University of California Business Management Case Studies Essay There are 5 short essay questions and you’ll need to read 7 cases and also go over the clas

University of California Business Management Case Studies Essay There are 5 short essay questions and you’ll need to read 7 cases and also go over the class handout. The question will be out in few hours but I only have 24 hours to complete, so I need to please the tutor to read the cases first to make sure the tutor can finish the question in 24 hours https://sloanreview.mit.edu/article/the-nine-elements-of-digital-transformation/ HBR.ORG
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SPOTLIGHT ON WHERE STRATEGY STUMBLES
Red Ocean Traps
The mental models that undermine marketcreating strategies by W. Chan Kim and
Renée Mauborgne
This document is authorized for use only by YUJEN Liang in Spring 2020 MGT 112 Zimmermann taught by JILL ROSENOW-FARWELL, University of California – San Diego from Mar 2020 to
Jun 2020.
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SPOTLIGHT ON WHERE STRATEGY STUMBLES
SPOTLIGHT
ARTWORK Yayoi Kusama
Dots Obsession, 1998
Collection les Abattoirs, Toulouse, France
Red Ocean Traps
The mental models that undermine
market-creating strategies
by W. Chan Kim and Renée Mauborgne
2 Harvard Business Review March 2015
I
n America, corporate performance
has been deteriorating for decades.
According to Deloitte’s landmark study
“The Shift Index,” the aggregate return
on assets of U.S. public companies has
fallen below 1%, to about a quarter of
its 1965 level. As market power has
moved from companies to consumers,
and global competition has intensified,
managers in almost all industries have
COPYRIGHT © 2015 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.
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©YAYOI KUSAMA. COURTESY OF DAVID ZWIRNER,
VICTORIA MIRO GALLERY, OTA FINE ARTS, KUSAMA ENTERPRISE
W. Chan Kim and Renée Mauborgne are professors of
strategy and management at INSEAD and the codirectors of
the INSEAD Blue Ocean Strategy Institute, in Fontainebleau,
France. They are the authors of Blue Ocean Strategy,
Expanded Edition (2015). See www.blueoceanstrategy.com.
come to face steep performance challenges. To turn
things around, they need to be more creative in developing and executing their competitive strategies.
But long-term success will not be achieved through
competitiveness alone. Increasingly, it will depend
on the ability to generate new demand and create
and capture new markets.
The payoffs of market creation are huge. Just com­
pare the experiences of Apple and Microsoft. Over the
past 15 years, Apple has made a series of successful
market-creating moves, introducing the iPod, iTunes,
the iPhone, the App Store, and the iPad. From the
launch of the iPod in 2001 to the end of its 2014 fiscal
year, Apple’s market cap surged more than 75-fold as
its sales and profits exploded. Over the same period,
Microsoft’s market cap crept up by a mere 3% while
its revenue went from nearly five times larger than
Apple’s to nearly half of Apple’s. With close to 80%
of profits coming from two old businesses—Windows
and Office—and no compelling market-creating
move, Microsoft has paid a steep price.
Of course, it’s not that companies don’t recognize
the value of new market spaces. To the contrary, their
leaders increasingly are committed to creating them
and dedicate significant amounts of money to efforts
to do so. But despite this, few companies seem to
crack the code. What, exactly, is getting in their way?
In the decade since the publication of the first
edition of our book, Blue Ocean Strategy, we’ve had
conversations with many managers involved in executing market-creating strategies. As they shared
their successes and failures with us, we identified a
common factor that seemed to consistently undermine their efforts: their mental models—ingrained
assumptions and theories about the way the world
works. Though mental models lie below people’s cognitive awareness, they’re so powerful a determinant
of choices and behaviors that many neuroscientists
think of them almost as automated algorithms that
dictate how people respond to changes and events.
