Entrepreneurial Strategy PDF

Oct 8 Entrepreneurial Strategy What is Entrepreneurial Strategy? The plan a founder (& his/her team) undertakes to identify a system for value creation & value capture before the opportunity for value capture = dissipated  o Combines systematic experimentation & learning...

Oct 8 Entrepreneurial Strategy What is Entrepreneurial Strategy? The plan a founder (& his/her team) undertakes to identify a system for value creation & value capture before the opportunity for value capture = dissipated  o Combines systematic experimentation & learning w escalating strategic commitments o Not a passive process, but the active choices that allow a firm to establish priorities, achieve internal coherence, time irreversible commitments, and ensure value creations o A plan for choosing what NOT to do Challenges: o Clear undertsanding of customers & willingness-to-pay o Clear relationship btwn value delivery ("B") & cost structure ("C") o Static industry structure o Sufficient resources & time to achieve operational effectiveness o Diffuse understanding of customer needs & potential willigness-to-pay o Significant uncertainty abt how investments & other costs shape value delivered o Highly dynamic & uncertain industry structure o Limited (& uneven) resources, unstructured organization, & limited time What strategy should entrepreneurs choose to commercialize & establish advantage from their ideas? Frameworks - (these can only be used for small companies…not big ones & entrep use them as strategy) o Business model canvas o Strategy compass 4 Choices that shape entrepreneurial strategy  Platform strategy o An approach to entering a market which revolves around the task of allowing platform participants to benefit from the presence of others o Setting up a platform & attract ppl to use it o Eg Dating apps Creating Value Increasing the value that end consumers receive through product / service differentation Lowering the cost of receivng a certain amount of value through product / process Bringing together multiple actors in new way through a platform Capturing Value Supply-side economies of scale Demand-side economies of scale Increasing customer switching cost  Proprietary access to key assets Creating & Capturing Value Orient towards competition, invest in control o Eg : Bloomberg Captures value through data Creates value bc brings ppl together Three steps to a platform strategy 1. Identifying the distinct sources of platform value a. Network effects i. When the value of each consumer depends directly on the # of other adopters they can connect to on "their" side of the platform b. Indirect network effects/multi-sided platforms i. When the value on one "Side" of the platform depends on the availability of the "other side" of the market, such as complementary prods, or even other "types" 1. Multisided platforms: a. Techs, prods or servs that create value primarily by enhancing direct interactions btwn 2 or more customer or participant groups i. Eg: alibaba (sellers & buyers), airbnb (renter & rentee), uber (passengers & drivers), linkedin (employers & employees) 2. Coring the platform a. Process of creating a new platform where none has existed before (ie how they will make their underlying idea essential to market) b. making the platform essential to customers  i. The process of creating a new platform where none has existed before (ie how they wil make their underlying idea essential to the market) ii. A successful platform core can provide direct value to consumers, enhance direct network effects, facilitate the development of complements, while allowing the company to maintain control over the "core" of their tech & design iii. Key questions: 1. Who? - what sides of the platform should be brought on board? 2. What & why? - what should be the core functionality & logic of the paltform? 3. How? - what rules should we adopt to govern transactions & activities w/in the platform? How much freedom should we allow? 4. Who pays? How much? - exactly who should pay for access to the platform & how much? iv. Need to decide what side pays for that & how much 3. Tipping the platform a. The set of activities / strategic moves that companies can use the shape market dynamics & win a platform war when at least 2 platform candidates compete b. The platform value of a tech = benefit that arises when consumers care abt the # of other users c. When a platform creates value for consumers, diffusion = driven in part by "increasing returns" & market leadership can be determined by "lock in" d. "lock in" occurs when a critical mass of consumers adopt (or are expected to adopt) a specific platform so that all future consumers can be expected to choose one architecture over alternatives The Penguin Effect Abt jumping to the sea  You've got to get some consumers to "jump" into the adoption cycle… Which side should you attract first? o Eg alibaba: buyers or sellers? Buyers bc if you have them then sellers will come o Eg airbnb: owners or renters Owners bc renters will find the owners bc they are the ones who are looking