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A SUMMARY OF THOUGHTS
DKD
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Blue Oceans are created well beyond existing industry boundaries. Blue Oceans are created well beyond existing industry boundaries. Most are created within red oceans by expanding existing industry boundaries. Most are created within red oceans by expanding existing industry boundaries. Overriding focus of strategic thinking has been on competition-based red ocean Overriding focus of strategic thinking has been on competition-based red ocean strategies, thus accepting the key constraining factors of war limited terrain and strategies, thus accepting the key constraining factors of war limited terrain and the need to beat the enemy to succeed, and to deny the distinctive strength of the the need to beat the enemy to succeed, and to deny the distinctive strength of the business world i.e. the capacity to create new market space that is uncontested. business world i.e. the capacity to create new market space that is uncontested.
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BUSINESS LAUNCH REVENUE IMPACT PROFIT IMPACT 39% 39% 62% 62%
86% of launches were line extensions accounting for 62% of revenues and 29% of 86% of launches were line extensions accounting for 62% of revenues and 29% of profits. profits. 14% of launches were aimed at creating blue oceans and generated 38% of revenues 14% of launches were aimed at creating blue oceans and generated 38% of revenues and 61% of profits. and 61% of profits.
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Globalization Trade Globalization Trade Barriers are dismantled Barriers are dismantled
Unprecedented array of Unprecedented array of Products and Services Products and Services
Supply Exceeds Demands Supply Exceeds Demands Instant information on Instant information on products & prices products & prices
Brands are becoming Brands are becoming more similar Increased more similar Increased purchased based upon purchased based upon price price
The business environment in which most strategy and management The business environment in which most strategy and management approaches of the 20th century evolved is increasingly disappearing approaches of the 20th century evolved is increasingly disappearing
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Value Innovation The Cornerstone of Blue Ocean Strategy Value Innovation The Cornerstone of Blue Ocean Strategy
Creators of Blue Oceans did not use the competition as their benchmark. Creators of Blue Oceans did not use the competition as their benchmark. Instead they followed aastrategic logic Value Innovation which places equal Instead they followed strategic logic Value Innovation which places equal emphasis on VALUE & INNOVATION vs. Competition-based Strategy, the value-cost emphasis on VALUE & INNOVATION vs. Competition-based Strategy, the value-cost trade-off. trade-off. Value Innovation occurs when companies align innovation with utility, price and cost Value Innovation occurs when companies align innovation with utility, price and cost positions i.e. pursuing differentiation and low cost simultaneously. positions i.e. pursuing differentiation and low cost simultaneously.
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COSTS
Value Innovation
BUYER VALUE
Value Innovation is MORE THAN Value Innovation is MORE THAN Innovation. Innovation. Its is about strategy that Its is about strategy that embraces the entire system of aa embraces the entire system of company's activities. company's activities. Value Innovation requires Value Innovation requires companies to orient the whole companies to orient the whole system toward achieving aaLEAP system toward achieving LEAP in VALUE for both buyers and in VALUE for both buyers and themselves. themselves.
In the Reconstructionist World the Strategic aim is to create New BestIn the Reconstructionist World the Strategic aim is to create New BestPractice Rules by breaking the existing Value-Cost Trade-off and thereby Practice Rules by breaking the existing Value-Cost Trade-off and thereby creating Blue Ocean. creating Blue Ocean.
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EXECUTION PRINCIPLES
5. Overcome Key Organizational Hurdles 5. Overcome Key Organizational Hurdles 6. Build Execution into Strategy 6. Build Execution into Strategy
DKD
To set a company on a strong, profitable growth trajectory in the face of these industry conditions, benchmarking against the competitors and trying to out-compete them by offering a little more for a little less will not work. Such a strategy may nudge sales up but will hardly drive a company to open up uncontested market space. Nor is extensive customer research the path to blue oceans.
THE FOUR ACTION THE FOUR ACTION FRAMEWORK FRAMEWORK QUESTIONS QUESTIONS
1stst Consider eliminating factors that 1 Consider eliminating factors that companies in your industry have long companies in your industry have long competed on No longer have value OR competed on No longer have value OR may detract value. may detract value. 2nd Determine whether products or 2nd Determine whether products or services have been over-designed in the services have been over-designed in the race to match the competition overrace to match the competition overserve the customers, increasing cost serve the customers, increasing cost structure for no gain. structure for no gain. 3rdrd Uncover and eliminate the 3 Uncover and eliminate the compromises your industry forces compromises your industry forces customers to make. customers to make. 4thth Discover entirely new sources of 4 Discover entirely new sources of value for buyers and to creae new value for buyers and to creae new demand and shift the strategic pricing for demand and shift the strategic pricing for the industry. the industry.
Budget Wines
LOW
Price Use of enological terminology Above the line marketing Aging Quality Vineyard prestige and legacy Wine complexity Wine range Easy drinking Fun & Ease of selection adventure
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1. ELIMINATE 1. ELIMINATE Which of the factors that Which of the factors that the industry takes for the industry takes for granted should be granted should be eliminated? eliminated?
4. CREATE 4. CREATE Which factors should be Which factors should be created that the industry created that the industry has never offered? has never offered?
3. RAISE 3. RAISE Which factors should be Which factors should be raised well above the the raised well above the the industrys standard? industrys standard?
