Blue Ocean Strategy - The Peaceful Strategy

Blue Ocean Strategy
“The Peaceful Strategy”

To break out of this Red Ocean, a “peaceful” way
of strategic thinking should be adopted
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Create uncontested market space
Blue Ocean StrategyRed Ocean Strategy
Compete in existing market space
Beat the competition
Exploit existing demand
Make the value-cost trade-off
Make the competition irrelevant
Create and capture new demand
Break the value-cost trade-off
Align the whole system of a firm’s activities
with its strategic choice of differentiation or
low cost
Align the whole system of a firm’s activities in
pursuit of differentiation and low cost
Red Ocean vs. Blue Ocean
“Go where profits and growth are – and where the competition isn’t” —W. Chan Kim and Renée Mauborgne
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Value
Innovation
Eliminate
Reduce
Raise
Create
Cost
Buyer Value
Value
Cost
• Value creation: Something that incrementally improves value, but is not sufficient to make your organization stand out in
the market place.
• Innovation: Tends to be technology driven, market pioneering or futuristic, often shooting beyond what customers are
ready to accept.
• Value Innovation: Creating a leap in value for customers and your company, thereby opening up new and uncontested
market space. It goes beyond value creation.
Value Innovation is the cornerstone of BOS,
placing equal emphasis on value and innovation
Boom box
Radio transistor
Sony Walkman
Sony Walkman was the result of
two already existing technologiesThe simultaneous pursuit of differentiation and low cost

Does this sound like the strategic plans in your
company?
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• Lengthy discussion of current industry conditions and competitive situation,
followed by discussion about how to increase market share, capture new
segments or cut cost, then outline of numerous goals and initiatives.
• The process usually culminates in the preparation of a large document culled
from a mishmash of data provided by people from various parts of the
organization who often have conflicting agendas and poor communication
• Managers spend the majority of strategic thinking time filling in boxes and
running numbers instead of thinking outside the box and developing a clear
picture of how to break from the competition
• If you ask managers to present their proposed strategies in no more than a
few slides, it is not surprising that few clear or compelling strategies are
articulated
• Executives are paralyzed by the muddle. Few employees deep down in the
company even know what the strategy is
• A closer look reveals that most plans don’t contain a strategy at all but rather a
smorgasbord of tactics that individually make sense but collectively don’t add up
to a unified, clear direction that sets a company apart—let alone makes the
competition irrelevant
Lengthy
discussions
Conflicting
agendas
Creativity is
sacrificed for
accuracy
Long
presentations
Not well
communicated
Plans but no
strategy

Path 1: Look Across Alternative Industries
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Substitutes: Different forms but offer the same functionality or core utility. e.g.: Tea and Coffee
Alternatives: Different forms and functions but give the same purpose. e.g.: Restaurants and Cinemas share the same
purpose (“Enjoy a night out”)
0
1
2
3
4
5
6
7
8
9
10
Southwest Other airlines Car
Eliminate Raise
Meals Speed
Lounges Friendly service
Seating choice
Hub connectivity
Reduce Create
Price versus
average airlines
Frequent point-to-
point departures
The pioneer of the budget airline business model
Other areas of cost saving:
• Moved from central to secondary airports
• Used one type of planes (Boeing 737)
• Adopted simple pricing (all inclusive, no change fees)* The insight into Southwest’s success is that they looked at the car (alternative) as their
competitor and not the other airlines in their industry

Path 4: Look Across Complementary Products
and Service Offerings
16
The key is to define the total solution buyers seek when they choose a product or service. See the Buyer Utility Map
The world’s first MegaPlex, with 25 screens and 7600 seats
• The industry was declining due to the spread of video recorders
and cable TV
• Movie theatres were located in prime city center locations,
making the parking very expensive
• Many parents find it difficult to go to cinemas especially when the
last minute baby-sitter is not available
Result:
• Won 50% of the market in Brussels in its first year
• Expanded the market by about 40%
1
• Moved their movie theatres to outside city center (15-min drive)
• Added childcare facility
• Offered free parking
2

Answering these challenging questions can open
up new and uncontested market space
19
Step 1 : Identify paths Step 2 : Think about
Step 3 : Identify desirable value
factors
Alternative
Industries
Which are some substitute and alternative
industries to your industry?
Why do buyers trade across them?
What are the most important value factors?
Strategic
Group
What are the main strategic groups in
your industry?
Why do customers trade up for the higher
group, and why do they trade down for the
lower one?
What are the most attractive value factors?
Buyer Group
What is the chain of buyers in your
industry?
Which buyer group does your industry
focus on?
What factors can you create to unlock new
value for a different buyer group?
Scope of
Product or
Service
Offering
What happens before, during or after
using your product?
Are there any pain points that can be
eliminated through a complementary
product or service offering?
What factors can be created to offer a total
solution buyers seek?
Functional or
Emotional
Appeal
Is your industry functionally or emotionally
oriented?
Can you flip this orientation?
What factors can be stripped to create a
fundamentally simpler offering?
What factors can add emotion to your
functional products/services?
Time
What are some irreversible trends with a
clear trajectory that impact your industry?
How will these trends impact your
business?
Given this, what new factors can be created to
open up unprecedented customer utility?

