Framework 64 Blue Ocean Strategy (value innovation)

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Introduction

It is about creating completely new industries through fundamental differentiation, as opposed to competing in existing industries by tweaking established models. Rather than outdoing competitors in terms of traditional performance metrics, it suggests creating new, uncontested market space, ie value innovation. This aims to
- increase value for customers by creating new benefits and services
- reducing costs by eliminating less valuable features or services
- enhancing or creating high-value features and/or services that do not significantly increase the cost base
(NB this approach rejects the traditional accepted trade-off between differentiation and lower costs)
It uses a 4 action framework, ie 4 key questions are used to challenge the strategic logic and established assumptions, ie
i) eliminate
(identify which factors that the industry takes for granted and should be eliminated)
ii) reduce
(identify which factors should be reduced well below the industry standard)
iii) raise
(identify which factors should be raised well above the industry standards)
iv) create
(identify which new factors should be created, eg factors that the industry has never offered)
NB Need to explore potential customer groups and/or untouched markets
In a tabulated format, ie

ELIMINATE RAISE
Which factors can you eliminate from your industry? Which factors should be raised well above the industry standards?
REDUCE CREATE
Which factors should be reduced well below your industry's standard? Which factors should be created that your industry has never offered?


For example, Cirque du Soleil (non-traditional circus business starting in Canada)
This organisation successfully modified the traditional elements of the circus business, eg
- it eliminated costly elements like animals (maintenance, animal rights issues, etc) and star performers
- it added other elements like theme, artistic atmosphere & refined music
- it combines elements from circus, theatre and opera, ie it broadened its appeal to theatre-goers and other adults seeking sophisticated entertainment rather than targeting the traditional circus audience of families
Using this innovative approach allowed it to substantially raise ticket prices.
This table summarises this case study

ELIMINATES RAISE
which factors can you eliminate from your industry?
- staff performers
- animal shows
- aisle concession sales
- multiple show arenas
which factors should be raised well above the industry standards?
-
unique venue/ambience




REDUCE CREATE
which factors should be reduced well below your industry's standard?
- fun and humour
- thrill and danger (animals)
which factors should be created that your industry has never offered?
- theme
- refined environment
- multiple productions
- artistic, music and dance elements
- thrills and danger (without animals)


Another example is Nintendo's successful Wii game console, ie which differentiated itself from competitors like Sony (PlayStation 3) and Microsoft (Xbox 360). Nintendo's strategy revolved around the concept that consoles do not necessary require leading edge power and performance. Traditionally to win the die-hard gaming fans the firms compete on technological performance, graphic quality and game realism. Nintendo focused on a new form player interaction that targeted a wider demographic. Their console typically underperformed rival machines but increased the fun factor with new motion-control technology. By using Wii remotely by physical movements they could control the games. This became an instant success with the casual gamers.
The business model has the following characteristics, ie
"...a shift in focus from hard-core to casual gamers, which allowed the company to reduce console performance and add a new element of motion control that created more fun; eliminated the state of the art chip development and increased the use of off-the-shelf components, reducing costs and allowing lower console prices; elimination of console subsidies resulted in profits from each console sold..."
Alexander Osterwalder et al, 2010

ELIMINATE RAISE
which factors can you eliminate from your industry?
- state of the art chip development
- high-end console performance and graphics
- narrow market for "hard-core" gamers
- console subsidies
which factors should be raised well above the industry standards?
- game developers
- retail distribution


REDUCE CREATE
which factors should be reduced well below your industry's standard?
- game developers
- retail distribution
which factors should be created that your industry has never offered?
- off-the-shelf hardware component manufacturers
- motion control technology and the games
- fun factor and group (family) experience
- profit on console styles
- larger market for casual gamers and families


Steps for exploring this tool in terms of perspective of customer segment, value proposition and cost
1. Customer Segment Perspective
- using the 4-action framework (blue sky approach), ie
 i) eliminate (identify which factors that the industry takes for granted and should be eliminated)
ii) reduce (identify which factors should be reduced well below the industry standard)
iii) raise (identify which factors should be raised well above the industry standards)
iv) create (
identify which new factors should be created, eg factors that the industry has never offered)
Do this for the customer side like channels, relationships, revenue streams, etc
- analyse what happens to the cost side if you eliminate, reduce, raise, or create value side elements:
i) which new customer segments should you focus on and which segments could you possibly reduce or eliminate?
ii) what new jobs your new customer segments want to be done?
iii) how do these customers prefer to be reached and what kind of relationship do they expect?
iv) what are the cost implications of serving a new customer segment?
2. Value Proposition Perspective
- using the 4-action framework (blue sky approach), ie
 i) eliminate (identify which factors that the industry takes for granted and should be eliminated)
ii) reduce (identify which factors should be reduced well below the industry standard)
iii) raise (identify which factors should be raised well above the industry standards)
iv) create (
identify which new factors should be created, eg factors that the industry has never offered)
At the same time, consider the impact on the cost side and evaluate what elements you need to change on the value side, such as channels, relationships, revenue streams, customer segments, etc, ie
- what less-valued features or services could be eliminated or reduced?
- what features or services could be enhanced or newly created to produce a valuable new customer experience?
- what are the cost implications of your changes to your value proposition?
- how will changes to the value proposition impact the customer side?
3. Cost Perspective
- identify the highest cost infrastructure elements and evaluate what happens if they are eliminated or reduced?
i) what value elements disappear?
ii) what would you have to create to compensate for their absence?
- identify infrastructure investments you may want to make and analyse how much value they create?
- which activity, resources and partnerships have the highest costs?
- what happens if you reduce or eliminate some of these cost factors?
- how could you replace, using less by reducing or eliminating expensive resources, activities or partnerships?
- What value would be created by planned new investments?
(source: Alexander Osterwalder et al, 2010)

 

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