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Where is the business trying to get to in the long-term (direction) Which markets should a business compete in and what kind of activities are involved in such markets? (markets; scope) How can the business perform better than the competition in those markets? (advantage)? What resources (skills, assets, finance, relationships, technical competence, facilities) are required in order to be able to compete? (resources)? What external, environmental factors affect the businesses' ability to compete? (environment)? What are the values and expectations of those who have power in and around the business? (stakeholders)

Formulating An Strategy
Strategy need a process. Strategy is a science not an art. Methods of strategy Formulation PESTEL Analysis Porters Five Forces Blue Ocean Analysis SWOT Analysis

PESTEL ANALYSIS : A Macro Environment Approach

Political Economical Social Technological Environmental Legal

Porters Five Forces Analysis: A Microenvironment Approach

Porters Five Forces

Threat of New Entrants New entrants to an industry can raise the level of competition, thereby reducing its attractiveness. The threat of new entrants largely depends on the barriers to entry. Key barriers to entry include - Economies of scale - Capital / investment requirements - Customer switching costs - Access to industry distribution channels - The likelihood of retaliation from existing industry players.

Porters Five Forces

Threat of Substitutes The presence of substitute products can lower industry attractiveness and profitability because they limit price levels. The threat of substitute products depends on: - Buyers' willingness to substitute -The relative price and performance of substitutes - The costs of switching to substitutes

Porters Five Forces

Bargaining Power of Suppliers The cost of items bought from suppliers (e.g. raw materials, components) can have a significant impact on a company's profitability. If suppliers have high bargaining power over a company, then in theory the company's industry is less attractive.

Porters Five Forces

Bargaining Power of Buyers Buyers are the people / organisations who create demand in an industry. The bargaining power of buyers is greater when - There are few dominant buyers and many sellers in the industry - Products are standardised - Buyers threaten to integrate backward into the industry - Suppliers do not threaten to integrate forward into the buyer's industry - The industry is not a key supplying group for buyers

Porters Five Forces

Intensity of Rivalry The structure of competition The structure of industry costs Degree of differentiation Switching costs Strategic objectives Exit barriers

Blue Ocean Strategy

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.

Red Ocean Strategy

Compete in existing market space. Beat the competition. Exploit existing demand. Make the value-cost trade-off. Align the whole system of a firms activities with its strategic choice of differentiation or low cost.

Blue Ocean Strategy

Create uncontested market space. Make the competition irrelevant. Create and capture new demand. Break the value-cost trade-off. Align the whole system of a firms activities in pursuit of differentiation and low cost.

Value Innovation
Value innovation is created in the region where a companys 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.


Value Innovation

Buyer Value

The Six Principles of Blue Ocean Strategy

This figure highlights the six principles dri ing the successful formulation and execution of blue ocean strategy and the risks that these principles attenuate.

Formulation Principles
Reconstruct market boundaries Focus on the big picture, not the numbers Reach beyond existing demand Get the strategic sequence right

Risk factor each principle attenuates

Search risk Planning risk Scale risk Business model risk

Evaluation principles
O ercome key organizational hurdles Build execution into strategy

Risk factor each principle attenuates

Organizational risk anagement risk

Four Actions Framework + Eliminate/Reduce/Raise/Create Grid

The four actions framework offers an technique that breaks the trade-off between differentiation and low cost and to create a new value curve. It answers the four key questions of what industry takes for granted and needs to be eliminated; what factors need to be reduced below industry standards; what factors need to be raised above industry standards; and what should be created that the industry has never offered.

Which factors should be reduced well below industry standards?


Which of the factors that the industry takes for granted should be eliminated?

A New Value Curve


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


Which factors should be raised well above the industrys standard?

Eliminate Enological terminology and distinctions Aging qualities Above-the-line marketing Reduce Wine complexity Wine range Vineyard prestige

Raise Price versus budget wines Retail Store involvement

Create Easy drinking Ease of selection Fun and adventure

The eliminate-reduce-raise-create grid pushes companies not only to ask all four questions in the four actions framework but also to act on all four to create a new value curve. By driving companies to fill in the grid with the actions of eliminating, reducing, raising, and creating, the grid provides four immediate benefits: it pushes them to simultaneously pursue differentiation and low costs; identifies companies who are only raising and creating thereby raising costs; makes it easier for managers to understand and comply; and it drives companies to scrutini e every factor the industry competes on.

Four Steps of Visuali ing Strategy

The four steps of visuali ing strategy builds on the six paths of creating blue oceans and involves a lot of visual stimulation in order to unlock peoples creativity. The four steps include visual awakening, visual exploration, visual strategy fair, and visual communication. 1. Visual Awakening 2. Visual Exploration 3. Visual Strategy Fair 4. Visual Communicatio n

Compare your business with your competitors by drawing your as is strategy canvas. See where your strategy needs to change

Go into the field to explore the six paths to creating blue oceans. Observe the distinctive advantages of alternative products and services. See which factors you should eliminate, create, or change.