for the prod/serv Tipping Tactics Sequence growth of the platform by focusing 1st on creating a compelling value proposition for one "side" of the market, and then expand to others over time… Come to market early Favorable & transparent pricing Lower switching costs for early users Developing or encouraging the development of, complementary prods & servs Opening the door to competition & enhancements w/in the architecture Tipping requires Substantial upfront investments such as marketing, subsidizing switching etc Low margins - at least up front Committing to cede profits to other actors in the value chain (to encourage investment in complementary technologies & assets & permit competition w/in an "open" standard) Eg opentable & Noma restaurant o Making the platform essetnial to the customer - no need in this case bc most ppl are willing to pay to get a table at these famous restaurants o Keeping paltforms - finding 1st customers & beating competitiors Oct 7 Do Entrepreneurs Need Strategy? SUMMARY THE PROBLEM In their haste to get to market, entrepreneurs often run with the first plausible strategy they identify. As a result, they end up losing out to second or even third movers with superior strategies. WHY IT HAPPENS In the innovation space it’s easy to get overwhelmed by the apparent range of opportunities. Entrepreneurs fear that spending too much time weighing the alternatives will delay commercialization. The strategic commitments they make in moving forward limit their ability to pivot. THE SOLUTION Start-ups can improve their chances of picking the right path by investigating four generic go-to-market strategies, articulating multiple plausible versions of those strategies, and choosing the one that aligns most closely with their founders’ values and motivations. Reading Entrepreneurs operating in uncertainty worry that exploration will delay commercialization so they go w 1st practical strategy that comes to mind The Entrepreneurial Strategy Compass Recognize: go-to-market strategy, target customer, technologies, organizational identity, position against competitors o Decisions = interdependent 4 caterogies Sort through potential strategies consider 2 competitive trade-offs: o Collaborate or compete? Collaborating with established players: Pros: o Access to resources and supply chains. o Quicker entry into larger, established markets. Cons: o Delays due to large organizations' bureaucracy. o Smaller share of potential profits. o Incumbents may hold more bargaining power and appropriate key elements of the start-up's idea. Competing with established players: Pros: o Greater freedom to build an independent value chain. o Opportunity to work with overlooked customers. o Ability to introduce innovations that enhance customer value and displace existing products. Cons: o Competition with firms that have more financial resources and infrastructure. o Build a moat or storm a hill?  Building a moat (prioritizing control over product/technology): Pros: o Protection through intellectual property (IP) prevents imitation. o Allows start-up to exclude competitors or gain leverage in negotiations with supply chain partners. Cons: o Expensive to maintain formal IP protection. o Increases transaction costs and challenges in bringing innovation to market. o May delay entry to market. Storming a hill (focusing on rapid market entry): Pros: o Faster commercialization and development through collaboration with partners and customers. o Prioritizes experimentation and iteration in the marketplace. o Agility to respond to competition quickly. Cons: o Expectation of competition from the outset. o Potential loss of control over product or technology. 4 categories:  o The intellectual property strategy Company collaborates w incumbents & retains control of its product or tech Focuses on idea generation & development Avoids costs of downstream, customer-facing activities Core idea = value to customer of incumbents Carefully conceived patents & trademarks w solid R&D = powerful defenses allow start-up to preserve bargaining power over long periods of time Collaboration with incumbents while retaining control over product/technology: o Focus on idea generation and development. o Avoids costs of downstream, customer-facing activities. o Product must be valuable to the incumbents' customers, influencing partnership choices.  