Business Process Re-engineering

• BPR is defined as the fundamental rethinking and

radical design of business processes to achieve
dramatic improvements in critical measures of
performance such as cost, quality, service and speed.
• Radical re-designing involves tossing out existing
procedures and re-inventing the process, not just
incrementally improving it. The goal is to achieve
quantum leaps in performance.
 When is BPR Required?
• Some symptoms that signal that it is time to start
re-engineering are;
1. It takes too long for an organization to move its
products from conception to the market place as
compared to its competitors.
2. The budgeting process may be too complex and
3. The services provided by the organization are not
compatible with its customer’s needs.
 Seven Principles of Re-engineering
1. Organize around outcomes, not tasks – several
tasks performed by different people should be
combined into a single job. Organizing around
outcomes results in greater speed, productivity and
customer responsiveness.
2. Have those who use the output of the process
perform the process – people closest to the
process actually perform the work, which shifts
work across traditional intra and inter
organizational boundaries. For e.g. employees can
make some of their purchases without routing
through the purchase department, customers can
perform simple repairs themselves and suppliers
can be asked to manage parts inventory.
 Seven Principles of Re-engineering
3. Merge information processing work into the real
work that produces the information – people who
collect information should also be responsible for
processing it which greatly reduces errors by
cutting the numbers of external contact points for
a process.
4. Treat geographically dispersed resources as though
they work centralized – centralized data basis and
telecommunication networks allow companies to
link separate units or individual field personnel,
providing them with economies of scale while
maintaining their individual flexibility and
responsiveness to customers.
 Seven Principles of Re-engineering
5. Link parallel activities instead of integrating their
results – parallel activities should be linked
continuously and co-ordinated during the process
rather than just integrating the outcome of parallel
activities.
6. Put the decision point where the workers
performed and build control into the process –
decision making should be made part of the work
performed and controls should be made part of the
process.
 Seven Principles of Re-engineering
7. Capture information once and at the source –
information should be collected and captured
in the company’s on-line information system
only once at the source where it is created.
This approach avoids erroneous data entries
and costly re-entries.
Five Key Principles of BPR
 Application of Re-engineering
• According to Michael Hammer, the major steps the
companies should take to redesign its process are:
1. Develop business vision and process objectives.
2. Identify processes to be redesigned.
3. Understand and measure existing processes.
4. Identify information technology levels.
5. Design and build a prototype of the process.
 The Three Rs of Re-engineering
1. Rethink – examining the organization’s
current objectives to determine how well
they incorporate the renewed commitment
to customer satisfaction. Another valuable
exercise in this phase is to examine the
critical success factors – those areas in which
the organization clearly stands apart from
the competition and to check whether they
contribute to the new customer satisfaction
goals.
 The Three Rs of Re-engineering
2. Redesign – this phase requires an analysis of
the way the organization produces the
products or services it sells – how jobs are
structured, who accomplishes what tasks and
the results of each procedure. Then, a
determination must be made as to which
elements should be redesigned to make jobs
more satisfying and more customer focused.
 The Three Rs of Re-engineering
3. Retool – this phase requires a through
evaluation of the current use of advanced
technologies, especially electronic data
processing systems, to identify opportunities
for change that can improve quality of
services and customer satisfaction.
 Benefits of Reengineering
1. Radical changes in performance – cost, cycle time,
service, quality.
2. Boosts competitiveness in the operations network.
3. Encourages organizations to abandon conventional
approaches to problem solving & introduce
revolutionary thinking.
4. Organization gets transformed from a rule driven &
job centred organization structure to a marketing
organization structure that focuses on the
customer.
 Benefits of Reengineering
5. Reengineering often results in radically new
organizational designs that can help companies
respond better to competitive pressures, increase
market share & profitability.
6. A major accomplishment is the change that occurs
in the corporate culture & the basis principals by
which departments operate.
7. Helps in creating more challenging & more
rewarding job with broader responsibilities for
employees.
 Limitations of Reengineering
1. It is not a panacea. Like other management
approaches, how it is applied makes a lot of
difference.
2. It is not appropriate for all processes for all
organizations.
3. Significant process improvements cannot be
realized without use of information technology.
4. The best understanding of the process and how to
improve it lies with the people who perform the
work & not cross functional teams or top
management. The participation of all employees
may not be forthcoming at all times.
