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Strategy Frameworks

Agenda

Strategy Frameworks—Overview

Strategy Frameworks
Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.

• BCG Frameworks
• External Frameworks

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A brief history of business strategy

The 1960s The 1970s The 1980s The 1990s The 2000s The 2010s
Focus of Position & Networks and
Cost leadership Capabilities ???
strategy: portfolio deconstruction
BCG's Experience Competitive cost Time-based Capabilities Adaptive
frameworks: curve structures competition competition Trading Up advantage
C ost F le x ib le E m o tio n a l
In c re a s e d
v a lu e
d e liv e r y v a r ie ty

F u n c tio n a l

In c re a s e d F a s te r

C u m u la tiv e o u tp u t in n o v a tio n re s p o n s e T e c h n ic a l

Growth-share Portfolio Network

Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.

matrix management Reengineering Deconstruction economics Stacks

?

G ro w th

$$$

S h a re

Rule of Three Competitive env. Economics of Thinking in new

and Four matrix information Payback boxes
M a r g in R ic h n e s s V isio n

# W a y s to "H o p e fu lly th a t… "

a c h ie v e
adv. S ce n a rio 2 S ce n a rio 3

S ce n"B u t if…
a rio 1 " "B u t if…
S ce"n a rio 4
"B u t if… " "B u t if… "
P o te n tia l R each
R e la tiv e s h a r e
com p. adv.

External • Cost analysis • Nine-box GE matrix • Resource-based • Innovator’s • Blue Ocean • Temporary
• Supply curves • Porter's five forces competition dilemma • Information advantage
frameworks: • 7-S • Value chain strategy • Balanced Score economics
• Game theory • Quality Card • Sustainability
• Scenarios • Best practices • Lean
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Agenda

Strategy Frameworks—Overview

Strategy Frameworks

Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.
• BCG Frameworks
• External Frameworks

Strategy_Frameworks-17Feb15-SA-NDE.pptx Draft—for discussion only 3

Agenda

Strategy Frameworks—Overview

Strategy Frameworks
Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.

• BCG Frameworks
• External Frameworks

Strategy_Frameworks-17Feb15-SA-NDE.pptx Draft—for discussion only 4

Experience curve

Framework Description and objectives

Log unit cost (c) Experience curve is a concept developed in

B Cost parameters 1965/66 by Bruce D. Henderson
Choice of metric, base of
reference, estimative of It states that unit costs will decline as
initial commercial cost C cumulative volume increases over time
Co Slope (experience rate)
Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.

Own curve or analogies The experience curve results from

with industries, products combination of multiple forces for
or processes, with cost improvements
different probabilities • Employee learning, improved process
technology and equipment, economics of
scale, etc.

However, experience effects do not occur

without conscious action by workers and
Vo A Log accumulated management
Volume parameters volume (v) • Costs do not fall by natural inclination,
Choice of metric, base they rise
of reference, estimative
of initial commercial cost
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Growth-share matrix

Framework Description and objectives

High The growth-share matrix is a chart that was

?
created by Bruce D. Henderson in 1970 to help
corporations analyze their business units

It represents the relationship of cash use and

cash generation

Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.
Cash use • The use of cash is proportional to the rate of
(market Question marks Stars growth of any product. The generation of cash
growth is a function of market share because of the
rate) experience curve effect

It is a valuable tool for analyzing strategic

tools and options
• Helps companies allocate resources and is
used as an analytical tool in brand
Low Dogs Cash cows marketing, product management, strategic
Low Cash generation High management, and portfolio analysis
(relative market share)

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Competitive cost structures

Framework Description and objectives

Competitive cost structures are used to

High price compare a company's, industry's, etc.
0% 10%
segment performance along a certain dimension to
its competitor. They and are especially important
to assess potential mass market participation
Mid price
Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.

