Blue Ocean Blue Ocean StrategyStrategy

Preface Preface Chapter 1: Creating Blue Chapter 1: Creating Blue

OceansOceans Group 3Group 3

Anna RendonAnna RendonOlivia ErwinOlivia Erwin

Chase MuellerChase MuellerPaige StonePaige Stone

Tanner GilreathTanner GilreathBrandon LaviageBrandon Laviage

Ashley HoptayAshley Hoptay

Blue Ocean Strategy Blue Ocean Strategy

Blue Ocean Strategy Blue Ocean Strategy To improve the quality of our successes we To improve the quality of our successes we

need to study what we did that made a positive need to study what we did that made a positive difference & understand how to replicate it.difference & understand how to replicate it.

Blue Ocean Strategy challenges companies to Blue Ocean Strategy challenges companies to break out of the red ocean of bloody break out of the red ocean of bloody competition by creating uncontested market competition by creating uncontested market space that makes the competition irrelevant. space that makes the competition irrelevant.

Instead of dividing up existing - and often Instead of dividing up existing - and often shrinking - demand and benchmarking shrinking - demand and benchmarking competition, blue ocean strategy is about competition, blue ocean strategy is about growing demand and breaking away from the growing demand and breaking away from the competition.competition.

Cirque Du SoleilCirque Du Soleil

Created in 1984Created in 1984 Achieved a level of revenues that Achieved a level of revenues that

took Ringling Bros. and Barnum & took Ringling Bros. and Barnum & Bailey- the global champions of the Bailey- the global champions of the circus industry more than 100 years circus industry more than 100 years to attain!to attain!

New Market Space: Cirque New Market Space: Cirque du Soleildu Soleil

Why did Cirque du Soleil see so much success?Why did Cirque du Soleil see so much success? Realized that in order to win in the future, Realized that in order to win in the future,

companies must stop competing with each companies must stop competing with each other. other.

Cirque du Soleil did not compete with Ringling Cirque du Soleil did not compete with Ringling Bros. and Barnum and Bailey. Instead they Bros. and Barnum and Bailey. Instead they appealed to a whole new group of customers: appealed to a whole new group of customers: adults and corporate clients.adults and corporate clients.

They created an unprecedented entertainment They created an unprecedented entertainment experience.experience.

Ex.: Nintendo Wii and Millionaire MatchmakerEx.: Nintendo Wii and Millionaire Matchmaker

Red OceansRed Oceans VS VS Blue Blue OceansOceans

Red OceansRed Oceans All the industries in

existence today = the known market space

Industry boundaries and defined and accepted.

Companies try to outperform rivals

Market space gets crowded: prospects for profits and growth are reduced.

Competition turns the red ocean bloody

Blue OceansBlue Oceans Denote all the industries

not in existence today = the unknown market space

Defined by untapped market space, demand creation and the opportunity for highly profitable growth

Some created well beyond existing industry boundaries, but most are created within red oceans by expanding existing industry boundaries

Competition is irrelevant because the rules of the game are waiting to be set.

Understanding Blue Understanding Blue Oceans Oceans

Blue oceans are largely uncharted, Blue oceans are largely uncharted, so there is little practical guidance so there is little practical guidance on how to create them.on how to create them.

Without the analytical frameworks Without the analytical frameworks and principles to effectively manage and principles to effectively manage risk, managers have viewed the risk, managers have viewed the creation of blue oceans to be to risky creation of blue oceans to be to risky to attempt.to attempt.

The Continuing Creation of The Continuing Creation of Blue Oceans Blue Oceans

Although the term blue oceans is new, Although the term blue oceans is new, their existence is not.their existence is not. Examples: We’re use to these industries, but Examples: We’re use to these industries, but

they weren’t always in existence.they weren’t always in existence. Automobiles Aviation Music Recording Cell Phones Snowboards Coffee Chops

Think of all of the unknown industries the Think of all of the unknown industries the future will reveal.future will reveal.

Industries Continuously Industries Continuously Evolve Evolve

Industries never stand still.Industries never stand still. The Standard Industrial Classification (SIC) The Standard Industrial Classification (SIC)

system was replaced in 1997 by the North system was replaced in 1997 by the North American Industry Classification System American Industry Classification System (NAICS).(NAICS).

The new system expanded the ten SIC The new system expanded the ten SIC industry sectors to reflect the emerging industry sectors to reflect the emerging realities of new industry territories.realities of new industry territories.

