Blue Ocean Strategy Project Report

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Marketing managementProject report

SUBMITTED TO:PROF. SHALINI NATH TRIPATHI

FACULTY- MARKETING

SUBMITTED BY:PRATEEK SHRIVASTAV

[PGDM 2007-09]

JAIPURIA INSTITUTE OF MANAGEMENT, LUCKNOW

ACKNOWLEDGEMENT


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WITH GREAT PLEASURE, WE EXTEND OUR GRATITUDE

TOWARDSPROF. SHALINI NATH TRIPATHI, UNDER WHOSE

VALUABLE GUIDANCE, CONSTANT INTEREST AND

ENCOURAGEMENT WE HAVE BEEN ABLE TO COMPLETE THE

PROJECT SUCCESSFULLY.

THIS CO-OPERATION IS NOT ONLY USEFUL FOR THIS PROJECT

BUT WILL ALSO BE A CONSTANT SOURCE OF INSPIRATION FOR

US IN THE FUTURE.

WE ARE ALSO THANKFUL TO ALL THOSE WHO HELPED US

CONSTANTLY IN THE PREPARATION OF THIS PROJECT DIRECTLY

OR INDIRECTLY.

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OBJECTIVE .......................................................................................................................3

BLUE OCEAN STRATEGY ..............................................................................................4

IMPLEMENTING BLUE OCEAN STRATEGY ..............................................................6

IMPLEMENTATION ........................................................................................................... ...8

SIX PATH FRAMEWORK ............................................................................................... 11

FOUR ACTIONS UNDER BLUE OCEAN STRATEGY .............................................. ......14DEVELOPING A BLUE OCEAN STRATEGY ................................................................................15

COMPANIES USING BLUE OCEAN STRATEGY .......................................................16

CONCLUSION .................................................................................................................19

BIBLIOGRAPHY/ WEBLIOGRAPHY ...........................................................................21

OBJECTIVE

The objective of our project Blue Ocean Strategy is to understand real meaning behind

the Blue Ocean and how it is different from the Red Ocean strategy. The project also

describe about various steps taken to implement this strategy. Blue Ocean Strategy

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describe rather than competing within the confines of existing industry or trying to steal

customers from rivals (Red Ocean strategy), uncontested market space should be

developed that makes competition irrelevant. Thus project also gives us an idea about

creating new market space.

Red oceans are all the industries in existence todaythe known market space. In the red

oceans, industry boundaries are defined and accepted, and the competitive rules of the

game are known. Here companies try to outperform their rivals to grab a greater share of

existing demand. As the market space gets crowded, prospects for profits and growth are

reduced. Products become commodities, and cutthroat competition turns the red ocean

bloody.

Blue oceans, in contrast, denote all the industries not in existence todaythe unknown

market space, untainted by competition. In blue oceans, demand is created rather than

fought over. There is ample opportunity for growth that is both profitable and rapid. In

blue oceans, competition is irrelevant because the rules of the game are waiting to be set.

Blue Ocean is an analogy to describe the wider, deeper potential of market space that is

not yet explored. Like the blue ocean, it is vast, deep, powerful, in terms of profitable

growth, and infinite.

In Blue Oceans, demand is created rather than fought over. There is ample

opportunity for both growth and profit.

...................... W. Chan Kim

BLUE OCEAN STRATEGY

The metaphor ofRed and Blueoceans describes the market universe.Red oceans are all

the industries in existence todaythe known market space. In the red oceans, industry

boundaries are defined and accepted, and the competitive rules of the game are known.

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Here companies try to outperform their rivals to grab a greater share of product or service

demand. As the market space gets crowded, prospects for profits and growth are reduced.

Products become commodities or niche, and cutthroat competition turns the red ocean

bloody. Hence, the term red ocean is used.

Blue oceans, in contrast, denote all the industries not in existence todaythe unknown

market space, untainted by competition. In blue oceans, demand is created rather than

fought over. There is ample opportunity for growth that is both profitable and rapid. In

blue oceans, competition is irrelevant because the rules of the game are waiting to be set.

Blue ocean is an analogy to describe the wider, deeper potential of market space that is

not yet explored.

The corner-stone of Blue Ocean Strategy is 'Value Innovation'. A blue ocean is created

when a company achieves value innovation that creates value simultaneously for both the

buyer and the company. The innovation (in product, service, or delivery) must raise and

create value for the market, while simultaneously reducing or eliminating features or

services that are less valued by the current or future market. The authors critiqueMichael

Porter's idea that successful businesses are either low-cost providers or niche-players.

Instead, they propose finding value that crosses conventional market segmentation and

offering value andlower cost.