5% 1% Helps to answer core strategic questions

segment
• How vulnerable is client’s competitive position
in mid/low price segment?
• Can client participate in the low or mid price
Low price 30% 0% mass market segment at all?
segment • How does client need to adapt production
approach for participation in different price
segments?
Share • Is client deploying cost-effective raw/
Market
of main Client share packaging materials?
volume competitor • What could be competitive reactions to certain
client strategies?

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Portfolio management

Framework Description and objectives

Advanced portfolio management has its seeds

Hold Entry
? in finance and was applied to corporations for
the first time with the BCG matrix

Invest or Exit The framework has been derived from the growth-
Market growth

share matrix and is one of its several applications

Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.

A diversified business portfolio enables a

company to carry the process of business
evolution to a higher level of complexity
Hold Divest
Harvest Harvest With the help of the framework, companies can
direct capital investment into the most
productive areas, but it must develop distinct
investment and strategy development skills
R&D
Relative market share

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Rule of Three and Four

Framework Description and objectives

Example: US Automobile Industry in 1976

The "Rule of Three and Four" is an intriguing
PBIT (as % of sales)1 hypothesis about the evolution of industry
structure and leadership by Bruce Henderson
15

It states that a "stable, competitive" industry

General Motors will never have more than three significant

Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.
10
competitors. Moreover, that industry structure
will find equilibrium when the market shares of the
Ford
three companies reach a ratio of approximately
5 Chrysler 4:2:1, where the largest has no more than four
times the market share of the smallest.

0 The rule has remained a predictor of the

AMC
evolution of industry structures in "stable,
competitive" industries over the decades, with the
-5 caveat that many industries have experienced a
0.0 0.5 1.0 1.5 2.0 departure from such stable conditions
Relative market share

1 . P B IT = P ro fit B e fo re In te re st a n d T a xe s
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Time-based competition

Framework Description and objectives

Traditionally, businesses strove to produce high-

quality goods at the lowest possible cost. But, the
framework emphasises that the added element
Flexible Increased
value of speed is ultimately the key to competitive
variety advantage. Time is seen as a resource
delivery
Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.

The acceleration of cycle times not only

allowed companies to remove waste from the
process, it also provided a host of competitive
benefits
Increased Faster • By responding more quickly, companies
innovation response enhanced their productivity and also gained
favour with customers, thereby achieving
higher market share
• By embracing the principles of time-based
competition, the businesses also reduced
complexity and rework and increased
transparency, allowing them to break the
assumed trade-off between cost and quality

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Reengineering

Framework Description and objectives

Reengineering aims at increased

competitiveness and profitability via simpler,
leaner, more productive business systems
and processes

Employed methods include: cross-functional

Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.

teams, mapping, benchmarking, learning from

front-line employees, customer input,
throwing out old paradigms in favour of
new ones

Most major firms have reengineered at least

some parts of their business—usually with
dramatic impact

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Competitive environment matrix

Framework Description and objectives

Many Businesses can survive independently for the

fragmented specialised
long term only if they are advantaged relative
to their competitors. Only then sustainable
achieve advantage
Number of ways to

returns above the cost of capital can be generated

Competitive advantage must be

Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.
Profitability • Based on a tangible difference in cost or
stalemate volume
price realization
• Based on defensible position or capabilities
• Relative to the leading competitor
• Relative to the marginal (price setting)
Few Size competitor

Low High The competitive environment matrix (also

Potential competitive known as BCG's Advantage matrix) recognizes
advantage differences in scope for advantage by
~ Scale/
experience industry. Applicable to volume, specialization,
advantage fragmentation and stalemate businesses

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Capabilities-based competition

Framework Description and objectives

Capabilities are a company's ability to manage

Identify key capabilities key cross-functional processes in order to
deliver identified value to the customer

The need to focus on building capabilities is

universal
Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.

