Three tools—the Buyer Services Map, the Mass Price Corridor, and the Business Model Guide—together are a systematic way to reduce uncertainty. Bring it all together: In "Blue Ocean Strategy," the first article to lay out the idea and coin the term, Kim and Mauborgne reveal their Red Ocean vs.
Conventional Logic versus Value Innovation
The remaining 14% of launches – innovations with real value – generated 38% of total revenue and a whopping 61% of total profit. According to the senior director of the French hotelier Accor: “We are focused on what brings customers together.
Creating a New Value Curve
Sometimes what customers value changes significantly, but companies focused on peer-to-peer benchmarking fail to act on—or even perceive—the change. The company cut its average room build cost in half, and its staff costs dropped from 25 to 35% of sales—the industry average—to 20 to 23%.
The Trap of Competing, the Necessity of Repeating
If Compaq had followed the industry's value curves, it would have found that from the mid-to-late 1980s, the value curves of IBM and other PC manufacturers converged with its own. When a firm's value curve differs significantly from that of the rest of the industry—and that difference is appreciated by most customers—managers must resist innovation.
The Three Platforms
Virgin's value innovation separated the company from the rest for years, but the competition did not stand still. The company's sales and profits rose again as the new value curve differed from that of the industry.
Driving a Company for High Growth
At the other extreme are settlers—businesses with value curves that match the industry's basic shape. With it, managers can achieve even the most painful and difficult goals while gaining the voluntary cooperation of the affected employees.
Good Outcome, Unfair Process
But one day in January 1991, Chester employees arrived at work to discover strangers in the factory. The plant manager then announced that the new cell design would allow employees to operate as self-directed teams and that the supervisor's role would be abolished.
What Is Fair Process?
While due process gives every idea a chance, it is the merit of the ideas – not consensus – that drives decision-making. The cases illustrate the enormous power of a fair process: honesty in the process of making and implementing decisions.
Fair Process in the Knowledge Economy
A fair process can have an even greater impact on the quality of professional and managerial work. Fair process builds trust and commitment, trust and commitment create voluntary cooperation and voluntary cooperation. it drives performance, leads people to go beyond the call of duty by sharing their knowledge and using their creativity.
Overcoming Mental Barriers
For nearly a decade, we've been researching companies that have created such fundamentally new and superior value. We've looked for patterns in the way companies create new markets and reinvent existing ones, and we've found six basic approaches.
Looking Across Substitute Industries
To understand the rest of the Home Depot formula, now consider the flip side: Why people choose hardware stores over professional contractors. Basically, Home Depot offers the expertise of professional home contractors at significantly lower prices than hardware stores.
Creating a new value curve
Answering the four questions led Intuit to create a new value curve, combining the low price and ease of use of the pencil with the speed and accuracy of traditional personal finance software. The pencil Other personal finance software. innovation by thinking about how customers make trade-offs over substitutes.
Looking Across Strategic Groups Within Industries
Ralph Lauren built on the defining strengths of two strategic groups that dominated the high-end apparel market—designer haute couture and the classic lines of Burberry's, Brooks Brothers, Aquascutum, and higher volume but lower prices. similarly. Ralph Lauren built his brand in the space between these two strategic groups, but he did not do so by taking the average of the differences between the groups.
Looking Across the Chain of Buyers
In little more than a decade, Bloomberg has become one of the largest and most profitable business information providers in the world. Until Bloomberg's debut in the early 1980s, Reuters and Telerate dominated the online financial information industry, providing real-time news and prices to the brokerage and investment community.
Looking Across Complementary Product and Service Off erings
In less than six years, Borders and B&N emerged as the two largest bookstore chains in the United States, with a total of more than 650 superstores between them. Borders and Barnes & Noble looked across complementary products and services to establish a new value curve in book retailing.
Looking Across Functional or Emotional Appeal to Buyers
The Body Shop created new market space by shifting in the opposite direction, from an emotional appeal to a functional one. The Body Shop spends little on advertising, again because its customers get no functional value from it.
Looking Across Time
When local gas monopolies were broken up, gas could be purchased anywhere in the country. Today, more than 80% of all Internet traffic flows through Cisco products, and its margins in this new market space are in the 60% range.
Regenerating Large Companies
The first tool, "the buyer's toolkit". indicates the likelihood that customers will be attracted to the new idea. The second tool, "the price corridor of the mass," identifies which price will unlock the largest number of customers.
Creating Exceptional Utility
From ONE OF THE MOST INNOVATIVE companies in our database is discount broker Charles Schwab. The six stages of the buyer experience cycle. leadership relies on its ability to continue to establish new service spaces before competitors do.
Setting a Strategic Price
Identifying the Price Corridor of the Mass
The Mass Price Corridor To find the right price for your new product, you first need to identify the Mass Price Corridor – that is, the price range that includes the largest groups of customers. The price bandwidth that covers the largest groups of customers is called the price corridor of the masses.
Specifying a Level Within the Price Corridor
This provides a fairly straightforward way to identify where the largest groups of potential customers are and what prices they are willing to pay for the products and services they currently use. For Southwest Airlines, for example, the largest groups of potential customers paid an average of $400 to buy a short-haul (short-haul is a 400-mile trip) economy class ticket, or about $60 for the one-way cost same. driving distance.
Building a Profi table Business Model
In the end, Swatch's total production costs were almost 30% less than those of competing products from Hong Kong. And his future success will depend on his ability to continue this way.
Overcoming Adoption Hurdles
Customers get immediate access to a key capability, and HP will earn much more than the price of the machine. And if it happened too often, they risked being left out of the game in future strategy sessions.