.

This idea was originally proposed by Prof. Charles W. L. Hillfrom Michigan State

University in 1988. Prof. Hill claimed that Porter's model was flawed because

differentiation can be a means for firms to achieve low cost. Prof. Hill proposed that a

combination of differentiation and low cost may be necessary for firms to achieve a

sustainable competitive advantage.

Blue Ocean Strategy is a business strategy that promotes a systematic approach "for

making the competition irrelevant."A core idea is to create a leap in value for both the

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company and its buyers by breaking the differentiation/low cost trade-off and to align

product value and profit propositions

IMPLEMENTING BLUE OCEAN

STRATEGY

Before implementing Blue ocean strategy it is very important to know the difference

between Red and Blue Ocean. The difference can be known by the following table:-

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Blue ocean strategists recognize that market boundaries exist only in managers minds,

and they do not let existing market structures limit their thinking. To them, extra demand

is out the re, largely untapped. The crux of the problem is how to create it. This, in turn,

requires a shift of attention from supply to demand, from a focus on competing to a focus

on creating innovative value to unlock new demand. This is achieved via the

simultaneous pursuit of differentiation and low-cost.

Under blue ocean strategy, there is scarcely an attractive or unattractive industry because

the level of industry attractiveness can be altered through companies conscientious

efforts. As market structure is changed by breaking the value/cost tradeoff, so are the

rules of the game. Competition in the old game is therefore rendered irrelevant. By

expanding the demand side of the economy new wealth is created. Such a strategy

therefore allows firms to largely play a nonzero-sum game, with high payoff

possibilities.

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IMPLEMENTATION

Look Across Functional or Emotional Appeal to Buyers

When companies are willing to challenge the functional-emotional orientation of their

industry, they often find new market space. We have observed two common patterns.

Emotionally oriented industries offer many extras that add price without enhancing

functionality. Stripping away those extras may create a fundamentally simpler, lower

priced, lower-cost business model that customers would welcome. Conversely,

functionally oriented industries can often infuse commodity products with new life by

adding a dose of emotion and, in so doing, can stimulate new demand.

Two well-known examples are Swatch, which transformed the functionally driven budget

watch industry into an emotionally driven fashion statement, or The Body Shop, which

did the reverse, transforming the emotionally driven industry of cosmetics into a

functional, no-nonsense cosmetics house.

Look Across Complementary Products and Service Offerings

Few products and services are used in a vacuum. In most cases, other products and

services affect their value. But in most industries, rivals converge within the bounds of

their industrys product and service offerings. Take movie theaters. The ease and cost of

getting a babysitter and parking the car affect the perceived value of going to the movies.

Yet these complementary services are beyond the bounds of the movie theater industry as

it has been traditionally defined. Few cinema operators worry about how hard or costly it

is for people to get babysitters. But they should, because it affects demand for their

business. Imagine a movie theater with a babysitting service.

Untapped value is often hidden in complementary products and services. The key is to

define the total solution buyers seek when they choose a product or service. A simple way

to do so is to think about what happens before, during, and after your product is used.

Babysitting and parking the car are needed before people can go to the movies. Operating

and application software are used along with computer hardware. In the airline industry,

ground transportation is used after the flight but is clearly part of what the customer

needs to travel from one place to another.

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Look Across the Chain of Buyers

Individual companies in an industry often target different customer segmentsfor

example, large versus small customers. But an industry typically converges on a single

buyer group. The pharmaceutical industry, for example, focuses overridingly on

influencers: doctors. The office equipment industry focuses heavily on purchasers:

corporate purchasing departments. And the clothing industry sells predominantly to users.

Sometimes there is a strong economic rationale for this focus. But often it is the result of

industry practices that have never been questioned. Challenging an industrys

conventional wisdom about which buyer group to target can lead to the discovery of new

Blue Ocean. By looking across buyer groups, companies can gain new insights into how

to redesign their value curves to focus on a previously overlooked set of buyers.

Think of Novo Nordisk, the Danish insulin producer that created a blue ocean in the

insulin industry. [Novo Nordisk] saw that it could break away from the competition

and create a blue ocean by shifting the industrys longstanding focus on doctors to the

userspatients themselves. In focusing on patients, Novo Nordisk found that insulin,

which was supplied to diabetes patients in vials, presented significant challenges in

administering. Vials left the patient with the complex and unpleasant task of handling

syringes, needles, and insulin, and of administering doses according to his or her needs.

Needles and syringes also evoked unpleasant feelings of social stigmatism for patients.

