Wednesday, January 25, 2017

Summary of Blue Ocean Strategy Book by Ester



Book Title              : BLUE OCEAN STRATEGY

Author                    : W. Chan Kim / Renee Mauborgne

Publisher               : Harvard Business Review Press

Year Published     : 2015




SUMMARY OF THE BOOK:

  • Blue ocean strategy are about how to reconstruct market boundaries and offer a leap in value to buyers; unlocking business model innovation through strategic pricing, target costing, and the like so a company can seize the new customers profitably; releasing the creativity, knowledge sharing, and voluntary cooperation of people through the proper approach to employees and partners; and laying out tools and frameworks that companies can apply to make each happen in a risk-minimizing and opportunity-maximizing manner so that it becomes  a high performing and sustainable strategy. It is not about finding a better or lower-cost solution to the existing problem of an industry, both of which trigger disruption and displacement of existing products and services. Instead, blue ocean strategy is about redefining the problem itself, which tends to create new demand or an offering that often complements rather that displaces existing products and services.
 
  • The only way to beat the competition is stop trying to beat the competition
  • Blue oceans denote all the industries not in existence today. This is the unknown market space.
  • Blue oceans are defined by untapped market space, demand creation and the opportunity for highly profitable growth.
  • In blue oceans, competition is irrelevant because the rules of the game are waiting to be set.
  • We need to create blue oceans to seize new profit and growth opportunities.
  • The strategic move is the right unit of analysis for explaining the creation of blue oceans and sustained high performance. It is the set of managerial actions and decisions involved in making a major market-creating business offering. It opened and captured new market space, with a significant leap in demand-contain great stories of profitable growth as well as thought-provoking tales of missed opportunities by companies.
  • The creation and capturing of blue oceans were achieved by small and large companies, by young and old managers, by companies in attractive and unattractive industries, by new entrants and established incumbents, by private and public companies, by companies in B2B and B2C industries and by companies of diverse national origins.
  • What consistently separated winners from losers in creating blue oceans was their approach to strategy.
  • The creators of blue oceans did not use the competition as their benchmark. Instead, they followed a different strategic logic that we call value innovation. Value innovation is the cornerstone of blue ocean strategy. We call it value innovation because instead of focusing on beating the competition, you focus on making the competition irrelevant by creating a leap in value for buyers and your company, thereby opening up new and uncontested market space.
  • Innovation without value tends to be technology-driven, market pioneering, or futuristic, often shooting beyond what buyers are ready to accept and pay for. Value innovation occurs only when companies align innovation with utility, price, and cost positions.
  • Those that seek to create blue oceans pursue differentiation and low cost simultaneously.
  • The creation of blue oceans is about driving costs down while simultaneously driving value up for buyers.
  • Value innovation is created in the region where a company’s actions favorably affect both its cost structure and its value proposition to buyers. 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. Over time, cost are reduced further as scale economics kick in due to the high sales volumes that superior value generates.
  • Eight principles of blue ocean strategy:
    Formulation principles:
    1.       Reconstruct market boundaries
    2.       Focus on the big pictures, not the numbers
    3.       Reach beyond existing demand
    4.       Get the strategic sequence right
    Execution principles:
    1.       Overcome key organizational hurdles
    2.       Build execution into strategy
    3.       Align the value, profit and people propositions
    4.       Renew blue oceans
  •  Blue Ocean Strategy:
    1.       Create uncontested market space
    2.       Make the competition irrelevant
    3.       Create and capture new demand
    4.       Break the value-cost trade-off
    5.       Align the whole system of a firm’s activities in pursuit of differentiation and low cost.
  •  Red ocean strategy:
    1.       Compete in existing market space
    2.       Beat the competition
    3.       Exploit existing demand
    4.       Make the value-cost trade-off
    5.       Align the whole system of a firm’s activities with its strategic choice of differentiation or low cost. 
     
  • Effective blue ocean strategy should be about risk minimization and not risk taking.
  • Three characteristics of a good strategy: focus, divergence and compelling tagline.
  • The first principle of blue oceans strategy is to reconstruct market boundaries to break from the competition and create blue oceans.
  •  Six path frameworks to remaking market boundaries:
    1.       Look across alternative industries
    2.       Look across strategic groups within industries
    3.       Look across chain of buyers
    4.       Look across complementary product and service offerings
    5.       Look across functional or emotional appeal to buyers
    6.       Look across time
  • Focus on the big picture, not the numbers. This principle is key to mitigating the planning risk of investing lots of effort and lots of time but delivering only tactical red oceanmoves.
  • Think of a typical strategic plan. It starts with a lengthy description of current industry conditions and the competitive situation. Next is a discussion of how to increase market share, capture new segments, or cut costs, followed by an outline of numerous goals and initiatives.
  • The four steps of visualizing strategy:
1.       Visual awakening:

ü  Compare your business with your competitors’by drawing your “as is”strategy canvas.

ü  See where your strategy needs to change.

2.       Visual exploration

ü  Go into the field to explore the six paths to creating blue oceans.

ü  Observe the distinctive advantages of alternative products and services.

ü  See which factors you should eliminate, create, or change.

3.       Visual Strategy Fair

ü  Draw your “to be” strategy canvas based on insights from field observations.

ü  Get feedback on alternative strategy canvases from customers, competitors’ customers and non-customers.

ü  Use feedback to build the best “to be” future strategy.

4.       Visual communication

ü  Distribute your before-end-after strategic profiles on one page for easy comparison.

ü  Support only those projects and operational moves that allow your company to close the gaps to actualize the new strategy.

  • The key component of achieving value innovation by aggregating the greatest demand for a new offering, this approach attenuates the scale risk associated with creating a new market.
  • To secure a strong revenue stream for your offering, you must set the right strategic price. The strategic price for your offering must not only attract buyers in large numbers but also help you to retain them and then deduct its desired profit margin from the price to arrive at the target cost
  • There are three mutually reinforcing elements that define fair process: engagement, explanation and clarify of expectation.
  • Using fair process in strategy making is strongly linked to both intellectual and emotional recognition.


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