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1. FOCUS The company does not diffuse its efforts across all key areas of competition. The companys 1. FOCUS The company does not diffuse its efforts across all key areas of competition. The companys strategic profile or value curves should clearly show it. strategic profile or value curves should clearly show it. 2. DIVERGENCE The shape of its value curve diverges from the other players, aaresult of not 2. DIVERGENCE The shape of its value curve diverges from the other players, result of not benchmarking competitors but instead looking across alternatives. By applying the Eliminate-Reducebenchmarking competitors but instead looking across alternatives. By applying the Eliminate-ReduceRaise-Create actions, the company should differentiate its profile from the industrys average profile. Raise-Create actions, the company should differentiate its profile from the industrys average profile. 3. TAGLINE The tagline for the strategic profile is clear. Not only does ititdeliver aaclear message but 3. TAGLINE The tagline for the strategic profile is clear. Not only does deliver clear message but also advertise an offering truthfully or else customers will lose trust and interest. also advertise an offering truthfully or else customers will lose trust and interest.
HIGH
Car Transport Southwest Airline Average Airline
Focused Strategic Profile or Value Curves Differentiate (Eliminate-ReduceRaise-Create) Strategic Profiles Compelling Tagline The Speed of a plane at the Price of a Car Whenever You need it Page 11
LOW
PRICE
MEALS
LOUNGES
SPEED
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1. The strategy canvas enables companies to see the future in the present. 1. The strategy canvas enables companies to see the future in the present. 2. Embedded in the value curves of an industry is wealth of strategic knowledge on the current status and 2. Embedded in the value curves of an industry is wealth of strategic knowledge on the current status and future of aabusiness. future of business.
st 1. The 11st question the value curve answers is whether a business deserves to be a winner. 1. The question the value curve answers is whether a business deserves to be a winner. 2. Its on the right track when the value curve meets the three criteria focus, divergence, and a compelling tagline. 2. Its on the right track when the value curve meets the three criteria focus, divergence, and a compelling tagline. 3. The three criteria serves as aa litmus test of the commercial viability of the blue ocean ideas. 3. The three criteria serves as litmus test of the commercial viability of the blue ocean ideas.
A companys explicit or implicit strategy tends to be trying to outdo its competition on the basis of cost or quality. This signals slow growth! Does the market share and profitability reflect the investments? To value-innovate, the company must decide which factors to eliminate and reduce not only those to raise and create to construct a divergent Value Curve. Strategy likely based upon independent sub-strategies a reflection of an organization with divisional or functional silos.
Strategic Contradictions
Offering a high level of competing factor whilst ignoring others that support that factor.
Strategic inconsistencies can also be found between the level of the offering and the price.
The kind of language used in the strategy canvas gives insight as to whether a companys strategic vision is built on an outside-in perspective driven by the demand side OR an inside-out perspective that is operationally driven.
An incoherent strategy
Value Curve with no rhyme or reason
Intersection between the analytic techniques and the six principles of formulating and executing blue oceans that allow companies to break from the competition and unlock uncontested market space.
Strategy Canvas
Eliminate-ReduceRaise-Create Grid
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These paths challenge he six fundamental assumptions underlying many These paths challenge he six fundamental assumptions underlying many companies strategies. Specifically, companies tend to do the followings: companies strategies. Specifically, companies tend to do the followings: Define their industry similarly and focus on being the best within it. Define their industry similarly and focus on being the best within it. Look at their industries through the lens of generally accepted strategic groups and Look at their industries through the lens of generally accepted strategic groups and strive to stand out in the strategic group they play in. strive to stand out in the strategic group they play in. Focus on the same buyer group, be ititthe purchaser, the user, or the influencer. Focus on the same buyer group, be the purchaser, the user, or the influencer. Define the scope of the products and services offered by their industry similarly. Define the scope of the products and services offered by their industry similarly. Accept their industry's functional or emotional orientation. Accept their industry's functional or emotional orientation. Focus on the same point in time and often on current competitive threats in Focus on the same point in time and often on current competitive threats in formulating strategy. formulating strategy. Need to look across alternative industries, across strategic groups, across buyer Need to look across alternative industries, across strategic groups, across buyer groups, across complementary product and service offerings, across the functionalgroups, across complementary product and service offerings, across the functionalemotional orientation of an industry, and even across time. emotional orientation of an industry, and even across time.
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Path 3: Look Across the Chain of Buyers Path 4: Look Across Complementary Product & Service Offerings Path 5: Look Across Functional or Emotional Appeal to Buyers
Purchasers who pay for the product or service may differ from the actual users, and in some cases there are important influencers as well.
Untapped value is often hidden in complementary products and services. The key is to define the total solution buyers seek. What happens before, during and after a product is used. Emotionally-oriented industries offer many extras that add price without enhancing functionality. Functionally-oriented industries can often infuse commodity products with new life by adding a dose of emotion to stimulate new demand. Key insights arise from business insights into how the trend will change value to customers and impact the company's business model. Three principles- Decisive to the business, Must be Irreversible and Have Clear Trajectory.