o Emphasizes generalizable technology investments compatible with existing systems. Development Approach: o Focus on a small number of modular technologies with decisive industry impact. o Avoids unstructured experimentation with new technologies. o Example: Dolby Laboratories—licensed noise-reduction technologies to global players like Sony, Bose, and Apple while maintaining market leadership. Cultural and Capability Requirements: o Invest in strong R&D skills and legal expertise for patent and trademark protection. o Ensures long-term bargaining power through intellectual property defense. Applicability: o Effective in industries like biotechnology, technology platforms (e.g., Qualcomm), and market intermediaries (e.g., Getty Images). o The disruption strategy Polar opposite of IP strat Involves decision to compete directly w incumbents Emphasizes commercialization of idea & rapid growth of market share rather than control of idea's development Disruption entrepreneurs aim to redefine established value chains & companies that dominate those chains Nature of disruption permits others to follow Ability to get ahead & stay ahead Disruption Strategy: Compete directly with incumbents:  o Prioritizes commercialization and rapid market share growth over control of idea development. o Aims to redefine established value chains and the dominant companies in those chains. o Focuses on getting ahead of competitors and maintaining that lead. Initial Approach: o Targets niche customer segments poorly served by incumbents, avoiding immediate retaliation. o Builds early credibility and explores new, potentially flawed technologies that can improve over time. o Technologies may be difficult for incumbents to adopt due to their reliance on established systems. Cultural Traits: o Start-up is lean, quick, and growth-focused, staffed by young, ambitious team members. o Embraces competition and is eager to engage in a competitive “war.” Examples: o Netflix: Disrupted movie rentals by leveraging DVD technology and offering a new rental method through a recommendation engine, rendering Blockbuster obsolete. o Rent the Runway: Disrupted high-end fashion by allowing women to rent rather than buy designer clothes, focusing on operational logistics to challenge traditional players like Neiman Marcus. Key to Success: o Rapid capability and customer loyalty building before incumbents react. o Focus on operational excellence and speed, allowing the start-up to outpace less agile incumbents. o The value chain strategy Pedestrian  Invest in commercialization & day-to-day competitive strength, rather than controlling new product & erecting entry barriers Focus on fitting into existing value chain rather than upending it Value Chain Strategy: Fit into the existing value chain rather than disrupting it: o Focus on commercialization and competitive strength. o Does not prioritize control over the product or creating barriers to entry. o Builds on competence rather than aggressive competition. Approach: o Develop scarce talent and unique capabilities to become preferred partners in the value chain. o Example: Foxconn—a key manufacturer for Apple, known for bringing products to market at scale and on time. Focus on Expertise: o Concentrate on a specific "horizontal" layer of the value chain where the start-up can become unrivaled in expertise. o Develop meaningful value propositions by focusing on what customers value and complementing traditional players. Examples: o Peapod: Succeeded by complementing traditional grocery retailers, like Jewel-Osco, and focusing on automated ordering and delivery, unlike Webvan’s disruption approach. Team and Capabilities: o The founding team is critical, requiring experts in sales, engineering, innovation, business development, and supply chain management. o Success depends on creating value for the overall value chain that cannot easily be replicated by others. o The architectural strategy Value chain domain of quiet achievers…architectural = high public profiles  Allows compete & achieve control Risky Design new vale chain & control key bottlenecks in it Platforms rather than prods Architectural Strategy: Create and control an entirely new value chain: o Start-ups design a new value chain and control key bottlenecks in it. o Often does not originate the underlying innovation but brings it to the mass market through alignment of customer, technology, and identity choices. o High risk—typically offers only one major opportunity for success (e.g., Segway failure). Platform vs. Product Focus: o Architectural entrepreneurs often focus on building platforms rather than products, as platforms offer control over new value chains. o Closed platforms can lead to greater control and dominance in the market. Examples: o Facebook: Brought social networks to a mass market by committing to not charging users, locking them into the platform. o Google: Achieved dominance with its "Don’t Be Evil" motto to avoid pushback faced by other digital firms like IBM and Microsoft. o OpenTable: Revolutionized restaurant reservations by integrating seating and management software with its platform, ultimately controlling valuable data and becoming essential to restaurateurs. Key to Success: o Target influential users or key segments to create a "critical mass" that attracts others. o Achieve control over proprietary data or bottlenecks in the value chain, making the platform hard to dislodge. Risks:  o The strategy is out of reach for many start-ups and requires significant alignment and execution. o Success depends on securing dominance in a new value chain, often with little room for pivots. MAKING THE CHOICE Key Points for "Making the Choice" in Entrepreneurial Strategy: Filling the Compass Quadrants: o Gather information, experiment, and