Mental models have their merits. In dangerous
times, a robust mental model can help you quickly
make decisions that are critical to survival. And we
have no issue with the soundness of the mental models that we saw managers apply. They were grounded
in knowledge acquired in classrooms and from years
of business experience. They help managers respond
better to competitive challenges. But our conversations suggest that the mental models managers rely
March 2015 Harvard Business Review 3
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SPOTLIGHT ON WHERE STRATEGY STUMBLES
TRAP ONE
Seeing Market-Creating Strategies as
Customer-Oriented Approaches
Growth comes from
converting nonusers. Sony
focused on improving
e?readers’ legibility to
please current customers.
But Amazon’s Kindle
addressed the number
one concern of nonbuyers:
too few available titles.
Amazon won.
Generating new demand is at the heart of marketcreating strategies. It hinges on converting non­
customers into customers, as Salesforce.com did
with its on-demand CRM software, which opened
up a new market space by winning over small and
midsize firms that had previously rejected CRM
enterprise software.
The trouble is that managers, especially those in
marketing, have been quite reasonably brought up
to believe that the customer is king. It’s all too easy
Niche marketing can be
for them to assume, therefore, that market-creating
treacherous. Delta’s Song
strategies are customer led, which causes them to
targeted too narrow a
reflexively stick to their focus on existing customers
segment of fliers—stylish
professional women—and
and how to make them happier.
didn’t last. But Pret
This approach, however, is unlikely to create new
A Manger thrived by
markets. To do that, an organization needs to turn
“desegmenting” different
its focus to noncustomers and why they refuse to
customer groups—figuring
patronize an industry’s offering. Noncustomers, not
out what they had in
common—to create a
customers, hold the greatest insight into the points of
new market space.
pain and intimidation that limit the boundary of an
industry. A focus on existing customers, by contrast,
tends to drive organizations to come up with better
solutions for them than what competitors currently
offer—but keeps companies moored in red oceans.
Consider Sony’s launch of the Portable Reader
System (PRS) in 2006. The company’s aim was to
4 Harvard Business Review March 2015
unlock a new market space in books by opening the
e?reader market to a wide customer base. To figure
out how to realize that goal, it looked to the experience of existing e?reader customers, who were dissatisfied with the size and poor display quality of current
products. Sony’s response was a thin, lightweight device with an easy-to-read screen. Despite the media’s
praise and happier customers, the PRS lost out to
Amazon’s Kindle because it failed to attract the mass
of noncustomers whose main reason for rejecting
e?readers was the shortage of worthwhile books, not
the size and the display of the devices. Without a rich
choice of titles and an easy way to download them,
the noncustomers stuck to print books.
Amazon understood this when it launched the
Kindle in 2007, offering more than four times the
number of e?titles available from the PRS and making them easily downloadable over Wi-Fi. Within
six hours of their release, Kindles sold out, as print
book customers rapidly became e?reader customers as well. Though Sony has since exited e?readers,
the Kindle grew the industry from around a mere 2%
of total book buyers in 2008 to 28% in 2014. It now
offers more than 2.5 million e?titles.
TRAP TWO
Treating Market-Creating Strategies
as Niche Strategies
The field of marketing has placed great emphasis on
using ever finer market segmentation to identify and
capture niche markets. Though niche strategies can
often be very effective, uncovering a niche in an existing space is not the same thing as identifying a new
market space.
Consider Song, an airline launched in 2003 by
Delta. Delta’s aim was to create a new market space in
low-cost carriers by targeting a distinct segment of fliers. It decided to focus on stylish professional women
travelers, a segment it figured had needs and preferences different from those of the businessmen and
other passengers most airlines targeted. No airline
had ever been built around this group. After many
focus group discussions with upwardly mobile and
professional women, Delta came up with a plan to
cater to them with organic food, custom cocktails, a
variety of entertainment choices, free in-flight workouts with complementary exercise bands, and crew
members dressed in Kate Spade. The strategy was
intended to fill a gap in the market. It may well have
done that successfully, but the segment proved too
ULLA PUGGAARD
on to negotiate existing market spaces also undermine their ability to create new markets.