Revealing Your Strategic Profi le
Note that Southwest's profile has more in common with that of the car than with the profiles of other airlines. In the case of Southwest, we found that the value curves of the company's competitors were nearly identical, which is why they share the same value curve in the exhibit.
Drawing Your Strategy Canvas
They interviewed the end users of corporate foreign exchange services—the accounting and treasury departments of companies. That hypothesis was disproved when one of the fastest growing units—the mobile phone business—presented its strategic canvas.
Break Through the Cognitive Hurdle
Boston Metropolitan Police ("The Mets") New York Transit Police (NYTP) New York Police Department (NYPD) Results Crime throughout the Fenway area was dramatically reduced. Comfortably removed from the realities of underground life—and reassured by statistics showing that only 3% of the city's major crimes were committed on the subway—senior managers had little sensitivity to riders' widespread concern about safety.
Sidestep the Resource Hurdle
At the same time, in the hotspots, the greater part of the force moved from uniform to civilian clothes. Bratton's pursuit of data-driven policing solutions led to the creation of the famous Compstat crime database.
Jump the Motivational Hurdle
The figure "Transit Strategy Canvas: How Bratton Refocused Resources" illustrates how radically Bratton refocused transit police resources.). For example, when Bratton took over as transit police chief, his general counsel and policy adviser, Dean Esserman, now the police chief of Providence, Rhode Island, discovered that the transit unit had more unmarked cars than 'it was necessary, but she was hungry from work. what space
The strategy canvas of transit
Who would have believed that the city could become one of the safest in the country. In this way, responsibility for the turnaround shifted from Bratton to each of the thousands of police officers on the force.
Knock Over the Political Hurdle
Bratton's alliance with the mayor's office and the city's leading media establishment successfully insulated the courts. Blue oceans denote all industries that do not exist today – an unknown market space, untainted by competition.
Blue and Red Oceans
Kim and Mauborgne recommend creating blue oceans—uncontested market spaces where competition is irrelevant. We assess the benefits and consequences of growing blue oceans and discuss why creating them is a growing imperative for companies in the future.
The Paradox of Strategy
At the same time, there is little evidence of any increase in demand, at least in developed markets, where recent United Nations statistics even point to a declining population. As competition increased in the global marketplace, a slew of red ocean strategies emerged, all claiming that competition was at the heart of business success and failure.
Toward Blue Ocean Strategy
GM, Japanese automakers and Chrysler became major players when they created blue oceans in the auto industry. Almost all the companies listed in the exhibition are remembered in no small part for the blue oceans they created long ago.
The Defi ning Characteristics
Adapt the entire system of a company's activities in pursuit of differentiation and low costs. capturing the magic of the circus, Cirque designed this classic symbol with a glorious exterior finish and a high level of audience comfort. For an account of the economics behind the blue ocean strategy, see "The Simultaneous Pursuit of Differentiation and Low Cost.").
Barriers to Imitation
Experience shows that even the most expensive marketing campaigns struggle to get a blue ocean creator off the ground. In other situations, attempts to imitate a creator of the blue ocean are at odds with the imitator's existing brand image.
A Consistent Pattern
It is time to level the scales in the field of strategy with a better balance of efforts across both oceans. Blue Ocean Strategy has its roots in the emerging school of economics called endogenous growth, whose central paradigm states that the ideas and actions of individual players can shape the economic and industrial landscape.
What Is the Right Strategic Approach for You?
But when conditions are unfavorable and they will work against you regardless of your resources and abilities, a structuralist approach is not a smart option. Even when an industry is attractive, if existing players are well entrenched and an organization lacks the resources and capabilities to challenge them, the structuralist approach will not produce high performance.
The Three Strategy Propositions
It is the responsibility of an organization's top managers to ensure that each proposal is fully developed and all three are. Profit Proposition The revenue an organization generates from an offering minus the costs of producing and delivering it.
Achieving Blue Ocean Strategy Alignment
At the heart of Dubai's success has been a value proposition for foreign investors that is unlike that of other emerging economies. Compare its value proposition to foreign investors with that of Shanghai, China's largest commercial hub (see exhibit "Dubai's Value Proposition").
When Strategy Is Not Aligned
The blue ocean strategy alignment applies not only to governments, but also to companies and non-profit organizations (see Comic Relief's Alignment of the Three Strategy Propositions for more on how it works in the non-profit sector). Unlike traditional UK charities, Comic Relief avoids huge advertising costs thanks to the extensive media attention that Red Nose Day generates.
The Leadership Challenge
We believe leaders can gain this understanding through an approach we call "blue ocean leadership." It draws from our research on Blue Ocean Strategy, our model for creating a new market space by turning non-buyers into customers, and applies its concepts. Over the past 10 years, Blue Ocean Strategy Network expert Gavin Fraser and I have interviewed hundreds of people in organizations to understand where leadership is lacking and how we can change it while conserving leaders' most valuable resource: time. .
Key Diff erences from Conventional Leadership Approaches
A new approach, called blue ocean leadership, can free up the sea of untapped talent and energy in organizations. Blue Ocean leadership is designed to be applied at the three different levels of management: top, middle and front line.
The Four Steps of Blue Ocean Leadership
- See your leadership reality
- Develop alternative Leadership Profi les
- Select to-be Leadership Profi les
- Institutionalize new leadership practices
When we asked team members to describe each canvas on a label, an exercise that is part of the process, they labeled the frontline leadership profile "Please Boss," the middle manager profile "Check and Play Safe," and the manager high profile. Has the leader shortened the acts and activities that would be eliminated and reduced in the new leadership profile.
Execution Is Built into the Four Steps
Since the upcoming profiles are generated with the employees' own input, people have confidence in the changes that are made. Clarity on what needs to change to move from current to future leadership profiles makes it easy to monitor progress.
Becoming a Blue Ocean Leader