VALUE INNOVATION

UVA 1 - 6/08

VALUE: Perceived benefits that a product or service provides to customers

INNOVATION: Process of introducing new ideas, methods, products or services that create
significant positive change or value. Innovation is a human-centred perspective and process.
Technology can be used to implement innovation, but the technology itself doesn't produce
innovation. It can indeed be a helpful and powerful medium to allow us to test and iterate at
a faster and more efficient rate, but it's not the result of innovation. Depending on the
problem, innovation doesn't necessarily have to be complicated or require super-advanced
technology that perhaps cannot even be used by our audience. It might just lead to simple
solutions that just weren't thought of before and can be easily applied for the benefit of our
intended users.
The enemy of the future success is the present success → companies are preoccupied with
their present ways of doing business, they just might miss the market changes for the future.
Innovation provides differentiated competitiveness in terms of quality and function, which
offers incentives for customers to choose. This allows companies to win the competition,
secure a market-leading position, and create market performance by attracting new
customer

Solving the right problem for the right people

Determining innovation opportunities
- Shifting customer preferences: How are customers preferences changing? -
Consumer needs change over time due to changes in people's knowledge and
priorities. This means a business must adapt its marketing mix to continue to be
effective at meeting its customers' needs.
- Emerging competition: Are there competitors emerging that threaten the future?
- Emerging technologies: What new technologies are impacting the way we work?
-
Understanding the three skills of an innovator
1- Surfacing opportunities for innovation
2- Identifying ideas for innovative solutions
3- Testing to develop your ideas and ensure success

Innovation starts with spotting a need or an opportunity. In the innovation team, you will need
someone who can try ideas out and can learn from mistakes (important to acknowledge
them)

Value innovation
Creating a new demand:
Value innovation is the simultaneous pursuit of differentiation and low cost, creating a leap in
value for both buyers and the company.
Goal: Create new demand
Who is our target customer? How is revenue created? What do we offer to the customer?...

1
WRONG IDEAS:
- Ideas nobody has had before → Innovators rarely come up with new ideas; instead,
they convert old ideas into new ones, adapting them from one context to another.
Most innovative business ideas come from other ideas that already exist in the
market, one of the ways to innovate or be creative is to observe and learn from
others.
- Big success requires big resources → Resources affect the innovation process
positively, but they do not always need to be big.
- Innovation breakthroughs

Ideation:
Involves gathering new ideas through techniques as: Brainstorming, work, suggestion
schemes
Business innovation aims to gather as many ideas as possible. Then you select and
progress the best of these ideas through implementation.

Oxford Dictionary = Ideation is formation of ideas or concepts. The secret of successful

ideation is how your business asks for and acts on those ideas and concepts

Employee engagement:
What is innovation management? Discipline that aims to drive a repeatable, sustainable
innovation process or culture within an organisation. Focus on disruptive changes that
transform the business in some way. It is important to create short cycles in order to achieve
goals and be flexible to changes.

Employee driven innovation succeeds when it's considered part of an employee engagement
strategy. Employees who are not engaged are unlikely to contribute to your innovation
initiative.
So, when launching an employee innovation program, ensure you consider these essential
ingredients:
- Recognition
- News
- Feedback
- Company info
These feed and sustain both ideation and employee driven innovation.

Management is key if you want to take the spark of innovation and turn it into a valuable
business resource. These 7 ¨must have ¨ include:
1. Cultural diversity
2. Encouragement of unproven ideas
3. Listening to different points of view
4. A meaningful workspace
5. Motivation
6. Flexibility
7. Rewards for collaboration

2
Summary:
● Innovation is a top priority.
● Bear in mind how customer preferences are changing
● Need to tackle innovation by prioritising learning, surfacing opportunities and
identifying and developing ideas.
● Testing is an essential part of innovation.
● Innovation starts with spotting a need or an opportunity
● People who are not engaged are unlikely to contribute to your innovation initiative
● Innovation management initiatives focus on disruptive changes that transform the
business in some significant way.

UVA 1 - 13/08

The Disruption: Change or transformation resulting from technologies and practices that
affect business models, management or enterprise capabilities in such a way that the speed
of interpretation and assimilation itself becomes a challenge.

The DNA of Disruptive Innovators

DNA: The fundamental essence or core elements that define something´s identity,
characteristics, or nature. It represents the underlying blueprint or code that shapes and
influences the unique traits, qualities, and behaviours of a person, organisation or concept.

- Innovations is not just about creativity and or intelligence, it is more connected to

specific skills
- Innovation drives the growth, competitiveness and long term success. Are also
reshaping the Business Landscape from time to time.
- Relies on certain key traits and behaviours that distinguish innovators from others.

