INNOVATION

STRATEGY
  Innovation Strategy is the essential link
between new product development efforts

Innovation and your overall Business Strategy.

 A company’s Business Strategy defines: key
Strategy objectives, overall direction, priority
initiatives, and the expected pace of growth.
  The Innovation Strategy is what enables
companies that rely on innovative new
products, technologies, and platforms to
advance their Business Strategies to:
Innovation  create customer value

Strategy  grow market share

 enter new markets
 increase profitability
 Alter market and competitive landscapes.
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 Business Strategy is the core strategy.

 The relationship between customers and business-level
strategies in terms of who, what and how.
 Porter’s three generic strategies and the five business
strategies
Cost Leadership
Differentiation

Business and Focus – Focused Cost Leadership

Functional – Focused Differentiation

Integrated Cost Leadership and Differentiation strategy.
Strategy  Functional strategy is developed at the business process
level within the operating divisions of the firm and are the
action plans that each division must deliver to support the
business and corporate level strategies of the firm. For
example Finance Production Information Technology
Marketing Human Resources Research and
Development
  Porter’s five forces model is an analysis tool
PORTER FIVE that uses five industry forces to determine the
FORCES intensity of competition in an industry and its

EVALUATION profitability level

  Five forces model was created by M. Porter
in 1979 to understand how five key
Understanding competitive forces are affecting an industry.

the tool The five forces identified are:

  These forces determine an industry structure
and the level of competition in that industry.
 The stronger competitive forces in the
industry are the less profitable it is. An
Understanding industry with low barriers to enter, having
the tool few buyers and suppliers but many substitute
products and competitors will be seen as very
competitive and thus, not so attractive due to
its low profitability
  . This force determines how easy (or not) it is
to enter a particular industry.
 If an industry is profitable and there are few
barriers to enter, rivalry soon intensifies.
Threat of new  When more organizations compete for the
entrants same market share, profits start to fall.
 It is essential for existing organizations to
create high barriers to enter to deter new
entrants. Threat of new entrants is high when:
  Low amount of capital is required to enter a
market;
 Existing companies can do little to retaliate;
Threat of new  Existing firms do not possess patents,
entrants trademarks or do not have established brand
reputation;
 There is no government regulation;
  . Strong bargaining power allows suppliers to
sell higher priced or low quality raw
materials to their buyers.
 This directly affects the buying firms’ profits
because it has to pay more for materials.
Bargaining Suppliers have strong bargaining power

power of when:
 There are few suppliers but many buyers;
suppliers  Suppliers are large and threaten to forward
integrate;
 Few substitute raw materials exist;
 Suppliers hold scarce resources;  Cost of
switching raw materials is especially high
  Buyers have the power to demand lower price
or higher product quality from industry
producers when their bargaining power is
strong. Lower price means lower revenues for
the producer, while higher quality products
usually raise production costs. Both scenarios
result in lower profits for producers. Buyers
Bargaining exert strong bargaining power when:

power of buyers.  Buying in large quantities or control many

access points to the final customer;
 Only few buyers exist;  Switching costs to
other supplier are low;
 They threaten to backward integrate;
 There are many substitutes;
 Buyers are price sensitive.
  This force is especially threatening when
buyers can easily find substitute products
with attractive prices or better quality and
Threat of when buyers can switch from one product or
service to another with little cost. For
substitutes example, to switch from coffee to tea doesn’t
cost anything, unlike switching from car to
bicycle.
  This force is the major determinant on how
competitive and profitable an industry is. In
competitive industry, firms have to compete
aggressively for a market share, which results
in low profits. Rivalry among competitors is
Rivalry among intense when:

existing  There are many competitors;

 Exit barriers are high;
competitors.  Industry of growth is slow or negative;
 Products are not differentiated and can be
easily substituted;
 Competitors are of equalsize;
 Low customer loyalty
  Low-cost leadership

Strategies to deal  Product differentiation

 Focus on market niche
with competitive
 Strengthen customer and supplier intimacy
forces
  Produce products and services at a lower
price than competitors by achieving lowest
operational costs.
 In cost leadership, a firm sets out to become
the low cost producer in its industry. The
Low-cost sources of cost advantage are varied and
leadership depend on the structure of the industry. They
may include the pursuit of economies of
scale, proprietary technology, preferential
access to raw materials and other factors.
  Enabled new products or services, greatly
change customers convenience and
experience. Mass customization.
 In a differentiation strategy a firm seeks to be

Product unique in its industry along some dimensions

that are widely valued by buyers. It selects
differentiation one or more attributes that many buyers in an
industry perceive as important, and uniquely
positions itself to meet those needs. It is
rewarded for its uniqueness with a premium
price
  Use information systems to enabled a focused
strategy on a single market niche
or specialize. In adopting a narrow focus, the
company ideally focuses on a few 
target markets (also called a segmentation
strategy or niche strategy).
Focus on  These should be distinct groups with
market niche specialised needs. The choice of offering low
prices or differentiated products/services
should depend on the needs of the selected
segment and the resources and capabilities of
the firm
  Use information systems to develop strong
ties and loyalty with customers and suppliers.
Customer intimacy is the largest source of
your growth, sustainable competitive
advantage, and profit.
Strengthen  Everyone in your organization should
customer and practice it. Customer-intimate companies
supplier intimacy bring an entirely fresh perspective.
 They discover unsuspected problems, detect
unrealized potential, and create a dynamic
synergy with customers. They often merge
their operations with those of their customers
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 The vast majority of new ventures represent

extensions of, or improvements to, existing
industries.

 Compelling evidence that where new markets

and/or new industries are created, there is a
significantly greater generation of revenues and
profits when compared to new ventures that are
Blue Ocean merely extensions of, or improvements to, existing
Strategy industries.

