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Value innovation is created in the region where a company’s actions favorably affect both
its cost structure and its value proposition to buyers. Cost savings are made by eliminating
and reducing the factors an industry competes on. Buyer value is lifted by raising and
creating elements the industry has never offered. Over time, costs are reduced further as
scale economies kick in due to the high sales volumes that superior value generates.
Costs
Value
Innovation
Buyer Value
Value Innovation
Red Ocean Versus Blue Ocean Startegy
In the red ocean, differentiation costs because firms compete with the
same best-practice principle. Here, the strategic choices for firms are to
pursue either differentiation or low cost. In the reconstructionist world,
however, the strategic aim is to create new best-practice rules by breaking
the existing value-cost trade-off and thereby creating blue ocean.
Align the whole system of a firm’s Align the whole system of a firm’s
activities with its strategic choice of activities in pursuit of differentiation and
differentiation or low cost. low cost.
Red Ocean Versus Blue Ocean Strategy
Low
Above-the-line Vineyard prestige Wine range
Price Use of
enological marketing Aging and legacy Wine
terminology quality complexity
Strategy Canvas
High
Low
Four Actions Framework +
Eliminate/Reduce/Raise/Create Grid
Reduce
The four actions framework offers an Which factors should be
technique that breaks the trade-off between reduced well below
industry standards?
differentiation and low cost and to create a
new value curve. It answers the four key
questions of what industry takes for granted Eliminate A Create
Which of the factors New Which factors should be
and needs to be eliminated; what factors need Value created that the industry
that the industry takes
to be reduced below industry standards; what for granted should be Curve has never offered?
factors need to be raised above industry eliminated?
standards; and what should be created that Raise
the industry has never offered. Which factors should
be raised well above
the industry’s standard?
Eliminate Create
A New
Value
Curve
Reduce Create
The Eliminate-Reduce-Raise-Create
Grid
Four Steps of Visualizing Strategy
The four steps of visualizing strategy builds on the six paths of creating blue
oceans and involves a lot of visual stimulation in order to unlock people’s
creativity. The four steps include visual awakening, visual exploration, visual
strategy fair, and visual communication.
•Compare your business •Go into the field to •Draw your “to be” strategy •Distribute your before-and-
with your competitors’ by explore the six paths to canvas based on insights after strategic profiles on one
drawing your “as is” creating blue oceans. from field observations. page for easy comparison.
strategy canvas.
•Observe the distinctive •Get feedback on alternative •Support only those projects
•See where your strategy advantages of alternative strategy canvases from and operational moves that
needs to change products and services. customers, competitors’ allow your company to close
customers, and the gaps to actualize the
•See which factors you noncustomers. new strategy.
should eliminate, create,
or change. •Use feedback to build the
best “to be” future strategy.
Four Steps of Visualizing Strategy
1. Visual 2. Visual 3. Visual Strategy 4. Visual
Awakening Exploration Fair Communication
Pioneer, Settler, Migrator Map
A corporate management team pursuing profitable growth can plot the
company’s current and planned portfolios on a pioneer-migrator-settler
(PMS) map. This strategy can help a company determine which businesses
experience the highest and lowest growth and cash flow. These are
classified accordingly with the highest growth potential being pioneers, then
to migrators, then to the lowest rung, settlers.
Pioneers
Migrators
Settlers
Today Tomorrow
Pioneer, Settler, Migrator Map
Pioneers
Migrators
Settlers
Today Tomorrow
Three Tiers of Noncustomers
There are three tiers of noncustomers that can be transformed into
customers. They differ in their relative distance from your market. The
first tier of customers minimally buy an industry’s offering out of necessity.
The second tier of noncustomers refuse to use your industries offerings.
The third tier are noncustomers who have never thought of your market’s
offerings as an option.
Third
Second Tier
Tier
First
Tier
Your
Market
Three Tiers of Noncustomers
Sequence of Blue Ocean Strategy
Buyer utility
Is there exceptional buyer utility in your
business idea?
No-- Rethink
Yes
A Commercially
Viable Blue
Ocean Idea
Sequence of Blue Ocean Strategy
Buyer utility
No-- Rethink
Yes
Price
No-- Rethink
Yes
Cost
No-- Rethink
Yes
Adoption
No-- Rethink
Yes
A Commercially
Viable Blue
Ocean Idea
Buyer Utility Map
The buyer utility map helps managers look at this issue from the right
perspective. It outlines all the levers companies can pull to deliver exceptional
utility to buyers as well as the various experiences buyers can have with a
product or service.
Customer
Productivity
The Six Utility Levers
Simplicity
Convenience
Risk
Fun and
Image
Environmental
friendliness
Buyer Utility Map
The Six Stages of the Buyer Experience Cycle
1. 2. 3. 4. 5. 6.
Purchase Delivery Use Supplements Maintenance Disposal
Customer
Productivity
The Six Utility Levers
Simplicity
Convenience
Risk
Fun and
Image
Environmental
friendliness
Buyer Experience Cycle
A buyer’s experience can usually be broken into a cycle of six stages,
running more or less sequentially from purchase to disposal. Each
stage encompasses a wide variety of specific experiences. At each
stage, managers can ask a set of questions to gauge the quality of
buyer’s experience.
Customer Productivity: In which stage are the biggest blocks to customer productivity?
Fun and Image: In which stage are the biggest blocks to fun and image?
Customer Productivity:
Simplicity:
Convenience:
Risk:
Environmental
Friendliness:
Price Corridor of the Mass
This tool helps managers find the right price for an irresistible offer, which, by
the way, isn’t necessarily the lower price. The tool involves two distinct buy
interrelated steps. The first step involves identifying the price corridor of the
mass which deals with customer price sensitivity and pricing strategies of
products offered outside the group of traditional competitors. The second step
deals with specifying a level within the price corridor which factors in legal
protection and exclusive assets.
Step 1: Identify the price corridor Step 2: Specify a price level within the
of the mass. price corridor.
Pricing Innovation
Profit Model of Blue Ocean Strategy
Blue Ocean Idea Index
The blue ocean idea index is a simple but robust test
demonstrating how the sequence of utility, price, cost, and
adoption form an integral whole to ensure commercial success
through blue ocean strategy.
DoCoMo
Philips Motorola I-mode
CD-i Iridium Japan
Utility Is there exceptional utility? Are there
compelling reasons to buy your offering? - -
+