The Discovering of Skills

Innovators skills:
1) Associating: Making connections between seemingly unrelated ideas or concepts to
generate innovative solutions
2) Questioning: Challenging the status quo and asking probing questions to uncover
new opportunities and insights
3) Observing: Actively observing the world around them and seeking out diverse
experiences to gain new perspectives and ideas
4) Networking: Building diverse networks and collaborating with individuals from
different backgrounds and disciplines to access new knowledge and perspectives
5) Experimenting:Taking risks and experimenting with new approaches, ideas, and
prototypes to learn and iterate rapidly

The DNA of Most Disruptive Orgs

Elements:
People → Projection of innovator's DNA
Processes → Experiment all the time
Philosophies → Innovation is everyone's job. Disruptive is part of our portfolio. Deploy
project teams. Take Smart-risks

3
The DNA into practice

Balancing Discovery and Delivery Skills in a team or company

● Discovery- driven: Associating, Questioning, Observing, Idea networking,

experimenting
● Delivery - driven: Analysing, Planning, Detail - oriented implementing, Self -
discipline. Deliver requires trying to deliver some of the core value your customers
would get with a more formal product, but provided in a simpler, usually, manual way.

4
UVA 2 - 27/08
BUSINESS PARTNERS

Interviews
All successful innovations solve important problems customers have. Most important thing
when you start developing innovation is understanding the client. The problems aren't
always on the surface.
Main meaningful benefits from gather more information of customers:
● Understand customer´s underlying problems → can provide ideas for solutions
● Addressing meaningful problems
● Learn from customers → having more info from customers help us to learn from them

A powerful way to interact and know more about customers is interviewing them. This is
structured communication that consists in 3 steps: First, consider what you are trying to
learn. Then, ask them to recount a specific time in the past when they experienced the
situation. Finally, ask open ended questions to really dig in to understand more deeply.

Identifying and testing assumptions

Test assumptions to increase success.
4 primary methods to use before investing in building anything: Ask → Show → Offer →
Deliver.
They represent 4 ways of interacting with customers to learn where we are right or wrong
and define the ideas to be successful.

Show method –> focus on some critical piece of our idea and show it to our customers to
provoke a reaction to see if we are in the right direction. They like it or not?
Offer method → learn if the customer is willing to use our solution and which customers are
the most interested. So we offer test methods to see these results.
Delivery method → Requires to deliver some of the core value to our customer with a more
formal product but provided in a single way.

When you are more certain about the product → offer and deliver
When you are less certain → ask and show

Intelligent failure vs preventable failure

Not all failures are the same.
Preventable failure is when we know how to avoid failure, but for some reason we didn't top
it. For example, we put the wrong person to do the job despite knowing they were not totally
qualified…
Intelligent failures are when we know the risks that we are going in, we identify our
assumptions, we learn from the failure and scope and costs are as small as possible.

Business model patterns

If a business model is regularly repeated by more than one successful company we call it a
BUSINESS MODEL PATTERN.

5
Types:
1. Affiliation: Supporting others to successfully sell products and directly benefit from
successful transactions. Ex: Pinterest, it's possible to make money online through
Pinterest by sharing affiliate links on the platform
2. Aikido: Japanese martial art in which the strength of an attacker is used as a
business model. Allows the company to offer something diametrically opposed to the
image and mindset of the competition. This attracts customers who prefer ideas or
concepts. Ex: Cirque Du Soleil.
3. Hidden Revenue: Main source of revenue comes from a third party which cross
finances whatever free or low price of reign attracts the user. Financing through
advertising is very common. Facilitates the idea of separation between revenue and
customer. Ex: Spotify.
4. Crowdsourcing: Solution of a task is adopted by an anonymous crowd. Contributors
receive a small reward if their solution is chosen.
5. Customer Loyalty: Customers are retained and loyal by providing value beyond the
actual product or service through incentive based programs.
6. Leverage customer data direct selling: Direct selling refers to a scenario whereby
a company's products are sold through intermediary channels but are available
directly from the manufacturer or service provider. Under a direct sales business
model, sales of products or services generate revenue through a network of
salespeople, who sell directly to customers. No fixed retail location exists under a
direct sales business model. Ex: TupperWare
7. E - Commerce: Products delivered by online channels removing costs associated
with a physical brand. Customers benefit from higher availability while the company
is available to integrate sales and distribution with other internal processes.
8. Lock In: Customers are locked into a vendor´s world of products and services. Using
another vendor is impossible without incurring substantial switching costs and thus
protecting the company from losing customers. Ex: Nestlé & Lego
9. Franchising: Franchiser owns the brand name and identity, these are licenced
independent franchises who carry the risks of local operations. Ex: McDonalds
10. Freemium: The basic version of an offering is giving away for free in the hope of
persuading the customer to pay for the premium version. The free version attracts
the higher volume of customers. A premium customer generates revenue. Ex:
LinkedIn, Spotify.
11. Peer to peer: Based on a corporation that specialises in mediating between
individuals belonging to the same group. The company offers a meeting point and
communication services that connect individuals. Is a decentralised model whereby
two individuals interact to buy and sell goods and services directly with each other.
For ex: Uber & LinkedIN
12. Trash to cash: Use products are collected and sold or transformed into new
products. Resource costs for the company are eliminated.
13. White Label: A white label producer allows other companies to distribute goods
under their brands, so it appears as they are made by them.
14. Target the poor: The offer does not target the premium customers, but rather the
customer position at the base on the pyramid, customers with lower purchasing
power benefit from affordable products. The company benefits from the higher sales
numbers.

