MMU-DBA – Advanced MarketingMarketing Strategy and Competitive Advantage

MMU-DBA – Advanced MarketingDay 4 – Organisational Resources and Competitive Advantage

The attractiveness of opportunities to the firms depends on the resources available to exploit them

Resources and Capabilities The RBV argument Marketing Resources and competitive

advantage Creating and Exploiting Marketing Assets

Value Chain and Value Network Sustainable Competitive Advantage

Porter’s and Treacy and Wiersema’s typologies Growth Strategies Blue Ocean (Kim and Mauborgne)

Fig. 6.1 Understanding the organisational resource base

The Resource-Based View

Resources &Capabilities

CompetitiveAdvantage

• V aluable

• Rare

• Costly to Imitate

• Organized to Exploit

CA will be sustained if:

• other firms’ costs of imitation are greaterthan benefit of imitation

• the firm is organizedto exploit advantages

Industrial Organization

(IO)

Resource Based View (RBV)

Some Authors:

Porter, Rumelt Barney, Wernerfelt

Focus External—describes environmental conditions favoring high levels of firm performance

Internal—describes firm’s internal characteristics and performance

Assumptions Firms within an industry have identical strategic resources.

Resources are highly mobile (easily bought and sold) and therefore homogeneous.

Firms have idiosyncratic, not identical strategic resources.

Resources are not perfectly mobile and therefore heterogeneous.

This can be maintained over time

Key Concepts

Resources, capabilities/ competences and

Dynamic capabilitiesDiagnosing strategic capability:

value chain, value networks

Western vs. Japanese approach to strategyCore competencies (resources & capabilities)

1970s Komatsu made

small bulldozers

Honda not yet exporting cars to US

Canon making first halting steps in reprographics

1985/7 Komatsu a $2.8bn

co. making earth moving equipment, robots & semiconductors

Honda as big in US as Chrysler

Canon matched Xerox market share

Strategic fit vs. leveraging resources… Trim ambition to match

available resources Strategy as positioning

according to industry rules Planning as projecting the

present forward rather than folding the future back

Innovation as peripheral Narrow conception of

maturity Portfolio management vs.

business development

• Improving quality• Improving productivity

• Managing/reducing costs• Improving business

processes• Improving market position

• Fending off competitors• Improving information

systems• Improving distribution

systems

… and to concentrate on

“Performance Gaps”

Obsession with winning, quest for global leadership Long attention span Motivation by

communicating value (Internal Communication – Vertical and Horizontal)

Leave room for individual & team contributions

▪ Stability over time ▪ clear about ends,

flexible about means Emphasis on improving

competence and leveraging resources

And to concentrate on “Opportunity Gaps”

• Growing• Leveraging technology

• Leveraging people resources

• Building a learning organisation

• Building new capabilities and skills

• Building synergy across businesses

• Building alliances with customers/ competitors

• Finding new opportunities

But it appears that there are no “attractive industries”

Competitive pressure is increasing in all industries Industry boundaries are constantly changing The profitability range is as great within industries as

it is between industries

Robert Grant (2000) Contemporary Strategy Analysis

Rate of Profitin Excess of the

Competitive Level

Industry Attractiveness

CompetitiveAdvantage

DifferentiationAdvantage

CostAdvantage

Vertical Power

Monopoly

Barriers to Entry

BrandsProduct technologyMarketing capabilities

Process technologyPlant sizeLow-cost inputs

Firm sizeFinancial resources

Market share

PatentsBrandsRetaliatory capability

Market, cost or benefit advantages are based

On ‘resources’

When the external environment is in a state of flux, the firm itself is seen – in terms of its bundle of resources and capabilities, and this may

be a more stable basis on which to define its identity.