In our research and discussions, we’ve encountered six especially salient assumptions built into
managers’ mental models. We have come to think
of them as red ocean traps, because they effectively
anchor managers in red oceans—crowded market
spaces where companies engage in bloody competition for market share—and prevent them from
entering blue oceans, previously unknown and
uncontested market spaces with ample potential.
The first two traps stem from assumptions about
marketing, in particular an emphasis on customer
orientation and niches; the next two from economic
lessons on technology innovation and creative destruction; and the final two from principles of competitive strategy that regard differentiation and low
cost as mutually exclusive choices. In the following
pages, we’ll look at each trap in detail and see how it
thwarts companies’ attempts to create markets.
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Idea in Brief
THE PROBLEM
To succeed in the long term, companies
must find ways to create new markets.
Competing in existing markets is growing
less profitable. But despite much
investment and commitment, companies
find it extraordinarily difficult to establish
new market spaces.
WHY IT HAPPENS
Managers’ mental models are based on
their experiences in existing markets.
Though these assumptions and beliefs
have worked in the past, they undermine
efforts to create new spaces.
small to be sustainable despite competitive pricing.
Song flew its last flight in April 2006, just 36 months
after its launch.
Successful market-creating strategies don’t focus on finer segmentation. More often, they “desegment” markets by identifying key commonalities
across buyer groups that could help generate broader
demand. Pret A Manger, a British food chain, looked
across three different prepared-lunch buyer groups:
restaurant-going professionals, fast food customers,
and the brown bag set. Although there were plenty of
differences across these groups, there were three key
commonalities: All of them wanted a lunch that was
fresh and healthful, wanted it fast, and wanted it at a
reasonable price. That insight helped Pret A Manger
see how it could unlock and aggregate untapped demand across those groups to create a commercially
compelling new market. Its concept was to offer
restaurant-quality sandwiches made fresh every
day from high-end ingredients, preparing them at a
speed even greater than that of fast food, and delivering that experience in a sleek setting at reasonable
prices. Today, nearly 30 years on, Pret A Manger continues to enjoy robust profitable growth in the new
market space it established.
TRAP THREE
Confusing Technology Innovation
with Market-Creating Strategies
R&D and technology innovation are widely recognized as key drivers of market development and industry growth. It’s understandable, therefore, that
managers might assume that they are also key drivers
in the discovery of new markets. But the reality is that
market creation is not inevitably about technological
innovation. Yellow Tail opened a new market (in its
case, for a fun and simple wine for everyone) without any bleeding-edge technologies. So did the coffee
THE SOLUTION
To avoid being trapped in old markets,
managers need to:
• focus on attracting new customers
• worry less about segmentation
• understand that market creation is not
synonymous with either technological
innovation or creative destruction
• stop focusing on premium versus
low-cost strategies
chain Starbucks and the performing arts company
Cirque du Soleil. Even when technology is heavily involved, as it was with market creators Salesforce.com,
Intuit’s Quicken, or Uber, it is not the reason that new
offerings are successful. Such products and services
succeed because they are so simple to use, fun, and
productive that people fall in love with them. The
technology that enables them essentially disappears
from buyers’ minds.
Consider the Segway Personal Transporter, which
was launched in 2001. Was it a technology innovation? Sure. It was the world’s first self-balancing human transporter, and it worked well. Lean forward
and you go forward; lean back and you go back. This
engineering marvel was one of the most-talkedabout technology innovations of its time. But most
people were unwilling to pay up to $5,000 for a product that posed difficulties in use and convenience:
Where could you park it? How would you take it with
you in a car? Where could you use it—sidewalks or
roads? Could you take it on a bus or a train? Although
the Segway was expected to reach breakeven just six
months after its launch, sales fell way below initial
Does market creation always
involve creative destruction?
The answer is no. Many
groundbreaking products
offer solutions where none
previously existed.
March 2015 Harvard Business Review 5
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Jun 2020.
For the exclusive use of Y. Liang, 2020.
SPOTLIGHT ON WHERE STRATEGY STUMBLES
Technological
breakthroughs don’t
necessarily create new
markets. Segway was a
marvel but never found
a wide customer base.