build/test hypotheses before committing to a strategy. o Use resources like The Lean Startup or Business Model Generation to structure this process. Identifying Feasible Strategies: o Testing options reveals stumbling blocks, feasibility issues, and alignment with the team’s capabilities. o Dismiss non-viable options and focus on those that align with the startup’s strengths and needs. Case Example: RapidSOS: o Explored four strategies (architectural, IP, value chain, disruption). o Chose disruption, targeting specific patient groups (e.g., epileptics), aligning strategy with their original mission. o Gained stakeholder support and investment from key players like Motorola. Making the Final Choice: o Choose the strategy that aligns best with the venture’s purpose. o Alignment between strategy and purpose motivates both the team and stakeholders. Living the Choice: o Strategy commitment influences future pivot opportunities—opens some and closes others.  o Startups must be mindful of this when transitioning from startup to scale-up. The Entrepreneurial Strategy Compass: o Helps entrepreneurs navigate uncertainty by providing a framework for imagining new environments. o Entrepreneurs with innovative products have the chance to reshape or create entirely new markets (like Amazon or Dolby). o Provide coherent framework for espacing perceived realities of existing env & defining possible new envs to choose from Critical "choose" bc when start-up competing w new prod in absece of significant innov, success = determined by how its strategic choices informed by env Winning business = one who understands env better Takeaway: o Strategic choices should be informed by the environment, and entrepreneurs have the opportunity to redefine it through their innovations. o Frameworks help guide these decisions and channel creativity toward building a successful venture. COUNTERPOINT It's Not Abt The Framework What many busisness schools teach hast little to do w entrepreneurial success Key Points for "Entrepreneur at a Crossroads" Decision: The Situation: o You’ve developed a new platform, but a VC on your board suggests further development and a clear go-to-market strategy before investing. o You’re unsure whether to follow this advice, as there’s no empirical data to guide your decision. The Lean Startup Approach (Eric Ries):  o Suggests co-designing products with customers and avoiding lengthy business plans. o Focus on experiential learning rather than a prearticulated strategy. o Advocates for launching a “minimally viable product” (MVP) to gain early customer feedback. The Startup Owner’s Manual (Steve Blank & Bob Dorf): o Proposes that a start-up’s main task is to search for scalable opportunities. o Recommends learning through experience rather than having a rigid, predefined strategy. Criticism of the Lean Startup Approach (Gans, Scott, Stern): o Argues that following Ries, Blank, and Dorf often leads to uninformed strategic choices. o Lack of a strategic framework can prevent founders from evaluating options effectively. Takeaway: o While the Lean Startup approach emphasizes learning and flexibility through customer feedback, critics stress the importance of a strategic framework for making informed decisions. Balancing both viewpoints may provide a more robust pathway forward. The entrepreneurship industry o Key Points on "The Entrepreneurship Industry": Historical Context: o Until the 1980s, entrepreneurship was not formally taught in business schools; focus was on traditional industries like banking and manufacturing. o The rise of tech entrepreneurs like Bill Gates and Steve Jobs sparked interest among MBA students in learning entrepreneurship. Emergence of Entrepreneurship Curriculum:  o As demand grew, a curriculum developed around writing business plans for imagined start-ups. o Common elements reflecting investors' criteria were established in business plan formats. o Intercollegiate competitions, like Rice University’s annual business plan competition (offering over $3 million), became popular. Appeal of Structured Approaches: o Entrepreneurs seek to reduce risk, especially with complex projects and high potential failure costs. o Developing a strategy and action plan makes starting a business appear more predictable and manageable. Critique of Lean Start-Up Approach: o While experimenting and iterative approaches are emphasized in tech and software sectors, they represent only about 3% of all start-ups. o Other types of ventures, like retail, require substantial infrastructure, fixtures, inventory, and marketing, necessitating a solid strategy. Conclusion: o The reality of entrepreneurship is complex, and while structured strategies can reduce risks, the process of starting a business is not always straightforward. The problem w plans o Flawed assumption of entrepreneurship discipline = a uniform logic can be applied to the process of starting a business - logic that can be described & will increase likelihood of success for start-up o Flawed Assumptions in Entrepreneurship Education: Business schools often assume a uniform logic can guide the start-up process, increasing success likelihood.  