Hence a definition of the firm in terms of what it is capable of doing may offer a more durable basis for strategy than a definition based upon the needs the business seeks to satisfy

This is done through an Internal Analysis Robert Grant (2000) Contemporary Strategy Analysis

Some businesses achieve extraordinary profits compared with others in the same industry

Whether its through FIT or STRETCH - Competitive advantage is derived from the distinctiveness of an organisation’s capabilities

Their resources or competences permit▪ production at lower cost

or▪ generation of superior product or service at

standard cost

Resources Tangible resources – physical assets of an organisation Intangible resources – non-physical assets of an

organisation Capabilities / Competences

The activities and processes through which an organisation deploys its resources effectively

Strategic capability is the adequacy and suitabilityof the resources of an organisation for it

to survive and prosper

Strategic capability is the adequacy and suitabilityof the resources of an organisation for it

to survive and prosper

Financial Resources • In addition to Capital, cash, debtors/ creditors, suppliers of money (bankers, shareholders, etc) – includes the firm’s borrowing capacity – collection capacity

Organizational Resources •The firm’s formal reporting structure and its formal planning, controlling,and coordinating systems

Physical Resources •Sophistication and location of a firm’s plant and equipment

•Access to raw materials

Technological Resources •Stock of technology, such as patents, trade-marks, copyrights, and trade secrets

SOURCES: Adapted from J. B. Barney, 1991, Firm resources and sustained competitive advantage, Journal of Management, 17: 101; R. M. Grant, 1991, Contemporary Strategy Analysis, Cambridge, U.K.: Blackwell Business, 100–102.

Human Resources • Knowledge• Trust• Managerial capabilities• Organizational routines

Innovation Resources • Ideas

• Scientific capabilities • Capacity to innovate

Reputational Resources • Reputation with customers

• Brand name • Perceptions of product quality,

durability, and reliability • Reputation with suppliers

SOURCES: Adapted from R. Hall, 1992, The strategic analysis of intangible resources, Strategic Management Journal, 13: 136–139; R. M. Grant, 1991, Contemporary Strategy Analysis, Cambridge, U.K.: Blackwell Business, 101–104.

Fig 6.5 Marketing assets

Table 6.1 The top ten brand namesSource: Interbrand (1996, 2001, 2006)

How an organisation employs and deploys its resources Efficiency and effectiveness of physical, financial, human

and intellectual resources How they are managed

Cooperation between people Adaptability Innovation

Customer and supplier relationships

Learning

1. What opportunities exist for economising on the use of resources

Eg concentrate marketing attention on fewer key “power brands” Unilever Kraft Foods

2. What possibilities exist for using existing resources more intensely and in more profitable employment?

Eg Eisner at Disney Film library via Video Studios via Touchstone Marketing theme parks

While resources are the source of a firm's capabilities/competencies,

capabilities/competencies are the main source of competitive advantage

But on their own few resources are productive

Productive activity requires the cooperation and coordination of teams of resources

A capability is the capacity for a team of resources to perform some task or activity

Production routines: eg Toyota

Top Management routines: see the leadership

practices ▪ of Jack Welch ?

Coordination between R&D, Production & Marketing ▪ eg Canon and M&M

India

And This Requires:

A culture of cooperation & commitment

Trade-offs between efficiency & flexibility

Economies of experience

The diversified corporation is a large tree.

The trunk and major limbs are core products, the smaller branches are

business units; the leaves, flowers and fruit are end products.

The root system that provides nourishment, sustenance, and stability is the core

competence. You can miss the strength of competitors by

looking only at their end products, in the same way you miss the strength of a tree if

you look only at its leaves.

“Core competencies are the collective learning in the organisation, especially how to coordinate diverse production skills and integrate multiple streams of technology”

Prahalad & Hamel (1990)

“a set of differentiated skills, complementary assets, and routines that provide the basis for a firm’s competitive capacities and sustainable advantage in a particular business”•(Teece, Pisano & Shuen 1990: 28)

Makes a significant contribution to customer perceived value (or significant process and manufacturing cost advantage) Provides access to a wide variety of

existing & new markets Is difficult for the competitors to imitate -

▪ complex or sometime even a simple but elegant (SWA)harmonisation of production technologies & skills

Competitor differentiation

Sharp and Toshiba in flat screen display at the heart of the laptop

Honda in engines & power trains for cars, motorcycles, lawn mowers & generators

HP in measurement, computing and communications; 3Ms in adhesives, substrates and advanced materials.  Sony: Pocketability / Now they call 3 Cs

Competing, Content and Connectivity Fedex: on time delivery. Walmart: choice availability and value based on logistics.  

