BLUE OCEAN STRATEGY

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BLUE OCEAN STRATEGY SIMULATION
INTRODUCTION TO ROUND BLUE-1
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YOUR ROLE OVER THE NEXT YEAR

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ROUND BLUE-1 IS ONE YEAR LONG

• Round Blue-1 starts in Year 44 and is one-year
  long
• Your role is to assist the new Executive Team in
  creating a Blue Ocean

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MIKE DOLPHIN IS NOMINATED CEO OF BLUE BUDDIES

• Mike is very interested in the Blue Ocean
  Strategy theory and convinces the Executive Team
  to try to create a Blue Ocean
• Mike and the Executive Team discuss what they
  should do and make two vital decisions
• To focus just on the Product (rather than Service
  and Delivery) for the moment
• To begin by conducting their own Visual
  Exploration of the market, focusing more on
  noncustomers of the industry than existing
  customers.

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YOU WILL HAVE TO ACCOMPLISH SIX MAIN TASKS

• To draw the current competitor Value Curves,
  discuss the shape of all Curves and draw a
  conclusion about the industry this step is
  called Visual Awakening
• To read and debate the outcome of the Visual
  Exploration conducted by the Executive Team
• To develop one or several To-Be ERRC grids and
  their associated Strategy Canvases.
• Select a final set of Competing Factors to create
  a Blue Ocean product offering and adjust the
  levels of the Value Factors on Strategy Canvas to
  be able to unlock maximum demand
• To decide on how to allocate your total budget
  across your Red Ocean product, your newly created
  Blue Ocean product, and Corporate Projects
• To make the necessary decisions to launch your
  Blue Ocean product in the market, including
  price, production numbers, marketing investment
  and the degree of geographical expansion.

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BLUE OCEAN CREATION PROCESS
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MORE ON THE SIX PATHS

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SIX PATHS TO BLUE OCEAN STRATEGY
THE SIX WAYS TO RECONSTRUCT INDUSTRY
Alternative Industries
Strategic groups
To Creating Across
From Competing Within
Buyer/user groups
Scope of product or service offering
Functional-emotional orientation of an industry
Time
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PATH ONE INDUSTRY

• Ask
• What are the alternative industries to your
  industry?
• Why do buyers trade across to these?
• Example
• Netjets
• Cirque du Soleil
• André Rieu

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PATH TWO STRATEGIC GROUP

• Ask
• What are the strategic groups in your industry?
• Why do buyers trade up to the higher cost/quality
  groups, and why do they trade down for the lower
  ones?
• Example
• Curves

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PATH THREE CHAIN OF BUYERS

• Ask
• What is the chain of buyers/users/decision
  influencers in your industry?
• Which buyer group does your industry typically
  focus on?
• If you shifted the buyer group of your industry,
  could you create new value and unlock new
  demand?
• Example
• Novo Nordisk

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PATH FOUR COMPLEMENTARY PRODUCTS SERVICES

• Ask
• What is the context in which your product or
  service is used? What happens before, during, and
  after use?
• Can you identify the pain points?
• How can you eliminate these pain points through a
  complementary product or service offering?
• Example
• Barnes Noble

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PATH FIVE FUNCTIONAL-EMOTIONAL ORIENTATION

• Ask
• Does your industry focus mostly on functionality
  or emotional appeal?
• If the industry competes more on emotional
  appeal, what elements can you strip out to make
  it more functional?
• If the industry competes on functionality, what
  elements can be added to make it more emotional?
• Example
• Starbucks
• Viagra

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PATH SIX TIME

• Ask
• What trends have a high probability of impacting
  the valued your industry provides, are
  irreversible, and evolving in a clear trajectory?
• How will these trends impact your industry?
• Given this, how can you take account of these
  trends in reconstructing your strategic offering
  to create unprecedented value?
• Example
• IPod ITune

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AS-IS STRATEGY CANVAS WIZARD

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THE WIZARD HELPS YOU DRAW THE CURRENT VALUE
CURVES FOR THE COMPETITORS
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THE WIZARD PROVIDES YOU WITH THE INDUSTRY AVERAGE
AND A GRADING OF YOUR AS-IS CURVES
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VISUAL EXPLORATION

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THE VISUAL EXPLORATION TELLS YOU HOW YOU CAN
RECONSTRUCT MARKET BOUNDARIES

• BOSS provides you with the transcript of the
  conversation that takes place when the Executive
  Team meets after having individually conducted
  their Visual Exploration of the market
• This document is available in the Visual
  Exploration menu
• Spend sufficient time to understand and debate
  what the Visual Exploration is telling you in
  terms of how you can reconstruct industry
  boundaries to move beyond the industry and create
  a Blue Ocean
• Three of the Paths reveal three types of
  noncustomers
• Path 3 represents the biggest volume potential of
  a 30 growth in the market
• Path 1 represents the second biggest volume
  potential at 24
• Path 5 represents a volume potential of 18.

