blue ocean strategy - rich kohler · blue ocean strategy ... blue ocean. industry . focus on rivals...

© Rich Kohler 2010. All rights reserved. For copies, please contact Rich at [email protected].

Blue Ocean

Strategy


Porter Five Forces Industry Analysis

Rivalry AmongIndustry

Competitors

Intense

Substitutes

Moderate

Buyers

High

Suppliers

RelativelyHigh

PotentialEntrants

Moderate

Threat of New Entrants

Threat of SubstituteProducts & Services

Bargaining

Power ofBuyers

Mod to High Capital Requirements-

Assets, Program InvestmentMod Switching Costs to BuyerMod IP, Prop Products, Skill baseLimited Economies of ScaleMod Expected RetaliationMod Brand Identity

Bargaining

Power ofSuppliers

Low Importance to SuppliersMod Supplier ConcentrationHigh Switching Costs Mod Impact of Inputs Cost or Differentiation Low Presence of Substitutes

High Switching Costs of BuyerPrice Performance Trade-off ofSubstitutes –

Part 23 to Part 25

High Buyer Leverage –InformationBuyer ConcentrationSize of PurchasesMod Threat of BackwardIntegrationMod Price SensitivityAvailability of Substitutes

High Industry ConcentrationHigh Fixed Costs/Value AddedHigh Strategic StakesLow Industry GrowthLow Product DifferentiationHigh Buyer Switching CostsMod Brand IdentityMod Diversity of Rivals


Porter Five Forces Industry Analysis• OEM Buyer Power is High

–

Small # of Buyers with high level of market share, who purchase significant portion of the industry output

–

Credible, though lessening threat of backward integration

• Intense Competition–

High level of market share or concentration among Big Three–

Many competitors–

Relatively flat demand–

Low market growth (< 10% firm targets)–

Limited Product differentiation–

High Fixed costs–

High Exit Barriers–

Strategic stakes are high –

Next Gen Narrowbodies–

Industry shakeout –

stable market cannot sustain more than 3 significant competitors•

Increasing Margin Pressure–

OEM price targets drop ≥

30% with each new generation of avionics–

Reliability increases, customer pooling reducing aftermarket business–

Business model broken

Industry could be characterized as unattractive

- a Red Ocean


Value Innovation –

Blue Ocean

Strategy• Move out of the Red Ocean

-

Create uncontested market space–

Reconstruct and expand existing market boundaries–

Reset the rules of competition•

Simultaneously pursue Differentiation and

Low Cost–

Break Value-Cost trade-off–

Create leap in value proposition for Buyer, lower your cost structure

FormulationReconstruct market boundariesStrategic Visualization –

Value CurveAggregate Demand - Focus on Similarities- Build commonalities Get the Strategic Sequence Right- Business model, How to Win- Align Innovation, Utility, Price; Adoption

ExecutionOvercome Key Organizational hurdlesBuild execution into strategy-

Embrace entire system of company’s activities

Focus Divergence Compelling Tag Line


Strategy Canvas

• Diagnostic and Action framework–

Defines current state of play in known market–

Where competition is investing, factors on which industry competes–

What Customers receive from competing offerings–

Value curve depicts the company’s relative

position across industry’s factors of competition

•

Strategic Groups tend to have same basic shape of their strategic profile–

Premium players –

high price, high level of offering across all competing factors

–

Low End players –

low price, low level of offering

Both utilize differentiation strategy –

but all different in same

way at theirend of the market


Strategy Canvas -

As Is

Initial Price Product/

Service Range –Depth/Breadth

SystemsIntegrationCapability

ProgramPerform/Capability

GlobalProduct Support

Brand –Co/PdtImageRel Mktg

TrainingCostOf Change

Life Cycle Costs

High

Low

-

Big Three

-

Low End

-

Position Today-

GarminGT

G

G GG

GG

G

G

T

T

T

T

T

T

T

T


Reconstructing Market Boundaries• Conceive new market space

–

Think across

conventional boundaries of head-to-head competition–

What would you do if thought about the problem differently?

Red Ocean

Blue OceanIndustry Focus on Rivals within Look across alternative

its industry –

be the best industries

Strategic Group

Focus on Competitive position Look across Strategic Groupswithin Strategic Group -

within industrystand out within group

Buyer Group

Focus on better serving Redefine Industry

Buyer Groupthe current Buyer

Group

Scope of Product

Focus on maximizing Value Look across to Complimentaryand Service

of Product and Service Products and ServicesOffering offerings within bounds of

the industry

Time

Focus on adapting to external Participates in shaping externaltrends and competitive threats trends over timeas they occur


Alternative Industries/Strategic Groups•

What are the key factors that lead customers to trade across alternatives?