Companies should be organised as a portfolio of competencies, building Marketing strategy around resources that meet key tests Continually improve and upgrade resources,

acquiring complementary ones where appropriate

Examine scope of the business, maximising value from resources through their utilisation in new areas Do not compete in markets where resource

advantage lacking

Fig 6.8 The resource portfolio

Fig 6.9 Developing and exploiting resourcesAdapted from Hamel and Prahalad, 1994

What are your core competencies and/or core rigidities

What actions are you taking to build your future core competencies?

How can a firm “protect” resources or capabilities

Unique Historical Conditions First mover advantages Path dependence

Causal Ambiguity Causal links between resources and competitive advantage

may not be understood Bundles of resources fog these causal links

Social Complexity The social relationships entailed in resources may be so

complex that managers cannot really manage or replicate them

Patents Offer a period of protection if the firms is able to defend its patent rights Can be a two-edged sword as firms disclosure may decrease costs of

imitation by other firms

The Question of Organization

• a firm’s structure and control mechanismsmust be aligned so as to give people abilityand incentive to exploit the firm’s resources

• examples: formal and informal reporting structures,management controls, compensation policies,relationships, etc.

• these structure and control mechanisms complementother firm resources—taken together, they can help a firm achieve sustained competitive advantage(3M Company – rewards innovation and risk-taking)

Strategic (Marketing) Assets - (Owns)• Brands, patents, infrastructure,

proprietary standards, customer data Core Competencies (Knows)

• skills & unique capabilities• Brand building

Core Processes (Does)• Activities, routines,

• Dell (Mass Customisation), John Hardy (Sustainable processes -> brand)Hamel (2001)

Managers of (NPD) projects face a paradox:

Core capabilities simultaneously enhance and inhibit development

Examined a range of NPD projects some of which had close and some a lowerfit with core capabilities

Eg. DIGITAL, KODAK…..

Values and

normsTechnical

systems

Managerial

systems

Skills &

knowledge

Four dimensions vary in terms of ease of change 1. Technical systems 2. Managerial systems 3. Skills and

knowledge 4. Values and norms

Increasing difficulty to change

Four dimensions to the knowledge set – 1. its content is embodied in employee knowledge

and skills (firm specific knowledge & scientific understanding)

2. Embedded in technical systems: accumulating, codifying and structuring the tacit knowledge in people’s heads. Greater than the sum of its parts/

3. Guided by managerial systems: formal and informal ways of creating and controlling knowledge

4. The values and norms associated with the various types of embodies and embedded knowledge and with the process of knowledge creation and control

Tool:The Value Chain and

Value Networks

Source: M.E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance, Free Press, 1985. Used with permission of The Free Press, a division of Simon & Schuster, Inc. © 1985, 1988 by Michael E. Porter. All rights reserved.

Exhibit 3.6

To diagnose strategic capability To understand how value is created or

lost in terms of the activities undertaken

The value chain describes the activities withinand around an organisation which togethercreate a product or service

The value chain describes the activities withinand around an organisation which togethercreate a product or service

Identifies clusters of activities providing particular benefit to customers

Highlights activities which are less efficient and which might be de-emphasised or outsourced

Requires managers to think about the role of such activities

Can be used to identify the cost and value of activities

Source: M.E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance, Free Press, 1985. Used with permission of The Free Press, a division of Simon & Schuster Inc. © 1985, 1988 by Michael E. Porter. All rights reserved.