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From Head-to-Head Competition to Blue Ocean Creation From Head-to-Head Competition to Blue Ocean Creation
Head-to-Head Competition
INDUSTRY INDUSTRY STRATEGIC STRATEGIC GROUP GROUP BUYER GROUP BUYER GROUP SCOPE OF SCOPE OF PRODUCT OR PRODUCT OR SERVCIES SERVCIES FUNCTIONALFUNCTIONALEMOTIONAL EMOTIONAL ORIENTATION ORIENTATION TIME TIME DKD Focus on rivals within the industry Focus on rivals within the industry Focuses on competitive position Focuses on competitive position within strategic group within strategic group Focuses on better serving the buyer Focuses on better serving the buyer group group Focuses on maximizing the value of Focuses on maximizing the value of product and service offerings within product and service offerings within the bounds of its industry the bounds of its industry Focuses on improving price Focuses on improving price performance within the functionalperformance within the functionalemotional orientation of its industry emotional orientation of its industry Focuses on adapting to external Focuses on adapting to external trends as they occur trends as they occur
BLUE OCEAN STRATEGY PRINCIPLE 2 FOCUS ON THE BIG PICTURE, NOT THE NUMBERS
ATTENUATES PLANNING RISKS
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Culminates with the preparation of a large document culled from a Culminates with the preparation of a large document culled from a mishmash of data provided by various parts of the organization who mishmash of data provided by various parts of the organization who often have conflicting agendas and poor communication often have conflicting agendas and poor communication
Spend majority of strategic thinking filling in boxes and running Spend majority of strategic thinking filling in boxes and running numbers instead of developing a clear picture of how to break from numbers instead of developing a clear picture of how to break from the competition the competition
GO AFTER CUSTOMERS & NON-CUSTOMERS GO AFTER CUSTOMERS & NON-CUSTOMERS Revenue, Profitability, Market Share, and Customers Revenue, Profitability, Market Share, and Customers Satisfaction Satisfaction MEASURES ON COMPANYS CURRENT POSITION MEASURES ON COMPANYS CURRENT POSITION Balance between Profitable Growth and Cash-Flow at a given Balance between Profitable Growth and Cash-Flow at a given point in time. point in time.
Most strategic plans dont contain strategy at all but rather a Most strategic plans dont contain strategy at all but rather a smorgasbord of tactics that individually makes sense but collectively smorgasbord of tactics that individually makes sense but collectively dont add up to to a unified, clear direction that sets a company apart dont add up to to a unified, clear direction that sets a company apart let alone makes the competition irrelevant. let alone makes the competition irrelevant.
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Resolve differences about the Resolve differences about the current state of play current state of play Accept the need for change Accept the need for change
A company should never A company should never outsource its eyes. outsource its eyes. Great strategic insights is the Great strategic insights is the product of getting into the filed product of getting into the filed and challenging the boundaries and challenging the boundaries of competition of competition
Present strategy canvases at a Present strategy canvases at a Visual Strategy Fair Visual Strategy Fair
One page picture showing new One page picture showing new and old strategic profiles so that and old strategic profiles so that every employee could see where every employee could see where the company stood and where it the company stood and where it had to focus its efforts to create a had to focus its efforts to create a compelling future compelling future
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VISUALIZING STRATEGY AT THE CORPORATE LEVEL VISUALIZING STRATEGY AT THE CORPORATE LEVEL
When business units present their strategy canvases to one another, they deepen their understanding of the other When business units present their strategy canvases to one another, they deepen their understanding of the other businesses in the corporate portfolio. businesses in the corporate portfolio. Example: Samsung Electronics has institutionalized the use of the strategy canvas in its key business creation decisions by Example: Samsung Electronics has institutionalized the use of the strategy canvas in its key business creation decisions by establishing the Value Innovation Program (VIP) Centre in 1998. establishing the Value Innovation Program (VIP) Centre in 1998.
USING THE PIONEER-MIGRATOR-SETTLER (PMS) MAP USING THE PIONEER-MIGRATOR-SETTLER (PMS) MAP
AA Companys Pioneers are the businesses that offer unprecedented value. Companys Pioneers are the businesses that offer unprecedented value. Settlers are businesses whose value curves conform to the basic shape of the industrys. Settlers are businesses whose value curves conform to the basic shape of the industrys. The potential of Migrators lies somewhere in between. Such businesses extend the industrys curve by giving customers The potential of Migrators lies somewhere in between. Such businesses extend the industrys curve by giving customers more for less, but they dont alter its basic shape. These businesses offer improved value, but not innovative value. more for less, but they dont alter its basic shape. These businesses offer improved value, but not innovative value. OVERCOMING THE LIMITATIONS OVERCOMING THE LIMITATIONS Strategic Planning should be more about Collective Wisdom building than top-down or bottom-up planning. Strategic Planning should be more about Collective Wisdom building than top-down or bottom-up planning. ItIt should be more conversational than solely documentation driven, should be more about building the big picture than about should be more conversational than solely documentation driven, should be more about building the big picture than about number crunching exercises. number crunching exercises. ItIt should have a creative component instead of being strictly analysis-driven, more motivational, invoking willing commitment, should have a creative component instead of being strictly analysis-driven, more motivational, invoking willing commitment, than bargain driven, producing negotiated commitment. than bargain driven, producing negotiated commitment.
Aristotle pointed out The Soul never thinks without an image Aristotle pointed out The Soul never thinks without an image
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First Tier: soon-to-be First Tier: soon-to-be non-customers who non-customers who are on the edge of your are on the edge of your market market Second Tier: Second Tier: Refusing nonRefusing noncustomers who customers who consciously choose consciously choose against your market against your market Third Tier: Third Tier: Unexplored nonUnexplored noncustomers who are in customers who are in markets distant from markets distant from yours. yours.
Your Market
First Tier
2nd Tier
Third Tier
Focus on the Tier that represents the Focus on the Tier that represents the biggest catchments. biggest catchments. But, explore whether there are But, explore whether there are overlapping commonalities across overlapping commonalities across all three tiers of non-customers. all three tiers of non-customers. The natural strategic orientation is The natural strategic orientation is toward retaining existing customers toward retaining existing customers and seeking further segmentation and seeking further segmentation opportunities. This is especially true opportunities. This is especially true in the face of competitive pressures. in the face of competitive pressures. However, we should reach beyond However, we should reach beyond existing demand to non-customers. existing demand to non-customers. IfIf no such opportunities arise, move no such opportunities arise, move on to further exploit differences on to further exploit differences among exist. among exist.
