Blue Ocean Strategy:Blue Ocean Strategy:Analytical Tools and Analytical Tools and

FrameworksFrameworksTeam 6:Team 6:

Jessica AragonJessica AragonRaynee BradleyRaynee Bradley

John Cayo John Cayo Kirk GriffithKirk GriffithCole NaylorCole Naylor

Jessica WilsonJessica WilsonBrandy WolfeBrandy Wolfe

Chapter 2: Analytical Tools and Chapter 2: Analytical Tools and FrameworksFrameworks

The Strategy CanvasThe Strategy Canvas The Four Actions FrameworkThe Four Actions Framework The Eliminate-Reduce-Raise-Create GridThe Eliminate-Reduce-Raise-Create Grid Three Characteristics of a Good StrategyThree Characteristics of a Good Strategy Reading the Value CurvesReading the Value Curves

The Strategy CanvasThe Strategy Canvas The strategy canvas is both a diagnostic and an action framework The strategy canvas is both a diagnostic and an action framework

for building a compelling blue ocean strategy. for building a compelling blue ocean strategy.

It captures the current state of play in the known market space. It captures the current state of play in the known market space. This allows you to understand where the competition is currently This allows you to understand where the competition is currently investing, the factors the industry currently competes on in products, investing, the factors the industry currently competes on in products, service, and delivery, and what customers receive from the existing service, and delivery, and what customers receive from the existing competitive offerings on the market.competitive offerings on the market.

The strategic canvas enables companies to see the future in the The strategic canvas enables companies to see the future in the present.present.

The Strategy Canvas of the U.S. Wine Industry in the Late 1990sThe 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 company’s relative performance across its industry’s factors of competition.

High

Low

Price Use of enological

terminology

Above-the-line marketing Aging

quality

Vineyard prestige and legacy Wine

complexity

Wine range

Premium Wines

Budget Wines

Explaining value curvesExplaining value curves There are more than 1600 wineries that participate in the U.S. wine There are more than 1600 wineries that participate in the U.S. wine

industry, however from the buyer’s point of view there is enormous industry, however from the buyer’s point of view there is enormous convergence in their value curves.convergence in their value curves.

When premium brand wines are plotted on the strategy canvas we When premium brand wines are plotted on the strategy canvas we discover that essentially all of them have the same strategic profile.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.They offer a high price and present a high level of offering across all factors. Their strategic profile follows a classic differentiation strategy.Their strategic profile follows a classic differentiation strategy.

Budget wines also have the same essential strategic profile.Budget wines also have the same essential strategic profile. Their price is low, as is their offering across all the key competing factors.Their price is low, as is their offering across all the key competing factors. They follow a low-cost strategy.They follow a low-cost strategy.

The value curves of premium and low-cost wines share the same The value curves of premium and low-cost wines share the same basic shape. The two strategic groups march in lockstep but at basic shape. The two strategic groups march in lockstep but at different altitudes of offering level.different altitudes of offering level.

Shifting the strategy canvasShifting the strategy canvas To shift the strategy canvas of an industry, you must begin by To shift the strategy canvas of an industry, you must begin by

reorienting your strategic focus from competitors to alternatives, and reorienting your strategic focus from competitors to alternatives, and from customers to noncustomers of the industry.from customers to noncustomers of the industry.

To pursue both value and cost, companies need to resist focusing To pursue both value and cost, companies need to resist focusing on just cost leadership and differentiation. Instead they need to on just cost leadership and differentiation. Instead they need to focus on alternatives and noncustomers. By doing this companies focus on alternatives and noncustomers. By doing this companies are able to gain insight into how to redefine the problem the industry are able to gain insight into how to redefine the problem the industry faces.faces.

Research found that many consumers thought wine was too Research found that many consumers thought wine was too complex and that beer, spirits, and cocktails, captured three times complex and that beer, spirits, and cocktails, captured three times as many U.S. consumer alcohol sales as wine.as many U.S. consumer alcohol sales as wine.