 Benchmarking
• Benchmarking is defined as measuring the
performance against that of best-in-class companies,
determine how these companies achieve those
performance levels and use the information as a
basis for setting targets, strategies and
implementation.
• A simple definition – the search of industry best
practices that lead to superior performance.
 Benchmarking
• The essence of benchmarking is the
continuous process of comparing a company's
strategy, products & processes with those of
world leaders and best-in-class organizations
in order to learn how they achieve excellence
and then setting out to match and even
surpass it. In other words it is “moving from
where we are to where we want to be”.
 Evolution of Benchmarking
• In the early 1800s, Francis Lowell, a New England
Industrialist, traveled to England to study
manufacturing techniques at the best British
factories.
• Henry Ford created the assembly line after taking
tour of a Chicago Slaughterhouse and watching
carcasses hung on hooks mounted on a monorail
move from one work station to another.
• Toyota’s just-in-time production system was
influenced by the replenishment practices of U.S
supermarkets.
 Evolution of Benchmarking
• Modern benchmarking was initiated by Xerox in the
1980s. IBM & Motorola also became the pioneers in
instituting the benchmarking process.
• Xerox initially studied their direct competitor and
discovered that their lead times, assembly line
rejects and defects per 100 machines were all higher.
• Xerox met with resistance from its employees
initially. Once the process began the company
benchmarked virtually every function and task for
productivity, cost & quality.
 Evolution of Benchmarking
• Xerox admitted that they would probably
not been in the copier business for long if
they had not resorted to benchmarking. The
results they obtained were:
1. Quality problems cut by two – thirds
2. Manufacturing cost cut by 50%
3. Development time cut by two – thirds
4. Direct labor cut by 50% and other staff cut
by 35%
 Evolution of Benchmarking
• Motorola also in the early 1980s, set a goal of
improving a set of basic quality attributes
tenfold in five years. Based on internal
benchmarking, they achieved the goal in three
years. Then they began to look outside and
sent their teams to visit competitor plants in
Japan. They found that they have to improve
its tenfold improvement level another two to
three times just to match the competition.
 Advantages of Benchmarking
1. Promotes a thorough understanding of the
company’s own processes.
2. Saves time and money since companies
need to adapt and no need to invent.
3. Intensive studies of existing practices often
lead to identification of non value added
activities and plans for process
improvements.
 Advantages of Benchmarking
4. Enables comparison of performance
measures in different dimensions, each with
best practices for the particular measure.
Some common performance measures are
return on assets, cycle time, percentage of on-
time delivery, proportion of defects,
percentage of damaged goods and time spent
on administrative functions.
 Advantages of Benchmarking
5. Benchmarking focuses on performance
measures and processes and not on
products. Hence it is not restricted to the
industry to which the company belongs.
6. Its allows organizations to set realistic,
rigorous new performance targets and this
process helps convince people of the
credibility of these targets.
 Advantages of Benchmarking
7. It allows organizations to define specific gap in
performance and to select the processes to
improve. It enables the company to redesign its
product and services to achieve outcomes that
meet or exceed customer expectation.
8. Benchmarking provides a basis for training human
resources. Employees begin to see the gap
between what they are doing and what the best-in-
class are doing. The personnel get involved in
problem solving and process improvement.
 Limitations of Benchmarking
1. The best-in-class performance is not a static but a
moving target & new technology can create
quantum leap performance improvement.
2. Benchmarking is not a panacea that can replace
other quality efforts and management processes
that improves the competitive advantage.
3. Benchmarking is not an “instant pudding”. It will
not improve performance if the basic components
of TQM are not in place.
 Areas to Benchmark
1. Customer service levels
2. Inventory management
3. Purchasing practices
4. Billing & collection
5. Quality process
6. Warehousing and distribution
7. Transportation
 Levels of Benchmarking
1. Internal Benchmarking – within one’s organization
i.e. with another division / branch. Easiest to
conduct since information readily available and not
much concern on confidentiality.
2. Competitive Benchmarking - analyzing the
performance and practices of best-in-class
organizations. May be difficult since impossible to
collect or learn the competitor’s secrets.
Information can often be obtain through a
confidential survey of all competitors, usually by a
third party consulting firm.
 Levels of Benchmarking
3. Non-Competitive Benchmarking – studying related
processes in a firm who is not a direct competitor.
In the same industry, studying related processes in
a firm in a different industry, studying unrelated
processes in different industry. An advantage is
that new processes which could easily be adapted
to one’s organization may be discovered.
4. World - Class Benchmarking – most ambitious and
involves looking towards the recognized leader in
that field.
 Types of Benchmarking
1. Performance Benchmarking or Operational
Benchmarking