SIC system’s replacement is a sign of how SIC system’s replacement is a sign of how significant the expansion of blue oceans has significant the expansion of blue oceans has been because the systems are designed for been because the systems are designed for standardization and continuity. standardization and continuity.

The Impact of Creating The Impact of Creating Blue Oceans Blue Oceans

What Does This Mean? What Does This Mean?

Blue oceans held a little over a tenth of Blue oceans held a little over a tenth of the launches. However, they brought the launches. However, they brought in a more than a third of the revenues in a more than a third of the revenues and almost two-thirds of the profits. and almost two-thirds of the profits.

Given that business launches included Given that business launches included the total investments made for the total investments made for creating red and blue oceans, the creating red and blue oceans, the performance benefits of creating blue performance benefits of creating blue oceans are evident.oceans are evident.

The Rising Imperative of The Rising Imperative of Creating Blue Oceans Creating Blue Oceans

Supply in an increasing number of Supply in an increasing number of industries is beginning to exceed industries is beginning to exceed demand.demand.

There has been an accelerated There has been an accelerated commoditization of products and commoditization of products and services, increasing price wars and services, increasing price wars and shrinking profit margins.shrinking profit margins.

For major product and service For major product and service categories, brands are generally categories, brands are generally becoming more similar.becoming more similar.

Without Differentiation… Without Differentiation… As brands become more similar, people As brands become more similar, people

generally select based on price.generally select based on price. How can you keep customers and sales if How can you keep customers and sales if

brand loyalty is eroding?brand loyalty is eroding? How many people buy the same detergent, How many people buy the same detergent,

toothpaste, peanut butter or paper towels toothpaste, peanut butter or paper towels each time? How many people factor in each time? How many people factor in price as the major buying determinant?price as the major buying determinant?

Managers are realizing that they will need Managers are realizing that they will need to be more concerned with blue oceans as to be more concerned with blue oceans as red oceans become increasingly bloody.red oceans become increasingly bloody. Examples: Laptops and the I-phoneExamples: Laptops and the I-phone

Red Ocean vs. Blue Ocean Red Ocean vs. Blue Ocean Strategy Strategy

The big difference in Red Oceans The big difference in Red Oceans and Blue Oceans is the strategy.and Blue Oceans is the strategy.

Red Ocean companies took a Red Ocean companies took a conventional approach of trying to conventional approach of trying to beat the competition.beat the competition.

Blue Ocean companies didn’t use the Blue Ocean companies didn’t use the competition as a benchmark, but competition as a benchmark, but instead used value innovation. instead used value innovation.

Value Innovation: The Value Innovation: The Cornerstone of Blue Ocean Cornerstone of Blue Ocean

Strategy Strategy Value Innovation - instead of Value Innovation - instead of

focusing on beating the competition, focusing on beating the competition, focus on making the competition focus on making the competition irrelevant by creating a leap in value irrelevant by creating a leap in value for buyers and your company, for buyers and your company, thereby opening up new and thereby opening up new and uncontested market space.uncontested market space.

Value + Innovation Value + Innovation

Value without innovation focuses on Value without innovation focuses on value creation but does not make value creation but does not make you stand out in the marketplace. you stand out in the marketplace.

Innovation without value tends to be Innovation without value tends to be futuristic and go beyond what futuristic and go beyond what buyers are ready for.buyers are ready for.

Value innovation must align Value innovation must align innovation with utility, price, and innovation with utility, price, and cost position.cost position.

Value-Cost Trade Off Value-Cost Trade Off

Red Ocean companies tend to Red Ocean companies tend to choose between low cost and choose between low cost and differentiation.differentiation.

Blue Ocean companies aim for both Blue Ocean companies aim for both simultaneously. simultaneously.

Value Innovation: The Value Innovation: The Cornerstone of Blue Ocean Cornerstone of Blue Ocean

Strategy Strategy

Cirque de Soleil Cirque de Soleil

Added story lineAdded story line Less slap stickLess slap stick Glamorized the tentGlamorized the tent Made more sophisticatedMade more sophisticated Reduced cost by eliminating animalsReduced cost by eliminating animals Priced tickets comparable with the Priced tickets comparable with the

theatretheatre

How do you achieve value How do you achieve value innovation? innovation?

It is done when the whole system of It is done when the whole system of the company’s utility, price, and cost the company’s utility, price, and cost activities are properly aligned with activities are properly aligned with each other each other

So what does it mean? So what does it mean?