This assumption lacks empirical testing; longitudinal data on how new businesses emerge is scarce. o Reliance on Case Studies: Entrepreneurship scholars use successful case studies, which can be biased and unreliable. Entrepreneurs typically do not document their journeys in real-time, leading to biases in retrospective accounts. Failed start-ups leave minimal records, and evidence suggests that failed entrepreneurs often struggle in subsequent ventures. o Questionable Orthodoxy: Historical evidence indicates that many successful companies (e.g., Alcoa, Disney, GE, and modern giants like Apple, Facebook, Google) did not start with formal business plans. Research shows that having a plan does not statistically influence start-up success rates. Many winners of business plan competitions do not go on to launch actual businesses. o Critique of Planning's Impact on Risk: The notion that a business plan significantly reduces risk, particularly for "real" ventures, is challenged. Example: Tesla (Elon Musk) vs. Better Place (Shai Agassi). o Tesla's launch was a high-risk endeavor requiring substantial capital and complex logistics. o While planning helped organize the launch, it did not fundamentally alter the underlying risks of the venture. o Conclusion: A plan may aid in execution but does not guarantee a higher probability of success in start-ups, which often face unpredictable challenges. The non-plan plan o Shift from Traditional Business Plans: The conventional business plan from the 1990s and 2000s has evolved, but newer approaches still fall short of significant advancement. o Redefining Business Plans: Alan Gleeson and Steve Blank suggest calling business plans “models,” but this change is a subtle distinction rather than a substantial improvement. o Business Model Generation Framework: Alexander Osterwalder and Yves Pigneur propose a visual canvas approach for founders to outline their enterprises. The process is likened to painting, requiring a balance of components like infrastructure, customer needs, channels, and finances. o Disciplined Entrepreneurship: Bill Aulet introduces a method comprising 24 discrete steps that founders should follow to enhance their chances of success. However, this method still adheres to a linear planning process, where certain steps must precede others. o Entrepreneurial Strategy Compass: Advocated by Joshua Gans, Erin Scott, and Scott Stern, this approach involves evaluating four competing go-to-market strategies: o Protecting intellectual property o Disrupting competitors o Working within the existing value chain o Creating a new value chain o Overall Critique: Despite three decades of the entrepreneurial revolution, the academic guidance available to entrepreneurs remains largely linear and traditional, lacking innovative advancement.  Learning by doing o Learning Through Experience: Entrepreneurs must learn by doing in the absence of prescriptive data, drawing on phenomenology, which emphasizes learning through experiences rather than solely analyzing past data. o Phenomenology in Business: This philosophical approach encourages individuals to create new data from their experiences, fostering ongoing understanding and adaptation as they progress. o Apple's Approach: Apple employs a learning-by-doing method called challenge-based learning in its Classrooms of Tomorrow project, effectively utilizing trial and error, particularly in app-based business development. o Importance of Trial and Error: Predicting consumer reactions is nearly impossible without experimentation, as expert opinions often prove unreliable. The venture capital success ratio of 1:7 highlights the unpredictable nature of investments, emphasizing the need for practical experimentation. o Historical Example: The Segway was once heralded as a revolutionary innovation, but it ultimately underperformed, demonstrating the fallibility of expert predictions. o Entrepreneurial Decision-Making: Entrepreneurs face unique risks and must make continuous decisions in unpredictable circumstances, where prior decisions can create new opportunities or threats. o Ted Farnsworth's Perspective: Farnsworth emphasizes that the only critical actions for entrepreneurs are to develop a new product and gauge customer interest and pricing, constantly reassessing these factors.  