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ADDRESSING THE REVENUE SIDE OF A COMPANYS BUSINESS MODEL ADDRESSING THE REVENUE SIDE OF A COMPANYS BUSINESS MODEL
No-Rethink
Price Price
Is your price easily Is your price easily accessible to the mass accessible to the mass of buyers? of buyers? Yes No-Rethink
1. The starting point is buyer utility Does your offering unlock exceptional utility? 1. The starting point is buyer utility Does your offering unlock exceptional utility? Is there aa compelling reason for the mass of people to buy it? Is there compelling reason for the mass of people to buy it? 2. Remember aa company does not want to rely solely on price to create demand. Is 2. Remember company does not want to rely solely on price to create demand. Is your offering priced to attract the mass of target buyers so that they have aa your offering priced to attract the mass of target buyers so that they have compelling ability to pay for your offering? compelling ability to pay for your offering? ADDRESSING THE PROFIT SIDE ADDRESSING THE PROFIT SIDE 3. Can you produce your offering at the target cost and still earn aa healthy profit 3. Can you produce your offering at the target cost and still earn healthy profit margin? You should not let costs drive prices, nor should you scale down utility margin? You should not let costs drive prices, nor should you scale down utility because high costs block yor ability to profit at the strategic price. because high costs block yor ability to profit at the strategic price. IT IS THE COMBINATION OF EXCEPTIORNAL UTILITY, STRATEGIC IT IS THE COMBINATION OF EXCEPTIORNAL UTILITY, STRATEGIC PRICING & TARGET COSTING THAT ALLOWS COMPANIES TO ACHIEVE PRICING & TARGET COSTING THAT ALLOWS COMPANIES TO ACHIEVE VALUE INNOVATION. VALUE INNOVATION.
Cost Cost
Can you attain your Can you attain your cost target to profit at cost target to profit at your strategic price? your strategic price? Yes No-Rethink
Adoption Adoption
What are the adoption What are the adoption hurdles in actualizing hurdles in actualizing your business idea? Are your business idea? Are you addressing them you addressing them up-front? up-front? Yes
No-Rethink
ADDRESSING THE ADOPTION HURDLES ADDRESSING THE ADOPTION HURDLES 4. What are the adoption hurdles in rolling out your idea? Have you addressed 4. What are the adoption hurdles in rolling out your idea? Have you addressed these up front? these up front? 25 December 2006 3RD JANUARY 2007 Page 24
A commercially A commercially viable blue viable blue ocean idea ocean idea
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Customer Productivity
How long How long does it take does it take to find? to find? How rapidly How rapidly can you can you make a make a purchase? purchase? Is the place Is the place accessible? accessible?
How long How long does it take does it take to to deliver to to deliver the product? the product? How difficult How difficult to unpack to unpack and install? and install? Do buyers Do buyers have to have to arrange? arrange?
Does the Does the product product require require training? training? Does it Does it require require expert expert assistance? assistance? Effectivenes Effectivenes s of features s of features & functions? & functions? Will Things Will Things Go wrong? Go wrong? Ease of Ease of Warranty? Warranty? Deliver more Deliver more options than options than user user require? require? Availability Availability of user of user manual? manual?
Need other Need other product to product to make it make it work? work? How easy to How easy to obtain? obtain?
Require Require external external maintenance maintenance ? ? How easy to How easy to maintain & maintain & upgrade? upgrade?
Does use of Does use of product product waste waste items? items? How easy to How easy to dispose? dispose?
Simplicity
Outlines all the levers Outlines all the levers companies can pull to companies can pull to deliver exceptional utility to deliver exceptional utility to buyers as well as the buyers as well as the various experiences buyers various experiences buyers can have with aa product or can have with product or service. service. This map allows managers This map allows managers to identify the full range of to identify the full range of utility spaces that aa product utility spaces that product or service can potentially fill. or service can potentially fill. To test for exceptional To test for exceptional utility, companies should utility, companies should check whether their offering check whether their offering has removed the greatest has removed the greatest blocks to utility across the blocks to utility across the entire buyer experience entire buyer experience cycle for customers and cycle for customers and non-customers. non-customers. Page 25
Convenience
How much How much time do they time do they take? take?
Risk
How secure How secure is the is the transaction? transaction? Is the place Is the place attractive & attractive & fun? fun? Is purchase Is purchase made in a made in a friendly friendly manner? manner?
Legal & Legal & Environment Environment al issues? al issues? Will it Will it enhance enhance CSR? CSR?
Would Would customer be customer be anxious? anxious? Is the Is the packaging packaging user user friendly? friendly?
How much How much pain do they pain do they cause? cause?
Environmental Friendliness
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U
PRICE CORRIDOR OF THE MASS
High Degree of legal and High Degree of legal and resource protection resource protection Difficult to imitate Difficult to imitate Some Degree of legal and Some Degree of legal and resource protection resource protection Low Degree of legal and Low Degree of legal and resource protection resource protection Easy to imitate Easy to imitate
Mid-level pricing
Low er le vel p ricin g
The price bandwidth that captures the largest The price bandwidth that captures the largest groups of target buyers is the price corridor of groups of target buyers is the price corridor of the mass. the mass.