 Traditional strategy is focused on competitive

positioning and therefore, focused on competing
with existing competition.

 Blue Ocean strategy is about doing business where

there are no competitors.
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 Redefining the nexus between cost leadership and

differentiation.

 Unknown market spaces that have not, as yet, been

subjected to competitive forces.

 Historical perspective of industries such as –

Blue Ocean Automotive

Strategy Aviation
Pharmaceutical

and more recently –

Computing
Mobile Telephony
Internet
Introduction

Flynn is not sure what kind of business

he should start.

He knows that if he tries to venture into

the field of electronics and consumer
goods, his business would face a lot of
tough competition from the existing
players in the field.
Introduction

The market space of electronics and

consumer goods is so crowded that in
order for his business to succeed, Flynn
would have to beat the existing
competition and also exploit the existing
demand.
Introduction

Flynn’s ex-boss and a long time friend,

Mark Yardley comes to Flynn’s rescue.

Mark tells Flynn that in order to start a

successful business venture, it is crucial
that Flynn’s business should create a
unique and uncontested market space
just for itself.
Introduction

In such a market space which is free from

competition, Flynn can be sure that his
business can easily and to a greater
extent surely succeed.

Mark tells Flynn to carefully study and

implement the ‘Blue Ocean Strategy’ for
his business.
Introduction

Mark tells Flynn that in order to

implement the ‘Blue Ocean Strategy’ he
would have to come up with a business
idea that will create a new uncontested
market space for his business.
Introduction

Hence, you can understand that in order

to succeed in any business, an
organization and its management should
always try to adopt a strategy such as the
‘Blue Ocean Strategy’ to rid itself of the
tough competition and create a new
free market space for itself.
  BLUE OCEAN STRATEGY is the
simultaneous pursuit of differentiation and
low cost to open up a new market space and
create new demand. It is about creating and
INTRODUCTIO capturing uncontested market space, thereby
making the competition irrelevant. It is based
N on the view that market boundaries and
industry structure are not a given and can be
reconstructed by the actions and beliefs of
industry players.
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 Technology is not necessarily the key driver however,

innovation is important particularly where it creates
customer value.

 Blue Ocean strategic success is about enabling

strategic vision.

 Blue ocean strategic success creates significant brand

Blue Ocean equity.

Strategy
 Successful Blue Ocean strategy never benchmarks the
competition.

 Successful Blue Ocean strategy rejects the

conventional strategic position that there must be a
trade-off between value (differentiation) and cost,
instead pursuing both low cost and differentiation
simultaneously.
 Who developed the concept of Blue Ocean Strategy?

• W. Chan Kim and Renee

Mauborgne developed the
“Blue Ocean Strategy”
concept. This concept was
first presented in their
book titled “Blue Ocean
Strategy: How to Create
Uncontested Market Space
and Make the Competition
Irrelevant.”
 Blue Ocean Strategy versus Red Ocean
Strategy
Let us know look at some of the differences between the blue ocean
strategy versus the red ocean strategy.

In this concept, a It involves

market space is competing in an
created which is existing market
free from any space
competition.

Competition is
irrelevant here and It involves beating
it has no effect on the competition
the success of a
business.
 Importance of Blue Ocean Markets

• In red ocean market space, the competition

is very severe and cut throat. Hence “Blue
Oceans” are important and it is a shot way
to success.

• When the competition is heavy, the

companies have to reduce their price to beat
others. It leads to reduction in profits and
growth.
 Steps to Create a Blue Ocean Strategy

The following are the four steps that you need to follow to create a ‘Blue
Ocean Strategy:

• Step 1: Create Uncontested Market Space

• Step 2: Focus on the Big Picture

• Step 3: Reach Beyond Existing Demand

• Step 4: Focus on Getting the Strategic Sequence

Right

Let us look at each in detail.

  RED OCEANS are all the industries in
existence today – the known market space. In
red oceans, industry boundaries are defined
and accepted, and the competitive rules of the
game are known.
 Here, companies try to outperform their rivals
RED OCEANS to grab a greater share of existing demand. As
the market space gets crowded, profits and
growth are reduced. Products become
commodities, leading to cutthroat or ‘bloody’
competition. Hence the term red oceans.
 36

 The focus is on existing market and industry

constructs and the necessity for competition
to not only survive but also to achieve
success – this is a limiting approach and also
represents a zero sum game.

 Industry structural conditions are a given and

firms are at the mercy of environmental and
Red Oceans economic factors beyond their control.

 This is the structuralist view or

environmental determinism.

 Breaking out of Red Oceans requires a re-

constructionist approach.
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Red Ocean vs Blue

Ocean Strategy
  Four Actions provide guidelines to create a
new strategy profile and also defines the
characteristics of a Blue Ocean strategy.
 Four Actions consisting of 'eliminating' those
factors that companies in one's industry have
long competed on, taken for granted by
customers; 'reducing' those products or
FOUR ACTION services that have been overdesigned in the

FRAMEWORK race to beat the competition, which the

customer does not value; raising by
S eliminating the compromises one's industry
forces customers to make by setting new
standards well above competitors and
creating through discovering entirely new
sources of value for buyers thus creating new
demand and strategic price shifts (Kumar,
2005).
 43

Blue Ocean
Examples
Blue Ocean Examples

45
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Blue Ocean
Examples
Blue Ocean Examples

47
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Blue Ocean
Examples
 Blue Ocean Strategy
 Blue Ocean Strategy

https://www.youtube.com/watch?v=8ExRnpy4rPE

 Blue Ocean Strategy

https://www.youtube.com/watch?v=5Xd5lvyWMe8

 Renee Mauborgne on Blue Ocean Strategy

https://www.youtube.com/watch?v=clp-IMpuwaQ

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