And patients did not want to fiddle with syringes and needles outside their homes, a

frequent occurrence because many patients must inject insulin several times a day. This

led Novo Nordisk to the blue ocean opportunity of NovoPen, launched in 1985.

NovoPen, the first user-friendly insulin delivery solution, was designed to remove the

hassle and embarrassment of administering insulin.

Look Across Strategic Groups within Industries

The key to creating a blue ocean across existing strategic groups is to break out of this

narrow tunnel vision by understanding which factors determine customers decisions to

trade up or down from one group to another.

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Consider Curves, the Texas-based womens fitness company. Since franchising began in

1995, Curves has grown like wildfire, acquiring more than two million members in more

than six thousand locations, with total revenues exceeding the US$ 1 billion mark. A new

Curves opens, on average, every four hours somewhere in the world.

Whats more, this growth was triggered almost entirely through word of mouth and

buddy referrals. Yet, at its inception, Curves was seen as entering an oversaturated

market, gearing its offering to customers who would not want it, and making its offering

significantly blander than the competitions. In reality, however, Curves exploded

demand in the U.S. fitness industry, unlocking a huge untapped market, a veritable blue

ocean of women struggling and failing to keep in shape through sound fitness. Curves

built on the decisive advantages of two strategic groups in the U.S. fitness industry

traditional health clubs and home exercise programsand eliminated or reduced

everything else.

Look Across Alternative Industries

In making every purchase decision, buyers implicitly weigh alternatives, often

unconsciously. Do you need a self-indulgent two hours? What should you do to achieve

it? Do you go to movie, have a massage, or enjoy reading a favorite book at a local caf?

The thought process is intuitive for individual consumers and industrial buyers alike.

For some reason, we often abandon this intuitive thinking when we become sellers.

Rarely do sellers think consciously about how their customers make trade-offs across

alternative industries. A shift in price, a change in model, even a new ad campaign can

elicit a tremendous response from rivals within an industry, but the same actions in an

alternative industry usually go unnoticed. Trade journals, trade shows, and consumer

rating reports reinforce the vertical walls between one industry and another. Often,

however, the space between alternative industries provides opportunities for value

innovation.

Consider NetJets, which created the blue ocean of fractional jet ownership. In less than

twenty years NetJets has grown larger than many airlines, with more than five hundred

aircraft, operating more than two hundred fifty thousand flights to more than one hundred

forty countries. Purchased by Berkshire Hathaway in 1998, today NetJets is a

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multibillion-dollar business, with revenues growing at 3035 percent per year from 1993

to 2000. NetJets success has been attributed to its flexibility, shortened travel time,

hassle free travel experience, increased reliability, and strategic pricing. The reality is that

NetJets reconstructed market boundaries to create this blue ocean by looking across

alternative industries.

SIX PATH FRAMEWORK

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The six convectional boundaries of competition

There are six basic approaches to remaking market boundaries. These approaches are

called the six paths framework. These paths have general applicability across industry

sectors, and they lead companies into the corridor of commercially viable blue ocean

Industry

Strategic group

From Competing

within

Buyer group

Scope of product and

service offering

Functional emotional

orientation of an

industry

time

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To Creating across


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ideas. None of these paths requires special vision or foresight about the future. All are

based on looking at familiar data from a new perspective.

These paths challenge the six fundamental assumptions underlying many companies

strategies. These six assumptions, on which most companies hypnotically build their

strategies, keep companies trapped competing in red oceans. Specifically, companies tend

to do the following:

Define their industry similarly and focus on being the best within it

Look at their industries through the lens of generally accepted strategic groups

(such as luxury automobiles, economy cars, and family vehicles), and strive to

stand out in the strategic group they play in

Focus on the same buyer group, be it the purchaser (as in the office equipment

industry), the user (as in the clothing industry), or the influencer (as in the

pharmaceutical industry)

Define the scope of the products and services offered by their industry similarly

Accept their industrys functional or emotional orientation

Focus on the same point in timeand often on current competitive threatsin

formulating strategy

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FOUR ACTIONS UNDER BLUE OCEAN STRATEGY

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The factors thecompany takes forgranted should beeliminated.

The companyshould identifywhich factors

should be reducedwell below theindustrys standard

The companyshould createfactors that havenever been offered

The companyshould identifywhich factors

should be raisedabove industrysstandard

A NEW VALUECURVE


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DEVELOPING A BLUE OCEAN STRATEGY

Creating New Market Space

If we do operate in an existing market that is highly competitive (red ocean), then that is notnecessary a bad thingbut we believe it is vital to eliminate potential risk (competing in a RedOcean) and begin to identify how we can create uncontested market space(blue ocean)and makethe competition irrelevant.