6
 15. Subscription: The customer pays a regular fee monthly or annually in order to gain
access to a product or service. Ex: Netflix.
16. Robin Hood: The same product is provided to the rich at a much higher price than
the poor. Serving the poor is not profitable per se but creates economies of scale
which other providers cannot achieve. Has a positive effect on the company's image.
17. Rent instead of buy: The customer rent but not buy. The company benefits from
higher profits on each product as it is paid for the duration of their rent.

Failed BMP = Kodak, Blockbuster..

These companies failed because they missed the moment in which they should have left
their successful path and rethink their business model. Today's success is the enemy of
tomorrow´s success.

Building a culture of innovation

Types of innovation:
-Disruptive Innovation: Disruptive innovation takes the established order and turns it on its
head, fast. Disruptive innovation is a process whereby a smaller company with fewer
resources can successfully challenge established businesses. Think Uber, Dyson, Netflix,
and Virgin.

-Incremental innovation: It takes things slower. That doesn’t mean it’s not radical. The
World Bank Group’s Innovation Policy Platform suggests that “incremental innovation
concerns an existing product, service, process, organisation or method whose performance
has been significantly enhanced or upgraded.”

Innovation in the workplace

Building a culture of innovation in the workplace requires a commitment from management.
They must recognize its importance, manage its processes, and celebrate its results.
“Simultaneous improvement of performance and quality of working life is possible under
certain conditions such as the participation of employees in innovation and change projects.”

Open innovation gives everyone in your organisation the opportunity to contribute their
ideas. That doesn’t mean that everyone should suggest ideas on everything and anything.
Focus ideas by creating specific challenges. You can make them time dependent, or open
only to preselected groups with relevant skill sets. This can help focus the ideas and help
you draw out the real value.

The role of feedback

Open discussion, Peer to peer ranking, Interdepartmental collaboration
We all react to feedback to some degree, but being aware of this can help you get more
value feedback → Be Self Aware. Before giving feedback, think about how you would feel if
you were told what you are about to tell. Could you take it the wrong way? → You can avoid
a negative relationship trigger by keeping feedback anonymous. If feedback is accurate,
then who gave it should be irrelevant.

The most important part of innovation is making sure everyone is open and receives
feedback. Having open ears and an open mind is crucial for innovation to thrive into the
organisation.

7
So, what can we do?
● Gather ideas.
● Generate actions from ideas.
● Create continuous improvement.
● Bring skilled people together.
● Deal with a tsunami of ideas (idea storage).
● Rate ideas (the more popular an idea is, the more likely it is to succeed when finally
implemented).
● Encourage ideas.

An open, two way communication stream between employees and management helps staff
to feel valued and appreciated.
RECOGNITION → ONGOING COMMUNICATION → MANAGEMENT TRANSPARENCY

Summary:
● Interviews are important to learn and discover problems or fresh ideas.
● The questions need to be thought carefully, ask about a specific time in the past and
be open ended.
● Preventable failure is when we know how to avoid failure, but for whatever reason,
we didn't stop it. Example: we put the wrong person on the job, despite knowing they
weren't qualified.
● Intelligent failures by contrast are when we know the risks going in, we identify our
assumptions upfront. We learn from the failure and the cost, and scope are as small
as possible.
● Offering feedback is crucial, but how you give feedback is important too.
● To create a culture of innovation, managers need to: gather ideas, generate actions
from ideas, create continuous improvement, bring skilled people together, deal with a
tsunami of ideas, rate ideas, encourage ideas, etc.

UVA 2 - 04/09
Ideas, Creation and Innovation
Idea: Theory, Research & Science. Is about Beliefs
Invention: Design, Engineer, Prototype. Is about Creativity
Innovation: Commercialization, Delivery & Acceptance. Is about Experience

The benefits of these 3 are: Society, governments, markets and companies.

The incrementality of Innovation

8
Incremental → Refers to small, gradual improvements or enhancements made to an
existing product, service, processes and technologies. These innovations focus on
optimising efficiency, adding features or improving performance without changing the core
feeling.
Ex: A smartphone company releasing a new version of its phone with a slightly improved
camera and better battery life, but maintaining the same overall design and user interface.
Degree of Added-Value: Low to Moderate - The enhancements in camera quality and
battery life offer tangible benefits to consumers, but these are improvements on existing
features rather than game changing additions.
Degree of Newness: Low - The innovation is based on existing technology and design. The
core product remains fundamentally the same, with minor upgrades

Substantial → involves more significant changes than incremental innovation. It represents

a notable improvement or upgrade that may change the way users interact with a product,
but still builds on existing technologies or processes without being disruptive.
Ex: The transition from traditional gasoline cars to hybrid vehicles that use both gasoline and
electric power. While the fundamental concept of a car remains the same, the introduction of
hybrid technology offers a substantial improvement in fuel efficiency and environmental
impact.
Degree of Added-Value: Moderate to High - Hybrid vehicles provide significant benefits in
terms of fuel efficiency, environmental impact, and cost savings on fuel, which add
considerable value to consumers.
Degree of Newness: Moderate - While hybrid technology represents a significant step
forward, it builds on existing automotive technologies (internal combustion engines) rather
than introducing an entirely new concept

