 Last class I just stopped with a brief introduction into the fourth strategic option namely the blue ocean strategy the fundamental thought for this new strategic model is from the fact that the way in which conventional competition behaves within a defined industry or market space definitely does not provide room for a sustained profitable growth in the future. Then there needs to be an alternate strategic option to think beyond the existing market space and some companies successfully did this strategic exercise and the way in which companies in over 30 industries behaved in the last 100 years and selectively analyzing over 150 strategic moves that these companies made two professors from the INSEAD business school namely Professor Kim and Professor Mahbone coined this blue ocean strategy which created a strategic shift and new thinking paradigm amongst management consultants it very simply means that if companies need to be successful in the future it just cannot afford to be successful by the conventional head on competition with the existing competitors. But by creating what it calls the blue oceans which means blue oceans of an uncontested market space an uncontested market space with a great potential for growth and by doing so since it is a new uncontested market space it makes the existing competition completely irrelevant so the shift has been from competing with rivals to a new uncontested market space that makes competition entirely irrelevant. This is what is referred to as the blue ocean strategy this blue ocean is about uncontested creating this new market space while the red ocean that I talked previously was about just existing market space where the competition is very intense and bloody and hence it is this red ocean and this blue ocean is about how to create such new uncharted market space and by creating this new market space we are in effect making competition irrelevant for a substantive period of time in the future. I will give you a few examples for you to appreciate this blue ocean strategy better Apple's iTunes is a great example to explain how this is a blue ocean in the music industry. Many of you know how in the most part of 1990s almost the entire part of 1990s with the advent of internet there was this tremendous sharing of data of which online music was also very popular online music was shared across the internet not through a legal platform so there was tremendous amount of online illegal music file sharing that it was so popular in 2003 it was estimated around 2 billion illegal music files were being traded and this definitely is not good news for the music recording industry or even the CD industry but the message was very clear that there was a growing trend towards digital online music that the trend towards digital online music was up sent some very key business messages and Apple was a company that figured out this trend and launched what it called the iTunes which was an online music store and this was in 2003 that Apple launched its iTunes because it felt that it needed to leverage this growing trend of digital online music and establish a formal legal business platform which Hitherto was never done by any company and Apple started this iTunes in 2003 and the rest was history it brought together three five major music companies and then use iTunes as a platform where it was easy to identify songs it was kind of a it was kind of a digital store where customers could identify whatever songs that they wanted need not necessarily by the entire CD if only two of those five songs were interesting to them that was the way in which usually music CD music CD was purchased and iTunes was delivered on a legal platform and that I just listen to the first 30 seconds or a sample song before I even purchase it this was the value that was being offered and from a given set of eight or ten songs I could select three and pay just as I select them to use them in full so it provided a lot of value additions provided great ease and remember during the 1990s when these digital music were traded online illegally the quality of the music was not that good so it is also address the issue of legal pay as you choose and high quality music available online and it also limited to check the proliferation of such downloads reaching many different end users it limited burning of copies into portable devices and Apple's own iPod in fact iPod was again a huge byproduct success of iTunes and it established revenue sharing models with various artists and music companies now it just transformed the way in which online digital music became a tradable commodity from what it was in the 90s done through an illegal way it transform the entire business and set a new business platform for online music it created a new market space it created this blue ocean a blue ocean in the digital online music that today you see iTunes has over 8 million songs in its online database over 5 billion songs have already been sold so you understand the way in which Apple picked up the growing trend towards appreciating and enjoying music that can be downloaded online and found a new business opportunity which nobody else started off and hence it was uncompressed it and created a new business process by itself and making existing competition in the existing traditional business model irrelevant to its new blue ocean that it started this is one example the other example of a blue ocean strategy is the Bonson noble bookstores the booksellers they started looking at complimentary products and services they just thought beyond traditional bookstores it tried to redefine the scope of services that traditionally bookstores used to offer Bonson noble instead of solely focusing on the time at which the moment at which a customer purchase the book because this is how traditionally bookstores operated they ask themselves the question what is that a customer does before he purchases a book or during the time during the time he purchases a book or after purchasing a book and answers to these new questions actually gave them a new blue ocean for them to explore they found that even before they purchase a book customers wanted to sit and browse through several selections of these books before making a choice and this is something that usually traditional bookstores discourage customers from doing they would not like customers to take a book sit down and quickly flip through the pages read some portion before they actually take a decision to buy a book and after purchasing a book typically a customer would go to a coffee shop to spend some