2. Process Benchmarking or Functional

Benchmarking

3. Strategic Benchmarking
 Performance Benchmarking or
Operational Benchmarking
• Involves pricing, technical quality, features and other
performance characteristics of products/services.
• Performance Benchmarking is usually performed by
direct comparisons or reverse engineering in which
competitor’s products are taken a part an analyzed.
• This process is also known as operational
benchmarking or competitive benchmarking and
involves studying of products and processes of
competitors in the same industry.
 Process Benchmarking or Functional
Benchmarking
• It centres on work processes such as billing, order entry,
employee training etc.
• This type of benchmarking identifies the most effective
practices in company’s that perform similar function, no
matter in what industry.
• For example, the warehousing and distribution practices
of L.L.Bean were adapted by xerox for its spare parts
distribution system.
• It is better to benchmark from outside the industry. A
company can learn ideas and processes as well as new
applications that allow it to surpass the best within its
own industry.
 Strategic Benchmarking

• It examines how companies seek the winning

strategies that have led to competitive
advantages and market success. One way to
determine is how well a company is prepared
to compete in a segment and to help define a
best-in-class competitor is to construct a key
success factor matrix.
Factors to Ensure Success in Benchmarking

1. Full support of senior management

2. Training for the members is critical
3. Should be a team activity which should
include the experts and consultants
4. Must be part of the organization’s strategy
and development
5. Must be planned, organize and carefully
managed.
 Reverse Engineering
• In order to attain sustainable competitive
advantage, an understanding of the competitor
products becomes very important. Apart from
comprehending the competitor’s activities, it
becomes necessary to be able to checkmate
every move of the competitor in order to
maintain or increase the market share. For this
purpose, reverse engineering has been of great
help and has been accepted as an important
strategic tool during the strategy implementation.
 Reverse Engineering
• Reverse engineering involves examining
competitor products or similar products in great
detail by dissecting them or virtually tearing them
apart.
• The process tries to understand three questions
relating to the product to be reverse engineered :
1. What does the product do?
2. How does it do that?
3. Why would you want to do that?
 Reverse Engineering
• Reverse Engineering and redesign involve
investigation, prediction and developing
hypotheses, achieved through the following
steps:
1. Concrete experience in function and form
relating to the product
2. Choosing design models and apply for the same
for analysis of the product.
3. Starting reengineering either as parametric
redesign, adaptive redesign or original redesign.
 Reverse Engineering
Four distinct phases of reengineering process.
• Identification of the product for reengineering
• Process of improving the product
• Analysis of redesign proposals
• Ramp up
Reverse engineering encompasses both a passion
arising from enthusiasm for an ultimate analysis
and the proper methodology an tools required for it.
 WHAT ISWhere it started…..
THE BALANCED SCORECARD
Introduced in 1992, by Robert Kaplan and David Norton, the
Balanced Scorecard is the most commonly used framework for
ensuring that organizations execute their strategies effectively.
Today about 70% of the Fortune 1000 Companies utilize the
Balanced Scorecard to help manage their performance.

Robert Kaplan and David Norton first publicized the

Balanced Scorecard in a series of journal articles and
published this concept in their book, The Balanced
Scorecard.
 WHAT IS THE BALANCED SCORECARD

BSC translates an organizational Mission and

Strategy into comprehensive set of performance
measures that provides the framework for Strategic
Measurement and Management System
 Balanced Scorecard
• Kaplan and Norton describe the innovation of
the balanced scorecard as follows:

“The balanced scorecard retains traditional

financial measures. But financial measures tell
the story of past events, an adequate story for
industrial age companies for which investments
in long-term capabilities and customer relation-
ships were not critical for success.
These financial measures are inadequate,
however, for guiding and evaluating the journey
that information age companies must make to
create future value through investment in
customers, suppliers, employees, processes,
technology, and innovation."
IHW 2005 Balanced Scorecard 40
What does it Balance and where does it Lead to

• Balances financial and non-financial measures

• Balances short and long-term measures

• Balances performance drivers (leading indicators) with

outcome measures (lagging indicators)

• Should contain just enough data to give a complete picture

of organizational performance… and no more!