o Michael Levin's Experience: Levin, after encountering difficulties with his digital B2B trading platform, faced resistance when trying to pivot from a business plan, ultimately deciding to buy out investors. His conclusion stresses that successful businesses require deep engagement with customers rather than rigid adherence to a business plan. Interviews - Q&A o Time Constraints and Innovation: Entrepreneurs should prioritize creating a sellable product quickly rather than extensive planning. This enables them to gain traction, learn from the market, and iterate on their offerings. Shah shares an example of starting with a focused product line (TV and stereo stands) and expanding from there based on early successes. o Customer Focus Over Strategy: Successful start-ups often emerge from a founder's vision and drive to create something valuable, with a focus on delighting customers rather than getting bogged down in strategic analysis. o Venture Capital Pressures: Start-ups, even if venture-backed, face resource constraints and must select a starting point for aggressive growth. It's essential for them to hit milestones agreed upon with investors, rather than endlessly searching for the perfect strategy. o Partnerships and Intellectual Property: Incumbents can be slow to adapt, providing opportunities for start- ups, particularly in IT. However, partnerships may not be effective for many start-ups. Intellectual property strategies can be costly and complex, making them challenging for early-stage companies. o Faddishness in Business Models:  Entrepreneurs and VCs can be influenced by trends, especially in consumer tech, leading to a rush to invest in "hot" categories. Investors prefer start-ups with scalable paths similar to established companies. o Moats and Competitive Advantage: Start-ups must consider what proprietary elements will be valuable at scale, including technology, customer acquisition strategies, and unique data assets. o Lean Start-Up Movement: While the lean start-up movement encourages rapid customer feedback, it may not be suitable for all businesses, especially those requiring slow development, like autonomous vehicles. o Real-World Strategy Evolution: LUM shares an example from her own start-up, Adelphic, which initially aimed to serve both sides of the advertising market but pivoted to focus on the demand side for faster growth. o Challenges of Pivoting: Pivoting can be difficult and costly, often requiring a significant restructuring of the business. Successful pivots may result in better outcomes, but they come with challenges. o Focus on Disruption: Disruption is often overused as a buzzword; the real focus should be on delivering more value to customers. Market creation is more significant than disruption. o Execution Over Strategy: Founders should allocate minimal time to strategy (around 1%) and focus predominantly on execution (99%). Engaging in conversations and actions is crucial for learning and progress. o Understanding Market Evolution:  Founders should not only seek current market feedback but also consider future trends and shifts to inform their strategy and product development. o Reflecting on Purpose: Founders should contemplate their motivations for starting a company, as understanding their purpose can provide valuable insights and resilience during challenging times. Oct 7 Blue Ocean Strategy "competing in overcrowded industries is no way to sustain high performance. The real opportunity is to create blue oceans of uncontested market space" Blue oceans denote all industries not in existence today - the unknown market space, untainted by competition o Demand = created … not fought over o Ample opportunity for growth that is profitable & rapid 2 ways to create blue oceans: o Companies can give rise to completely new industries  Eg eBay - online auction industry o Created from w/in red ocean when company alters boundaries of an existing industry Eg Cirque du Soleil Logic behind o Parts w traditional models focused on competing in existing market space Blue & Red Oceans Blue oceans = engine of growth Prospect in most established market spaces (red oceans) = shrinking steadily Technological advances have significantly boosted industrial productivity. Suppliers can now produce an unprecedented variety of products and services. Falling trade barriers and instant global access to product information are diminishing niche markets and monopoly havens. There is no evidence of increased demand in developed markets; UN statistics indicate declining populations. Result: In many industries, supply is beginning to outpace demand. Supply = overtaking demand Commoditization of products and services is accelerating, leading to: Price wars Shrinking profit margins Studies show major American brands are becoming increasingly similar across various categories. As brands converge, consumers are more likely to base purchase decisions on price rather than brand loyalty. Consumers no longer exclusively choose brands like Tide or Colgate; promotions can sway them to alternatives like Crest.  