time alone reading these books. So these were some customer patterns that emerged as business signals for Bonson noble as a result of which they transformed the conventional product namely the book that they are selling into an experience by itself that it was no longer a store that sells book but it was selling a book purchasing reading experience so it was able to give the customers the pleasure of reading for the customer it was kind of an intellectual exploration because the stores now started offering lounges for customers to sit flip through some of the pages before they actually purchase a book and also attached to a book store some coffee shops so that after the purchase it creates an environment for the customers to actually sit and celebrate the experience of reading and this had a telling impact on the success story of Bonson noble because after they did this in less than six years it emerged as one of the largest bookstore chains in the US but of course now we find that online stores are an online stores are another blue ocean it is another blue ocean strategy where beyond it went beyond the new Bonson noble to create another uncontested market space where books not only books a variety of products and services were offered online and you had big firms like Amazon or eBay which created this blue ocean so this is one example of a blue ocean strategy and another very good example that I thought will explain this blue ocean strategy better is the shadi.com now traditionally marriages were arranged with the help of a marriage broker and the success of striking a marriage relationship was dependent on the brokers ability to match the matrimony because the families were situated at different geographies far apart so it was the physical presence of a broker that actually ensured that the marriage matrimony was a successful one it was the ability of the broker to connect and build that social cloud that was becoming essential to make sure that successful marriages are made now shadi.com decided to leverage the use of internet as a medium to do this matchmaking and as a result of which it removed all these geographical barriers and made marriage matrimony more interactive and real time and this the way in which they entered into an uncharted market space which was till at that point of time dominated by marriage brokers in physical real time mode it created a matrimonial service online and provided a platform for brides and grooms to meet and today this matrimonial service has touched over 20 million people of this again is a very good example of creating an uncontested market space that made existing competition in this case marriage brokers irrelevant so these are the three popular examples that I thought I will use to start and explain what blue ocean strategy is all about and what conventionally is happening in the market space is what we call as red ocean now if red ocean strategy is about competing in an existing market space as I told you before blue ocean strategy is about creating an uncontested a new market space where it is not about beating competition because beating competition was the crux for red ocean strategy in a blue ocean strategy it is about making that competition irrelevant that is the rivalry becomes irrelevant and in a head on competition in the conventional red ocean strategy is to exploit as much as possible the existing market pool because the market pool is limited and intense competition of this type can be successful only exploiting the existing demand whereas in a blue ocean strategy it is the propensity to create and capture new demand that forms the key and as I have told before it is the value cost trade off that needs to be made we need to create this value cost trade off whereas a blue ocean strategy tries to break this and align the whole system in pursuit of both differentiation and low cost and it calls this as creating a new value innovation it is a little different from the red ocean strategy where previously I have told you that it is difficult to have differentiation and low cost together these remember when we talked about generic strategies but blue ocean strategy creates a paradigm shift where it tends to build a new system that actively pursues in creating both differentiation and low cost and finds that the intersection of these two provides the value innovation and how do I do that and this is what the authors of blue ocean strategy themselves call the four action framework is by either reducing raising or eliminating or creating reducing factors that should be reduced below the industry standard if applicable or raising factors that should be raised well above the industry standard which means we are making the industry itself we are creating a new industry standard we are creating a new industry itself or eliminate some of the factors that the industry takes for granted or create new factors that the industry has never created so far now all of this provides this new value innovation and new value curve experience and the more and more that organizations try to do this earlier the more and more is the value learning curve experience now the essence of this blue ocean strategy is to shift the market space try to dismantle existing boundaries or try to reconstruct boundaries and boundaries appear in different forms it could be an industry boundary or a strategic group boundary or a buyer group boundary whatever the case may be but a blue ocean strategy tries to redefine or reconstruct these boundaries in a way that is different from conventional competition if we take industry for example in the conventional red ocean strategy if the boundaries of competition comes from industry then the focuses always remained on the rivals within the industry than in a blue ocean strategy where it looks across alternative industries same as the case with a strategic group where the competitive position is within a strategic group whereas in a blue ocean strategy tries to look across strategic groups within the industry or in the buyer group boundaries if focus is on better serving the existing buyer group in blue ocean we try to redefine the buyer group or try to see if there are new buyers in terms of the scope of the product and service offerings a red ocean strategy focuses on maximizing the value of the product and service offerings within the bounds within the boundaries of the existing industry whereas in a blue ocean strategy as explained in the case of Barnes and Noble we try to see whether we can provide complementary products and services that go beyond the bounds