Radical → refers to groundbreaking changes that create entirely new markets or disrupt
existing ones. It involves developing new technologies, business models, or products that
significantly alter the way things are done, often rendering old systems obsolete.
Ex: The invention of the smartphone, which revolutionised communication, computing, and
access to information by integrating various technologies (phone, computer, camera,
internet) into a single, portable device. This innovation drastically changed consumer
behaviour and created new markets
Degree of Added-Value: High to Very High - Smartphones dramatically transformed
communication, adding immense value across multiple dimensions of daily life and work.
Degree of Newness: High - The smartphone introduced a completely new category by
integrating various functionalities (phone, computer, camera, internet) into one device,
making it a disruptive innovation that redefined industries and consumer behaviour

Degree of Added-Value (1-5)

1-2: Minimal enhancement or improvement to existing products/services. The innovation
offers slight advantages, but nothing that significantly changes the user experience or
market dynamics.
3: Moderate enhancement that adds noticeable value, improving existing products/services
but not revolutionising them.
4-5: Significant or transformative enhancement that greatly increases the value of the
product/service, potentially changing how it is used or perceived in the market

9
Degree of Newness (1-5)
1-2: Uses well-established technology or concepts with little to no modification. The
innovation is familiar to consumers and does not introduce new market concepts.
3: Introduces some new elements or combinations of existing technologies, creating a novel
approach but not entirely new to the market.
4-5: Involves groundbreaking technology or a completely new concept that is unfamiliar to
the market, potentially creating a new industry or significantly altering existing ones

THE BUSINESS MODEL INNOVATION (BMI)

Innovation cycle speeds faster than anything. It increases the customer value of a product or
service or also lowers its costs and therefore it creates a higher competitive advantage.

3 misleading thoughts:
1. Innovation stands for ideas that nobody has before
2. Big success requires big resources
3. Innovation breakthroughs are always based on fascinating technologies
Successful innovators recombine ideas.

What is a BMI?
A Business Model provides answer to 4 questions:
- Who is your target customer?
- What are you offering?
- How do you create value?
- How do you generate revenue?

A Business Model Innovation changes 2 of these 4 dimensions..

For example: IKEA has redefine the way we buy furniture
Only 10% of BMI introduced new Business model partners, the other 90% nearly adapted,
redefined or combined these patterns.

What to do to innovate your business model?

- Initiation (the 4 questions)
- Ideation
- Integration (check the consistency of the BM, examine the 4 questions)
- Implementation

Incorrect management can lead changes to failure.

Rules to avoid this:
1. Only implement 1 business model at a time
2. Clearly communicate the new BM
3. Don’t overemphasised short terms KPI
4. Get top management commitment
5. Overcome but not invent

10
UVA 3 - 10/09

The Art of War

If you know yourself but not the enemy, for every victory gained you will also suffer a defeat.
If you know neither the enemy nor yourself, you will succumb in every battle.”

“In the midst of chaos, there is also opportunity”

“The greatest victory is that which requires no battle.”

Sun Tzu Philosophy

1. Capture your market without destroying it
2. The laying of plans, calculations and estimations
3. Waging war the challenge
4. Having energy & direction

Blue Ocean Strategy

Competing in overcrowded industries is no way to sustain high performance.

The blue ocean strategy represents:

● The simultaneous pursuit of high product differentiation and low cost, making the
competition irrelevant, enabling a fundamental transformation in mindset.
● It develops mental horizons and helps in recognizing opportunities.
● Having the capacity to create new market space that is uncontested (with little
or no competition), encouraging businesses to create new demand in an untapped
market rather than competing in an existing one.
Opting for a different ocean requires a lot of patience, persistence, trust, preparation, and
faith.

Understanding the logic…

- It's not about technology innovation. You can use technology that already exists and
link it to what you want
- You don't have to venture into distant waters to create blue oceans. Most blue
oceans are created from within, not beyond, the red oceans of existing industries

Applying the logic…

- Never use the competition as a benchmark. Instead, make the competition irrelevant
by a creating a leap in value for yourself and customers
- Reduce your costs while also offering customers more value. The perceived
value must compensate the cost of innovation

To find and identify an attractive Blue Ocean, one needs to take into consideration the "Four
Actions Framework" to devise the aspects of buyer value in creating a new value curve:
raise, reduce, eliminate, create. In short, it demonstrates how to change from the traditional
strategic models and expand profitability and demand for the industry by using analysis.

11
Comparing the logics

Value innovation is the backbone of a Blue Ocean Strategy, is the alliance of innovation
with price, utility, and cost positions.
● It eventually creates new value/demand for consumers and thereby, expands the
chances of growth potential.
● Instead of focusing on beating the competition, you focus on making the competition
irrelevant by aligning innovation with utility, price, and cost.
● It's the distinguishing factor between successful Blue Ocean creators and those stuck
in Red Oceans.
● It is important to distinguish between value innovation as opposed to technology
innovation and market pioneering
On finding a new ocean, other sharks from the saturated markets (Red Oceans) will be lured
to the new market. Thus, building strategically defensive alternatives would be a big step.

