REVIEW OF BLUE OCEAN STRATEGY, W. CHAN KIM,ET AL, CHAPTER 2

CAPTER 2

Analytical Tools and Frameworks

For strategists, the critical question is, How do you break out of this red ocean of bloody competition to make the competition irrelevant? How do you open up and capture a blue ocean of uncontested market space? To address these questions, we turn to the strategy canvas, an analytic framework that is central to value innovation and the creation of blue oceans.

The strategy canvas is both a diagnostic and an action framework for building a compelling blue ocean strategy. It serves two purposes. First, it captures the current state of play in the known market space. This allows you to understand where the competition is currently investing, the factors the industry currently competes on in products, service, and delivery, and what customers receive from the existing competitive offerings on the market.

To fundamentally shift the strategy canvas of an industry, you must begin by reorienting your strategic focus from competitors to alternatives, and from customers to noncustomers of the industry. To pursue both value and cost, you should resist the old logic of benchmarking competitors in the existing field and choosing between differentiation and cost leadership. As you shift your strategic focus from current competition to alternatives and noncustomers, you gain insight into how to redefine the problem the industry focuses on and thereby reconstruct buyer value elements that reside across industry boundaries. To achieve this, it turned to the second basic analytic underlying blue oceans: the four actions framework.

The Four Actions Framework

To reconstruct buyer value elements in crafting a new value curve, we have developed the four actions framework there are four key questions to challenge an industry’s strategic logic and business model:

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

• Which factors should be reduced well below the industry’s standard?

• Which factors should be raised well above the industry’s standard?

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

There is a third tool that is key to creation of blue oceans. It is a supplementary analytic to the four actions framework called the eliminate-reduce-raise-create grid, By driving companies to fill in the grid with the actions of eliminating and reducing as well as raising and creating, the grid gives companies four immediate benefits:

• It pushes them to simultaneously pursue differentiation and low costs to break the value-cost trade-off.

• It immediately flags companies that are focused only on raising and creating and thereby lifting their cost structure and often overengineering products and services—a common plight in many companies.

• It is easily understood by managers at any level, creating a high level of engagement in its application.

• Because completing the grid is a challenging task, it drives companies to robustly scrutinize every factor the industry competes on, making them discover the range of implicit assumptions they make unconsciously in competing.

When expressed through a value curve, then, an effective blue ocean strategy likehas three complementary qualities: focus, divergence, and a compelling tagline. Without these qualities, a company’s strategy will likely be muddled, undifferentiated, and hard to communicate with a high cost structure

Reading the Value Curves

The strategy canvas enables companies to see the future in the present. To achieve this, companies must understand how to read value curves. Embedded in the value curves of an industry is a wealth of strategic knowledge on the current status and future of a business.

A Blue Ocean Strategy

The first question the value curves answer is whether a business deserves to be a winner. When a company’s value curve, or its competitors’, meets the three criteria that define a good blue ocean strategy—focus, divergence, and a compelling tagline that speaks to the market—the company is on the right track.

A Company Caught in the Red Ocean

When a company’s value curve converges with its competitors, it signals that a company is likely caught within the red ocean of bloody competition.

Overdelivery Without Payback

When a company’s value curve on the strategy canvas is shown to deliver high levels across all factors, the question is, Does the company’s market share and profitability reflect these investments? If not, the strategy canvas signals that the company may be oversupplying its customers, offering too much of those elements that add incremental value to buyers. To value-innovate, the company must decide which factors to eliminate and reduce—and not only those to raise and create—to construct a divergent value curve.

An Incoherent Strategy

When a company’s value curve looks like a bowl of spaghetti—a zigzag with no rhyme or reason, where the offering can be described as “low-high-low-low-high-low-high”—it signals that the company doesn’t have a coherent strategy. Its strategy is likely based on independent substrategies. Are there strategic contradictions? These are areas where a company is offering a high level on one competing factor while ignoring others that support that factor.

An Internally Driven Company

In drawing the strategy canvas, how does a company label the industry’s competing factors?The kind of language used in the strategy canvas gives insight as to whether a company’s strategic vision is built on an “outside-in” perspective, driven by the demand side, or an “inside-out” perspective that is operationally driven. Analyzing the language of the strategy canvas helps a company understand how far it is from creating industry demand.

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