Wk9: Blue Ocean strategy

Question 1

What is a blue ocean strategy and what are the 2 ways to implement it?

Answer 1

• A way to make competition in a market irrelevant by creating a leap in value for both customers and the company
• 2 ways: Create completely new industries with a new product
• Create new combination of existing products with more utility than competitors (Blue ocean within a red ocean)

Question 2

What is the difference between blue and red oceans?

Answer 2

• Red oceans are existing markets with existing demand.
• Characterised by: High levels of competition
• aggressive marketing
• competitive pricing (small profit margins)
• Existing technological resources
• Exploitation of existing demand
• Company must fight to steal market share from competitors
• Blue oceans are completely new markets created by new trends of combinations of existing products
• Characteristics: Low competition (Not many competitors)
• Possibly lower demand initially
• Not focusing on competitors

Question 3

How do you implement a blue ocean strategy?

Answer 3

By using Value innovation: Focusing on creating new demand and new market spaces without existing competition
Use the ERRC framework:
* Eliminate unnecessary factors that don’t need to be competed/focus on
* Reduce factors that can be reduced to decrease costs
* Raise factors that should be improved or can be increased to stimulate new demand (better quality)
* Create new factors that have never been offered in an industry

Question 4

What are the 6 principles of blue ocean strategy?

Answer 4

Step 1-4: Strategy formulation through value innovation
Step 5 & 6: Strategy implementation
* Step 1: Reconstruct Market boundaries
* Step 2: Focus on the big picture, not the numbers
* Step 3: Reach beyond existing customer demand
* Step 4: Get the strategic sequence right
* Step 5: Overcome organisational hurdles
* Step 6: Build execution into strategy

Question 5

Step 1 of blue ocean strategy

Answer 5

Reconstruct market boundaries
Market boundaries reconstructed and uncontested market space opened up by looking across 6 key boundaries of competition in a market:
* Industry (Look across multiple industries)
* Strategic group (Look across multiple strategic groups within industry)
* Buyer group (Redefine industry buyer group)
* Scope of product/Service offering (Look across to complementary products from other industries)
* Functional/emotional orientation (Rethink whether product is seen as functional or emotional to consumer)
* Time (Start shaping trends over time instead of just adapting to them)

Question 6

Step 2 of blue ocean strategy:

Answer 6

Focus on the big picture, not the numbers
* Visual Awakening: Evaluate your companies position in the market relative to your competitors
* Visual Exploration: Evaluate different product & service offerings and their respective advantages (Use 6 paths-Step 1 & ERRC framework to determine what can be changed)
* Visual Strategy: Gain insight from customers, competitor’s customers and non-customers to determine appropriate strategy
* Visual Communication: Draw map to communicate findings to organisation and support those projects/activties which allow company to realise BO strategy

Question 7

Step 3 of blue ocean strategy:

Answer 7

Reaching beyond existing demand
* Instead of focusing on segmentation and defining smaller and smaller target markets with less customers, rather focus on commonalities across non-customers and customers to increase size of blue ocean demand and reduce scaling risk
* 3 types of non-customers: soon-to-be noncustomers- on the edge of your market waiting to jump ship
* refusing noncustomers- those who actively choose against your market
* unexplored noncustomers- noncustomers in distant markets

Question 8

Step 4 of Blue ocean strategy

Answer 8

Get correct strategic sequence
Consider the following in this order to ensure a viable, profitable strategy without wasting resources:
* Utility: Does the new business idea provide exceptional buyer utility to justify demand?
* Price: Is your price accessible to target market?
* Cost: Can you produce product at a cost small enough to allow a healthy profit margin?
* Adoption: What are the adoption hurdles in realising your business idea and are you addressing them sufficiently?

Question 9

Step 5 of blue ocean strategy

Answer 9

Overcome key organisational hurdles
4 hurdles to be overcome:
* Cognitive- employees are used to status quo, think in the wrong way (Show them operational problems and disgruntled customers to help change their perspectives)
* Resource- limited resources to bring about BOS (Redirect resources from High input, low output performace activties to Low input, high output performance activities. Trade excess resources for another type of resource that is required from another department)
* Motivational- employees may be unmotivated to implement new strategy (Focus effort on kingpins(influential, respected natural leaders in organisation and get them on your side), make sure kingpin’s efforts are transparent, break strategy down into smaller manageable tasks/activities)
* Political- strong vested interests always resist change (Leverage those who have most to gain, silence those who have most to lose from strategy and get executive counselor who can assist in navigating other executive landmines)

These can be overcome using Tipping-point leadership (Changing the extremes first, meaning the neutral middle of employees will change for cheaper and quicker.

Question 10

Step 6 of blue ocean strategy

Answer 10

Build execution into strategy
By making use of Fair Process, company can cultivate culture of trust and commitment amongst employees, inspiring voluntary execution and buy-in of BOS
Principles of Fair Process:
* Engagement: Including employees in strategic decisions that affect them (asking fo their input)
* Explanation: good reasons for the final choice of strategic decisions that everyone understands
* Expectation Clarity: Clear description of new expectations of employees once BOS is implemented