Thinking Beyond Existing Boundaries

Consider being unconventional during our strategic planning process. Challenge yourself;Challenge the performance of your existing services, products and delivery systems. Too manyorganizations become complacent and fail to innovate themselves.

Identifying Non-Customers

There are customers out there who are not showing up on our radar screen. Capitalize on existingdemand but ensure you leave no stone unturned in exploring ways to create new customers. Whoshould be your next customer? Who will be your customers in three to five years time? What doyou need to do to make them customers?

Challenging the Industry Cost

The industry we operate in has a degree of over capitalizations that is not adding value and is

simply not needed by your customers. Whether that is in product, service or delivery systems. Youneed to identify these areas and eliminate them from your value proposition. Ultimately, we needto be the leader in driving down the industry cost.

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COMPANIES USING BLUE OCEAN

STRATEGY

Samsung: Value Innovation is Samsungs core tool for product development and

played a significant role in helping Samsung become the worlds top consumer

electronics company. Last year there were 2,000 employees working in cross-functional

teams on 90 Value Innovation projects at Samsung, and no product is introduced to the

market without first getting a Value Innovation Certificate. In 2003 the Digital Media unit

launched 40 new products using the VI process, and its first quarter profits were 50 times

higher than that of the same period the previous year.

Nokia: In 1991 trade with the Soviet Union, Finlands and Nokias largest market,

collapsed overnight. At the time the companys core activities were paper and rubber

products. By 1994 Nokia was selling off its industrial divisions and was listed on NYSE

as the worlds premier supplier of mobile phones, which was just a small, peripheral

division three years earlier.

IBM: Between 1991 and 1993 IBM recorded losses of USD 16 Billion and the future

was looking grim to say the least. In 1993 Lou Gerstner became CEO, the first company

leader who was not from within the company, in fact not even from within the industry.

He completely re-oriented the companys focus from technology driven to customer

solution driven, so that by 2001 $35 Billion of $86 Billion total sales were from the

newly created Global Services. This radical shift in company culture and orientation is

widely accredited with IBMs exemplary recovery to growth and healthy profitability.

CJ-GLS: CJ-GLS is a latecomer in the logistics industry, and its resources, such as the

number of trucks and warehouses, are relatively small in comparison to those of

established companies. But, it has achieved a distinct competitive advantage through

innovative information technology (i.e., RFIDradio frequency identification), which

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has enabled it to create an uncontested market space, electronic logistics business. One

remarkable fact about CJ-GLS is that its swift growth comes not from attracting

competitors customers from the existing Red Ocean market but from creating a Blue

Ocean market (3PL market), which previously existing incumbents ignored, and also

from constructing a new business model founded on a RFID-based, ubiquitous-oriented

3PL system. Analyzed through a Four Actions Framework and characterized as Blue

Ocean, this case study provides valuable information on how a company reinforces its

competitive advantage from the Red Ocean while it transitions into a Blue Ocean by

utilizing advanced information communication technologies.

Apple: Apple computers invented a new market with the iPOD digital music player.

The companys idea was to create a portable music player so people could listen to it

anywhere. Apple has sold more than 10 million music players, adding $6.2 billion to the

companys revenue.

Whirlpool: Whirlpools front-loading washer-dryer combo called the Duet, which the

company introduced to a well-saturated market in 2001. The Duet was tagged at US$

2,300, vs. US$ 600 a pair for most existing models, yet it became a sensation. Because

the Duet had features never seen before: It could wash big loads yet used very little water

and electricity, and cleaned better. It could also handle silks, lace, and comforters. But

best of all, it inspired real affection among women. They said that it changed their lives

because it saves them time and gave back some of their freedom, doing laundry in record

time.

Stokke: Norwegian furniture company Stokke entitled 'Hotweels' from Fast Company

(May 2005). When Stokke introduced the Xplory baby stroller in the U.S., priced at a

hefty US$ 749, it sold in the first nine weeks what it had planned to sell over six months.

Because it offers a package of unprecedented attributes: Its flexible design makes life

easier for parents by allowing the seat to be raised to eye-level, to face either forward or

backward, and enabling the stroller to navigate any terrain. Its flashy, futuristic form

creates a strong emotional bond.

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Netjets: NetJets, which created the blue ocean of fractional jet ownership. In less than

twenty years NetJets has grown larger than many airlines, with more than five hundred

aircraft, operating more than two hundred fifty thousand flights to more than one hundred

forty countries. Purchased by Berkshire Hathaway in 1998, today NetJets is a

multibillion-dollar business, with revenues growing at 3035 percent per year from 1993

to 2000. NetJets success has been attributed to its flexibility, shortened travel time,

hassle free travel experience, increased reliability, and strategic pricing. The reality is that

NetJets reconstructed market boundaries to create this blue ocean by looking across

alternative industries.