As the nature of goods becomes more As the nature of goods becomes more knowledge intensive, companies bear knowledge intensive, companies bear much more of their costs in product much more of their costs in product development than in manufacturing. development than in manufacturing. To a buyer, the value of a product or To a buyer, the value of a product or service may be closely tied to the total service may be closely tied to the total number of people using it. number of people using it. The rise of knowledge-intensive products The rise of knowledge-intensive products also creates the potential for free riding. also creates the potential for free riding. The cost and risk of developing an The cost and risk of developing an innovative idea are borne by the initiator, innovative idea are borne by the initiator, not the follower. not the follower. The strategic price you set for your The strategic price you set for your offering must not only attract buyers in offering must not only attract buyers in large numbers, but also help to retain large numbers, but also help to retain them. them. Companies would be wise to pursue Companies would be wise to pursue mid-to-lower-boundary strategic pricing mid-to-lower-boundary strategic pricing from the start if the following apply: from the start if the following apply: Blue ocean offering has high fixed Blue ocean offering has high fixed costs and marginal variable costs. costs and marginal variable costs. Their attractiveness depend heavily Their attractiveness depend heavily on network externalities. on network externalities. Their cost structure benefits from Their cost structure benefits from steep economies of scale and scope. steep economies of scale and scope.
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Target costing is driven by strategic pricing, and itit is usually aggressive. Target costing is driven by strategic pricing, and is usually aggressive. Part of the challenge of meeting the target cost is addressed in building aa Part of the challenge of meeting the target cost is addressed in building strategic profile that has not only divergence but also focus, which makes aa strategic profile that has not only divergence but also focus, which makes company strip out costs. company strip out costs. Sometimes these reductions are sufficient to hit the cost target, but often Sometimes these reductions are sufficient to hit the cost target, but often they are not. they are not.
To hit the cost target, companies have three principle levers To hit the cost target, companies have three principle levers
Streamlining operations and introducing cost innovations from manufacturing to distribution Partnering Form Development, manufacturing to distribution
Partnership Partnership
What is a pricing innovation in one industry, is often a standard pricing in another industry 25 December 2006 3RD JANUARY 2007 Page 27
DKD
EMPLOYEES EMPLOYEES
Failure to adequately address the concerns Failure to adequately address the concerns of employees about the impact of a new of employees about the impact of a new business idea on their livelihoods can be business idea on their livelihoods can be expensive. expensive. The company must make a concerted The company must make a concerted effort to c to employees that they are effort to c to employees that they are aware of the threats posed by the aware of the threats posed by the execution of the idea before going public execution of the idea before going public with the idea. with the idea. Companies should work with employees to Companies should work with employees to find ways of defusing the threats so that find ways of defusing the threats so that everyone in the company wins, despite everyone in the company wins, despite shifts in peoples roles, responsibilities and shifts in peoples roles, responsibilities and rewards. rewards.
Potentially more damaging would be Potentially more damaging would be business partners resistance who fear business partners resistance who fear their revenue streams or market positions their revenue streams or market positions are threatened by a new business idea. are threatened by a new business idea.
Opposition from the public may arise if the Opposition from the public may arise if the new business idea is very new and new business idea is very new and innovative, particularly if it threatens innovative, particularly if it threatens established social or political norms. established social or political norms.
COMPANIES NEED TO EXPLAIN THE MERITS, SET CLEAR EXPECTATIONS FOR ITS RAMIFICATIONS, AND COMPANIES NEED TO EXPLAIN THE MERITS, SET CLEAR EXPECTATIONS FOR ITS RAMIFICATIONS, AND DESCRIBE HOW THE COMPANY WILL ADDRESS THEM. DESCRIBE HOW THE COMPANY WILL ADDRESS THEM. DKD 25 December 2006 3RD JANUARY 2007 Page 28
UTILITY
Is there exceptional utility? Are there compelling reason to buy your offering? Is your price easily accessible to the mass of buyers? Does your cost structure meet the target cost? Have you addressed adoption hurdles upfront?
+ -
+
+
PRICE
COST
ADOPTION
+: There is value innovation +: There is value innovation - -: : No value innovation No value innovation
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COGNITIVE
Red Oceans may not be the paths to future profitable growth, but they feel comfortable to people and may have even served an organization well until now, so why rock the boat?
LIMITED RESOURCES
The greater the shift in strategy, the greater it is assumed are the resources needed to execute it! But resources are being cut and not raised!
MOTIVATION
How do you motivate key players to move fast and tenaciously to carry-out a break from the status quo?
POLITICS
Example, In our Organization, you get shot down before you stand up
TO ACHIEVE THIS EFFECTIVELY TO ACHIEVE THIS EFFECTIVELY Companies must abandon perceived wisdom on effecting change. Companies must abandon perceived wisdom on effecting change. Utilize TIPPING POINT LEADERSHIP which allows you to overcome the four hurdles fast and at low cost while winning Utilize TIPPING POINT LEADERSHIP which allows you to overcome the four hurdles fast and at low cost while winning employees backing in executing from the status quo. employees backing in executing from the status quo. DKD 25 December 2006 3RD JANUARY 2007 Page 31
POLITICAL HURDLE POLITICAL HURDLE Opposition from powerful Opposition from powerful vested interests vested interests
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Concentrate on multiplying the value of the resources. Concentrate on multiplying the value of the resources. Organizations rapidly gain insight into freeing up low-return Organizations rapidly gain insight into freeing up low-return resources and redirecting them to high-impact areas. resources and redirecting them to high-impact areas. Whereas the actions of eliminating and resolving and reducing, Whereas the actions of eliminating and resolving and reducing, cut the costs for the organization, raising certain elements or cut the costs for the organization, raising certain elements or creating required added investments. creating required added investments. However, the overall investment of resources remained more or However, the overall investment of resources remained more or less constant! less constant! MULTIPLY THE VALUE OF AVAILABLE RESOURCES MULTIPLY THE VALUE OF AVAILABLE RESOURCES
1 1 LEVERAGE LEVERAGE HOT SPOTS HOT SPOTS 2 2 OPTIMIZE OPTIMIZE COLD COLD SPOTS SPOTS 3 3 HORSE HORSE TRADING TRADING Activities that have low resource input but high performance Activities that have low resource input but high performance gains. gains. Activities that have high resource input but low performance Activities that have high resource input but low performance impact. impact.