How to connect Innovation with value?

If you do not want to innovate, you will compete on red oceans for example with price.
But if you want to create something innovative, you need to think what additional value can
you add to attract customers? The answer is innovation.

4 actions framework
● Eliminate: Which acts and activities do leaders invest their time and
intelligence, should that be eliminated?
● Reduce: Which acts and activities do leaders invest their time and intelligence in that
should be reduced, well below their current level?
● Raise: Which acts and activities do leaders invest their time and intelligence in that
should be raised, well above their current level?
● Create: Which acts and activities should leaders invest their time and intelligence in
that they currently don’t undertake?

The sequence about Business Model Handbook

Step 1: Utility → Is the new idea really useful? Is there a strong reason to buy the product?
YES/NO
Step 2: Price → Is the proposed price one that most potential customers will pay? YES/NO

12
If there are cheapest than you, you have to analyse
Step 3: Cost → At the price you want to charge and with the anticipated volumes you will
sell, will you make a profit? YES/NO. Analyse if it is feasible.
Step 4: Adoption → Will there be any major barriers that will stop you obtaining your goals?
YES/NO

How does the Art of War help me?

What is the connection with Blue Ocean Strategy?
The book is referring to how you can behave depending on what you have in front of you
based on the author.
1. Know the competition: Understand your competitors strengths, weaknesses, and
strategies as well as the existing market landscape, to identify opportunities for
differentiation and value creation. “If you know the enemy and know yourself, you
need not fear the result of a hundred battles¨ . Sun Tzu
2. Focus on strategy: Develop a clear strategic plan for creating uncontested market
space, aligning your resources and actions to achieve strategic objectives. ¨Strategy
without tactics is the slowest route to victory. Tactics without strategy is the noise
before defeat¨ - Sun Tzu
3. Flexibility and adaptability: ¨Be flexible and adaptable in response to changing market
conditions, customer needs and competitive dynamics, adjusting your strategy and
tactics¨ - Sun Tzu
4. Timing and opportunity: Seize opportunities when they arise, timing your market entry
and strategic moves to capitalise on emerging trends or gaps in the market
5. Effective leadership: Lead with vision, decisiveness and integrity inspiring and
guiding your team to execute Blue Ocean Strategy effectively and overcome
obstacles. Active listening, decision making, empathy…
6. Understanding customer needs: Gain deep insights into customer needs,
preferences and pain points, tailoring your offerings to address unmet needs and
deliver unique value.
7. Innovation and creativity: Foster a culture of innovation and creativity within your
organisation, encouraging experimentation, risk taking, and thinking outside the box
to uncover new market opportunities.
8. Resource allocation: Allocate resources strategically, focusing on areas that drive
differentiation and value creation, while minimising investments in non-essential or
competitive areas. If you do not allocate well, you can add costs. “The supreme art
of war is to subdue the enemy without fighting.”
9. Effective communication: Communicate your strategy well
10. Continuous improvement: gathering feedback, measuring and performance and
redefining your strategy.

New Market Space

Cirque du Soleil's success illustrates a critical insight: to thrive in the future, businesses must
move beyond competing within established industry boundaries. The market universe is
divided into two categories:
- Red Oceans, which encompass current industries with well-defined boundaries and
competitive rules: known market space
- Blue Oceans, which represent new, unexplored markets with the potential for
innovation and creation: unknown market space

13
While Red Oceans involve competition for existing demand, and industry boundaries are
defined and accepted, Blue Oceans focus on creating new demand in previously uncharted
territories, making competition irrelevant as the rules of the game are yet to be defined. Can
be applied in any type of industry.

Summary
In the Blue Ocean Strategy, finding success means exploring areas in which there are fewer
competitors, instead of areas where there are many contestants (red ocean). Differentiation
and low cost can both be achieved.
People commonly make the mistake of following the crowd, which to both Sun Tzu and Blue
Ocean Strategy is simply foolish: going into areas where there is more competition and
where profits will be harder to find.

14
BOOK Blue Ocean Strategy:

CHAPTER 1 - Creating Blue Oceans

What makes this rapid growth remarkable is that it was not achieved in an attractive industry
but rather in a declining industry.

Continuing creation of Blue Oceans

Industries are dynamic and continually evolving. Traditional strategies focus on competing
within established constraints, whereas Blue Ocean Strategy involves creating new market
space that is free from competition. This involves moving away from competing in
existing markets and instead innovating to open up new ones.

From company and industry to strategic move

The ability to break out of competitive Red Oceans and create Blue Oceans is not solely
dependent on company size or industry attractiveness but on strategic moves. A strategic
move refers to a set of managerial actions that create new market opportunities.
Historical and empirical analysis shows that the key to achieving Blue Oceans and sustained
high performance lies in the strategic moves made, rather than the inherent characteristics
of the industry or company.

Value Innovation: The Cornerstone of Blue Ocean Strategy

The distinguishing factor between successful Blue Ocean creators and those stuck in Red
Oceans ( following a conventional approach) is their approach to strategy, specifically
value innovation.