Other companies using Blue Ocean Strategy are:

Cirque du Soleil (the circus reinvented for the entertainment market).

Starbucks (coffee as low-cost luxury for high-end consumers).

EBay (online auctioning).

Sony (the Walkman - personal portable stereos).

Cars: Japanese fuel-efficient autos (mid-70s) and Chrysler minivan

Dell (mid-1990s).

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CONCLUSION

Blue Ocean Strategy is a portfolio of inter-related concepts and methodology allowing

companies to breakaway from head-on competition in order to create and maintain

uncontested market spaces of high customer value. The portfolio includes the whole

leadership gamut from Strategy Formation, Strategy Implementation, Organizational

Change and Staff Motivation.

Value Innovation is the first component of BOS, and provides the strategy formation

framework. Value Innovation is a highly pragmatic, visual methodology that allows

companies to challenge industry boundaries and taken for granted assumptions and in the

process discover highly distinctive and successful strategies. Value Innovation sets thestage for the rest of the Blue Ocean Strategy concepts.

Blue Ocean Strategy is the most influential new concept in management strategy, whose

exciting premise is that companies can rearrange conventional factors of competition in

order to create a leap in customer value. In the process, companies make their

competition irrelevant and discover unoccupied market space (hence the shift from a

bloody, confined red sea to an expansive blue ocean).

The strategy outlines the premise, research, success examples and the so-called Value

Innovation framework, which allows companies to create Blue Ocean Strategies and in

the process achieve:

High-impact, customer-based innovations.

Significant increase in speed to market, from idea formation to market

introduction.

Significant decrease in development and operational costs.

An innovation-focused and duly motivated organization.

BLUE OCEAN STRATEGY seeks to make the creation and capturing oceans as

systematic and actionable as competing in the red waters of known market space. For

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although blue ocean strategists have always existed, for the most part their strategies have

been largely unconscious. Blue ocean strategy seeks to remedy this by not only decoding

the pattern and principles behind the successful creation of blue oceans, but also

providing the analytical frameworks and tools to act on this insight.

A blue ocean is created in the region where a company's actions favorably affect both its

cost structure and it value proposition to buyers. Cost savings are made from eliminating

and reducing the factors an industry competes on. Buyer value is lifted by raising and

creating elements the industry has never offered. Over time, costs are reduced further as

scale economies kick in, due to the high sales volumes that superior value generates.

Blue and red oceans have always coexisted. Practical reality, therefore, demands that

companies understand the strategic logic of both types of oceans. At present, however,

competing in red oceans dominates the field of strategy in theory and in practice. Part of

the reason traces back to the historical foundation of business strategywarwhere

territory is defined and limited and opponents compete to protect and enlarge their share

of limited and existing terrain. This focus on beating the competition in existing market

space was exasperated by the meteoric rise of the Japanese in the 1970s and 1980s. Faced

with mounting competition in the global marketplace as, for virtually the first time

incorporate history, customers were deserting Western companies in droves, the center of

strategic thinking gravitated further towards the competition. A slew of competition-

based strategies emerged which argued that competition is at the core of the success and

failure of firms, and that competition determines the appropriateness of a firms activities

that can contribute to its performance. The result has been a fairly good understanding of

how to compete skillfully in red waters, from analyzing the underlying economic

structure of an existing industry, to choosing a strategic position of low cost or

differentiation or focus, to benchmarking the competition. Yet, although some discussions

around blue oceans exist, little practical guidance exists to create and capture them.

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BIBLIOGRAPHY/ WEBLIOGRAPHY

www.feedblitz.com, Creating Blue Oceans 26 november2006.

www.12manage.com, Blue Ocean strategy 4 june2007.

www.wikipedia.com

www.gamasutra.com, Nintendos Kaplan Discusses 'Blue Ocean' Strategy

February 9, 2006.

www.sciencedirect.com, A strategy for third-party logistics systems: A case

analysis using the blue ocean strategy 24 May 2007.

www.emergic.org, TECH TALK: Blue Ocean Strategy May 1, 2006.

www.blueoceanstrategy.com, How we can develop a Blue Ocean Strategy foryour organization January2007.

Blue Ocean strategy by W Chan Kim and Renee Mourbogne

Harward Business Review, A Conversation with W. Chan Kim and Renee

Mauborgne authors of BLUE OCEAN STRATEGY

Documents

Blue Ocean Strategy Project Report