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POTENTIAL PRODUCT COMPETING FACTORS

• The next step is to create a the Strategy Canvas
  of the Blue Ocean product that you would like to
  create and launch on the market
• A list of potential product competing factors is
  offered from which you can choose those you
  believe will attract noncustomers and unlock new
  demand
• This list is available in the Visual
  Exploration menu
• A full description of the potential product
  competing factors is given including what is
  offered to potential buyers/users at each of
  levels 1 (very low), 2 (low), 3 (average
  expectations), 4 (high) and 5 (very high)
• What makes one competing factor less attractive
  than another is a combination of the cost and
  complexity of developing it as seen against the
  relative desirability of that competing factor in
  the market

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TO-BE STRATEGY CANVAS WIZARD

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STEP 1 CREATING AND NAMING STRATEGY CANVASES
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STEP 2 PUTTING EXISTING AND POTENTIAL COMPETING
FACTORS INTO THE ERRC GRID
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STEP 3 REFINING THE STRATEGY CANVAS WHICH IS
AUTOMATICALLY GENERATED FROM YOUR ERRC GRID
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STEP 4 VIEWING THE STRATEGY CANVAS
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STEP 5 VIEWING REQUIRED RD BUDGETS AND
PRODUCTION UNIT COSTS
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LAUNCHING YOUR BLUE OCEAN OFFERING

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MAKING DECISIONS

• Once you have drawn and debated several To-Be
  Strategy Canvases, you must decide on the one
  that you want to select as your Blue Ocean
  offering
• You will only be allowed to launch one product
• You will then have several decisions to make
• Production plan
• Price
• Marketing Expenditure
• Degree of Geographic Expansion
• Which Corporate Projects may be needed to support
  your Blue Ocean offering
• Financial decisions regarding investment budget
  allocation between the Red and Blue Ocean
  products, and keeping within the overall budget
  limitation
• Each of these decisions is explained in detail on
  the following pages

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BLUE OCEAN DECISIONS FORM
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YOUR PRODUCTION PLAN DECISION INFORMS THE
PRODUCTION DEPARTMENT ON FORECASTED SALES

• Your Production Plan decision will depend on the
  success of your Blue Ocean offering
• The Production department is highly flexible and
  will always manufacture the required quantities
  in the best possible conditions
• Your forecast should be as accurate as possible
  as errors in planning have financial consequences

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MONITORING THE FINANCIAL CONSEQUENCES OF YOUR
PRODUCTION PLAN DECISIONS
Reminder of the Production Plan decision made at
the beginning of the period
Number of units actually produced. This is equal
to the number of units sold.
Units produced Production plan The higher
this number (in absolute value), the higher your
error in sales forecasting
Cost for producing one product. This cost depends
on the characteristics of your product
Total reduction negotiated by the Production
department, based on the production plan
Cost charged by the Production department in case
it had to produce more or less units than what
was specified in the production plan. The penalty
is proportional to the production surplus or
deficit.
(Units produced x Unit cost) Volume based
COGS reduction Penalty for under- or over-
production
Cost of Goods Sold Units produced
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YOU MAY ADJUST THE PRICE OF YOUR BLUE OCEAN
OFFERING

• The price of your Blue Ocean offering is
  initially set according to the level indicated
  broadly by where you drag the line on your
  Strategy Canvas
• You may then fine-tune this pre-set price in the
  form by typing in the exact price you believe
  will unlock the most demand and still produce
  healthy profit growth.
• This is the price at which you sell your product
  to distributors
• All distribution channels apply the same margin
  to all competing products, so you should not be
  concerned with this.
• Dumping is strictly forbidden in the BOSS world
  the price of a product must be equal to or higher
  than its unit production cost

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YOU MUST ALLOCATE A BUDGET TO MARKETING ACTIVITIES

• The marketing budget is to purchase advertising
  space TV, internet, billboards, press, etc.
• It is aimed at building the awareness of
  customers for your new offering
• The higher your share of voice the higher the
  awareness level of your product
• Refer to the Ongoing Studies chart described in
  section Benchmarking
• In the case of a successful Blue Ocean offering,
  marketing buzz, free PR and the word-of-mouth
  of fans of your offering should allow you to
  lower your marketing budget for the same volume
  of sales