Involve trading your units excess resources in an area and Involve trading your units excess resources in an area and redirecting them to high-impact areas. redirecting them to high-impact areas.
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You must alert employees to the need for aa strategic shift and You must alert employees to the need for strategic shift and identify how itit can be achieved with limited resources. identify how can be achieved with limited resources. People must not only recognize what needs to be done, but they People must not only recognize what needs to be done, but they must also act on that insight in aa sustained and meaningful way. must also act on that insight in sustained and meaningful way. MOTIVATE MASS OF EMPLOYEES FAST & AT LOW COST MOTIVATE MASS OF EMPLOYEES FAST & AT LOW COST
1 1 LEVERAGE LEVERAGE KINGPINS KINGPINS 2 2 PLACE PLACE KINGPINS in KINGPINS in A A FISHBOWL FISHBOWL 3 3 ATOMIZE TO ATOMIZE TO GET THE GET THE ORGANIZATIO ORGANIZATIO N TO CHANGE N TO CHANGE ITSELF ITSELF Concentrate your efforts on kingpins, the key influencers in Concentrate your efforts on kingpins, the key influencers in the organization. the organization. These are natural leaders who are well-respected and These are natural leaders who are well-respected and persuasive and have the ability to unlock or block access to persuasive and have the ability to unlock or block access to key resources. key resources. Motivating kingpins in a sustained and meaningful way Motivating kingpins in a sustained and meaningful way requires transparency, inclusion and fair process. requires transparency, inclusion and fair process. Through this an intense performance culture would be Through this an intense performance culture would be created in short period of time. created in short period of time. :Fishbowl management offers an opportunity for high :Fishbowl management offers an opportunity for high achievers to gain recognition. achievers to gain recognition. Unless people believe that the strategic challenge is Unless people believe that the strategic challenge is attainable, the change is not likely to succeed. Hence attainable, the change is not likely to succeed. Hence atomization i.e. the framing of the strategic challenge is atomization i.e. the framing of the strategic challenge is crucial. crucial. To make the challenge attainable, break it up into bite-sized To make the challenge attainable, break it up into bite-sized atoms that employees at every level could relate to. atoms that employees at every level could relate to.
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CONVENTIONAL WISDOM
Mass of Employees
TIPPING-POINT LEADERSHIP
EXTREMES EXTREMES
Company Theory of organization change rests on transforming the mass. So change efforts are focused on moving the mass, requiring steep resources and long timeframe.
Company To change the mass, focus on the extremes people, acts, and activities that exercise a disproportionate influence on performance to achieve a strategic shift at a low cost.
ItItis never easy to execute aastrategic shift, and doing ititfast with limited resources is even more difficult. is never easy to execute strategic shift, and doing fast with limited resources is even more difficult. By consciously addressing the hurdles to strategy execution and focusing on factors of disproportionate By consciously addressing the hurdles to strategy execution and focusing on factors of disproportionate influence, you can knock them over to actualize aastrategic shift. influence, you can knock them over to actualize strategic shift. Not every challenge requires aaproportionate action. Focus on acts of disproportionate influences. Not every challenge requires proportionate action. Focus on acts of disproportionate influences. This is aacritical leadership component for making blue ocean strategy happen. This is critical leadership component for making blue ocean strategy happen. ItItaligns employees actions with the new strategy. aligns employees actions with the new strategy.
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THE THREE PRINCIPLES THE THREE PRINCIPLES OF FAIR PROCESS OF FAIR PROCESS Three mutually reinforcing Three mutually reinforcing elements that defines fair elements that defines fair process: Engagement, process: Engagement, Explanation and Explanation and Expectation Clarity. Expectation Clarity.
People at the front-line care about People at the front-line care about the proper process as those at the proper process as those at the Top the Top Page 39
Attitudes Attitudes
Behavior Behavior
Why does the observance or violation of fair process in strategy making have the power to Why does the observance or violation of fair process in strategy making have the power to make or break aastrategys execution? make or break strategys execution? ItItall comes down to intellectual and emotional recognition. all comes down to intellectual and emotional recognition. EMOTIONALLY, individuals seek recognition of their value as Human Beings, who are EMOTIONALLY, individuals seek recognition of their value as Human Beings, who are treated with full respect and dignity and appreciated for their individual worth regardless of treated with full respect and dignity and appreciated for their individual worth regardless of hierarchical level. hierarchical level. INTELLECTUALY, individuals seek recognition that their ideas are sought after and given INTELLECTUALY, individuals seek recognition that their ideas are sought after and given thoughtful reflection, and that others think enough of their intelligence to explain their thoughtful reflection, and that others think enough of their intelligence to explain their thinking to them. thinking to them.