Measure your capabilities • The framework was developed in the 1990s

as a prescribed strategy for re-engineering

In order to compete on capabilities, the

following framework is applied
Map the “competitive • Identifying key capabilities
space” • Measuring the identified capabilities
• Mapping the "competitive space"
• Focusing the strategy accordingly

Focus the strategy Capabilities are built systematically and the

choice is unique to each institution

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Deconstruction

Framework Description and objectives

From: Competition To: Layer
within industries competition Deconstruction refers to the process of outsourcing
value chain activities by
certain players
Analysis involves identifying industry value chain,
mapping players against it, analyzing structure and
characteristics of the value chain, assessing recent and
Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.

current trends that are changing the value chain,

understanding rationale behind recent and current trends
TV
Com-
Phone
and analyzing impact on industry
puter Screen manufacturer
screen screen
screen
The framework is used to evaluate the
• Landscape of industry players and activities
• Evolution of value chain structure
• Evolution of players' positions
• Impact of past and current changes on industry and
competitive dynamics
Deconstruction leads to a shift from competition
within industries to layer competition (competition
within different layers/ modules of the value chain)
TV Computers Cellular TV Computers Cellular
Phones Phones
Competition within industries Layer competition
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Economics of information

Framework Description and objectives

The way companies used information was

traditionally governed by a fundamental trade-
off between richness and reach
Universal
broadband As more and more information is available
electronically, this trade-off has diminished

Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.
greatly
"Richness"
(Bandwidth, Companies need to reposition their strategies
Customization,
Interactivity) as the new economics of information has
changed the way companies compete

Traditional The competitive implications of this

tradeoff development are profound
• Existing value chains are becoming fragmented
• Traditional barriers to entry enjoyed by
"Reach" (Connectivity) incumbents might become liabilities
• Existing companies rethinking their value
propositions and business models

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Trading up

Framework Description and objectives

Trading up shows a purchasing pattern of

Emotional middle class consumers "trading up" to
higher levels of quality, taste, aspiration
How the product makes
• Phenomenon cutting across different
customer feel categories
• Willingness of consumers to pay a premium
Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.

for certain brands/products

• Applies to consumer goods companies
Functional
New rules shattering conventional beliefs
What the product/experience
• High price and higher volume
provides to the customer
• A different demand curve
• Disproportionate profits
• Branding and segmentation
Technical
Trading up is driven by the interplay of
What the product/ functional and emotional benefits. It defies
experience does/is conventional customer research

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Network economics

Framework Description and objectives

A market consists of a "network" of buyers

and sellers and can become advantaged if it is
• Known to sellers as the place where the
buyers will be, and
• Known to the buyers as the place the sellers
will be
Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.

Once established, such marketplaces can be

very hard to displace
• But displacement is extremely rapid once a
certain critical mass is lost …
• and highly profitable if a suitable business
model can be found

"Network economics" is a shorthand way of

referencing these dynamics and can be
applied to any products/services company

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Payback

Framework Description and objectives

Payback seeks to solve the most important

problem that confronts business people: How to
get a better return on investments in innovation
Speed (time Scale (time The framework states that any company can
to market) to volume)
innovate and achieve a healthy return if it

Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.
• Sets clear payback goals for its
Cumulative cash

innovative efforts
• Operates in a disciplined way
0 Time
Start-up Support • Selects the optimal innovation business model
(prelaunch (post-launch for each product or service
investment) investment)
• Aligns its organization around innovation
Launch • Exercise leadership practices that encourage,
Idea
motivate and enable people within the
generation Commercialization Realization company to innovate

The process comprises of three steps: Idea

generation, commercialization and realization

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Adaptive advantage

Framework Description and objectives

Capabilities of adaptive advantage involve

• Signal advantage: Detect, capture and
exploit information patterns
2 Ex • Experimentation advantage: Improve
A d p e rim economics of experimentation
l e va
n a ta g n ta e n ta
S ig v a n ge tio
n
• Organization advantage: Shape human
2 Ad Adaptive
Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.