In crowded industries, differentiating brands is challenging during both economic upturns and downturns. The Paradox of Strategy Imbalance in favor of red oceans is partly due to corporate strategy's military influences: Language of strategy includes military terms (e.g., “officers,” “headquarters,” “troops,” “front lines”). Red ocean strategy focuses on competition against opponents in limited territories. Blue ocean strategy emphasizes creating new markets with no competitors. Red ocean focus entails accepting constraints of war: Limited terrain Need to defeat an enemy for success This perspective overlooks the unique strength of business: the ability to create uncontested market space. In the competitive-advantage worldview, companies are driven to outperform rivals and capture larger shares of existing market space. Toward Blue Ocean Strategy  Findings (based on table):  Blue oceans = not abt tech innov Leading-edge technology may be involved but is not a defining feature of blue oceans. Even in technology-intensive industries, blue oceans are rarely the direct result of technological innovation. Existing technology often underlies blue ocean creations (e.g., Ford’s assembly line has roots in the meatpacking industry). In the computer industry, blue oceans emerged by linking technology to buyer value, not just through tech innovations. Simplifying technology often played a key role (e.g., IBM 650 and Compaq PC server). Incumbents often create blue oceans - & usually w/in their core businesses Examples of incumbents creating blue oceans: GM, Japanese automakers, Chrysler in the auto industry. CTR, IBM, and Compaq in the computer industry. Palace theaters and AMC in the cinema industry. Only a few companies (Ford, Apple, Dell, Nickelodeon) were new entrants in their respective industries. Ford, Apple, and Dell were start-ups; Nickelodeon was an established player entering a new industry. This indicates incumbents are not at a disadvantage in creating new market spaces. Most blue oceans are created from within existing red oceans, not from outside. Challenges the view that new markets are far away; blue oceans are often right next to existing industries. Company & industry = wrong units of analysis  Company and industry are not the best units of analysis for understanding blue ocean creation. Traditional strategic analysis units (company and industry) lack explanatory power for blue oceans. No company consistently performs excellently; a company can be successful at one time and fail at another. Companies rise and fall over time; there’s no perpetually excellent industry. Industry attractiveness is largely influenced by the creation of blue oceans from within. The most appropriate unit of analysis for blue ocean creation is the strategic move: Involves managerial actions and decisions that create major market offerings. Example: Compaq is viewed as “unsuccessful” after being acquired by Hewlett-Packard, but its strategic move created a multibillion-dollar market in PC servers, contributing to its comeback in the 1990s. Creating blue oceans builds brands Creating blue oceans builds brand equity: Blue ocean strategies can lead to lasting brand value for decades. Companies are often remembered for their historical blue ocean innovations (e.g., Ford’s Model T). Ford’s brand still benefits from the Model T despite few living people recalling its launch in 1908. IBM is seen as an “American institution” due to its computing blue oceans (e.g., the 360 series). Key insights for executives: Established corporations are not always victims of new market creation; they can also create blue oceans.  Large R&D budgets are not essential; the focus should be on making effective strategic moves. Companies that understand effective strategic drivers can create multiple blue oceans, ensuring sustained growth and profits. Blue ocean creation is fundamentally about strategy and managerial action. The defining characteristics Most important feature of BOS = rejects fundamental tenet of conventional strategy: that a trade-off exists btwn value & cost Companies can either create greater value for customer at higher cost or create reasonable value at lower cost o Strategy = choice btwn differentiation & low cost o BOStrategy = pursue differentiation & low cost simultaneously  Key Features of Blue Ocean Creation: Creators of blue oceans do not use competition as a benchmark. They create leaps in value for both buyers and the company, making competition irrelevant. Rejecting Conventional Trade-offs: Blue ocean strategy challenges the belief that there's a trade-off between value and cost. Traditional strategy posits a choice between differentiation (higher value, higher cost) and low cost (reasonable value, lower cost). Successful blue ocean companies pursue both differentiation and low cost simultaneously. Case Study: Cirque du Soleil: Traditional circuses focused on outpacing competitors by enhancing existing acts, leading to rising costs and declining demand.  Cirque redefined the circus experience by merging the thrill of circus acts with theatrical sophistication. Key changes included: o Eliminating costly elements (e.g., animal acts) due to ethical concerns and rising costs. o Shifting focus from circus performers as stars to creating a cohesive, thematic experience. o Retaining core elements: clowns, elegant tent design, and classic acrobatic acts. Cirque’s performances resemble theater, featuring themes, storylines, and original musical scores. By integrating theater elements, Cirque creates sophisticated entertainment while increasing revenue through multiple productions. Whole-System Approach: Blue ocean strategy aligns a company's utility, price, and cost activities. Achieving blue ocean strategy requires a shift in mindset, moving away from structuralist views of competition. Reconstructionist View: Blue ocean strategies allow companies to reconstruct market boundaries through their actions and beliefs. Cirque du Soleil exemplifies this by blending elements from circus and theater, creating a unique, uncontested market space. Cirque is neither strictly a circus nor theater; it combines aspects of both while creating a new genre. Barriers to imitation Longevity of Benefits: Companies that create blue oceans often enjoy competitive advantages for 10-15 years (e.g., Cirque du Soleil, Home Depot, FedEx, Southwest Airlines, CNN).  