• Leads to strategic focus and organizational alignment.

 Why Do We Need a Balanced Scorecard?
To Implement Business Strategy!

“Business Strategy is now the

single most important issue…
and will remain so for the next
five years”
Business Week

“Less than 10% of strategies

effectively formulated are
effectively executed”
Fortune

IHW 2005 Balanced Scorecard 42

 Four Perspectives of BSC

Financial Perspective

Customer Internal Process

Perspective Vision & Strategy Perspective

Learning & Growth

Perspective
 Balanced Scorecard
Financial Perspective

How do we look to our

shareholders?

Customer Perspective Internal Process Perspective

How do we look to our Vision & What business processes are

customers? Strategy the value drivers?

Learning & Growth

Perspective
Are we able to sustain
innovation, change and
improvement

IHW 2005 Balanced Scorecard 44

 Four Perspectives of BSC
insert How will we sustain our
Learning
perspective ability to change and improve?

What business processes

Process
perspective must we excel at?

Customer :-) How should we

perspective appear to our customers?

Financial ¥€$ How should we

perspective appear to our investors?
 To summarize BSC

• Is much more than a collection of indicators

of key success factors.
• Is a flight simulator, not a dashboard of
instrument dials.
• Integrates performance measures with a
unique strategy.
• Incorporates cause-and-effect relationships,
including leads, lags and feedback loops.
IHW 2005 Balanced Scorecard 46
How do we Connect Balanced Scorecard to Strategy
A Strategy Is a Set of Hypotheses About Cause and Effect

Return on
Financial
Capital Employed

Customer Customer Loyalty

Customer On-time Delivery

Internal Process
Process Quality Process Cycle Time

Learning & Growth Employee Skills

IHW 2005 Balanced Scorecard 47

 Advantages of BSC
• It is used to align the business activities
to vision and strategy
• It improves Internal & External
communications
• It is used to monitor organizations
performance
• It provides management with
comprehensive picture of operations
• It provides strategic feedback
• It improves decisions & better solutions
 Limitations of BSC
• It doesn’t provide recommendations

• It is not fully efficient

• It takes time for implementation

• High cost of Implementation

•
Customers Perspective
Cost

“Number One in
Service Time
delivering Value to
Customers”.

Quality
 Customers Perspective
Customer perspective identifies targeted customer and
market segments and measures the organization’s success in
these segments.

It measures the level of customer satisfaction, customer

retention and market share held by the organization.
The Customer Perspective – Core measures

Market
Share

Customer Customer Customer

Acquisition Profitability Retention

Customer
Satisfaction
 The Customer Perspective

Some examples relating to customer perspective are:

– Market share growth
– Customer acquisition rate
– Customer retention rate
– Customer satisfaction scores
– Number of new products/services
– Defect rate
– On-time delivery rate
– Percentage warranty returns
 Customer Satisfaction
GOALS MEASURES
Improve product/service quality Number of customer contact points
Improve timeliness of product/service Time from customer order to delivery
delivery
Improve customer perception of value Customer scores of value

Reduce customer defections Number of customers retained

Monitor threats to product/service Extent of negative coverage of quality in
reputation press
Increase customer feedback Number of completed customer surveys
about delivery comparisons to other
providers

Finland 2010
 Customer Perspective
Market share – reflects the proportion of business in a given
market ( in terms of number of customers, dollars spent or unit
volume sold) that a business unit sells.
Customer Acquisition – measures/tracks, in absolute or relative
terms, the rate at which a business unit attracts or wins new
customers or business.
Customer Retention – the rate at which a business unit retains
or maintains ongoing relationships with its customers.
Customer Satisfaction – assesses the satisfaction level of
customers along specific performance criteria within the value
proposition.
Customer Profitability – measures the net profit of a customer,
or a segment, after allowing for the unique expenses required to
support that customer.
 Internal Process Perspective

Process
bottlenecks

No of activities Internal process Process

per function perspective alignment

Process
automation
 Internal Business Processes

• Some examples to illustrate:

– Product-development cycle time
– Order-to-delivery response time
– Six sigma (PPM) quality rate
– Revenue per employee
– C to C Concept to Cash
– New product/service introduction rate
– New product/service breakeven time
 Internal Business Processes
GOALS MEASURES
Reduce waste across supply chain Pounds of scrap
Shorten time from start to finish Time from raw material purchase to
product/service delivery to customer
Achieve unit cost reductions Unit costs per product/service delivered
% of target costs achieved