INTELLECTUAL & EMOTIONAL RECOGNITION THEORY INTELLECTUAL & EMOTIONAL RECOGNITION THEORY
Frederick Herzbergss Theory on Motivation Frederick Herzbergss Theory on Motivation Recognition was found to inspire strong intrinsic motivation, causing people to go beyond Recognition was found to inspire strong intrinsic motivation, causing people to go beyond the call of duty and engage in voluntary cooperation. the call of duty and engage in voluntary cooperation. Trust and cherish the individual as well as aa deep-seated confidence in the individuals Trust and cherish the individual as well as deep-seated confidence in the individuals knowledge, talents and expertise. knowledge, talents and expertise.
DKD 25 December 2006 3RD JANUARY 2007 Page 40
Intellectual & Intellectual & Emotional Emotional Recognition Recognition Intellectual & Intellectual & Emotional Emotional Indignation Indignation
Voluntary Voluntary Cooperation in Cooperation in Strategy Execution Strategy Execution Refusal to Execute Refusal to Execute Strategy Strategy
FAIR PROCESS & BLUE OCEAN STRATEGY FAIR PROCESS & BLUE OCEAN STRATEGY
Commitment, trust, and voluntary cooperation are not merely attitudes or behaviors. They are Commitment, trust, and voluntary cooperation are not merely attitudes or behaviors. They are INTANGIBLE CAPITAL. INTANGIBLE CAPITAL. When people have trust, they have heightened confidence in one anothers intentions and actions. When people have trust, they have heightened confidence in one anothers intentions and actions. When people have commitment, they are even willing to override personal self-interest in the interests of When people have commitment, they are even willing to override personal self-interest in the interests of the company. the company. Commitment, trust, and voluntary cooperation allows companies to stand apart in the speed, quality, and Commitment, trust, and voluntary cooperation allows companies to stand apart in the speed, quality, and consistency of their execution and to implement strategic shifts fast at aalow cost. consistency of their execution and to implement strategic shifts fast at low cost.
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Blue Ocean Strategy A Systems approach that requires getting the strategic elements right & Blue Ocean Strategy A Systems approach that requires getting the strategic elements right & aligning them in an integral system to deliver value innovation. aligning them in an integral system to deliver value innovation.
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THERE IS STILL A HUGE PROFIT STREAM THERE IS STILL A HUGE PROFIT STREAM SHOULD FOCUS ON LENGTHENING, WIDENING & SHOULD FOCUS ON LENGTHENING, WIDENING & DDEPENING YOUR RENT STREAM THOUGH DDEPENING YOUR RENT STREAM THOUGH OPERATIONAL IMPROVEMENTS & GEOGRAPHICAL OPERATIONAL IMPROVEMENTS & GEOGRAPHICAL EXPANSIONTO ACHIEVE MAXIMUM ECONOMIES OF EXPANSIONTO ACHIEVE MAXIMUM ECONOMIES OF SCALE & MARKET COVERAGE. SCALE & MARKET COVERAGE. YOU SHOULD SWIM AS FAR AS POSSIBLE IN THE BLUE YOU SHOULD SWIM AS FAR AS POSSIBLE IN THE BLUE OCEAN, MAKING YOURSELF A MOVINNG TARGET, OCEAN, MAKING YOURSELF A MOVINNG TARGET, DISTANCING YOURSELF FROM THE EARLY IMITATORS DISTANCING YOURSELF FROM THE EARLY IMITATORS & DISCOURAGING THEM IN THE PROCESS. & DISCOURAGING THEM IN THE PROCESS.
Dominate the blue ocean of your Dominate the blue ocean of your imitators for as long as possible. imitators for as long as possible.
Because Blue Oceans have always co-existed with Red Oceans, practical realities demand that Because Blue Oceans have always co-existed with Red Oceans, practical realities demand that companies succeed in BOTH OCEANS and MASTER the STRATEGIES for BOTH. companies succeed in BOTH OCEANS and MASTER the STRATEGIES for BOTH.
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DEMAND
PRICE
P1
a d e h
P2
Q1
QUANTITY
Q2
THE EMERGENCE OF A WIN-WIN MARKET DYNAMICS THE EMERGENCE OF A WIN-WIN MARKET DYNAMICS
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HIGH
MID
LOW
DKD
INDUSTRY (Worldwide)
1.
2. 3. 4. Technology and Innovations Level of Investment Return of Investment Margin Levels Platform Engineering Modular Engineering
MSIAN COMPETITOR
5. 6. 7. 8. 9. 10. 1st Tier Suppliers & Vendors 11. Level of Out-sourcing 12. Number of Models 13. Product Life-Cycles 14. Integrated Logistics 15. Integrated Financing 16. Market / Customer Orientation (CSI) 17. Domestic Market Protection
AVERAGE
CURRENT
LOW (0)
TRANSPARENCY
PROFITORIENTATION
CUSTOMERORIENTATION
COST ORIENTATION
TIME ORIENTATION
SENSE OF URGENCY
AUTHORITY
MANUFACURING CAPABILITY
1 DKD
9 3RD
10
11
12
13
14
15
16
25 December 2006
JANUARY 2007
17 Page 49
NATIONAL CAR
INTERNAL EQUITY
ELIMINATE
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.
RAISE
CLARITY OF VISION & STRATEGY CLARITY OF MISSION OBJECTIVES PROFIT ORIENTATION SENSE OF URGENCY COMMUNICATION CLARITY & ENGAGEMENT COST ORIENTATION TIME ORIENTATION DECISION MAKING & EXECUTION HUMAN CAPITAL DEVELOPMENT TECHNICAL & ENGINEERING DEVELOPMENT MANUFACTURING CAPABILITY
1.
REDUCE
1. 2.