Casella Wines decided to make a fun and non traditional wine that Casella Wines decided to make a fun and non traditional wine that was easy to drink for everyone.was easy to drink for everyone.

To achieve this Casella Wines turned to the second basic analytic To achieve this Casella Wines turned to the second basic analytic underlying blue oceans: The four actions frameworkunderlying blue oceans: The four actions framework

The Four Actions FrameworkThe Four Actions Framework

The The four actions framework four actions framework was developed to was developed to reconstruct buyer value elements in crafting a reconstruct buyer value elements in crafting a new curve.new curve.

Creating a new value curveCreating a new value curve

To break the trade-off between differentiation To break the trade-off between differentiation and low cost and to create a new value and low cost and to create a new value curve, there are four key questions to curve, there are four key questions to challenge an industry’s strategic logic and challenge an industry’s strategic logic and business model:business model:

1. Which of the factors that the 1. Which of the factors that the industry takes for granted should be industry takes for granted should be

eliminated?eliminated?

This question forces you to consider This question forces you to consider eliminating factors that companies in your eliminating factors that companies in your industry have long competed on.industry have long competed on.

2. Which factors should be reduced 2. Which factors should be reduced well bellow the industry’s standard?well bellow the industry’s standard?

This question forces you to determine This question forces you to determine whether products or services have been over whether products or services have been over designed in the race to match and beat the designed in the race to match and beat the competition.competition.

3. Which factors should be raised 3. Which factors should be raised well above the industry’s standard?well above the industry’s standard?

This question pushes you to uncover and This question pushes you to uncover and eliminate the compromises your industry eliminate the compromises your industry forces customers to make.forces customers to make.

4. Which factors should be created 4. Which factors should be created that the industry has never offered?that the industry has never offered?

This questions helps you to discover entirely This questions helps you to discover entirely new sources of value for buyers and to create new sources of value for buyers and to create new demand.new demand.

Casella Wines ExampleCasella Wines Example

Casella Wines acted on all four actions – Casella Wines acted on all four actions – eliminate, reduce, raise, and create- to unlock eliminate, reduce, raise, and create- to unlock uncontested market space that changed the uncontested market space that changed the face of the U.S. wine industry in a span of face of the U.S. wine industry in a span of two years.two years.

Casella WinesCasella Wines

Created yellow tail-broke from the Created yellow tail-broke from the competition and created a blue ocean.competition and created a blue ocean.

A social drink accessible to everyone.A social drink accessible to everyone.

It offers simplicity: sweet and fruity, red It offers simplicity: sweet and fruity, red (Shiraz) or white (Chardonay)(Shiraz) or white (Chardonay)

They eliminated everything else.They eliminated everything else.

Casella WinesCasella Wines

These actions reduced or eliminated all the These actions reduced or eliminated all the factors the wine industry had long competed factors the wine industry had long competed on.on.

This also reduced the cost of capital.This also reduced the cost of capital.

It raised value and created new demand.It raised value and created new demand.

The 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

The Eliminate-Reduce-Raise-Create GridThe Eliminate-Reduce-Raise-Create Grid

EliminateEliminateEnological TerminologyEnological TerminologyAging QualitiesAging QualitiesAbove-the-line MarketingAbove-the-line Marketing

RaiseRaisePrice vs. Budget WinesPrice vs. Budget WinesRetail Store InvolvementRetail Store Involvement

ReduceReduceWine ComplexityWine ComplexityWine RangeWine RangeVineyard PrestigeVineyard Prestige

CreateCreateEasy DrinkingEasy DrinkingEase of SelectionEase of SelectionFun and AdventureFun and Adventure

The Case of: Yellow Tail Wines

The Eliminate-Reduce-Raise-Create GridThe Eliminate-Reduce-Raise-Create Grid

EliminateEliminateStar PerformersStar PerformersAnimal ShowsAnimal ShowsAisle Concession SalesAisle Concession SalesMultiple Show ArenasMultiple Show Arenas