Reduce probability & impact of threats Number of employees attending risk

management training
Identify specific tolerances for key Number of process variances exceeding
processes specified acceptable risk tolerances
Reduce number of exchanges of supply Extent of risks realized in other functions
chain risks to other enterprise processes from supply chain process risk drivers

Finland 2010
INTERNAL BUSINESS PROCESS PERSPECTIVE

Internal business process objectives address the question of

which processes are the most critical for satisfying
customers and shareholders
A firm must concentrate its efforts to excel in these areas

Metrics based on this perspective allow the managers to know

how well their business is running and whether its products
and services conform to customer requirements
 INTERNAL BUSINESS PROCESS

3 sub
processes

Operations Process Post sale service

Innovation Process Process
Producing &
Creating Products/ delivering the Providing service and
Services & Processes Existing products Support to the
to meet the demand that will meet the customer
of Customers needs Of after the sale of a
Customers product or service
 Learning & Growth Perspective

Employee
Turnover

Learning Training &

Job satisfaction & Growth learning
perspective opportunities

Is there the
correct level of
expertise for the
job ?
 Learning & Growth Perspective
• Some examples:
– Employee retention/turnover rate
– Salaries/wage index
– Training/development hours per employee
– Strategic competency index
– Sustainable growth analysis
– Knowledge productivity rate
– Knowledge Management System Implementation
 Learning & Growth for Employees
GOALS MEASURES
Increase employee process ownership Employee survey scores
Improve information flows Changes in information reports
Frequencies across supply chain partners
Increase employee identification of Compare actual disruptions with reports
potential supply chain disruptions of potential disruption drivers

Increase employee awareness Number of employees attending risk

management training
Increase supplier accountability Supplier contract provisions on risk
Increase employee awareness of supply Number of departments participating in
chain risks & other enterprise risks supply chain risk identification &
assessment workshops

Finland 2010
 LEARNING AND GROWTH PERSPECTIVE

Learning and Growth Perspective includes measures such as

Employee satisfaction, employee retention and skill sets etc.
Objectives in learning and growth perspective are drives that
encourage implementation of goals set in the financial, customer
and internal processes objectives. It identifies the infrastructure
that the organization must build to create long term growth and
improvement.
 Financial Perspective

Cash flow

Return on Financial results

investment Financial perspective

Return on
capital
employed
 The Financial Perspective
• Some examples that relate to financial perspective are:
– ROI, EVA
– Return on capital employed (ROCE)
– Revenue growth
– Cash flow return on assets
– Market/customer/product profitability growth
 Financial Performance
GOALS MEASURES
Higher profit margins Profit margin by supply chain partner
Improved cash flows Net cash generated over supply chain
Revenue growth Increase in customers & sales per
customer
% annual return on supply chain assets

Reduce threats from price competition Number of customer defections due to

price
Reduce cost overruns Surcharges paid
Holding costs incurred
Overtime charges applied
Reduce costs outside the supply chain Warranty claims incurred
from supply chain processes Legal costs paid
Sales returns processed

Finland 2010
 Financial Perspective
Customizing Measures for the Growth Stage
• Sales growth rate
• Sales in new markets
• Sales to new customers
• Sales from new products
• Investment in product development
• Investment in information technology
• Investment in employee skills
• Investment in new distribution channels
IHW 2005 Balanced Scorecard 68
 FINANCIAL PERSPECTIVE

The financial performance perspective of the balanced

scorecard addresses the question of how shareholders
view the firm and which financial goals are desired
from the shareholder’s perspective.

• In private companies, the financial perspective is the

main objective (ultimate goal) – without having to
sacrifice the interests of other relevant stakeholders
(community, environment, government, etc.)

