University of Cagliari, Faculty of Economics, a.a. 2012-13
Business Strategy and Policy
A course within the II level degree in
Managerial Economics
year II, semester I, 6 credits
Lecturer:
Dr Alberto Asquer
aasquer@unica.it
Phone: 070 6753399
Business Strategy and Policy
Lecture 5
Strategic entrepreneurship
and the Blue Ocean Strategy
Introduction
1. Strategic entrepreneurship
2. Blue Ocean Strategy
3. An example of Blue Ocean Strategy: [yellow tail]
4. The Strategy Canvass and the Four-Actions Framework
5. Other instances of Blue Ocean Strategy
------------6. Summary
1. Strategic entrepreneurship
The process of seeking opportunities and sources of (sustainable)
competitive advantage that lead to superior firm performance
Entrepreneurship: the undertaking of innovation in combination with
financial and business skills with the aim of accomplishing economic
gains
Commonly: the start-up of new business ventures
Sometimes: the undertaking of corporate ventures (e.g., spin-offs)
Strategic entrepreneurship: managing the firm in such a way as to
undertake new business ventures that lead to superior performance
in the long term
It requires creativity, imagination, and opportunities; dealing with risk;
stimulating and supporting innovation; managing change; mastering
technology; and (sometimes) designing new business models
1. Strategic entrepreneurship
Firms may undertake offensive strategies, that are explicitly intended
to undercut competitors within the same industry and markets
Offensive strategies generally aim to result in higher market share,
higher profit margins, and higher growth rate than competitors
They consist of...
Offering comparable products/services at lower price than
competitors
Introducing next-generation technology products faster than
competitors
Imitating ideas and tactics of competitors
Focusing attacks to the most lucrative segments of competitors and
to the weakest competences of competitor
1. Strategic entrepreneurship
In contrast, avoidance strategies relate to steering clear from face-toface confrontation with competitors (especially, when they are
stronger!)
Avoidance strategies entail finding ways to enter the market and gain
market share in a way that does not (necessarily) harm competitors,
therefore making competitors' retaliation more unlikely to happen
Strategic entrepreneurship may be conceived as a type of avoidance
strategy, insofar as it relates to “inventiveness” to define new
approaches to the market that do not necessitate direct
confrontation with other firms
2. Blue Ocean Strategy
(Kim and Mauborgne, 2005)
2. Blue Ocean Strategy
The Fundamentals of a successful strategy: Value Innovation
Costs
Value innovation
Value
2. Blue Ocean Strategy
Within any given industry, every firm seeks to raise value & cut costs
in order to enhance value innovation and outperform the competitors
The effect is more competition,
i.e., minor profit margins for everyone
2. Blue Ocean Strategy
Within any given industry, every firm seeks to raise value & cut costs
in order to enhance value innovation and outperform the competitors
The effect is more competition,
i.e., minor profit margins for everyone
A Red Ocean
2. Blue Ocean Strategy
A successful strategy consists of “pulling ourself out” of the tough
competition by venturing into unchartered “water” where no other
competitors are present (yet)
A Blue Ocean
2. Blue Ocean Strategy
A comparison between red and blue oceans:
Red Oceans
Blue Oceans
Compete in existing markets
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 firm value chain to
the overall strategy (low cost
or differentiation or focus)
Align the firm value chain to
seeking both differentiation and
low cost
3. An example of Blue Ocean Strategy: [yellow tail]
3. An example of Blue Ocean Strategy: [yellow tail]
The setting: the US wine industry, in 2000...
The third largest aggregate consumption of wine worldwide
Highly competitive industry
Large share of California-based producers
Several imported wines from France, Italy, Spain, Chile, Australia
and Argentina
Consolidation (8 companies produce more than 75% wine)
Stagnant demand
Battle for shelf space
Rising marketing & advertising costs
3. An example of Blue Ocean Strategy: [yellow tail]
The setting: the US wine industry, in 2000...
The third largest aggregate consumption of wine worldwide
Highly competitive industry
Large share of California-based producers
Several imported wines from France, Italy, Spain, Chile, Australia
and Argentina
Consolidation (8 companies produce more than 75% wine)
Stagnant demand
Battle for shelf space
Rising marketing & advertising costs
3. An example of Blue Ocean Strategy: [yellow tail]
But...
3. An example of Blue Ocean Strategy: [yellow tail]
But...