RaiseRaiseUnique VenueUnique Venue

ReduceReduceFun & HumorFun & HumorThrill & DangerThrill & Danger

CreateCreateThemeThemeRefined EnvironmentRefined EnvironmentMultiple ProductionsMultiple ProductionsArtistic Music & DanceArtistic Music & Dance

The Case of: Cirque du Soleil

The Eliminate-Reduce-Raise-Create GridThe Eliminate-Reduce-Raise-Create Grid

Four Immediate Benefits:1. Pushes to simultaneously pursue differentiation and low costs

to break the value-cost trade-off2. 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

3. Easily understood by managers at any level, thus creating a high level of engagement in its application

4. 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

3 Characteristics of 3 Characteristics of a Good Strategya Good Strategy

- FocusFocus- DivergenceDivergence- Compelling Tagline Compelling Tagline

FocusFocus

The company does not diffuse its efforts The company does not diffuse its efforts across all key factors of competitionacross all key factors of competition

Value curve should clearly show itValue curve should clearly show it

DivergenceDivergence

The shape of the value curve diverges The shape of the value curve diverges from that of the competitionfrom that of the competition

The value curve of blue ocean strategies The value curve of blue ocean strategies always stand apartalways stand apart

Compelling TaglineCompelling Tagline

Good strategy has a clear-cut and Good strategy has a clear-cut and compelling taglinecompelling tagline

Must deliver clear message and advertise Must deliver clear message and advertise and offering truthfully and offering truthfully

Southwest AirlinesSouthwest Airlines

Focus: emphasized only 3 factors – friendly Focus: emphasized only 3 factors – friendly service, speed, and frequent point-to-point service, speed, and frequent point-to-point departures.departures.

Divergence: pioneered point-to-point travel Divergence: pioneered point-to-point travel between mid-sized citiesbetween mid-sized cities

Compelling tagline: could be something like “The Compelling tagline: could be something like “The speed of a plane at the price of a car-whenever speed of a plane at the price of a car-whenever you need it.”you need it.”

Cirque du SoleilCirque du Soleil

Set itself apart by applying noncircus Set itself apart by applying noncircus themes, multiple productions, refined themes, multiple productions, refined watching environment, and artistic music watching environment, and artistic music and dance. and dance.

Reading the Value CurveReading the Value Curve

The value curve can reveal strategic knowledge The value curve can reveal strategic knowledge on the current and future status of an industry.on the current and future status of an industry. Provide insightProvide insight

Revealing Factors:Revealing Factors: A Blue Ocean StrategyA Blue Ocean Strategy Company Caught in the Company Caught in the

Red OceanRed Ocean Overdelivery Without PaybackOverdelivery Without Payback Incoherent StrategyIncoherent Strategy Strategic ContradictionsStrategic Contradictions Internally or Externally DrivenInternally or Externally Driven

✕

Reading the Value Curve Reading the Value Curve cont’dcont’d

A Blue Ocean StrategyA Blue Ocean Strategy Q: Does a business deserve to be a winner?Q: Does a business deserve to be a winner?

RightRight Track: Track: Focus, Divergence, and a Compelling Focus, Divergence, and a Compelling Tagline.Tagline.

*Initial test of commercial viability of blue ocean ideas*Initial test of commercial viability of blue ocean ideasEx: Ex:

WrongWrong Track: Track: Lack of Focus – High cost structure/Complex business Lack of Focus – High cost structure/Complex business

modelmodel Lack of Divergence – Strategy is “me-too” with no reason Lack of Divergence – Strategy is “me-too” with no reason

to stand apart.to stand apart. Lack of Compelling Tagline – Internally driven with no Lack of Compelling Tagline – Internally driven with no

great commercial potential or takeoff capability. great commercial potential or takeoff capability. (i.e. innovation for innovations sake)(i.e. innovation for innovations sake)

Ex: Ex: * *EuropeEurope

Reading the Value Curve Reading the Value Curve cont’dcont’d

CompanyCompany Caught in the Red OceanCaught in the Red Ocean Q: Does the value curve Q: Does the value curve convergeconverge with competitors? with competitors?