1 context for adaptation

• Systems advantage: Shape business
ecosystems
Position
• Eco-social advantage: Align model with
5

social and ecological context

n
A d v n iz a tio
E c o n ta g e

ge
Adv

Capability
a n ta
-S o

Being adaptive is valuable and the value of

a

a
O rg
c ia l

adaptability is increasing
Advantage • Adaptability to turbulence pays off in short
3

and long term

Systems
4 • However, matching style to environment is
Advantage
valuable

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Stacks

Framework Description and objectives

New form of corporate and industrial organization:

Stack (typically information services) A stack is a modular, layered, industrial
architecture topped by a peering community
Suppliers and customers, professionals and
amateurs, are interchangeable, or treated alike It pictures an industry as parsed horizontally
C o n tin u u m among dissimilar "actors" and delivering
Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.

A m a te u r value bi-directionally, with lower layers

(ch ie fly
co n su m in g )
providing platforms on which participants in
higher layers engage in peer transactions
P ro fe s s io n a l
(ch ie fly
p ro d u cin g ) In many cases, they have advantages over
traditional architectures, especially with respect
to innovation, adaptability, and the efficient
exploitation of scale
Functions are nested, switched interoperably; The skeleton of a stack is a set of rules, often
tasks passed among functions with no
predetermined path; IT enables interoperability contractual or embedded in the technology, by
which markets, hierarchies, self-organizing "clans"
of actors coexist and co-participate symbiotically

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Thinking in new boxes

Framework Description and objectives

Thinking in New Boxes is a new standard for

practical creativity and a "product" of BCG's
vast creativity experience in handling complexities
of the modern world
Re-evaluate Doubt At the core of the methodology lies a practical

Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.
5-step approach to generating fresh and
useful new perspectives, and changing the
Thinking in way we look at old ideas
New Boxes
Converge The framework helps find "new" boxes/view-
Explore points to create relevant and valuable ideas
• Doubt everything and explore what is really
possible
• Diverge from the norm, converge around
Diverge what is feasible, and remember to re-valuate

It can effectively be applied to a vast array of

business opportunities

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Agenda

Strategy Frameworks—Overview

Strategy Frameworks
Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.

• BCG Frameworks
• External Frameworks

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Cost-benefit analysis

Framework Description and objectives

Cost-benefit analysis is a systematic approach

for calculating and comparing benefits and
costs of a project, decision or government
mb mc policy
Marginal cost
Cost-benefit analysis is used ...
Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.

mc <mb Optimum mb < mc • To determine if an investment/decision is

Benefits or costs

justified and feasible

• To provide a basis for comparing projects
(comparing total expected cost of each option
mc = mb mb against total expected benefits, to see whether
the benefits outweigh the costs and by how
mc Marginal benefit much)

Benefits and costs are expressed in monetary

Effort or expenditure on hazard prevention, etc. terms, and are adjusted for the time value of money,
so that all flows of benefits and flows of project costs
over time are expressed on a common basis in terms
of their "net present value"

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Supply and demand

Framework Description and objectives

In microeconomics, supply and demand is

an economic model of price determination
in a market
P S
D1 D2
It concludes that in a competitive market, the unit
price for a particular good will vary until it settles

Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.
at a point where the quantity demanded by
consumers (at current price) will equal the quantity
supplied by producers (at current price), resulting
P1 in an economic equilibrium for price and quantity
P2
Demand and supply also explain macro-
economic variables in a market economy,
including the quantity of total output and the
general price level
Q1 Q2 Q • The "Aggregate Demand-Aggregate Supply
model" may be the most direct application of
supply and demand to macroeconomics, but it
is also used in other macroeconomic models

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GE-McKinsey nine-box matrix

Framework Description and objectives

The GE-McKinsey nine-box matrix offers a

systematic approach for the multi-business
corporation to prioritize its investments
among its business units
Invest/
High
Industry attractiveness