• In the financial perspective, the strategic goal is the long-

term shareholder value. This goal is driven by two
factors, namely : revenue growth and cost efficiency.
 Strategic themes for the financial perspective

• Revenue Growth and Mix refer to expanding product and

service offerings, reaching new customers and markets, changing
the product and service mix toward higher value added offerings
and appropriate pricing strategies for products and services.
•Cost reduction and productivity improvement refers to efforts
to lower the direct costs of products and services, reduce indirect
costs and share common resources with other business units.
•Asset utilization theme, managers attempt to reduce the working
capital levels required to support a given volume and mix of
business. Objectives, such as return on employed, return on
investment and economic value added, provide overall outcome
measures of the success of financial strategies to increase revenues,
reduce costs and increase asset utilization.
Balanced Scorecard Measurements
 Blue Ocean Strategy
Creating uncontested new market space
that makes the competition irrelevant

Only way to beat the competition is to stop

trying to beat the competition
Driving forces behind creating blue oceans

• Accelerated technological advances

• Improved industrial productivity
• Production of vast range of products and services
• Globalization trends
• Most industries supply exceeds demand
• Price wars & shrinking margins
• Result in red oceans becoming more bloody and the
traditional strategies may not work.
 The impact of creating blue oceans
• Study of business launches of 108 companies
86% line extensions – Incremental
improvements within existing market space
i.e. Red Oceans
• This 86% accounted for 62% of total revenues
and 39% of total profits. 14% Blue Oceans 38%
of revenues 61% of profits.
 Creating Blue Oceans
Guy Laliberte CEO of Cirque du Social Canada

1984 by a group of street performers Forty million

people in 90 cities.

In 20 years achieved revenues that Barnum &

Bailey took more than 100 years.

Not in attractive industry but in a declining industry.

 Creating Blue Oceans
Supplier power strong – star performers
Buyer power strong – alternative
entertainment
Increasing sentiment against use of animals in
circuses
Did not win by taking customers from the already
Shrinking industry.
Adults & corporate clients prepared to pay
more for unprecedented entertainment
experience
 Market Universe
Red oceans & Blue Oceans
• Industry in existence • Not in existence today
• Boundaries defined and • Unknown market space
accepted Untapped market space
• Competitive rules of the • Rules of the game waiting
game known to be set
• Grab greater share • Demand creation
• Market space gets crowded • Created well beyond
existing industry boundaries
or expanding
existing industry boundaries
 Market Universe
Red oceans & Blue Oceans
• Products become • Products become offerings
commodities • Competition irrelevant
• Cut throat competition • Move to different space
• Red ocean bloody • Break the value – cost trade
• Make the value – cost trade – off
– off • Align activities in pursuit of
• Align activities with choice differentiation & low cost
of differentiation or low
cost
 Transition to Blue Oceans
• Important to go through red ocean by
outcompeting rivals. But not sufficient to
sustain high performance

• Need to go beyond competing i.e. need to

create blue oceans
 The continuing creation of Blue Oceans

• Although term new, existence is not new

• 100 years back
Automobiles, Music recording, aviation were
unheard of
• 30 years back
Mutual funds, cell phones, bio technology were
unheard of
• Industries never stand still and evolve continuously
 U.S Automobile Industry
• Horse drawn carriages primary means of
transportation till close to 1900
• Few hundreds of auto manufacturers started making
custom built cars
• Luxury and very expensive
• Public resentment
• President Woodrow Wilson said “Nothing has spread
socialistic feeling more than the automobile – a
picture of the arrogance of wealth”
 U.S Automobile Industry
• Industry was small, unpopular and unattractive
• 1908 – Henry Ford introduced Model T
• Only one model & one color – black
• Majority of U.S citizens could afford
• 1908 – Cost $ 850 almost half of the existing price at
that time
• 1909 – Dropped to $ 609
• 1924 – Down to $ 290 against $ 400 for horse drawn
carriage
 U.S Automobile Industry
• Ford’s business model
High standardization, ordinary unskilled labor, lesser
time, lower costs, majority of U.S households could own
a car
• General Motors
Introduced a car for every purse & purpose
Made the car exciting, new styles & colors
From 1926 to 1950 total number sold in U.S up from 2
Million to 7 Million per year
 The Computer Industry
• Punch card tabulating machine - 1890
For improving inventory & accounting practices
• Main frame computer – IBM 650, later IBM 360
1950’s
• Personal computer in 1960’s & 1970’s
• PC Servers
• Dell model – Direct sale, customized machines, less
lead time, less inventory, less costs & lesser price to
the customers
 Value Innovation
• Cornerstone of blue ocean strategy
• Creating a leap in value for buyers as well as the
organization
• Equal emphasis on value & innovation
• Value without innovation focuses on value creation
on incremental scale. Improves value but not
sufficient to stand out in the market place
• Innovation without value tends to be technology
driven or futuristic
• Value innovation defies one accepted principle i.e.
value – cost trade off.
 Value Innovation
• In blue ocean strategy, organizations try to pursue
differentiation and low cost simultaneously
• E.g Cirque du Soleil – Neither an ordinary circus nor a
classic theater production. Tried to offer people the
fun & thrill of circus & intellectual sophistication &
artistic richness of the theater at the same time. Did
away with focusing on animal shows & hiring star
performers. Injected the concept of multiple
productions & increased demand. Reduced cost
structure
 The Six Principles of Blue Oceans Strategy