of the industry realms and of course the functional emotional orientation if it is about improving price to performance it tries to even the blue ocean strategy tries to rethink this functional emotional orientation in an industry things beyond the conventional price performance and this is where this value innovation that I talked about before comes into play the red ocean strategy tries to adapt to the external trends as they occur whereas a blue ocean strategy tries to shape the external trend itself it tries to define an emerging trend over a period of time and that is the example of the apples itunes it just redefine the trend of digital online music so it is the propensity the potential of organizations to view boundaries as artificial or boundaries that can be eliminated or redefined or reconstructed that makes organization think in the blue ocean strategy mindscape to create a new market space by reconstructing these boundaries and to all of this it is the customers that form the centerpiece and blue ocean strategy tries to make companies unlock a new mass of customers that did not exist before there are three type of non-customers as they are actually referred to and each of them are differing in terms of the relative distance from the market and it is these non-customers that a blue ocean strategy must be targeting the first non-customer is somebody who is close to the market they are buyers who purchase an industries offering out of a sheer necessity but internally they have internalized themselves or mentally they are non-customers of the industry or the second type of non-customers they know that this is a product that is available in the industry and they still refuse to use the industries offerings which means that they are very clear that they do not need this product the third type of non-customers is the farthest from the market they have never thought of the market offering as an option and a blue ocean strategy is about understanding how each of these non-customers behave and attract them as the new customers in this new market space so they are no longer they are no longer non-customers they are new customers into this new market space so if you need to get a strategic sequence to build a viable blue ocean strategy ask the first question whether there is an exceptional buyer utility in the business idea if no again rethink if yes is it offered at a price that is accessible to a mass of buyers if it is yes can you attain the cost target to profit at the strategic price if it is yes then jump into adoption how do you implement this and how do you remove the hurdles in actualizing this business idea and if you are able to address them upfront then put in place a commercially viable blue ocean strategy now there is this website called blue ocean strategy.com and it gives you a number of examples for you to appreciate this blue ocean strategy it is not an abstract strategic concept to put it plain and simple it encourages organizations to always think beyond the conventional boundaries to create a new market space and in the process make competition irrelevant and many organizations did this I gave you three examples but if you go to this blue ocean strategy.com you will find a number of examples be it the Novo Nordisk in the in the insulin business or Philips in the tea filter business or the New York's police department or Canon Bloomberg a number of such examples that will make you understand a new concept that shook the corporate world in the late 2000 the first decade of 2000 now as we come close to this module on strategy we need to understand that the excesses of strategy formulation is very important the reason that every organization needs to have a strategy in place is because the business landscape itself is changing if organizations need to be successful they cannot afford to have a laid back experience and say that strategy is irrelevant for them organizations need to understand that the extent to which businesses are getting globalized policies are deregulatory the way in which technology has updated the changing demography and lifestyles of end users necessitates a new thinking paradigm and not necessarily just one strategic model but a thinking paradigm that makes organizations to believe that they need to have a strategy in place a strategy that is easy to communicate and that is in perfect alignment with the mission and visions with the mission and vision of the organization and a strategy that can be coordinated and make all of those within an organization involved in the process and the strategy formulation by itself is an exercise that will provide a direction which can give reasons for success or failure and address failures accordingly and in the absence of a strategic framework it is very difficult to build an alignment with corporate vision and mission it is only that strategic framework that binds people and processes together with the corporate vision and mission and if you ask the question what is a good strategy a good strategy should necessarily be result oriented and not process oriented anything that you implement as a good strategy must deliver results which can be evaluated it must be original creative and must be easy to implement not a complicated strategic tool it must be aligned with the people the process and the purpose the context that it is trying to address and always trying to create a value proposition that offers an incremental cost benefit output there is no point in having a good strategy in place and not delivering a value proposition or delivering a value proposition but not the expected cost benefit output so it should be a good combination of a good value proposition with a good cost benefit output and this we can do by using a number of ingredients that are responsible for the success or failure of a strategic phase as I told you before we need the environmental scan to understand what is happening outside the organization we need to understand consumers better we need to understand vendors better various stakeholders when we talk about the value chain various stakeholders and how they influence the process how they influence the various activities in an organization we need to understand the industry and competition we need to know what are the technological changes that are happening and how as organizations we need to innovate by leveraging these technological changes and it is about how we involve people the success or failure of many of these strategies have been because of the lack of involvement of people in the process so people