Relationship of Blue Ocean Strategy With Business Model

Hi, All,

I have been attempting to explore the relationship or inter-connection between the Blue Ocean Strategy and Business Model. Anyone has done any research on this? Any feedback is appreciated.

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Permalink Reply by Mike Lachapelle on January 7, 2009 at 4:09am
Hi Ray,

I don't profess to be an expert on the Blue Ocean Stategy approach, and if my understanding is misdirected, anyone feel free to set me right.

If you look at the Business Model structure as a logical framework and BOS as a methodology appplied within the framework, BOS places emphasis on innovating the value proposition and the client segment components of the model.

A key component of BOS is to evaluate your offerings against industry norms. In BOS this entails doing an analysis on the four action framework, the pioneeer-migrator-settler (PMS), and strategy canvas. Within the business model framework the value proposition analysis would include analysing the price levels and value levels against the industry practices.

Another major component of BOS is understanding the creation of new client opportunities by exploring the "non-customer" tiers (soon-to-be, refusing and unexplored). The client segment component of the business model canvas is perhaps less focused on unexplored possibilities, but it is very definitely focused on understanding the criteria one uses to segment customers and to align value propositions to segments.

I am very interested to see how each of the patterns identified in the mindmap of book content will play against the business model canvas. Hope this helps a bit, maybe someone more famiiar with BOS can take this further.
Permalink Reply by Ray Lai on January 7, 2009 at 6:30am
Hi Mike,

Thanks for your observations. They tend to concur with what I have been conceptualizing about. The connerstone of BOS is value innovation--simultaneous cost reduction and differention in value proposition (offering) which is an integral component of the Business Model. As rightly pointed out by you, BOS also addresses the need to explore the non-customers as represented by the client segment component of the business model. Taking it holistically, making BOS work demands an effective alignment and integration of the remaining compents of the business model. The more we can further differentiate these components, the greater competitive advantage we will gain.

I will appreciate if someone could take this concept further.

Ray
Permalink Reply by Mike Lachapelle on January 7, 2009 at 1:08pm
Hi Ray

I had some further thoughts on this. A great example that could be analyzed through the BOS point of view would be the electronic gaming console industry. The main competitiors Microsoft (Xbox), Sony (PS3) and Nintendo (WII) are a wonderful example of new market creation, rethinking value and pricing.

All three have been locked in a technology war. Where PS3 and Xbox have continued to up the ante on video, WII has differentiated itself. Xbox and PS3 have used increased video technology to bring on HD video, and in PS3's case, Blue Ray video. This has come at a higher price point. WII on the other hand differentiated itself by re-thinking the concept of the interface to the game; at the same time maintaining a signifcantly lower price point.

The real fun of this example comes in the BOS "non-customer" concept. PS3 and Xbox have concentrated on the Red Ocean of existing gamers, and battling with types and quality of games proven to attract that segment. WII looked at the market that isn't buying those types of games, and the market that has perhaps never played on a game console - families and adults. Nintendo created a whole line of family-friendly, social, collaborative, and thinking games to attract the people who have never touched a game console, they went so far as to create a special technology for them, the WII Fit (creating a new value proposition). If anyone has tried to buy one of those in the last two years, you have some idea of how successful this Blue Ocean has been. By creating a value proposition (fitness and yoga) for a segment that that never will play shooter, real-time strategy, sport or role playing games, Nintendo has created their Blue Ocean where there is no competitor and an un-tapped market.

How successful? I witnessed conversations in my office where adults, even people without children, spent the whole of Christmas playing games on thier WII and rave about the experience. Most of these people have never touched a game console before. My own wife, who has, and will never touch a standard video game, was thrilled we were able to find a WII Fit for her and she uses it every day.
Permalink Reply by Alex Osterwalder on January 7, 2009 at 6:12pm
@Ray / @Mike: We will explore the relationship between BOS and the canvas in the book. I haven't gone into this too much yet, but I pretty much agree with both of your comments.

I have a post on the BOS of Wii on my blog, in case you are interested:
http://business-model-design.blogspot.com/2007/01/nintendos-blue-oc...

