Principles of Strategic Management: Business Level Strategies - Blue Ocean Strategy Value, Innovation Eliminate-Reduce-Raise-Create Grid

What This Is

Blue Ocean Strategy is a concept developed by W. Chan Kim and Renée Mauborgne that focuses on creating new market spaces by innovating and differentiating products or services. This approach helps companies to escape the "red ocean" of intense competition and create a "blue ocean" of uncontested market space. For example, Netflix disrupted the traditional video rental industry by introducing a subscription-based service that allowed customers to rent DVDs by mail.

Key Frameworks & Tools

• Blue Ocean Strategy Grid: A tool used to identify and create new market spaces by eliminating, reducing, raising, or creating factors such as price, cost, quality, and features.
• Eliminate-Reduce-Raise-Create (ERRC) Grid: A framework used to identify factors that can be eliminated, reduced, raised, or created to create a new market space.
• Value Innovation: A process of creating new value for customers by innovating and differentiating products or services.
• Red Ocean vs Blue Ocean: A concept that describes the difference between a competitive market space (red ocean) and a non-competitive market space (blue ocean).
• Industry Matrix: A tool used to identify and create new market spaces by analyzing the industry's attractiveness and competitive position.
• Strategy Canvas: A visual tool used to map out the current and future market spaces and identify opportunities for innovation and differentiation.
• 4 Actions Framework: A tool used to identify and create new market spaces by taking four actions: find, reach, raise, and create.
• Focus Strategy: A strategy that focuses on a specific market space and differentiates the company from its competitors.
• Differentiation Strategy: A strategy that differentiates the company from its competitors by creating unique products or services.
• Cost Leadership Strategy: A strategy that focuses on reducing costs and becoming the lowest-cost producer in the industry.

Step-by-Step Application

1. Identify the industry and market space: Analyze the industry's attractiveness and competitive position using the Industry Matrix.
2. Conduct a value innovation analysis: Use the Value Innovation framework to identify opportunities for innovation and differentiation.
3. Create a strategy canvas: Use the Strategy Canvas to map out the current and future market spaces and identify opportunities for innovation and differentiation.
4. Develop a focus strategy: Use the Focus Strategy framework to develop a strategy that focuses on a specific market space and differentiates the company from its competitors.
5. Implement the strategy: Use the 4 Actions Framework to implement the strategy and create a new market space.

Common Mistakes

• Mistake: Confusing industry attractiveness with competitive position.
• Correction: Industry attractiveness refers to the overall attractiveness of the industry, while competitive position refers to the company's position within the industry.
• Mistake: Using the wrong level of strategy (e.g., using a cost leadership strategy in a market with low price sensitivity).
• Correction: Use the right level of strategy based on the market conditions and customer needs.
• Mistake: Focusing on cost reduction without considering the impact on customer value.
• Correction: Focus on creating value for customers and reducing costs as a means to achieve that goal.

Case Interview / Exam Tips

• Tip: Be prepared to analyze the industry and market space using the Industry Matrix and identify opportunities for innovation and differentiation.
• Tip: Use the 4 Actions Framework to develop a strategy that creates a new market space.
• Tip: Be prepared to discuss the pros and cons of different strategies (e.g., focus strategy vs. differentiation strategy).
• Tip: Use the Strategy Canvas to visualize the current and future market spaces and identify opportunities for innovation and differentiation.

Quick Practice Scenario

Scenario: A company has low market share in a high-growth industry - where does it sit on the BCG matrix?

Answer: The company sits in the "question mark" quadrant of the BCG matrix, indicating that it has high growth potential but low market share.

Explanation: The company has high growth potential due to the high-growth industry, but it has low market share, indicating that it is not yet a market leader.

Last-Minute Cram Sheet

• Blue Ocean Strategy is a concept that focuses on creating new market spaces by innovating and differentiating products or services.
• The Industry Matrix is a tool used to identify and create new market spaces by analyzing the industry's attractiveness and competitive position.
• The 4 Actions Framework is a tool used to identify and create new market spaces by taking four actions: find, reach, raise, and create.
• The Strategy Canvas is a visual tool used to map out the current and future market spaces and identify opportunities for innovation and differentiation.
• Focus Strategy is a strategy that focuses on a specific market space and differentiates the company from its competitors.
• Cost Leadership Strategy is a strategy that focuses on reducing costs and becoming the lowest-cost producer in the industry.
• "Stuck in the middle" means trying to do both cost leadership and differentiation without achieving either - not a valid hybrid strategy unless operational excellence is present.
• Industry attractiveness refers to the overall attractiveness of the industry, while competitive position refers to the company's position within the industry.
• Blue Ocean Strategy is not just about creating a new market space, but also about creating value for customers.