The final strategy should encompass these three
qualities: focus, divergence and compelling tagline
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0
1
2
3
4
5
6
7
8
9
10
Southwest Other airlines Car
“Across the board investing is often a sign that competitors' moves are setting a company's agenda.”
—W. Chan Kim and Renée Mauborgne
Focus (investing on few decisive factors)
Compelling tagline:
“The speed of a plane at the price of a
car travel—whenever you need it.”
Divergence (their value curve stand
apart from competitors’).

Target costing addresses the profit side of the
business model to ensure meeting the strategic price
25
The Strategic Price
The Target Profit
The Target Cost
Streamlining & Cost
Innovations
Partnering
Pricing Innovation
• Swatch strategic price was $40 and their
Asian competitors’ around $75 per watch
• Used plastic instead of metal or leather
• Reduced the inner parts from 150 to 51
• Replaced screws by ultrasonic welding
• Direct labor cost went down from 30% to 10%
• Partnered with over 1500 manufacturers in
more than 50 countries to ensure lower material
cost and faster production
• Fractional ownership of corporate jets
• Revenue share with IT start-ups in return for providing HP’s
high-end servers
Strategic
Price
Target
Profit
Target
Cost
Blue Ocean Pricing
Cost
Profit
Price
Red Ocean Pricing

Since BOS is a significant departure from
business-as-usual, it needs to be well managed
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• Zoom in on kingpins
• Place kingpins in a
fishbowl
• Atomize to get the
organization to change
itself
• Secure a consigliere on
your top management
team
• Leverage your angles
and silence your devils
• Redistribute resourses
to your hot spots
• Redirect resources to
your cold spots
• Engage in horse
trading
• Come face-to-face with
most operational
problems
• Listen to most
disgruntled customers
Cognitive
Hurdles
An organization
wedded to the status
quo
Resource
Hurdles
Limited resources
Political
Hurdles
Opposition from
powerful vested
interests
Motivational
Hurdles
Unmotivated staff
• Hot spots: Activities that have the greatest performance impact but are resource starved
• Cold spots: Activities that are resource oversupplied but have scant performance impact
• Horse trading: Trading your unit’s excess resources in one area for another unit’s excess resources to fill remaining resources gap
• Kingpins: Key influencers in organization
• Fishbowl: Transparency, inclusion and fair process
• Atomize: Break the overall objective down into bite-sized components to make it actionable at all levels.
• Consigliere: A highly respected insider who knows in advance “who will fight you, and who will support you”
• Angels: Who the most to gain from the strategic shift
• Devils: Who the most to lose from the strategic shift
Key organizational hurdles

Tipping Point Leadership in action: How Bill Bratton
turned New York to the safest large city in the US
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Seeing is believing:
• Although the public was complaining about the
surge in crime in the subway system, the NYC
Police Dept. believed that it only accounted for 3%
of city’s crime.
• Starting by himself, Bratton let the top and middle
brass ride the subway trains.
Meet with disgruntled customers:
• The public was intimidated by the surge in crime in
Boston’s Police District 4 (under Bratton), and
residents were selling their homes and leaving.
• But the police force felt there were doing a fine job,
according the short 911 response times and their
record in solving major crimes.
• To solve the paradox, Bratton arranged a series
of town hall meetings between his officers and the
neighborhood residents
Zoom in on kingpins:
• Bratton zoomed in on the 76 precinct heads as his key
influencers and kingpins
• Each head directly controlled 200-400 police officers, who
in turn would have ripple effect on 36 thousand police force.
“Fishbowl” management:
• Biweekly crime strategy meetings
• Each commander’s performance was publically critiqued
in front of peers and superiors
• Made results and responsibilities clear and transparent for
everyone
• The fishbowl was applied to all kingpins
Atomization (break the challenge into bit-sized atoms):
• Each officer was responsible for his/her (block, precinct
or borough), so no one could claim that was out of his/her
hands
• Responsibility for executing the new strategy shifted from
him to each of the NYPD 36,000 police officers
Secure a consigliere:
• Bratton appointed John Timoney, a highly respected NYPD
officer, as his number two
• Timoney’s task was to report to Bratton on the likely attitudes
of the top NYPD staff on the new strategy, identifying those
who would fight or silently sabotage the new initiative
Leverage your angles and silence your devils:
• Bratton’s devils were the courts, who believed that his new
strategy (focusing on quality-of-life crimes) would overwhelm the
system with small crimes (prostitution, public drunkenness)
• He built a coalition with his angles (mayor, district attorneys,
jail managers, public media), by illustrating to them that the
court system could indeed handle the added crimes and in the
long run they would reduce their caseload.
• With this powerful coalition, the courts could no longer oppose
his strategy
Engage in horse trading:
• Bratton facilitated a horse trading initiative between 2 police
units, one was short of cars but had excess office space and the
other vice versa.
Redirect resources from your cold spots:
• Before Bratton, it would take an officer 16 hrs to bring a
criminal/suspect from downtown to the court.
• By using ‘bust buses’ that were parked outside subway stations,
an officer needed to only escort the suspect up to the street level
to the bus
• This cut processing time from 16 hrs to 1 hr, freeing more officers
to patrol the subway and catch criminals
Redistribute resources to your hot spots:
• Bratton did a complete refocus of cops at subway stations as he
found that they were staffed equally even though the majority of
crimes occurred only in a few stations and lines
• He also allocated more staff to narcotics unit which was
understaffed (5% of the total work force yet handled 30-50% of
total crimes, attributable to drug-related crimes)
1994 -1996
1 2
4 3

...so, the best way to beat your competition is to
make them irrelevant
25/02/201434
swim to the Blue Oceans...

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