• Reconstruct market boundaries

• Focus on the big picture, not the numbers
• Reach beyond existing demand
• Get the strategic sequence right
• Overcome key organizational hurdles
• Build execution into strategy
 Reconstruct Market Boundaries
• Identify commercially compelling blue oceans
opportunities – Six path framework
 Instead of defining industry similarly &
focus on being the best within it, look across
alternative industries. Products/services with
different forms but offering same utility.
Also products/services with different forms
& functions but serving the same purpose.
Focus On The Big Picture Not The Numbers

• How to align strategic planning process to

focus on the big picture and applying these
ideas in drawing the company’s strategy
canvas. The key is mitigating the planning risk
of investing lots of effort and time but
delivering only tactical red ocean moves. A
structured process for drawing and discussing
the strategy canvas towards a blue ocean
consists of four steps.
 Reach Beyond Existing Demand
• Instead of concentrating on customers, need to look
at non customers. Instead of focusing on customer
differences, need to build on powerful
commonalities. Unlock a new mass of customers that
did not exist before.
• Three tiers of non customers. First is closer to your
market and sitting on the edge. If offered a leap in
value, they would not only stay but increase their
purchase frequency.
 Reach Beyond Existing Demand
• The second tier is those who refuse to use your
offerings. Look for the commonalities across their
responses. Focus on these and not on their
differences. Gives insight into how to unleash an
ocean of latent untapped demand.
• The third tier are those farthest away from the
existing customers. By focusing on key
commonalities across these non customers and the
existing customers, companies can understand how
to pull them into their new market.
Get The Strategic Sequence Right
Buyer utility
Is their exceptional
buyer utility in your business
idea? No - Rethink

Yes

Price
Is your price easily
accessible to the mass of buyers?
No - Rethink
Yes

Cost
Can you attain your cost
target to profit at your strategic price? No - Rethink
Yes

Adoption
What are the adoption hurdles
in actualizing your business idea?
Are you addressing them up front? No - Rethink

Yes

A commercially viable
Blue Ocean Idea
 Get The Strategic Sequence Right
• Buyer utility – Does the offering unlock
exceptional utility & is there a compelling
reason for most people to go for it. If no,
continue to rethink until you reach an
affirmative answer.
• Setting the right strategic price – Is the
offering priced to attract the mass of target
buyers.
 Get The Strategic Sequence Right
• Cost – Is it possible to provide the offering at
the target cost and still earn a healthy profit
margin. Remember not to let the cost drive
prices. If not possible to meet the target cost,
innovate to hit the target cost or forego the
idea.
• Adoption hurdles – Address adoption hurdles
in the beginning to ensure successful
actualization of the idea.
Overcome Key Organizational Hurdles
• Cognitive – Waking employees up to the need
for a strategic shift.
• Limited resources – Normal thinking is greater
the shift in strategy, greater are the resources
needed to execute it. But it has to be the
other way round. Resources may have to be
cut and not raised.
Overcome Key Organizational Hurdles
• Motivation – How to motivate key players to
move fast and tenaciously to carry out the
break from the status quo? In the normal
course may take even years but that kind of
time not available in today’s world.
• Politics – Many people in the organization are
ready to shoot down ideas even before they
come up.
Overcome Key Organizational Hurdles
• Tipping point leadership – It allows you to overcome
the four hurdles fast & at a low cost.
• TPL traces its roots to the field of epidemilogy and
the theory of tipping points. Fundamental changes
can happen quickly in an organization when the
beliefs and energies of a critical mass of people
create an epidemic movement toward an idea.
 Overcome Key Organizational Hurdles
• TPL builds on the rarely exploited reality that in every
organization, there are people, acts and activities
that exercise a disproportionate influence on
performance.
• By single minded focus on points of disproportionate
influence, tipping point leaders can topple the four
hurdles that limit execution of blue ocean strategy
very fast and it low cost.
 Build Execution Into Strategy
• Build people’s trust and commitment deep in
the ranks and inspire their voluntary
cooperation – Build execution into strategy
right from the beginning.