For instance, Cirque du Soleil combined elements of both circus and theatre, eliminating
traditional circus features that were taken for granted. This innovative approach created a
new market space and a novel form of live entertainment. By breaking the market
boundaries of theatre and circus, Cirque du Soleil gained a new understanding not only of
circus customers but also of circus noncustomers: adult theatre customers. This led to a
whole new circus concept that broke the value-cost trade-off and created a blue ocean of
new market space.
In short, Cirque du Soleil offers the best of both circus and theatre, and it has eliminated or
reduced everything else. By offering unprecedented utility, Cirque du Soleil has created a
blue ocean and has invented a new form of live entertainment

Formulating and executing Blue Ocean Strategy

Succeeding in Blue Oceans involves navigating both opportunities and risks. Current
strategic tools and frameworks predominantly favour Red Ocean strategies, which
perpetuates their dominance. To effectively formulate and execute a Blue Ocean Strategy,
businesses should adhere to four guiding principles: reconstructing market boundaries,
focusing on the big picture, reaching beyond existing demand, and getting the
strategic sequence right. Each principle addresses specific risks—search risk, planning
risk, scale risk, and business model risk. Fair process in strategy making and execution is
crucial to managing these risks and facilitating successful implementation.
Production of a new market is never easy because an organisation must be prepared.

15
CHAPTER 2 - Analytical tools and frameworks

The Blue Ocean Strategy offers several approaches to create new market spaces and make
the competition irrelevant. Key strategies:
1. Market Creation Strategy: Creating an entirely new market space or category.
Companies introduce innovative products or services that the market has not seen
before, attracting new customers.
2. Value Innovation Strategy: This is the core of the Blue Ocean Strategy. It focuses
on simultaneously pursuing differentiation and low cost, creating a leap in value for
both the company and its customers.
3. Diversification Strategy: This involves expanding into new areas or industries that
the company does not currently serve. By doing so, companies can tap into new
customer bases and reduce reliance on existing markets.
4. Elimination-Reduction-Raise-Create (ERRC) Grid: This tool helps companies to
systematically explore new market spaces.

The strategy Canvas

Is a diagnostic and an action framework for building a compelling blue ocean strategy. It
captures the current state of play in the known market space. This allows you to understand
where the competition is investing.
The value curve is the basic component of the strategy canvas: graphic description of a
company's relative performance across its industry´s factors of competition.
To set a company on a strong, profitable growth trajectory in the face of these industry
conditions, it won't work to benchmark competitors and try to outcompete them.

The Four actions framework

To break a trade off between differentiation and low cost and to create a value curve, there
are 4 questions:
- ELIMINATE: Which factors should be eliminated? → Consider eliminating factors that
companies in your industry have long competed on
- REDUCE: Which factors should be reduced well? → Determine whether products or
services have been overdesigned to match the competition. Companies over serve
customers.
- RAISE: Which factors should be raised well? → Eliminate the compromises your
industry forces customers to make.
- Which factors should be created that the industry has never offered? → Discover
new sources of value for buyers.

The ELIMINATE - REDUCE - RAISE - CREATE grid

Is key to the creation of blue oceans. It is supplementary analytic to the 4 actions framework.
Pushes companies to ask all 4 questions in the 4 actions framework but also to act on all 4
to create a new value curve.
It has immediate benefits:
- Pursue differentiation and low costs
- Flags companies that are focused only on raising and creating
- It is easily understood
- Drives companies to scrutinise every factor the industry competes on
When you apply these 4, you get a revealing new look.

16
Three Characteristics of a Good Strategy
Value curve has focus, the company does not diffuse its efforts across all key factors of
competition.
An effective blue ocean strategy has 3 qualities: focus, divergence and a compelling
tagline. Without these, a strategy will likely be muddled.
- Focus: Costly business models result
- Divergence: When a company's strategy is formed reactively, it loses its uniqueness.
Reactive strategists tend to share the same strategic profile. In contrast, the value
curve of blue ocean strategist always stands apart.
- Compelling tagline: A good tagline must not only deliver a clear message, but also
advertise an offering truthfully, or else customers will lose trust and interest.

A company Caught in the red ocean: When a company's value curve converges with its
competitors, it is likely caught within the red ocean. This signals slow growth unless the
company benefits from being in an industry that is growing on its own accord.

CHAPTER 3 - Reconstruct Market Boundaries

The first principle of BOS is to reconstruct market boundaries to break from the competition
and create blue oceans.
There are six paths framework for creating BO:

1. Look Across Alternative Industries

A company competes not only with the other firms in its own industry but also with
companies in other industries that produce alternative products. Alternative products or
services are the ones that have different functions and forms but the same purpose.

2. Look across strategic groups within industries

Just as blue oceans can often be created by looking across alternative industries, so can
they be unlocked by looking across strategic groups, which refers to a group of companies
within an industry that pursue a similar strategy. Strategic groups can generally be ranked in
a rough hierarchical order built on 2 dimensions: price and performance.
The key is to break out of this narrow tunnel vision by understanding which factors determine
customers´ decisions to trade up or down one group to another.