Grow
Rather than relying on each business unit's
Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.

projections of its future prospects, the

Selectivity/
Medium Earnings company can judge a unit by two factors that
will determine whether it's going to do well in
Harvest/ the future
Low Divest • Attractiveness of the relevant industry
• The unit's competitive strength within that
High Medium Low
industry

Placement of business units within the matrix

Competitive strength of business unit provides an analytic map for managing them

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Porter's five forces

Framework Description and objectives

Porter's five forces is a framework for industry

Threat
analysis and business strategy development
of new
entrants
It draws upon industrial organization economics
to derive five forces that determine the
competitive intensity and therefore
Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.

attractiveness of a market
Bargaining Competitive Bargaining
power of rivalry within power of Porter's five forces include three forces from
suppliers an industry customers "horizontal" competition (threat of substitute
products, threat of established rivals, and threat of
new entrants) and two forces from "vertical"
competition (bargaining power of suppliers and
Threat of bargaining power of customers)
substitute
products The framework is applied to a diverse range
of problems, from helping businesses become
more profitable to helping governments stabilize
industries

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McKinsey 7-S framework

Framework Description and objectives

The McKinsey 7-S Framework is a management

model developed by Robert H. Waterman,
Style and Thomas J. Peters in the late 1970s

The framework wants to address the critical

Strategy Skills role of coordination, rather than structure, in

Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.
organizational effectiveness.

Shared The model is most often used as a tool to

values assess and monitor changes in the internal
situation of an organization. It is based on the
theory that, for an organization to perform well,
Staff Systems the seven elements need to be aligned and
mutually reinforcing. So, the model can be used
to help identify what needs to be realigned to
improve performance, or to maintain alignment
Structure (and performance) during other types of change

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Game theory

Framework Description and objectives

Simultaneous Games Game theory is "the analysis of a situation

involving conflicting interests (as in business
or military strategy) in terms of gains and
losses among opposing players"
High (Merriam-Webster)
Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.

Game theory is mainly used in economics,

political science, and psychology as well as logic
Players A
and biology. In business strategy, game theory
and B move Low analyses oligopolies.
at exactly the
same time
Game theory could be particularly useful for
Left Right • Pricing decisions in "commodity-type" markets
• Market entry and pre-emption situations
• Capacity addition or reduction analysis
• Analysis of alliances in on-line B2B markets
Player A Player B • ...

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Scenario planning

Framework Description and objectives

Scenario planning is a structured way to think

1.
about how the future of the business
Research
the driving environment could unfold. It is used for structuring
forces executives' perceptions about long term alternative
6. 2. future environments in which their decisions might be
Determine played out. It helps to prepare for uncertainty, to
Monitor patterns of
Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.

indicators understand a broader range of what may happen

interaction

Steps in Scenarios are intended to expand the

scenario planning boundaries of possible future state

5. 3. Numerous organizations (e.g. Royal Dutch Shell,

Evaluate Create Motorola, Disney and Accenture) have applied
scenarios scenarios scenario planning to a broad range of issues,
from relatively simple, tactical decisions to the
4. complex process of strategic planning and vision
Analyze building
implications

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Resource-based competition

Framework Description and objectives

Figure 1: The resource-based view over time The resource-based view is an approach to
Time achieve competitive advantage, where a
bundle of resources are seen as key to
Sustainability excellent firm performance
Competitive advantage phase phase
It relies on tangible or intangible resources, that

Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.
Productive use Is sustained over fulfil the following criteria
of firm resources leads to which time due to
Short term • Valuable
which are … competitive resource …
• Valuable • Imitability • Rare
advantage
• Rare • Substitutability • In-imitable and
• Appropriate • Mobility
• Non-Sustainable
Ex-post limits
Ex-ante limits to competition to competition If a resource exhibits those attributes, it enables
the firm to gain and sustain competitive
… sustains … advantage
Value Low substitutability

Low mobility
Rarity … sustains …
Low imitability

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Value-chain strategy

Framework Description and objectives

The value chain categorizes the value-adding

activities of an organization and is described to
rightfully measure benefits of scale/experience
Support activities

Firm Infrastructure
accumulation
Human Resource Management
The concept was described and popularized
Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.