Yes = Strategy tends to be trying to outdo competition on cost or Yes = Strategy tends to be trying to outdo competition on cost or quality.quality.

Signals Signals slow growth slow growth or or luckluck if the business is in an industry that if the business is in an industry that is growing.is growing.

Divergence: Divergence:

Overdelivery Without Payback Overdelivery Without Payback Q: Does the company’s market share and profitability reflect Q: Does the company’s market share and profitability reflect

these investments?these investments? Oversupplying customers with Oversupplying customers with

value adding elements. *Premium wines value adding elements. *Premium wines SolutionSolution: Value-Innovate : Value-Innovate to create divergence.to create divergence.

Eliminate and reduce NOT raise and create.Eliminate and reduce NOT raise and create. [yellow-tail] [yellow-tail]

Reading the Value Curve Reading the Value Curve cont’dcont’d

Reading the Value Curve Reading the Value Curve cont’dcont’d

An Internally Driven CompanyAn Internally Driven Company Q: How does a company label the industry’s Q: How does a company label the industry’s

competing factors?competing factors? i.e. megahertz vs. speed (or) thermal water temperature i.e. megahertz vs. speed (or) thermal water temperature

vs. hot watervs. hot water*Comparable to writing with an active voice using short, simple *Comparable to writing with an active voice using short, simple sentences. sentences.

Q: Are the competing factors stated in terms buyers Q: Are the competing factors stated in terms buyers can understand and value, or operational jargon?can understand and value, or operational jargon? Outside in (driven by demand)Outside in (driven by demand) Inside out (operationally driven)Inside out (operationally driven) Analyzing the language helps a company Analyzing the language helps a company

understand how far it is from creating understand how far it is from creating industry demand.industry demand.

SummarySummary

The Strategy CanvasThe Strategy Canvas

Four Actions FrameworkFour Actions Framework Eliminate, reduce, raise, and createEliminate, reduce, raise, and create

Eliminate-Reduce-Raise-Create GridEliminate-Reduce-Raise-Create Grid Supplementary analytic to the four actions Supplementary analytic to the four actions

frameworkframework

Summary Summary cont’d cont’d

Three Characteristics of a Good StrategyThree Characteristics of a Good Strategy Focus, Divergence, Compelling TaglineFocus, Divergence, Compelling Tagline

Reading the Value CurvesReading the Value Curves A Company Caught in the Red OceanA Company Caught in the Red Ocean Overdelivery Without PaybackOverdelivery Without Payback An Incoherent StrategyAn Incoherent Strategy Strategic ContradictionsStrategic Contradictions An Internally Driven CompanyAn Internally Driven Company

ReferencesReferences

““About curves.” About curves.” Curves.comCurves.com. 25 January 2009. . 25 January 2009. <http://www.curves.com>.<http://www.curves.com>.

Lasher, Lemuel. “Blue Ocean Strategy.” Lasher, Lemuel. “Blue Ocean Strategy.” CSC.comCSC.com. 25 . 25 January 2009. January 2009. <http://www.csc.com/cscworld/072005/dep/br001.ht<http://www.csc.com/cscworld/072005/dep/br001.html>.ml>.

Mendonza, Morice. “In search of blue oceans: AOL Mendonza, Morice. “In search of blue oceans: AOL (Europe).” (Europe).” Knowledge.insead.eduKnowledge.insead.edu. 25 January 2009. . 25 January 2009. <http://knowledge.insead.edu/aoleurope.cfm>.<http://knowledge.insead.edu/aoleurope.cfm>.