New markets arise from
value innovation, not tech
innovation.
TRAP FIVE
Equating Market-Creating
Strategies with Differentiation
TRAP FOUR
Equating Creative Destruction
with Market Creation
Joseph Schumpeter’s theory of creative destruction
lies at the heart of innovation economics. Creative
destruction occurs when an invention disrupts a
market by displacing an earlier technology or existing
product or service. Digital photography, for example,
wiped out the photographic film industry, becoming
the new norm. In Schumpeter’s framework, the old is
incessantly destroyed and replaced by the new.
But does market creation always involve destruction? The answer is no. It also involves nondestructive creation, wherein new demand is created without displacing existing products or services. Take
Viagra, which established a new market in lifestyle
drugs. Did Viagra make any earlier technology or existing product or service obsolete? No. It unlocked
new demand by offering for the first time a real solution to a major problem experienced by many men
in their personal relationships. Grameen Bank’s creation of the microfinance industry is another example. Many market-creating moves are nondestructive,
because they offer solutions where none previously
existed. We’ve also seen this happen with the social
networking and crowdfunding industries. And even
when a certain amount of destruction is involved in
market creation, nondestructive creation is often
a larger element than you might think. Nintendo’s
6 Harvard Business Review March 2015
Wii game player, for example, complemented more
than replaced existing game systems, because it
attracted younger children and older adults who
hadn’t previously played video games.
Conflating market creation with creative destruction not only limits an organization’s set of opportunities but also sets off resistance to market-creating
strategies. People in established companies typically
don’t like the notion of creative destruction or disruption because it may threaten their current status and
jobs. As a result, managers often undermine their
company’s market-creating efforts by starving them
of resources, allocating undue overhead costs to the
initiatives, or not cooperating with the people working on them. It’s critical for market creators to head
this danger off early by clarifying that their project is
at least as much about nondestructive creation as it
is about disruption.
To create a new market,
you can’t view value
and cost as a trade-off.
Yellow Tail wine offers
high value at low cost—
and is a huge hit.
In a competitive industry companies tend to choose
their position on what economists call the “productivity frontier,” the range of value-cost trade-offs
that are available given the structure and norms of
the industry. Differentiation is the strategic position
on this frontier in which a company stands out from
competitors by providing premium value; the tradeoff is usually higher costs to the company and higher
prices for customers. We’ve found that many managers assume that market creation is the same thing.
In reality, a market-creating move breaks the
value-cost trade-off. It is about pursuing differentiation and low cost simultaneously. Are Yellow Tail
and Salesforce.com differentiated from other players? You bet. But are Yellow Tail and Salesforce.com
also low cost? Yes again. A market-creating move is
a “both-and,” not an “either-or,” strategy. It’s important to realize this difference, because when companies mistakenly assume that market creation is
synonymous with differentiation, they often focus
on what to improve or create to stand apart and pay
scant heed to what they can eliminate or reduce to
simultaneously achieve low cost. As a result, they
may inadvertently become premium competitors
in an existing industry space rather than discover a
new market space of their own.
Take BMW, which set out to establish a new market in urban transport with its launch of the C1 in
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predictions, and the company was sold in 2009. Not
everyone was surprised. At the time of the product’s
release, a prescient Time magazine article about
Dean Kamen, Segway’s inventor, struck a cautionary
note: “One of the hardest truths for any technologist
to hear is that success or failure in business is rarely
determined by the quality of the technology.”
Value innovation, not technology innovation, is
what launches commercially compelling new markets. Successful new products or services open market spaces by offering a leap in productivity, simplicity, ease of use, convenience, fun, or environmental
friendliness. But when companies mistakenly assume that market creation hinges on breakthrough
technologies, their organizations tend to push for
products or services that are too “out there,” too
complicated, or, like the Segway, lacking a necessary
ecosystem. In fact, many technology innovations fail
to create new markets even if they win the company
accolades and their developers scientific prizes.
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