Technology
by Michael Porter in 1985
Margin

Procurement
Porter describes generic primary activities, which
are facilitated by support activities, both with the
goal to generate a profit margin/competitive
Inbound Oper- Outbound Marketing
Logistics ations Logistics and Sales Service advantage

Products pass through the value chain and with

each activity the product gains some value. The
Primary activities chain of activities gives the products more
added value than the sum of added values of
all activities

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Quality

Framework Description and objectives

Five aspects of quality in a business context

• Producing: Providing something
• Checking: Confirming that something has
Define
been done correctly
• Quality Control: Controlling a process to
Measure ensure that the outcomes are predictable
Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.

• Quality Management: Directing an organi-

zation so that it optimizes its performance
Plan
Do
through analysis and improvement
Control • Quality Assurance: Obtaining confidence
Act
that a product or service will be satisfactory
Study
The emergence of tools like Asset Optimization
Analyze and six sigma is an interesting development in
the application of quality principles in business

Improve Six sigma quality assurance involves a five-step

process called DMAIC (Define, Measure,
Analyze, Improve and Control)

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Best practices

Graphic Description and objectives

• Increased accuracy • Discover A best practice is a method or technique that

• Analyze versus process • Enable, enforce
• Greater spans of control • Risk, compliance has consistently shown results superior to
Value • Performance those achieved with other means, and that is
used as a benchmark

People/Users SLM process Best practice is the process of developing and

Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.
Best following a standard way of doing things
practices
Supplier data SaaS technology It is used to maintain quality as an alternative
to mandatory legislated standards and can be
based on self-assessment or benchmarking
Cost/
• Accurate, timely, • Visibility, agility, control
complete Risk • Rapid time to value A key strategic talent required when applying best
• Better decision making
practice to organizations is the ability to balance
the unique qualities of an organization with the
practices that it has in common with others
Best practices=
More value at lower cost with less risk

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The innovator's dilemma

Framework Description and objectives

The Innovator's Dilemma is a business

Performance demanded at
strategy framework developed by Clayton
the high end of the market
Christensen (professor at Harvard Business
School) in his book titled "The Innovator's
due to ies
ress Dilemma: When New Technologies Cause
Prog technolog
ining Great Firms to Fail" (1997)
susta
Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.

o s
Product performance

e t gie
du olo It argues that companies can eventually fall
ss n
re ch behind by putting too much emphasis on
rog e te customers' current needs, and failing to adopt
P tiv
p new technology or business models (to meet
ru
dis customers' unstated or future needs)
Performance demanded
at the low end of the market or Two types of technologies involved:
in a new emerging segment • Sustaining technologies (that improve
product performance)
• Disruptive technologies (innovations that
result in worse product performance in the
Time near term and shows superior performance
with time in the long term)
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Balanced scorecard

Framework Description and objectives

Balanced scorecard
Balanced scorecard is a strategy performance
Customer management tool
Objectives
Measures It is used by management for
Targets • Tracking the execution of activities
Initiatives
• Monitoring the consequences arising out of
Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.

these activities
Finance Internal

Objectives Strategy Objectives The output of the framework is a comparison

Measures Measures sheet of "measures taken" with their "target
Targets Targets
Initiatives Initiatives
values"
• However, it does not replace traditional
financial or operational reports but is a short
Education
summary that captures the information most
Objectives relevant to decision-makers
Measures
Targets
Initiatives