• Helps organization to minimize the risk of

distrust, non cooperation, sabotage etc.
 Build Execution Into Strategy
• Fair process – Engagement, Explanation & (clarity of)
Expectation
• Engagement – Involving the individuals by asking for
their input. Results in greater commitment from all
involved in execution.
• Explanation – Everyone involved to understand why
those strategic decisions are made.
• Expectation clarity – After strategy is set, managers
state clearly the new rules of the game.
 Sustainability & Renewal
• Over time almost every blue ocean strategy
will be imitated.
• Trying to hang on to the market share, fall into
the trap of competition.
• To avoid this trap, organizations need to
monitor value curves on the strategy canvas.
 Sustainability & Renewal
• Monitoring value curves signals when to go in
for next value innovation. That is when your
value curve begins to converge with those of
the competition.
• When the value curve still has focus,
divergence one should resists value innovation
but should try to lengthen, widen & deepen
the value stream through operational
improvements.
 Sustainability & Renewal
• As competition intensifies and supply exceeds
demand, the blue ocean turns red.
• Organizations should try to swim as far as
possible in the blue ocean and make
themselves a moving target. They should
distance themselves from the early imitators
and discourage them in the process.
 Bottom of the Pyramid
• Management scholar CK Prahalad popularised the idea of
this demographic as a profitable consumer base in his 2004
book ‘The Fortune at the Bottom of the Pyramid’.
• Prahalad proposed that businesses, governments, and
donor agencies stop thinking of the poor as victims and
instead start seeing them as resilient and creative
entrepreneurs as well as value-demanding consumers. He
proposes that there are tremendous benefits to multi-
national companies who choose to serve these markets in
ways responsive to their needs. After all the poor of today
are the middle class of tomorrow. There are
also poverty reducing benefits if multi-nationals work with
civil society organizations and local governments to create
new local business models.
 Bottom of the Pyramid
• The Bottom of the Pyramid is a socio-
economic concept that allows us to group that
vast segment - in excess of about four
billion - of the world’s poorest citizens
constituting an invisible and unserved market
blocked by challenging barriers that prevent
them from realising their human potential for
their own benefit, those of their families, and
that of society's at large.
 Bottom of the Pyramid – Some
Examples
Microcredit
• One example of "bottom of the pyramid" is the growing
microcredit market in South Asia, particularly in
Bangladesh. Dr Muhammad Younus founded the Grameen
Bank for this purpose and was awarded the Nobel Prize.
With technology being steadily cheaper, it is becoming
economically efficient to "lend tiny amounts of money to
people with even tinier assets". An Indian banking report
argues that the microfinance network helps the poor and
allows banks to increase their business. Modi’s Jan Dhan
Yojana launched in August 2014 resulted in 30 crores
families getting bank accounts opened in a short period of
time and made banking services accessible to the poorer
sections of the society.
 Bottom of the Pyramid – Some
Examples
Market-specific products
• One of many examples of products that are
designed with needs of the very poor in mind
is that of a shampoo that works best with cold
water and is sold in small packets to reduce
barriers of upfront costs for the poor. Such a
product is marketed by Hindustan Unilever.
Initially the shampoo in sachet was
introduced by CavinKare.
 Bottom of the Pyramid – Some
Examples
Innovation in the BoP
• There is a traditional view that BOP consumers do not
want to adopt innovation easily. However, C.K Prahalad
claimed against this traditional view and found that the
BOP market is very eager to adopt new innovations.
For instance, BOP consumers are using PC kiosks,
Mobile phone, Mobile banking etc. Relative advantage
and Complexity attributes of an innovation suggested
by Everett Rogers significantly influence the adoption
of an innovation in the Bottom of pyramid market.
Therefore, innovation developed for this market should
focus on these two attributes - Relative advantage and
Complexity.
 Bottom of the Pyramid – Some
Examples
Venture capital and Angel Investors
• Prahalad originally focused on large corporations
for developing BoP products and entering BoP
markets. In the current scenario in India, Small to
Medium Enterprises (SME) play a bigger role.
This offers an opportunity to enter new venture
capital markets. Although several social venture
funds are already active, Venture Capital (VC)
funds and Angel Investors are now emerging.