Exhibit 3.7

The value network Set of inter-organisational links/relationships

necessary to create a product or service Specialisation of roles

Underpins excellence in creating best-value products Need to understand whole process

Where cost/value is created in supply/distribution chains

How to manage links to improve customer value How product quality is a function of linked activities

of manufacturer, suppliers and distributors

Competition is between networks, not companies.The winner is the company with the better network.

Delivery

Sears(Retail)Sears

(Retail)Levi’s

(Apparel)Levi’s

(Apparel)

Order

Delivery

Order

CustomerCustomer

Delivery

Du Pont(Fibers)Du Pont(Fibers)

Order

Delivery

Order

Milliken(Fabric)Milliken(Fabric)

Competition is between networks, not companies.The winner is the company with the better network.

Delivery

Air Asia /TGV/GSC

Air Asia /TGV/GSC

NetworkMaxis/DigiNetwork

Maxis/Digi

Order

Delivery

Order

CustomerCustomer

Delivery

ContentDevelopersContent

Developers

Order

Delivery

Order

SoftwareGuys

SoftwareGuys

Where are cost and value created? Which activities are vital to an organisation?

Retain direct control of core capabilities Outsource less important activities

Where are the profit pools? Potential profits at different parts of the value

network Availability of competences to compete in these

areas Make or buy?

Outsourcing Develop competence in influencing performance of

other organisations Who are the best partners?

What kind of relationships are required?

Promote a learning organisation Recognise intuition of people Accept conflicting ideas Experimentation as the norm

Add activities to support learning, e.g. “venturing” business units

Manage organisational knowledge Need right culture and structure

Develop spiral of interaction between tacit and explicit knowledge

Question core rigidities

Resource based perspective states Competitive advantage is derived from

strategic capabilities – which are identified through ‘Internal Analysis’▪ Strategic capability comprises tangible and intangible

resources deployed via capabilities / competences▪ For sustainable competitive advantage strategic capabilities

must be valuable, rare, robust or non-substitutable/ inimitable

Value chain/value network to understand cost and value creation

In an ever changing environment Management of strategic capabilities involves stretching capabilities and building dynamic capabilities

MMU-DBA – Advanced MarketingDay 4 – Organisational Resources and Competitive Advantage

Today's Agenda Porter’s Generic

Strategies Treacy & Wirsema’s 3

Value Disciplines Being Best of Both or “stuck in the middle” ?

Growth Strategies Market Leaders and

Challengers Blue Ocean Strategy

Through External Analysis – we analyse the environment / industry / competitive factors that can affect a firm’s profits

In ‘Organisational Resource Analysis’ we discussed firm-specific factors that impact on a firm’s competitive advantage

and now we further analyse firm specific factors vis-à-vis rivals

So we are concerned with where companies position themselves relative to rivals in order to obtain competitive advantage

External

Internal

Are you in an attractive market? ie one where average player makes an

economic profit

Have you got a competitive advantage?

A strategic business unit is a part of an organisationfor which there is a distinct external market forgoods or services that is different from another SBU

A strategic business unit is a part of an organisationfor which there is a distinct external market forgoods or services that is different from another SBU

External Internal

Same customer types Similar products/services

Same channels Similar technologies

Similar competitors Similar resources and competences

Keynon and Mathur ague that competitive advantage is not so

much at the SBU level – but from the “offering” and particularly from

Future Offerings.

Firm Infrastructure

Human Resource ManagementTechnology Development

Procurement

Inbo

und

Log

isti

cs

Ope

rati

ons

Out

boun

d L

ogis

tics

Mar

keti

ng

& S

ales

Ser

vice

Mar

gin

Margin

Primary activities

Support activities

Displays total value comprising value activities & margins

Divided into primary and support activities

Useful framework for analysing opportunities for

Resource allocation Differentiation

Cost reductions

Value chain for the firm and value chain for the industry

Figure 4.1Figure 4.1

SOURCE: Adapted with the permission of The Free Press, an imprint of Simon & Schuster Adult Publishing Group, from Competitive Advantage: Creating and Sustaining Superior Performance, by Michael E. Porter, 12. Copyright © 1985, 1998 by Michael E. Porter.