Draw your to be strategy canvas based on insights from field observations. Get feedback on alternative strategy canvases from customers, competitors customers, and noncustomers. Use feedback to build the best to be future strategy.

Distribute your beforeand-after strategic profiles on one page for easy comparison. Support only those projects and operational moves that allow your company to close the gaps to actuali e the new strategy.

Pioneer, Settler, Migrator Map

A corporate management team pursuing profitable growth can plot the companys 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.






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 industrys 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 markets offerings as an option.

First Tier Your Market

Second Tier

Third Tier

Sequence of Blue Ocean Strategy

Buyer utility
Is there exceptional buyer utility in your business idea? No-- Rethink

An important part of blue ocean strategy is to get the strategic sequence right. This sequence fleshes out and validates blue ocean ideas to ensure their commercial viability. This can then reduce business model risk. In this model, potential blue ocean ideas must pass through a sequence of buyer utility, price, cost, and adoption. At each step there are only two options: a yes answer, in which case the idea may pass to the next step, or no. If an idea receives a no at any point, the company can either park the idea or rethink it until you get a yes.


Is your price easily accessible to the mass of buyers? No-- Rethink Yes

Can you attain your cost target to profit at your strategic price? Yes No-- Rethink

What are the adoption hurdles in actuali ing your business idea? Are you addressing them up front? Yes

No-- Rethink

A Commercially Viable Blue Ocean Idea

Buyer Experience Cycle

A buyers 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 buyers experience.
Purchase How long does it take to find the product you need? Is the place of purchase attractive and accessible? How secure is the transaction environment? How rapidly can you make a purchase? Delivery How long does it take to get the product delivered? How difficult is it to unpack and install the new product? Do buyers have to arrange delivery themselves? If yes, how costly and difficult is this? Use Does the product require training or expert assistance? Is the product easy to store when not in use? How effective are the products features and functions? Does the product or service deliver far more power or options than required by the average user? Is in overcharged with bells and whistles? Supplements Do you need other products and services to make this product work? If so, how costly are they? How much time do they take? How easy are they to obtain? Maintenance Does the product require external maintenance? How easy is it to maintain and upgrade the product? How costly is maintenance? Disposal Does use of the product create waste items? How easy is it to dispose of the product? Are there legal or environmental issues in disposing of the product safely? How costly is disposal?

Uncovering Blocks to Buyer Utility

Uncovering blocks to buyer utility can identify the most compelling hot spots to unlock exceptional utility. By locating your proposed offering on the thirty-six space of the buyer utility map, you can clearly see how, and whether the new idea not only creates a different utility proposition from existing offerings but also removes the biggest blocks to utility that stand in the way of converting noncustomers into customers.
Purchase Delivery Use Supplements Maintenance Disposal

Customer Productivity: Simplicity: Convenience:

In which stage are the biggest blocks to customer productivity? In which stages are the biggest blocks to simplicity? In which stage are the biggest blocks to convenience?

Risk: Fun and Image:

In which stage are the biggest blocks to reducing risks?

In which stage are the biggest blocks to fun and image?

Environmental Friendliness:

In which stage are the biggest blocks to environmental friendliness?

Price Corridor of the Mass

This tool helps managers find the right price for an irresistible offer, which, by the way, isnt 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 of the mass. Three alternative product/service types:
Same form Different form, same function Different form and function, same objective

Step 2: Specify a price level within the price corridor.

High degree of legal and resource protection Difficult to imitate Some degree of legal and resource protection Low degree of legal and resource protection Easy to imitate

Price Corridor of the Mass

Mid-level pricing

Price Corridor of the Mass

Step 1: Identify the price corridor of the mass. Three alternative product/service types:
Same form Different form, same function Different form and function, same objective

Step 2: Specify a price level within the price corridor.

High degree of legal and resource protection Difficult to imitate Price Corridor of the Mass Some degree of legal and resource protection Low degree of legal and resource protection Easy to imitate

Mid-level pricing

Profit Model of Blue Ocean Strategy

The profit model of blue ocean strategy shows how value innovation typically maximi es profit by using the three levers of strategic price, target cost, and pricing innovation.
The Strategic Price

The Target Profit

The Target Cost

Streamlining and Cost Innovations


Pricing Innovation

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 I-mode Japan +

Philips Motorola Iridium CD-i Utility Is there exceptional utility? Are there compelling reasons 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 up front? -






GE: ecomagination
The GE ecomagination strategy, which is built on creating a portfolio of products that perform better than comparable products, especially in the midst of an economic downturn. GEs approach identified a portfolio of clean products that were more energy-efficient or were at the center of Cleantech industry growth. GE invested in energy-efficient aircraft engines, water-treatment technologies and wind turbines, energy-efficient appliances and more mundane technologies such as home technologies inspired by ecomagination.


Sony Elctronics


Royal Philips Electronics