2000, Casella Wines introduced [yellow tail] in the US
2001, about 112,000 cases were sold
2002, it became the fastest growing brand in the histories of both the
Australian and the US wine industry; it was number one imported
wine into the US (more than French and italian wines)
2003, it became number one red wine in 750ml bottle sold in the US
(more than the same Californian wines)
2005, about 7,500,000 cases sold
3. An example of Blue Ocean Strategy: [yellow tail]
But...
2000, Casella Wines introduced [yellow tail] in the US
2001, about 112,000 cases were sold
2002, it became the fastest growing brand in the histories of both the
Australian and the US wine industry; it was number one imported
wine into the US (more than French and italian wines)
2003, it became number one red wine in 750ml bottle sold in the US
(more than the same Californian wines)
2005, about 7,500,000 cases sold
4. The Strategy Canvass and the Four-Actions Framework
Some tools for analysis within the Blue Ocean Strategy:
The Strategy Canvass
The Four-Actions Framework
4. The Strategy Canvass and the Four-Actions Framework
A fresh way to picture the industry structure: the strategy canvas
High
Premium wines
Budget wines
Low
Price
Technical
distinctions
Noticeable
marketing
Aging
quality
Vineyard
prestige
Dimensions
of competition
Wine
complexity
Wine
range
4. The Strategy Canvass and the Four-Actions Framework
A fresh way to design innovative products: the four-actions framework
Reduce
Which factors should be
reduced well below the
industry's standards?
Eliminate
Which of the factors that the
industry takes for granted
should be eliminated?
A new
value curve
Raise
Which factors should be
raised well above the
industry's standards?
Create
Which factors should be
created that the industry has
never offered?
4. The Strategy Canvass and the Four-Actions Framework
A fresh way to design innovative products: the four actions framework
Reduce
Which factors should be
reduced well below the
industry's standards?
Eliminate
Which of the factors that the
industry takes for granted
should be eliminated?
Complex enological terms
Relevance of aging quality
Noticeable marketing
Wine complexity
Wine range
Vineyard prestige
A new
value curve
Raise
Which factors should be
raised well above the
industry's standards?
Price (vs. budget wines)
Retail store involvement
Create
Which factors should be
created that the industry has
never offered?
Easy drinking
Ease of selection
Fun & adventure
4. The Strategy Canvass and the Four-Actions Framework
The design of a new product: [yellow tail]
High
Premium wines
Budget wines
Low
Price
Technical
distinctions
Noticeable
marketing
Aging
quality
Vineyard
prestige
Dimensions
of competition
Wine
complexity
Wine
range
Easy drink, ease of selection,
fun and adventure
4. The Strategy Canvass and the Four-Actions Framework
(www.yellowtailwine.com)
4. The Strategy Canvass and the Four-Actions Framework
(www.yellowtailwine.com)
4. The Strategy Canvass and the Four-Actions Framework
Some features of the [yellow tail] strategy:
No heavy marketing & advertising investments
No significant resource of distinctive capability
No remarkably different or innovative product (it's a wine!)
While...
Reframing of the wine product experience in consumers' perception
Appeal to non-wine consumers
Positioning [yellow tail] as something “not commensurable” with other
wines (is it a wine?)
5. Other instances of Blue Ocean Strategy
Nintendo's Wii (2006)
It created a radically different
“game concept”' with respect to
the traditional (i.e., joystick or
gamepad based) videogame
consoles
It attracted those who were
traditionally “non-gamer”' (e.g.,
parents) and offered new social
venues for entertainment
5. Other instances of Blue Ocean Strategy
Dell's computers (1990s)
It created a radically different
retail and delivery system (i.e.,
direct sales at low cost,
customisable machines, and
about 4 days delivery time)
with respect to competitors
It attracted those who had not
bought computers before
because of ease of access,
customisation, and low price
5. Other instances of Blue Ocean Strategy
6. Summary
Main points
Strategic entrepreneurship consists of firms' efforts to undertake new
business ventures that lead to superior performance in the long term
Firms may undertake offensive strategies to undercut competitors
within the same industry and markets, or avoidance strategies to steer
clear of direct confrontation with competitors
Blue Ocean Strategy provides an intellectual and methodological
approach to designing strategies intended to guide firms into markets
where competition is less intense
Key tools are the Strategy Canvass and the Four-Actions Framework