
    after use?
  • Can you identify the pain points?
  • How can you eliminate these pain points through a
    complementary product or service offering?
  • Example
  • Barnes Noble

13
PATH FIVE FUNCTIONAL-EMOTIONAL ORIENTATION
  • Ask
  • Does your industry focus mostly on functionality
    or emotional appeal?
  • If the industry competes more on emotional
    appeal, what elements can you strip out to make
    it more functional?
  • If the industry competes on functionality, what
    elements can be added to make it more emotional?
  • Example
  • Starbucks
  • Viagra

14
PATH SIX TIME
  • Ask
  • What trends have a high probability of impacting
    the valued your industry provides, are
    irreversible, and evolving in a clear trajectory?
  • How will these trends impact your industry?
  • Given this, how can you take account of these
    trends in reconstructing your strategic offering
    to create unprecedented value?
  • Example
  • IPod ITune

15
AS-IS STRATEGY CANVAS WIZARD

16
THE WIZARD HELPS YOU DRAW THE CURRENT VALUE
CURVES FOR THE COMPETITORS
17
THE WIZARD PROVIDES YOU WITH THE INDUSTRY AVERAGE
AND A GRADING OF YOUR AS-IS CURVES
18
VISUAL EXPLORATION

19
THE VISUAL EXPLORATION TELLS YOU HOW YOU CAN
RECONSTRUCT MARKET BOUNDARIES
  • BOSS provides you with the transcript of the
    conversation that takes place when the Executive
    Team meets after having individually conducted
    their Visual Exploration of the market
  • This document is available in the Visual
    Exploration menu
  • Spend sufficient time to understand and debate
    what the Visual Exploration is telling you in
    terms of how you can reconstruct industry
    boundaries to move beyond the industry and create
    a Blue Ocean
  • Three of the Paths reveal three types of
    noncustomers
  • Path 3 represents the biggest volume potential of
    a 30 growth in the market
  • Path 1 represents the second biggest volume
    potential at 24
  • Path 5 represents a volume potential of 18.

20
POTENTIAL PRODUCT COMPETING FACTORS
  • The next step is to create a the Strategy Canvas
    of the Blue Ocean product that you would like to
    create and launch on the market
  • A list of potential product competing factors is
    offered from which you can choose those you
    believe will attract noncustomers and unlock new
    demand
  • This list is available in the Visual
    Exploration menu
  • A full description of the potential product
    competing factors is given including what is
    offered to potential buyers/users at each of
    levels 1 (very low), 2 (low), 3 (average
    expectations), 4 (high) and 5 (very high)
  • What makes one competing factor less attractive
    than another is a combination of the cost and
    complexity of developing it as seen against the
    relative desirability of that competing factor in
    the market

21
TO-BE STRATEGY CANVAS WIZARD

22
STEP 1 CREATING AND NAMING STRATEGY CANVASES
23
STEP 2 PUTTING EXISTING AND POTENTIAL COMPETING
FACTORS INTO THE ERRC GRID
24
STEP 3 REFINING THE STRATEGY CANVAS WHICH IS
AUTOMATICALLY GENERATED FROM YOUR ERRC GRID
25
STEP 4 VIEWING THE STRATEGY CANVAS
26
STEP 5 VIEWING REQUIRED RD BUDGETS AND
PRODUCTION UNIT COSTS
27
LAUNCHING YOUR BLUE OCEAN OFFERING

28
MAKING DECISIONS
  • Once you have drawn and debated several To-Be
    Strategy Canvases, you must decide on the one
    that you want to select as your Blue Ocean
    offering
  • You will only be allowed to launch one product
  • You will then have several decisions to make
  • Production plan
  • Price
  • Marketing Expenditure
  • Degree of Geographic Expansion
  • Which Corporate Projects may be needed to support
    your Blue Ocean offering
  • Financial decisions regarding investment budget
    allocation between the Red and Blue Ocean
    products, and keeping within the overall budget
    limitation
  • Each of these decisions is explained in detail on
    the following pages

29
BLUE OCEAN DECISIONS FORM
30
YOUR PRODUCTION PLAN DECISION INFORMS THE
PRODUCTION DEPARTMENT ON FORECASTED SALES
  • Your Production Plan decision will depend on the
    success of your Blue Ocean offering
  • The Production department is highly flexible and
    will always manufacture the required quantities
    in the best possible conditions
  • Your forecast should be as accurate as possible
    as errors in planning have financial consequences

31
MONITORING THE FINANCIAL CONSEQUENCES OF YOUR
PRODUCTION PLAN DECISIONS
Reminder of the Production Plan decision made at
the beginning of the period
Number of units actually produced. This is equal
to the number of units sold.
Units produced Production plan The higher
this number (in absolute value), the higher your
error in sales forecasting
Cost for producing one product. This cost depends
on the characteristics of your product
Total reduction negotiated by the Production
department, based on the production plan
Cost charged by the Production department in case
it had to produce more or less units than what
was specified in the production plan. The penalty
is proportional to the production surplus or
deficit.
(Units produced x Unit cost) Volume based
COGS reduction Penalty for under- or over-
production
Cost of Goods Sold Units produced
32
YOU MAY ADJUST THE PRICE OF YOUR BLUE OCEAN
OFFERING
  • The price of your Blue Ocean offering is
    initially set according to the level indicated
    broadly by where you drag the line on your
    Strategy Canvas
  • You may then fine-tune this pre-set price in the
    form by typing in the exact price you believe
    will unlock the most demand and still produce
    healthy profit growth.
  • This is the price at which you sell your product
    to distributors
  • All distribution channels apply the same margin
    to all competing products, so you should not be
    concerned with this.
  • Dumping is strictly forbidden in the BOSS world
    the price of a product must be equal to or higher
    than its unit production cost