3. Look across the Chain of buyers

In most industries, competitors converge around a common definition of who the target
buyer is. A chain of buyers is who are directly or indirectly involved in the buying decision.
The purchasers who pay for the product may differ from the actual users, and in some cases
there are important influencers as well. Although these 3 groups may overlap, they often
differ. When they do, they frequently hold different definitions of value.

4. Look across complementary product and service offerings

Rivals converge within the bounds of their industry's product and service offering. Ex: Movie
theatres. The ease and cost of getting a babysitter and parking the car affect the perceived
value of going to the movies. Yet, these complementary services are beyond the bounds of
the movie theatre industry.

17
Untapped value is often hidden in complementary products and services. The key is to
define the total solution buyers seek when they choose a product or service → think about
what happens before, during and after your product is used.

5. Look across functional or emotional appeal to buyers

Competition in an industry tends to converge not only on an accepted notion of the scope of
its products and services, but also on one of 2 possible bases of appeal. Some industries
compete principally on price and function largely on calculations of utility; their appeal is
rational. Other industries compete on feelings; their appeal is emotional.
When companies are willing to challenge the functional-emotional orientation, they often find
new market space.
2 common patterns:
- Emotionally oriented industries offer many extras that add price without enhancing
functionality
- Functionally oriented industries can often infuse commodity products with new life by
adding a dose of emotion and, in so doing, can stimulate new demand.

6. Look across time

Subject to external trends that affect their businesses over time. Ex: Rapid rise of the
internet or the global movement toward protecting the environment.
Key insights into BOS arise from business insights into how the trend will change value to
customers and impact the company's business model. By looking across time, managers
can actively shape their future and lay claim to a new BO.
3 principles are critical: must be decisive, must be irreversible, must have a clear trajectory.

CHAPTER 4 - Focus on the Big picture, not the numbers

How do you align your strategic planning process to focus on the big picture and apply these
ideas in drawing your company's strategy canvas to arrive at a BOS?
Focusing on the Big picture: Drawing a strategy canvas not only visualises a company's
current strategic position in its marketplace but also helps it chart its future strategy. A
company and its managers focus their main attention on the big picture rather than
becoming immersed in numbers and getting caught up in operational details.

18
Drawing a strategy canvas does 3 things: Shows the strategic profile of an industry by
depicting very clearly the factors; shows the strategic profile of current and potential
competitors; it shows the strategic profile or value curve.

Drawing your strategy canvas: Assessing to what extent your company and its competitors
offer the various competitive factors is equally challenging.

4 steps of Visualizing strategy:

1. Visual Awakening: Compare business with competitors, see where your strategy
needs change
2. Visual exploration: Go into the field to explore 6 paths, observe distinctive
advantages, see the 4 GRID.
3. Visual Strategy fair: Draw your ¨to be¨canvas, get feedback on alternative strategies
4. Visual Communication: Distribute your before and after strategic profiles, support
projects that allow your company to close the gaps to actualize the new strategy.

Overcoming the limitations of Strategic Planning: Strategic planning should be more about
collective wisdom building than top-down or bottom-up planning. Should be more
conversational than solely documentation driven and it should be more about building the big
picture than about number-crunching exercises.

CHAPTER 5 - Reach beyond existing demand

How do you maximise the size of the blue ocean you are creating? Third principle → Reach
beyond existing demand. By aggregating the greatest demand for a new offering, this
approach attenuates the scale risk associated with creating a new market.
To achieve this, companies should challenge 2 strategies: Focus on existing customers and
drive for finer segmentation to accommodate buyer differences.
The more intense the competition is, the greater is the resulting customization of offerings.
To maximise the size of their blue oceans, companies need to take a reverse course. Instead
of concentrating on customers, they need to look to noncustomers.

The 3 Tiers of Noncustomers:

1. Closest to your market: they sit on the edge, they are buyers who minimally purchase
an industry´s offering out of necessity but are mentally noncustomers.
2. People who refuse to use your industry´s offerings: buyers who have seen your
offerings as an option to fulfil their needs but have voted against them.
3. Farthest from your market: have never thought of your market´s offering as an option.

Go for the Biggest Catchment: You should focus on the tier that represents the biggest
catchment at that time. But you should also explore whether there are overlapping
commonalities across all three tiers of noncustomers.
The point here is not to argue that it’s wrong to focus on existing customers or segmentation
but rather to challenge these existing, taken-for-granted strategic orientations.
To maximise the scale of your blue ocean you should first reach beyond existing demand to
noncustomers and desegmentation opportunities as you formulate future strategies.
If no opportunities can be found, you can then move on to further exploit differences among
existing customers.

19
CHAPTER 6 - Get the Strategic Sequence Right
Build a robust business model to ensure that you make a healthy profit in your BO idea.
Companies need to build their BOS in the sequence of buyer utility, price, cost and adoption.

Testing for exceptional utility: A buyer's experience can usually be broken into a cycle of six
stages, running more or less sequentially from purchase to disposal.