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GEOGRAPHICAL EXPANSION YOU DECIDE WHAT PORTION
OF THE TOTAL TERRITORY TO COVER

• Geographical Expansion is in the form R/S
  where R is the expansion in Roundland and S the
  expansion in Starland.
• Your product will only be distributed in
  Roundland if you enter a value lower than or
  equal to 100/0
• Geographic Expansion in Starland starts with a
  value of 100/10 or more

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YOU MAY INVEST IN UP TO TWO INTERNAL CORPORATE
PROJECTS EACH PERIOD

• Corporate Projects are aimed at increasing your
  productivity, reducing your costs and/or
  improving your organization capabilities
• Slick execution of strategy is the next most
  vital ingredient of high profit growth as the
  strategy itself
• Sloppy execution can ruin a great strategy. Where
  organization capabilities are weak, these need to
  be built for a strategy to be successful
• All projects aredescribed in the online
  documentation
• Corporate projects will benefit all both your
  Red
• and Blue Ocean
• products.

Corporate Projects Cost in K
A. Relocation Manufacturing to a Low Labor Cost Country 10 000
B. Process Re-engineering (6 Sigma) 5 000
C. Restructuring for Cost Reduction (Making Employees Redundant) 5 000
D. Acquisition to Access RD Technology 10 000
E. New Appraisal and Reward System for Employees 6 000
F. Comprehensive New IT System 15 000
G. Leadership Development 500
H. Training Selected Employees in Project Management 500
I. Restructuring for effectiveness (No Redundancies, Just Changes in Responsibility) 2 000
J. Campaign for Internal Cost Consciousness 500
K. Time Management Training for all Managers 1 000
L. Recruiting Highly Qualified People to Stimulate Strategic Thinking 2 000
M. Suggestion Scheme for 'Bottom Up' Improvement 2 000
N. Radically upgrading Leadership and Service in the Customer Contact Centre 3 000
O. Culture Change Project 2 000
P. Hiring Expert Trainers to Train Distributors' Salespeople 3 500
Q. Hiring the Top Team from a Regional Specialist Luxury Goods Retailer 2 000
R. Hiring a Team Experienced in Developing and Managing a Fast Food Franchise 2 000
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YOU ARE ALLOCATED A BUDGET TO COVER YOUR EXPENSES

• A budget is allocated to your team to cover your
  investments for your Red Ocean as well as your
  Blue Ocean offerings.
• The amount depends on your success / failure in
  the previous period
• Equal to a 30 of revenues, with a maximum
  (300m) and a minimum (70m)
• It must not be exceeded if total spending
  exceeds your allocated budget, you will receive
  an error message
• Your budget will cover your investments in
• Product Development
• Marketing
• Distribution
• Corporate Projects

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YOU MAY REALLOCATE BUDGET FROM RED BOX TO BLUE BOX

• Decisions for Red Box are automated during the
  Blue Ocean rounds
• A share of your total budget is spent by the Red
  Box manager
• You may reallocate budget from Red Box to Blue
  Box
• Spend the budget you need on the Blue Ocean
  decisions
• The Red Box Manager will reduce his expenditures
  so as to save the budget you need for Blue Box.
• If you decide to reallocate too much budget from
  Red Box to Blue Box, you will get a warning or an
  error message, explaining you that you are
  endangering your Red Ocean sales and taking on
  too much risk

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THE BUDGET FORM
This team has decided to reallocate 44m from Red
Box to the newly launched Blue Ocean offering
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CHECKING YOUR DECISIONS

• Before submitting your decisions, it is highly
  recommended that you check whether you have made
  any mistakes with your decisions
• Look at the Errors, Warnings Highlights chart
• Errors indicate inconsistencies in your decisions
  ? These need to be corrected
• Warnings are shown to draw attention to potential
  problems
• Highlights remind you of key decisions made

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GROUP DYNAMICS

• Establish a good working relationship within your
  team
• Each team member must be involved in all the
  discussions in order for everyone to have the
  same understanding of the business situation and
  strategy formulation
• Try to avoid letting each member concentrate
  solely on his/her area of professional expertise
• Rotate responsibilities at regular intervals
• Maximize your internal resources and make sure
  that everyone benefits equally from the BOSS
  experience and key learnings