Stuck in the Middle ?

Cost-leadership strategy – the firm strives to be the lowest-cost supplier

and thus achieve superior profitability from an above-average price–cost margin.

(Product) differentiation strategy the firm strives to differentiate its product (or

service) from rivals’ products, such that it can raise price more than the cost of differentiating and thereby achieve superior profitability.

Focus strategy the firm concentrates on a particular segment of

the market and applies either a cost-leadership or a differentiation strategy.

Can still earn returns when rivals have competed away profits

Buyers can only bargain down to level of next most efficient competitor

Have flexibility to cope with price increases from suppliers

Scale economies deter new entrants and make substitutes less attractive

Economies of scale and learning effects are potentially significant, but no firm seems to be exploiting them provided the opportunity for Walmart and Dell – then.

Opportunities for enhancing the product’s perceived benefit are limited by the nature of the product (commodities --- garments sector in Malaysia was getting

commoditised during/post asian crisis – even a brand like British India – was selling at RM 20/unit)

Consumers are relatively price sensitive and are unwilling to pay much of a premium for enhanced product attributes (eg. selling to government - In the food-retailing in Malaysia

– Jusco is also forced to ………………???(Bezanko 2000)

Disaggregate the firm’s value chain into separate activities (processes) Establish the relative importance of

different activities in the total cost of the product

Compare the costs by activity Identify the cost drivers

Identify linkages: how costs in one activity influence costs in another

Identify opportunities for reducing costs ▪ (increase volume, reduce labour costs,

outsource)

An integrated set of actions taken to produce goods or services (at an acceptable cost) that customers perceive as being different in ways that are important to them

Nonstandardized products

Customers value differentiated features more than they value low cost

Brand loyalty means buyers are less price sensitive and therefore less likely to move to lower cost rivals or substitutes

Customer loyalty and uniqueness create entry barriers

Higher margins provide protection against powerful suppliers

1. Raises the firm above intense price competition rivalry

2. Uniqueness and customer loyalty act as a barrier to entry

3. Able to ward off threat of substitutes.Genetic cures vs Conventional

Drugs ?4. Reduces bargaining power of buyers.5. Increases bargaining power with

suppliers

Product/service differentiation

(based on levels of offering) Fig 11.7

Inbound Logistics: quality of components &

materials Operations:

defect free products (6 sigma) Outbound logistics:

faster delivery Marketing & sales:

building brand reputation Service: consumer credit

(What are your classic examples?)

“The worst strategic error is to be stuck in the middle or to try simultaneously to pursue all the strategies.

This is a recipe for strategic mediocrity and below-average performance, because pursuing all strategies simultaneously means that a firm is not able to achieve any of them because of their inherent contradictions.” (Porter, 1990, p.40).

Porter argues that a strategy of differentiation advantage is usually incompatible with the pursuit of cost advantage because higher quality or better performance products cost more to produce:- e.g. more expensive components- e.g. better trained or more highly skilled labour- e.g. higher advertising and promotion costs• Therefore if firms pursue ‘best of …” they are

likely to lose out to cost leaders and and top end competitors;

• also suffer from a “blurred corporate image”

Why? High quality products drives market share

which gives scale and learning benefits and reduces average costs

The rate at which accumulated experience reduces costs is greater for higher quality products

Inefficiencies muddy the relation between cost position and differentiation position: Porter may have been observing inefficient firms, not a true trade-off between quality and cost

Consumers do not think in terms of polar opposites? Think of a trade-off in terms of value for

money (e.g. Hotels)

“Bottom of the Pyramid” Market As an extension of Cost Leadership ?

Fortune at the Bottom of the Pyramid - Prahlad

Operational Excellence

Product Leadership Customer Intimacy

Best total cost

Best product Best total solution

Figure 6.2 Value disciplines

Providing reliable products and services at competitive prices with minimal difficulty and inconvenience

(Similar to Cost ?) Eg Dell, Air Asia ?!

Segmenting and targeting precisely and then tailoring offerings to match exactly the demand of those niches.