Economic Barriers: Adopting a blue ocean creator’s business model is challenging and costly. Rapid customer attraction enables blue ocean creators to achieve economies of scale quickly. Example: Walmart’s scale economies discourage imitation due to cost disadvantages for competitors. Network Externalities: Large customer bases enhance the value of blue ocean offerings (e.g., eBay becomes more attractive with more users, deterring competitors). Organizational Challenges: Imitation often requires a complete overhaul of the imitator's operational activities. Example: Airlines attempting to replicate Southwest's model face significant obstacles in routing, training, marketing, and company culture. Cognitive Barriers: Successful blue ocean creators generate strong brand loyalty and marketplace buzz. Example: Microsoft has struggled for over 10 years to compete with Intuit’s Quicken in the financial software market. Brand Image Conflicts: Imitating blue ocean strategies may conflict with an imitator’s established brand image. Example: The Body Shop’s ethos conflicts with the image of established cosmetic brands like Estée Lauder and L’Oréal, making imitation difficult. A consistent pattern  Historical Existence: Blue ocean strategies have always existed, often unconsciously, even before formal recognition. Example: The parallels between Cirque du Soleil and Ford’s Model T. Automobile Industry Context: In the late 19th century, the automobile industry had over 500 automakers focused on handmade luxury cars, costing around $1,500. This segment was unpopular among the masses, facing resistance from anti-car activists. Ford's Approach: Instead of competing with existing automakers, Ford redefined industry boundaries by focusing on mass appeal and accessibility. Recognized the practicality of horse-drawn carriages in local transport, highlighting their advantages in navigating poor road conditions. Model T Development: Ford aimed to create an affordable and reliable car for everyday use, unlike luxury models. The Model T was simple, durable, easy to maintain, and designed to be user-friendly, becoming known as “the car for the great multitude.” Priced competitively, it attracted horse-drawn carriage buyers, leading to skyrocketing sales. Market Impact: Ford's market share grew from 9% in 1908 to 61% in 1921, with a majority of American households owning cars by 1923. Achieved the lowest cost structure in the industry by standardizing production and utilizing an assembly line, drastically reducing manufacturing time and costs. Coexistence of Blue and Red Oceans:  Both types of oceans (blue and red) have always coexisted and will continue to do so. Current strategic practices favor red oceans, but the need for blue ocean creation is increasingly critical. Companies must balance strategies across both oceans to capitalize on opportunities. Shift in Strategic Logic: Acknowledging the different underlying logic of blue ocean strategies compared to red ocean strategies will enable companies to create more blue oceans in the future Oct 7 Value Innovation Kim & Mauborgne Key Insights on Sustaining High Growth Study Background: o Conducted by INSEAD professors W. Chan Kim and Renee Mauborgne over five years, studying 30+ companies globally. Competitive Focus: o Less successful organizations prioritize staying ahead of competitors. o High-growth companies focus on making competitors irrelevant rather than simply matching or beating them. Value Innovation: o The central concept used by high-growth companies to achieve differentiation and growth. o Conventional Strategy vs. Value Innovation: Many companies accept industry conditions as given; value innovators do not.  Conventional companies benchmark against rivals; value innovators do not use competitors as reference points. Customer Perspective: o Value innovators prioritize common values among customers rather than focusing on differences. o They adopt a fresh perspective, asking, “What if we start anew?” instead of relying on existing assets and capabilities. Case Studies: o Accor: Reimagined hotel offerings to focus on delivering quality sleep at low prices. o Virgin Atlantic: Eliminated first-class service and reinvested savings into enhancing business-class passenger experiences. Outcome of Innovative Practices: o Innovative strategies led these companies to establish competitive advantages, even without initially aiming to do so.