Patrick has a nice example of a BOS case represented visually through the BM building blocks (produced by a company called JAM)... Have a look at the Cirque de Soleil (the visuals speak by themselves...):

Permalink Reply by Ray Lai on January 7, 2009 at 11:41pm
Hi Mike,

Thanks for your insights and excellent examples. I really apprecitate it.
Permalink Reply by Marc Sniukas on January 14, 2009 at 5:22pm
Dear Ray,

I wrote a paper on strategic innovation, which combines elements of BOS, and Alex's approach to Business Model Innovation. You'll also find more information on the topic on my blog: www.sevenprophets.com
Attachments:
Permalink Reply by Ray Lai on January 15, 2009 at 5:11am
Dear Marc,

Thanks for such a comprehensive paper. You have provided many ideas and insights which definitely pave the way forward for further pursuit and exploration. I believe that many other members will also enjogy this excellent paper. Well done!
Permalink Reply by Karl Burrow on October 19, 2009 at 7:55am
Hi Marc,

I just read you paper and I have it to be an excellent read & extremely informative.

I will comment more to you on this in the near future.

Regards,

Karl
Permalink Reply by Karl Burrow on October 19, 2009 at 7:56am
Hi Marc,

I just read you paper and I have it to be an excellent read & extremely informative.

I will comment more to you on this in the near future.

Regards,

Karl
Permalink Reply by Greg Krauska on January 22, 2009 at 4:20am
Ray, in order to make an appropriate comparison of Business Model Canvas and the BOS toolset, one of the first things we need to do is to compare like elements and distinguish between the process of creating new business models and representing "before and after" business models.

For example, the As-Is Strategy Canvas is the state of play in an industry (presumably before pursuing value innovation), comparing players' value factors from the perspective of WHAT THE MARKET EXPECTS. The value factors (the elements on the x axis) represent the top 5-9 factors that define a firm's strategy. Those factors are framed as value elements that the customer receives,in varying amounts from various market players. Key here is that they are not the operational elements that create value for customers, they are the business results and experiences that customers expect and receive.

The "to-be" strategy canvas represents the destination. Part of its value is to communicate to the organization where the strategy needs to change (as-is strategy canvas versus competitors) - and where it is heading (to-be strategy canvas).

Therefore, some elements from a firm's BOS Strategy Canvas will overlap or mirror elements in the Business Model Canvas. The Business Model Canvas could sometimes be a helpful complement to the BOS Strategy Canvas by providing more detail than the BOS Canvas alone.

So as much as the BOS Strategy Canvas is a descriptive tool, it is also an analytical tool.

There is much more to be explored here. One straightforward observation, however, is that here is that both are very intuitive, quickly understood representaitons of otherwise very complex concepts.
Permalink Reply by Ray Lai on January 22, 2009 at 9:26am
Hi Greg,

Thank you very much for your observations and insights.

From business model perspective, I tend to treat the BOS 6 paths as innovative tools to create differentiated offering (value proposition) as reflected in the "To Be" BOS strategy canvas. However, the new value proposition needs to be reinforced or supported by other elements within the Business Model, which should be innovative as well. This is to ensure sustaining competitive advantage.

The challenge is to create appropriate tools for innovating the remaining operational components and hence the business model. Another challenge is to design cost reduction as an effective management concept/practice to strengthen the business model.
Permalink Reply by Greg Krauska on January 22, 2009 at 3:57pm
Ray, the intent of Six Paths is to go further than simply creating a new differentiated offering. The intent is indeed to create a new business model, of which a value proposition is part.

In combination with Six Paths, the firm uses Eliminate/Reduce/Raise Create as additional discipline to make sure that the firm is not simply offering more and more. Instead, there must be a combination of factors you raise and create (to create "a leap in value" that customers have note seen before so you attract new demand), while reducing and eliminating factors the market does not or no longer values (reduce cost). I have found that after firms eliminate/reduce, there are tremendous opportunities to reduce cost that they have not seen before. This is often because they thought that customers NEEDED certain products, services or delivery methods that turned out were not necessary.

To be fair, I am more steeped in the BOS method than Business Model Canvas, so we may be seeing parallel worlds!

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