Combine detailed customer knowledge with operational flexibility.

Lifetime profit vs single transaction Eg Nordstrom, Home Depot, Ritz Carleton

Offering customers leading-edge products and services that consistently enhance the customer’s use or application of the product, thereby making rival's goods obsolete

Speed to market Eg Nike, Sony, 3M

Or become the master in two!Eg Toyota: operational excellence + product leadership

Competitive

Cost Advantage

Position

Benefit Advantage

Product & Marketing Standardise products Customise products

Production Mass-production

Inventory control

Make to order

Anticipate demand

Engineering & design Design for ease of manufacture

Create customer benefits

R&D Process innovations Product innovation

HR Transactional leadership

Transformational leadership

A growth market means a growing product market.

Attractive to companies because: Gaining share is easier Share gains are worth more Price competition is likely to be less intense

Early entry may be necessary to keep pace with technology

Strategic options depend on market position Market leader (defensive) Market challenger (aggressive)

83

Is it conventional wisdom? Normally used to guide resource allocation

decisions Reality – growth markets represent opportunities

but also substantial risks and challenges

Firms to beware of shakeout phase! A market is neither attractive or unattractive because of high growth

REAL QUESTION: CAN THE FIRM EXPLOIT THE OPPORTUNITIES PRESENTED BY MARKET GROWTH TO GAIN COMPETITIVE ADVANTAGE?

84

Overcrowded market (market share) providing high charged environment for a shakeout

Inadequate distribution Inadequate resourcesKey success factors changeLeap frogging competitorMarket does not grow!!!!

85

When firm is able to ; Develop strong customer loyalty Develop broad product line Create delayed obsolescence Possess experience curve

advantage Possess absolute cost advantage Possess high initial price

structure

86

Maintain leading position in view of rising competitors, fragmentation of market segments and threat of product innovation.

87

Seek to improve on organisational performance through expansion of activities. Achieved through Market Expansions – or

taking sales from competitors (Confrontation) Five Confrontation Strageiges (Koter and

Singh 1981)▪ Frontal attack▪ Flanking attack▪ Encirclement attak▪ Bypass strategy▪ Guerilla tactics

89

CHALLENGER

FLANKING ATTACK

Target competitor FRONTAL ATTACK

ENCIRCLEMENT STRATEGY

LEAPFROG STRATEGY

Figure 11.9 Market challenger strategies

Figure 11.10 Frontal attack

Figure 11.11 Flanking attack

Figure 11.12 Encirclement attack

Figure 11.13 Bypass strategy

Figure 11.14 Guerrilla tactics

Kotler and Singh suggest six ‘holding’ Strategies – Fortification or Position Defence Erecting barriers to copy and/or entry

(differentiation, brand building etc)

Figure 11.16 Position defence

Figure 11.17 Flanking defence

Figure 11.18 Pre-emptive strike

Figure 11.19 Mobile defence

Figure 11.20 Contraction (focus) defence

102

Market expansionstrategy

LEADER

FORTRESSOR POSITION OF DEFENSE

STRATEGY

CONTRACTIONOR STRATEGICWITHDRAWAL

CONFRONTATION STRATEGY

PROACTIVE/REACTIVE

COMPETITIONOR POTENTIALCOMPETITOR

FLANKER STRATEGY – PROACTIVEFLANKER STRATEGY - REACTIVE

LEADER

Selection of any one or combination of strategies depends on :

Market size and customer characteristics

Number and relative strengths of competitors or potential competitors in that market

Leader’s own resources and cabalities / competencies

103

COMMON STRATEGIC TRAPS DURING MARKET SHAKEOUTSFailure to anticipate transition from

growth to maturityNo clear competitive advantageAssumption that an early advantage

will insulate the firm from price or service competition

Sacrificing market share in favour of short-run profit.

104

Mature markets are characterised by fewer stronger firms that have survived the shakeout phase

At this stage – potential customers have adopted the product and rate of sales growth declines

Primary objective – HOLD existing customers

Declining markets are characterised by low sales due to customers,or obsolesence of product category.