•

What are the strategic advantages of the groups, and which factors determine whether Customers trade

up

or down? (Typically 2 dimensions –

Price and Performance)

Why do Customers trade

up

or choose Honeywell, Rockwell, Thales?−

Product/Service Range –

depth/breadth, System Integration Capability, Program Performance/Capability,

−

Brand Identity –

Look/Feel of Product, Name Recognition

Why do Customers trade

down

or choose the others?−

Price, Ease of Doing Business, Bring products together, do integration themselves

High Price Part 25 Low Price Part 23Honeywell, Rockwell, Thales

Garmin, Avidyne, Chelton, L-3Product Range

Full, High-End Apps

Limited, Glass CockpitSystem Integ Cap

Extensive

LimitedPlatform Focus

CAT, RJ, BJ

VLJ, GAProduct Look/Feel

Top Grade

AcceptableProduct Support

Global

Limited, Customer InvolvementInvestment Levels

Heavy –

R&D, Sys Labs

Limited to ProductsBrand Identity

High

ModerateEase of Doing Business Confrontational

Cooperative


Alternative Industries/Strategic GroupsHow do you provide what the Big 3 offer at low cost?

•

Integrate, Reduce # or Eliminate applications and boxes –

lower cost and minimize competitive strengths

–

Flt Controls, Radios/Comm, Inertial Nav, Displays/EFB, HMI–

Training Requirements, High-End Simulators

•

Develop/Acquire “Killer Apps”

or Partner with Best of Breed–

Share, minimize investment

•

Achieve High-end Look/Feel , Human Factors through Intelligent industrial Design–

Cooperative effort –

Ideo, Apple, etc.

• Provide more Flexible, Open architecture –

scalable, reusable, lower cost–

Streamlined development process –

system definition, requirements, development, certification, updates

–

Architecture designed for ease of developing new, adding/subtracting capabilities, applications–

Define and use Industry Standard interfaces, Components–

Building block solutions from bottoms-up vs. scaled back from top–

Alternate means/approach to certification–

Reduced time and cost (people, equipment), ease of integration

•

Best-in-Class Customer Service and Supplier Relationships–

Ease of Doing Business: open/friendly vs. confrontational–

Customized services, range of offerings to meet particular needs


Buyer Groups•

Challenging the Industry’s conventional wisdom about which buyer group to target to redesign the value curve

Purchasers

Influencers

UsersPurchasing Engineering Pilots

Training

MaintenanceOperations

Price

Product Integrity

Ease of UseDelivery

Product Support

Ease of RepairEase of TrainingUpgradeability

OEMs/Leasing Companies

–

prefer standardized systems to lower costEnd-Users

–

prefer systems customized to their needs

Market Segment

Competitive Focus

EmphasisCAT, RJ, VLJ –

Buses for Airlines, Influencing Eng, Purchasing,

Latest/greatest tech advanceStandard Routes Sr Mgmt of A/C companyBJ, VLJ, GA –

Point-to-Point for

Influence Sr Mgmt, Owner,

Latest/greatest tech advanceCorporations, Individuals

Fleet Operations


Buyer Groups•

Shift traditional focus from A/C OEMs to Users –

Operators

and Pilots

Make flying simpler

–

inherently safer and less expensive

• “User-friendly”, intuitive environment–

Products and systems work together seamlessly for ease of use and convenience (iPod)–

Reduce workload, complexity of tasks, training requirements–

Pilot more productive–

Reduces potential for error and accompanying stress–

Green impact –

improve fuel economy and emissions–

Create evolution path to full automation –

chock to chock

• Shift from being an Avionics Supplier to a Flight Management Company–

Reconfigurable cockpit –

look/operate like his old/new aircraft –

NG <-> RS, 320<->A30X–

Customization of pilot environment–

Easy to use Pilot interface –

Displays, Controls, Buttons–

All information (including alerts) needed for maneuver automatically provided to specific task–

Built-in analytical capabilities for specific task with press of a button or voice recognition replacingmanual entry/calculation

-

Value-added Information, Services for use during auto-pilot operation-

Training, Planning, etc


Complementary Products/Services•

Change in focus to the total solution the Customers seek

–

What happens before, during and after product is used?–

Where are the major pain points and how might one reduce the high costs for the Customer?

It is not

the price of the Avionics

–The highest costs come after

the avionics are purchased* Fuel, Pilots, Maintenance* Sourcing equipment, supplies and services from multiple suppliers

Shift primary focus from Avionics initial purchase to:- Total solution focused on complementary activities- Aircraft Life Cycle costs –

equipment, pilot, flight operations- Satisfying End Customers complete needs while bridging total purchase

and use environment


Complementary Products/Services• Pilot Productivity, Aircraft Efficiency

–

Pre and Post Flight Automation–

Flight planning, equipment checklist, flight log, maintenance actions–

Avionics-Engine integration to optimize fuel economy–

In-flight Pilot training (RNP procedures, Migration from one platformto another: NG -> RS, etc.)