CREATE
CUSTOMER ORIENTATION (VALUE TO CUSTOMER) TEAMWORK (CROSS-FUNCTIONAL TEAMS) Business Growth, Purchasing, Manufacturing & Logistics, Research & Development, Sales & Marketing, General Administration Services, Finance, Product Phase-out and Organization & Value-Added. TRANSPARENCY AUTHORITY INTERNAL EQUITY
3. 4. 5.
DKD
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1
PRICE
DKD 2
QUALITY
3 4 5
CURRENT
PERFORMANCE & FUN (R&H and STYLING)) ENVIRONMENT & EMISSION
6 7 8 9 10 11 12 13 14 15
VALUE TO CUSTOMER MODEL RANGE MAINTAINABILITY CUSTOMIZATION ERGONOMICS NATIONAL CAR MARGIN VALUE FOR MONEY CONTINUOUS IMPROVEMENT (CC, FL, FMD)
TO-BE
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ELIMINATE
1. 2. 3. 4. 5. 6. 7.
RAISE
QUALITY SAFETY FEATURES ENVIRONMENT PERFORMANCE & FUN RELIABILITY (TGW & TCGW) MAINTAINABILITY MARGIN
1. 2.
REDUCE
1. 1. 2. VALUE FOR MONEY PRICE (COST) 2. 3. 4.
CREATE
MORE MODEL RANGE (Specifically Low-Cost MPV / Mini-Van) CONTINUOUS IMPROVEMENT (CC, FL, FMC) ERGONOMICS VALUE TO CUSTOMER
DKD
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LOW
MID
HIGH
DKD
1.
2. 3. 4. 5.
Order to Delivery Manufacturing Process & Product Quality Effective Utilization of Resources Vendor Supply Capability
Providing Manufacturing Services Satisfying Customers through Effective Providing Manufacturing Services Satisfying Customers through Effective Management of Resources Ensuring Sustainable Growth Management of Resources Ensuring Sustainable Growth
10. 2 Amortized Plants 11. Physical Prototyping Facilities 12. Products/Compo nent Reliability 13. Outsourcing (Vendor) Partnerships) 14. Standardization Level
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ELIMINATE
1. 2. 3. 4. 5. 6. 7. 8. 9.
RAISE
MFG PROCESS & PRODUCT QUALITY EFFECTIVE UTILIZATION OF RESOURCES VENDOR SUPPLY CAPABILITY CONTINUOUS IMPROVEMENT ORGANIZATIONAL RESPONSE 3 INTEGRATED PLANTS 2 AMORTIZED PLANTS PHYSICAL PROTOTYPING FACILITIES PRODUCT & COMPONENTS RELIABILITY
REDUCE
CREATE
1. 2. 3.
1. 2. 3.
DKD
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AVERAGE
TO BE
LOW (0)
CURRENT
INVESTMENT LEVEL
ORGANIZATION RESPONSE
PLC APPLICATIONS
OEM EXPERIENCE
FLEXIBILITY LEVEL
COST OF OWNERSHIP
1 DKD
10
11
12
13 Page 55
ONE-STOP SOLUTION
ELIMINATE
1. 2. 3. 4. 5. 6. 7. 8.
RAISE
PROCESS TECHNOLOGY INNOVATION EFFECTIVE UTILIZATION OF RESOURCES FLEXIBILITY LEVELS PROJECT MANAGEMENT & CONTROL ORGANIZATIONAL RESPONSE OEM EXPERIENCE PLC APPLICATION ONE-STOP SOLUTION
REDUCE
CREATE
1. 2. 3.
1. 2.
DKD
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LOW
MID
HIGH
DKD
1. 2. 3. Level of Debt (Profit Orientation) Customer Orientation Sense of Urgency Compartmentalization (Lack of Cross Functional Teams) Cost Orientation Clarity of Mission Objectives Clarity of Vision & Strategy 4. 5. 6.
NISSAN - 1997
7. 8.
9. 10. Supplier Keiretsu (Number of Suppliers) 11. Capacity Utilization 12. Number of Platforms
PROTON - 2006
SOURCE: SHIFT Inside Nissans Historic Revival Carlos Ghosn Jan 2005
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LOW
MID
HIGH
DKD
1. 2. 3. Level of Debt (Profit Orientation) Customer Orientation Sense of Urgency Compartmentalization (Lack of Cross Functional Teams) Cost Orientation Clarity of Mission Objectives
PROTON - 2006
NISSAN - 2004
4. 5. 6.
7. 8.
9. 10. Supplier Keiretsu (Number of Suppliers) 11. Capacity Utilization 12. Number of Platforms
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RAISE
Clarity of Vision & Strategy Clarity of Mission Objectives Customer Orientation Sense of Urgency Cost Orientation Decision Making & Execution Efficiency Capacity Utilization Manufacturing System Capability
15. Personnel Motivation 16. R&D and Technology Innovation 17. Sales, Marketing & Distribution Efficiency
REDUCE
10. Supplier Keiretsu (Number of Suppliers) 12. Number of Platforms 8.
CREATE
Communication Transparency & Engagement
13. Number of Product Life-Cycles 18. Reach of Global Markets 19. Strategic Alliance
DKD
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LOW
MID
HIGH
DKD
1.
RAISE TO-BE CREATE REDUCE ELIMINATE
2.
3.
Level of Debt (Profit Orientation) Compartmentalization (Lack of Cross Functional Teams) Supplier Keiretsu (Number of Suppliers) Number of Platform Clarity of Vision and Strategy Clarity of Mission Objectives Customer Orientation Sense of Urgency Engagement Cost Orientation
4. 5. 6.
7. 8.
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