Balanced scorecard Training Design Implement Use

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Blue Ocean Strategy

Graphic Description and objectives

Red Ocean and Blue Ocean strategy1 Blue Ocean Strategy was developed by W.
Red Ocean strategy Blue Ocean strategy Chan Kim and Renée Mauborgne (Professors,
INSEAD) in 2005
• Compete in existing • Create uncontested • Based on a study of 150 strategic moves
market space market space across thirty industries spanning more than a
hundred years

Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.
• Beat the competition • Make the competition
irrelevant It states that companies cannot succeed just
by fighting with competitors. They need to
• Exploit existing demand • Create and capture
new demand create uncontested market space (also called
"blue oceans") in order to create a leap in
• Make the value/cost • Break the value/cost value for all the stakeholders involved
trade-off trade-off • Competition is made irrelevant
• New demand is created and captures
• Align the whole system • Align the whole system
of a company's activities of a company's activities
with its strategic in pursuit of differen- Blue oceans denote all the industries not in
choice of differentiation tiation and low cost existence today
or low cost

1 . w w w .va lu e b a se d m a n a g e m e n t.n e t
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Applied information economics

Framework Description and objectives

The applied information economics approach

Applied information economics is a decision
(Ongoing evaluations deci- analysis tool developed by Douglas W.
sions, and course corrections)
Hubbard in 2007
Start: Build a
Define decision
decision(s) model It incorporates the following steps:
• Calibrated probability assessment
Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.

• Computing the value of additional information

Select/ Add/update Compute • Application of empirical methods
Calibrate values information • Use of various optimization methods
estimators in model values

The theory assumes that anything impacting

Do any
an organization is observable and measurable
Collect/ No
Analyze variables have Make
new a significant decision Applied information economics involves
observation EVPI?
practical applications of proven methods
Yes from decision theory and risk analysis
(Pseudo- Select/Design Decompose
Bayesian or measurement the variable
additional instrument (if possible)
expert polling)

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Sustainability

Framework Description and objectives

Tomorrow Sustainability in business refers to having

minimal negative impact on environment,
Disruption Population community, society, or economy
Clean Sustainability
Clean tech technology vision Poverty
Footprint Inequity A sustainable business fulfils the following
four criteria
Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.

• Influence of 'principles of sustainability' on

business decisions (e.g., having a
Sustainable sustainability vision)
Internal External • Supply of environmentally friendly products or
value
services (e.g., products causing less pollution/
waste)
• Greener than traditional competition (e.g.,
Pollution Civil society clean technology)
Pollution
Integration of • Commitment to environmental principles (e.g.
consumption stakeholder Tranparency
prevention key stakeholders committed to sustainability)
Waste views connectivity
Sustainable value is measured by the overall
Today
impact of business (internal/ external, present/
future etc.)
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Lean

Framework Description and objectives

The concept of lean manufacturing states that

Improve any expenditure other than value creation for
cash the end customer is wasteful and can be
flow Time eliminated
focus • "Value" defined as any action/ process that a
customer would be willing to pay for

Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.
Lean
The production practice has been derived
Reduce programme
from Toyota Production System (TPS)
costs • Reduction of the original Toyota seven
wastes to improve overall customer value
• Toyota's growth has focused attention on the
Process Increase concept of lean
focus revenue
Lean manufacturing framework is focused on:
• Process: Reducing costs
• Customer: Increasing focus
Customer
• Time: Improving cash flow
focus

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Temporary advantage

Framework Description and objectives

Temporary advantage is a management

philosophy, stating that "industry leaders are
dethroned more frequently than is commonly
believed"
• More aggressive firms are more successful
• More dynamic strategies required to tackle
Copyright © 2014 by The Boston Consulting Group, Inc. All rights reserved.

Returns disruptions in the environment

Temporary advantage enables a firm to

position itself strategically by matching its
evolution with the rapidly evolving external
forces
Launch Ramp up Exploit Reconfigure Disengage
Five steps in a temporary advantage
framework include: launching a strategy,
ramping up, exploitation, reconfiguration and
disengagement

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