–

Airplane Wiring Diagram tools for optimal component placement, reduced weight

•

Equipment Maintenance –

Repair/Upgrade/Obsolescence–

Easier, faster, less expensive to repair, upgrade, add new capabilities–

Diagnostics, prognostics –

failure prediction, fault definition, spare logistics–

Scalable architecture to minimize “cost of change”–

Open, blade server design, RDC-based–

Simplified industry-standard interfaces for “plug and play”–

Wireless, low-power (or self-powered) devices for ease of installation

•

Aircraft/Airline Operations, Air Traffic System Infrastructure–

Flight Procedures development, equipment upgrade/certification–

Naverus–

Equipment Modification/Certification –

ECS–

Information Management, Exploitation–

High Speed, Capacity Data Link –

Surveillance -

Air Cell–

Low Speed Data Link –

Airline Operations–

Data Mining, Risk Management–

Next Generation Air Traffic System –

ADS-B ground based stations –

Naverus, China –

No WAAS, no Radar


Across Time•

Change focus from adapting to shaping external trends–

What would it look like if trend moves to logical conclusion?

–

How would trend change value to our Customers, impact our business model?–

What is needed to unlock value?

Broad Market Trends

ImpactAir Traffic Growth Airspace congestion, Trained Pilot ShortageEmerging Regulations

Closer Flight Paths, Reduced EmissionsAirline Cost Pressures

Fuel, Pilots, MaintenanceContinued Growth of BJ’s

Convenience, Personal SecurityEmergence of VLJ’s UAV’s

Two Pilots One None; Higher Integrity UAV performanceDefense Budget Shift

Change in Focus to Sustainment, Equipment UpgradesInformation Expansion

Demand, Speed, SecurityProducts Converging

Limited Differentiation, Price PressureTechnology

H/W -

Open Architecture, Computing Capability, MiniaturizationS/W –

System Integration, Killer ApplicationsTier 1 Responsibility broadens

System Engineering, Integration, PM and Supplier Mgmt key- Integration, A/M, InvestmentIndigenous Competition

Partnerships and Industry Aggregation


Across Time•

Maximize ability of aircraft to operate safely and more efficiently in a more congested environment

–

Fly closer together–

Reduce delays and disruptions–

Maximize fuel economy while minimizing emissions–

Evolve to Single Pilot, then Autonomous operation -

VLJ, Cargo, UAVs–

Reduce overall cost of Flight Operations

•

Open up the Communications Pipeline –

High-Speed, Seamless Environment of Network-enabled Services

–

Navigation, RNP Approaches, Surveillance–

Weather-based Decision making–

Enhanced Visual Operations –

landing, takeoff–

Flight, Airport Operations optimization •

Create path to Autonomous Flight –

chock to chock–

Sense & Avoid capabilities–

Total system (avionics to engine) automation, System of Systems integration–

Next Gen system integrity at an affordable price•

“Intuitive”

products and systems -

to use, repair and maintain


Strategy Canvas –

To Be

Initial Price Product/

Service Range –Depth/Breadth

SystemsIntegrationCapability

ProgramPerform/Capability

GlobalProduct Support

Brand –Co/PdtImage

Rel Mktg

TrainingCostOf

Change

Life Cycle Costs

High

Low

-

Big Three

-

Low End

-

Future Position-

GarminGTB

G

G GG

GG

G

G

TBTB TB

TB

TB TBTB

TB

Solution FlexibilityEase of Change

Speed-Sys Dev-Change

-NPD

AutoFlightEase

Of Use

FuelEcon.Env.

Friendly

TB TB TBTB


Blue Ocean

Options• Provide the strategic advantages of the High-End Group at lower cost

–

Integrate, Reduce # or Eliminate applications and boxes –

lower cost and minimize competitive strengths

–

Develop/Acquire “Killer Apps”

or Partner with Best of Breed–

Achieve High-end Look/Feel , Human Factors through Intelligent industrial Design–

Provide more Flexible, Open architecture –

scalable, reusable, lower cost–

Best-in-Class Customer Service and Supplier Relationships

•

Change Focus from A/C Mfr’s to the Users –

making flying simpler–

“User-friendly”, intuitive environment–

Shift from being an Avionics Supplier to a Flight Management Company

•

Add complimentary Products and Services to provide total

solutions–

Pilot Productivity, Aircraft Efficiency–

Equipment Maintenance –

Repair/Upgrade/Obsolescence–

Aircraft/Airline Operations, Air Traffic System Infrastructure

•

Shape external Trends –

maximize ability of aircraft to operate more efficiently in a more congested environment

–

Open up the Communications Pipeline –

High-Speed, Seamless Environment of Network-enabled Services

–

Create path to Autonomous Flight –

chock to chock–

“Intuitive”

products and systems -

to use, repair and maintain

Flight….simplified.

blue ocean strategy - rich kohler · blue ocean strategy ... blue ocean. industry . focus on rivals...

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