Options – harvest or consolidate or divest. 105

106

When ?Market leader in a mature or declining market.

Costs exceed benefits of building

Significant barriers to entry

Strategic focusMonitoring the competition

Confronting the competition

Competitive equilibrium andimplicit collusion

Avoid price wars !

107

Attractive conditionsMarket is mature or declining(dog products)

Core of loyal customers

Future breadwinners exist

When restructuring is more profitable than divestment

Increase cashflow from current sales rather than increase sales

Strategic focusEliminate R&D expenditure

Product reformulation

Rationalise product line

Cut market support

Maintain or Consider increasing price

108

When ?Small company with limited Resources with large competitors dominating main segments

Niches that can provide anOpportunity

Major players are neglecting the needs of some customers

Strategic focus

Market segmentation

Focused R and D

Focused Differentiation

109

Attractive conditionsLoss-making products or businessdrain on resourcesOften low share in declining marketsCosts of turnaround exceed benefitsRemoval will not significantly affect sales of other productsOther companies value businesssignificantly higher than current firm

Strategic focusGet out quickly BUT do not damage reputation if more products/brands exist

Minimise the costs

Marketing Strategy formulation should adapt to evolving markets.

Range of strategic options for growing, mature and declining markets.

Cannot simply assume that growing markets are attractive but not declining ones.

The Imperative for BOS supply exceeds demand globalization accelerated commoditization of products and

services increasing price wars shrinking profit margins brands are becoming more similar

select based on price

Two worlds …

Two worlds …

Red Ocean Strategy Blue Ocean Strategy

Compete in existing market space.

Create uncontested market space.

Beat the competition. Make the competition irrelevant.

Exploit existing demand. Create and capture new demand.

Make the value-cost trade-off. Break the value-cost trade-off.

Align the whole system of a strategic firm's activities with its choice of differentiation or low cost.

Align the whole system of a firm's activities in pursuit of differentiation and low cost.

VALUE INNOVATION

BOS Logic: The Core Principles

Reconstruct Market Boundaries… overcome believes.

Reach beyondexisting Demand… go for uncontested space.

Get the strategic sequence right… value [innovation] first.

VIVI

COST

VALUE

BOS Logic: Reconstruct market boundaries

IndustryFocuses on rivals within its industry

Strategic GroupFocuses on competitive position within strategic group

Buyer GroupFocuses on better serving the buyer group

Scope of Product and Service

Offerings

Focuses on maximizing the value of product and service offerings within the bounds of its industry

Functional-emotional Orientation of an

Industry

Focuses on improving price-performance with the functional-emotional orientation of this industry

Time/TrendsFocuses on adapting to external

trends as they occur

Looks across alternative industries

Looks across strategic groups within its industry

Redefines the buyer group of the industry

Looks across to complementary product and service offerings that go beyond the bounds of its industry

Rethinks the functional-emotional orientation of its industry

Participation in shaping external trends over time

Boundaries of Competition

Head-to-HeadCompetition

Creating New Market Space

BOS Logic: Reach beyond existing demand

Core Customer Noncostumer

Soon-to-be-NC

Refusing Customer

BOS Logic: Get the Strategic Sequence right

Buyer utility

Is there exceptional buyer utility in your business idea?

Adoption

What are the adoption hurdles in actualizing your business idea?

Are you addressing them up front?

Price

Is your price easily accessible to the mass of buyers?

Cost

Can you attain your cost target to profit at your strategic price?

A commercially viable Blue Ocean Strategy

YES

YES

YES

YES

No Rethink

No Rethink

No Rethink

No Rethink

The case of Accor's Formule 1

The value curve of Formule 1 in the French Low Budget Hotel Industry

References

• W. Chan Kim, Renée Mauborgne, Blue Ocean Strategy, 2005,

Havard Business School Press.

• http://www.blueoceanstrategy.com

• http://www.hotelformule1.com