Value innovation is more than Value innovation is more than innovation innovation It’s about strategy that embraces the entire

system of a company's activities

What do you need to What do you need to create it? create it?

Value innovation requires companies Value innovation requires companies to orient the whole system toward to orient the whole system toward achieving a leap in value for both the achieving a leap in value for both the buyer and themselves (meaning the buyer and themselves (meaning the company)company)

Structuralist view Structuralist view

Also known asAlso known as Environmental determinism

Goes in part with red ocean strategy, Goes in part with red ocean strategy, assumes that an industry structures are assumes that an industry structures are set and you must compete in it set and you must compete in it

Reconstructionist view Reconstructionist view

Based on the view that market Based on the view that market boundaries and industry structure boundaries and industry structure are not given and can be are not given and can be reconstructed by the actions and reconstructed by the actions and beliefs of industry players beliefs of industry players

Red Ocean vs. Blue Ocean Red Ocean vs. Blue Ocean Strategy Strategy

Red Ocean Strategy Blue Ocean Strategy

Compete in existing market space Create uncontested market space

Beat the competition Make the competition irrelevant

Exploit existing demand Create and capture new demand

Make the value-cost trade-off Break the value-cost trade-off

Align the whole system of a firm’s activities with its strategic

choice of differentiation or low cost

Align the whole system of a firm’s activities in pursuit of

differentiation and low cost

Company/Industry – Company/Industry – Strategic Move Strategic Move

Initial Step to define the basic unit of Initial Step to define the basic unit of analysisanalysis Previously Published Research

In Search of Excellence Built to Last

Basic Unit of Analysis Company

Blue Ocean Strategy Basic Unit of Analysis

Strategic Move

Results Results

Basic Unit of Analysis Company

2/3 of the companies had fallen from their perches as industry leaders

Atari, Data General, Fluor, National Semiconductor

Strategic Move They delivered products and services that

opened and captured new market space, with a significant leap in demand

Ford, GM, CNN, Compaq, Southwest, Cirque du Soleil

Strategic Move Strategic Move

Strategic Move - Cont Strategic Move - Cont

Is a set of managerial actions and Is a set of managerial actions and decisions involved in making a major decisions involved in making a major market creating business offeringmarket creating business offering

Capture?Capture? New Market Space Increased Demand

Examples of Blue Oceans Examples of Blue Oceans

FordFord Model T

General MotorsGeneral Motors Styled cars to emotions

CNNCNN 24/7 News Channel

Cirque Du SoleilCirque Du Soleil Sophisticated Entertainment

Formulating and Executing Formulating and Executing Blue Ocean StrategyBlue Ocean Strategy

Chapter 2: Introduces the analytical tools and Chapter 2: Introduces the analytical tools and frameworks that are essential for creating and frameworks that are essential for creating and capturing blue oceans. capturing blue oceans.

Chapters 3-6: Introduces the principles that drive the Chapters 3-6: Introduces the principles that drive the successful formulation and implementation of blue successful formulation and implementation of blue ocean strategy and explain how they, along with the ocean strategy and explain how they, along with the analytics, are applied in action.analytics, are applied in action.

Chapters 7-8: Turn to the principles that drive Chapters 7-8: Turn to the principles that drive effective execution of blue ocean strategy. Tipping effective execution of blue ocean strategy. Tipping point leadership, organizational risk, fair process, and point leadership, organizational risk, fair process, and management risk are all addressed as new strategies. management risk are all addressed as new strategies.

Chapter 9: Discusses the dynamic aspects of blue Chapter 9: Discusses the dynamic aspects of blue ocean strategy- the issues of sustainability and ocean strategy- the issues of sustainability and renewal.renewal.

The Six Principles of Blue The Six Principles of Blue Ocean StrategyOcean Strategy

Class Take AwaysClass Take Aways Blue Ocean Strategy challenges companies Blue Ocean Strategy challenges companies

to break out of the red ocean of bloody to break out of the red ocean of bloody competition by creating uncontested competition by creating uncontested market space that makes the competition market space that makes the competition irrelevant.irrelevant.

The big difference in Red Oceans and Blue The big difference in Red Oceans and Blue Oceans is the strategy.Oceans is the strategy.

Value Innovation is the cornerstone of Blue Value Innovation is the cornerstone of Blue Ocean Strategy.Ocean Strategy.

Strategic moves should be aimed atStrategic moves should be aimed at delivering products and services that open and capture new market space, with a significant leap in demand.