33
YOU MUST ALLOCATE A BUDGET TO MARKETING ACTIVITIES
  • The marketing budget is to purchase advertising
    space TV, internet, billboards, press, etc.
  • It is aimed at building the awareness of
    customers for your new offering
  • The higher your share of voice the higher the
    awareness level of your product
  • Refer to the Ongoing Studies chart described in
    section Benchmarking
  • In the case of a successful Blue Ocean offering,
    marketing buzz, free PR and the word-of-mouth
    of fans of your offering should allow you to
    lower your marketing budget for the same volume
    of sales

34
GEOGRAPHICAL EXPANSION YOU DECIDE WHAT PORTION
OF THE TOTAL TERRITORY TO COVER
  • Geographical Expansion is in the form R/S
    where R is the expansion in Roundland and S the
    expansion in Starland.
  • Your product will only be distributed in
    Roundland if you enter a value lower than or
    equal to 100/0
  • Geographic Expansion in Starland starts with a
    value of 100/10 or more

35
YOU MAY INVEST IN UP TO TWO INTERNAL CORPORATE
PROJECTS EACH PERIOD
  • Corporate Projects are aimed at increasing your
    productivity, reducing your costs and/or
    improving your organization capabilities
  • Slick execution of strategy is the next most
    vital ingredient of high profit growth as the
    strategy itself
  • Sloppy execution can ruin a great strategy. Where
    organization capabilities are weak, these need to
    be built for a strategy to be successful
  • All projects are described in the online
    documentation
  • Corporate projects will benefit all both your
    Red
  • and Blue Ocean
  • products.

Corporate Projects Cost in K
A. Relocation Manufacturing to a Low Labor Cost Country 10 000
B. Process Re-engineering (6 Sigma) 5 000
C. Restructuring for Cost Reduction (Making Employees Redundant) 5 000
D. Acquisition to Access RD Technology 10 000
E. New Appraisal and Reward System for Employees 6 000
F. Comprehensive New IT System 15 000
G. Leadership Development 500
H. Training Selected Employees in Project Management 500
I. Restructuring for effectiveness (No Redundancies, Just Changes in Responsibility) 2 000
J. Campaign for Internal Cost Consciousness 500
K. Time Management Training for all Managers 1 000
L. Recruiting Highly Qualified People to Stimulate Strategic Thinking 2 000
M. Suggestion Scheme for 'Bottom Up' Improvement 2 000
N. Radically upgrading Leadership and Service in the Customer Contact Centre 3 000
O. Culture Change Project 2 000
P. Hiring Expert Trainers to Train Distributors' Salespeople 3 500
Q. Hiring the Top Team from a Regional Specialist Luxury Goods Retailer 2 000
R. Hiring a Team Experienced in Developing and Managing a Fast Food Franchise 2 000
36
YOU ARE ALLOCATED A BUDGET TO COVER YOUR EXPENSES
  • A budget is allocated to your team to cover your
    investments for your Red Ocean as well as your
    Blue Ocean offerings.
  • The amount depends on your success / failure in
    the previous period
  • Equal to a 30 of revenues, with a maximum
    (300m) and a minimum (70m)
  • It must not be exceeded if total spending
    exceeds your allocated budget, you will receive
    an error message
  • Your budget will cover your investments in
  • Product Development
  • Marketing
  • Distribution
  • Corporate Projects

37
YOU MAY REALLOCATE BUDGET FROM RED BOX TO BLUE BOX
  • Decisions for Red Box are automated during the
    Blue Ocean rounds
  • A share of your total budget is spent by the Red
    Box manager
  • You may reallocate budget from Red Box to Blue
    Box
  • Spend the budget you need on the Blue Ocean
    decisions
  • The Red Box Manager will reduce his expenditures
    so as to save the budget you need for Blue Box.
  • If you decide to reallocate too much budget from
    Red Box to Blue Box, you will get a warning or an
    error message, explaining you that you are
    endangering your Red Ocean sales and taking on
    too much risk

38
THE BUDGET FORM
This team has decided to reallocate 44m from Red
Box to the newly launched Blue Ocean offering
39
CHECKING YOUR DECISIONS
  • Before submitting your decisions, it is highly
    recommended that you check whether you have made
    any mistakes with your decisions
  • Look at the Errors, Warnings Highlights chart
  • Errors indicate inconsistencies in your decisions
    ? These need to be corrected
  • Warnings are shown to draw attention to potential
    problems
  • Highlights remind you of key decisions made

40
GROUP DYNAMICS
  • Establish a good working relationship within your
    team
  • Each team member must be involved in all the
    discussions in order for everyone to have the
    same understanding of the business situation and
    strategy formulation
  • Try to avoid letting each member concentrate
    solely on his/her area of professional expertise
  • Rotate responsibilities at regular intervals
  • Maximize your internal resources and make sure
    that everyone benefits equally from the BOSS
    experience and key learnings
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