From exceptional utility to strategic planning: To secure a strong revenue stream for your
offering, you must set the right strategic price. This step ensures that buyers not only will
want to buy your offering but also will have a compelling ability to pay for it.
Companies are discovering that volume generates higher returns than it used to, and also, to
a buyer, the value of a product or service may be closely tied to the total number of people
using it. This means that the strategic price you set for your offering must not only attract
buyers in large numbers but also help you to retain them.
Price corridor of the mass is a tool that helps managers find the right price for an irresistible
offer, which isn't necessarily the lower price.

From Strategic pricing to target costing: Target costing addresses the profit side of the
business model. To maximise profit potential of a BO idea, a company should start with the
strategic price and then deduct its desired profit margin from the price to arrive at the target
cost.

From Utility, price and cost to adoption

20
Before moving forward and investing in the new idea, the company must first overcome fears
of the main stakeholders: Employees, business partners, and the public.
- Employees: Before companies go public with an idea, they should make a concerted
effort to communicate to employees that they are aware of the threats posed by the
execution of the idea.
- Business partners: May have resistance because their revenue streams or market
positions are threatened by a new business idea
- Public: Especially if the new idea is very innovative and threatens established social
or political norms.

CHAPTER 7 - Overcome Key organisational Hurdles

Once a company has developed a BOS with a profitable business model, it must execute it.
BOS represents a significant departure from the status quo. It hinges on a shift from
convergence to divergence in value curves at lower costs.
There are 4 hurdles:
1. Cognitive: waking employees up to the need for a strategic shift
2. Limited resources: The greater the shift in strategy, the greater it is assumed are the
resources needed to execute it. But resources were being cut, and not raised.
3. Motivation: How do you motivate key players to move fast and tenaciously to carry
out a break from the status quo?
4. Politics
These 4 brings us to the 5th principle: Overcome organisational hurdles. To achieve this,
companies must abandon perceived wisdom on effecting change. Conventional wisdom
asserts that the greater the change, the greater the resources and time you will need to bring
about results. Tipping point leadership allows you to overcome these 4 fast and at low cost.

CHAPTER 8 - Build execution into strategy

A company is everyone from the top to the front lines. A company needs to invoke the most
fundamental base of action: the attitudes and behaviour of its people deep in the
organisation. People's minds and hearts must align with the new strategy so that at the level
of the individual, people embrace it of their own accord and willingly go beyond compulsory
execution to voluntary cooperation in carrying it out.

On the front line, people can resent having a strategy thrust upon them with little regard for
what they think and feel → 6th principle → To build people's trust and commitment and
inspire their voluntary cooperation, companies need to build execution into strategy from the
start. This allows companies to minimise the management risk of distrust, noncooperation
and even sabotage.

The Power of fair process: Focusing their attention on legal settings, they sought to
understand what makes people trust a legal system so that they will comply with laws
without being coerced.

The 3 E Principles of Fair Process

- Engagement: involving individuals in the strategic decisions that affect them by
asking for their input and allowing them to refute the merits of one another's ideas
and assumptions.

21
 - Explanation: everyone involved should understand why final strategic decisions are
made as they are.
- Expectation clarity: requires that after setting the strategy, managers state clearly the
new rules.

Why does Fair process matter? It all comes down to intellectual and emotional recognition.
Emotionally, individuals seek recognition of their value, not as “labour,” “personnel,” or
“human resources” but as human beings who are treated with full respect and dignity and
appreciated for their individual worth regardless of hierarchical level

Fair process and BOS

Commitment, trust, and voluntary cooperation are not merely attitudes or behaviours. They
are intangible capital and they are very important. Allows companies to stand apart in the
speed, quality and consistency of their execution and to implement strategic shifts fast at low
cost.
By organising the strategy formulation process around the principles of fair process, you can
build execution into strategy making from the start. With fair process, people tend to be
committed to support the resulting strategy even when it is viewed as not favourable. They
accept the need for short-term personal sacrifices in order to advance the long-term interests
of the corporation.

CHAPTER 9 - Conclusion: The sustainability and renewal of BOS

Creating BO is a dynamic process. As the company and its early imitators succeed and
expand the blue ocean, more companies eventually jump in.
Barriers to imitation: A BOS brings with it considerable barriers to imitation, operational and
cognitive.
Barriers:
● Value innovation doesn't make sense to a company's conventional logic
● BOS may conflict with other company's brand image
● Natural monopoly: market often cannot support a second player
● Network externalities discourage imitation

When to Value - Innovate again

Almost every blue ocean will be imitated. To avoid the trap of competing, you need to
monitor value curves on the strategy canvas.
When the company's value curve still has focus, divergence, and a compelling tagline, you
should resist the temptation to value-innovate again.
The aim is to dominate the BO over your imitators for as long as possible.
As rivalry intensifies and total supply exceeds demand, bloody competition starts and the
ocean will turn red. As competitors' value curves converge toward yours, you should begin
reaching out for another value innovation to create a new blue ocean. By charting your
value curve on the strategy canvas, you will be able to visually see the degree of imitation,
and hence of value curve convergence and the extent to which your blue ocean is turning
red.

22