involvement is a very very important ingredient for strategy and it needs the endorsement the encouragement and understanding from the top management and communicated so well that it gets embedded from top to down and always ready to take feedback from any outcome and this feedback comes from the way in which results are communicated and make sure that the entire process is very balanced and at times we have a very good strategy in place the implementation is so complicated in its design or in fact it is over designed that we spend more resources in the design and then lose direction in the implementation and at the end of the day we need to be ready to experiment alternate models many organizations have failed because they have failed to realize that there is an alternate successful strategic model so it is this thought process the willingness is also an important ingredient for a good strategy to be in place a good strategy when it is formulated must always see the enterprise the organization as a whole and also as a sum of the parts it is this double barreled corporate as well as individual business units to be seen is something that is very important to be considered during a strategy formulation exercise of course we hear terms like short-term medium term strategies but the overall the corporate strategy by itself needs to be long-term in view because we are talking about a sustainable competitive advantage and we need to ensure that the organization is matched against the environment in which it exists and internally the resources that the organization has and the capabilities of an organization the capabilities that it has to deliver using the existing resources and the way in which it is stacked against the environment and the strategy exercise must be factual and realistically imaginative we cannot be just imaginative right through and if there is a failure strategy must have the strategy formulation exercise must have a cost effective exit option as well because at times to exit from a particular business is a better strategy than to continue with it and we need to have strategies to exit the business as well and if you look at this comes from various stakeholders environment as well as within an organization where we need a strong leadership that can marshal the human resource effectively through a structured design which provides good information and control systems which acts as a good feedback mechanism and if all of this is in place the missions and goals of an organization and how to achieve these missions and goals through strategies who needs to be involved in this the visions the vision and incentives of an organization I have always been telling that anything that has a multiplier effect because of multiple stakeholders involved in this have to reinforce against each other and positively reinforced and hence the need that there must be a good alignment is very essential and this strategic alignment is the key for success or failure of any strategic model that an organization decides to put in place. So a strategy is about this entire whole nine yards could be the corporate it involves the corporate culture the type of strategy itself and how we are able to evaluate and pick the right strategy and also involves a lot of analysis internal as well as external a strategic planning exercise so to conclude business strategy is a big game a game in which there are a number of players involved a game in which players are not the one that who actively participate in the game that they are also players who are outside the game. So it is a spectrum of different stakeholders who are involved and it is the ability of organizations to understand the importance of each of these stakeholders to understand the internal strengths and weaknesses within the organization and to develop a coherence energy amongst internal and external strengths weaknesses opportunities and threats and to put in place a strategic model that is capable of delivering a unique value proposition which could be either from a cost or could be from a differentiation or could be from a focused initiative or could be from a core competency mode of approach or could be the blue ocean strategy approach that we just now discussed the input the design for a strategy can come from any of these models but the fundamental is to create a competitive advantage a competitive advantage which rests on a unique value proposition that organizations are able to deliver and as long as this competitive advantage is sustainable over a period of time then the strategy is successful and by the time that this no longer becomes a sustainable competitive advantage because competition is either imitated or customers no longer feel that the value that you are offering is valuable then we need to look out for alternate strategic models and how do we do this the strategy formulation exercise starts we do an environmental scan then we do an internal analysis then evaluate amongst the various strategic options available one that can best fit and that addresses the vision and vision of the organization so that it is in alignment with them and then implement the strategy and then we have our feedback and control mechanisms and try to see whether this is sustainable and a successful one so it is not just one strategy that fixes the issue for perpetuity it is always an iterative exercise and organizations have to be mindful of this fact that as long as competitive advantage is sustainable then things are okay and it should be the earnest endeavor of organizations to always build a strategic model that ensures this unique value proposition delivered over a period of time because it is this uniqueness that gives them the competitive advantage before I conclude I would also encourage you to watch a good video on the blue ocean strategy because that is the fourth strategic model that I discussed the last in this strategic options that we were discussing and in terms of the chronology of strategic options the blue ocean strategy is the most recent one that took corporations by storm so I think that video would be a good conclusion for this module on strategy as we move forward the next few sessions I would be handling classes on economics a little bit of microeconomics macroeconomics economics as a science that actually deals with human behavior to variations in the supply and demand characteristics of the market so as we go forward some introductory session on economics and then we will talk about specific issues on macroeconomics and a little bit of microeconomics thank you.