Blue Ocean Strategy Summary

How to Create Uncontested Market Space and Make How to Create Uncontested Market Space and Make the Competition Irrelevant

What is Blue Ocean?

Blue oceans are defined by untapped market space, demand creation and

the opportunity for highly the opportunity for highly profitable growth.

In Contrast – The Red Ocean

Companies in the red ocean followed conventional approach of trying to outperform their rivals to trying to outperform their rivals to

grab a greater share of existing demand. As market space gets

crowded, prospects for profits and growth are reduced.

Creating Blue Ocean

The creators of blue ocean use value innovation to make competition irrelevant by creating a leap in irrelevant by creating a leap in

value for buyers and their company which opens up new and

uncontested market space.

Value Innovation� Value without innovation – focuses on value

creation on incremental scale. Improves value butinsufficient to stand out in market place.

� Innovation without value – technology driven,� Innovation without value – technology driven,market pioneering or futuristic which aresometimes beyond what buyers are ready toaccept and pay for.

� Value innovation – requires companies to orientthe whole system toward achieving a leap in valuefor both buyers and themselves where innovationis aligned with utility, price and cost positions

The Four Actions FrameworkReduce

Which factors should be reduced well below

the industry’s standard?

RaiseWhich factors should be raised well above

the industry’s standard?

CreateWhich factors should

be created that the industry has never

offered?

EliminateWhich of the factors

that the industry takes for granted should be

eliminated?

Case Study: Cirque de Soleil

Eliminate

Star performersAnimal shows

Aisle concession salesMultiple show arenas

Raise

Unique venue

Multiple show arenas

Reduce

Fun and humorThrill and danger

Create

ThemeRefined environmentMultiple productions

Artistic music and dance

Southwest Airlines Strategy CanvasHigh

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Southwest

Average Airlines

Car Transport

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Case Study: Southwest AirlinesFocus Emphasizes on:-

� friendly service� speed� frequent point-to-point departures

�able to price against car transportationable to price against car transportation

Divergence The value curves of blue ocean strategists stand apart and unique from competitors.

Southwest pioneered point-to-point travel between midsize cities.

Compelling Tagline Tagline must be clear and truthful.

Southwest airlines tagline could be “The speed of a plane at a price of a car – whenever you need it.”

Real tagline – Symbol of Freedom

In Contrast – Red Ocean Company

� Over-delivery without payback� High value curves on all levels but no corresponding return on

market share and profitability

� An incoherent strategy� Value curves zigzag with no rhyme or reason probably based on

independent sub strategiesValue curves zigzag with no rhyme or reason probably based onindependent sub strategies

� Strategic Contradictions� Offering high level on one competing factors while ignoring the

support e.g. easy to use website but slow speed

� Internally Driven� Competing factors stated in operational jargon that buyers can’t

understand e.g. megahertz vs. speed or thermal water temperaturevs. hot water.

� Strategic vision built on inside-out perspective (operationallydriven) instead of outside-in (demand driven)

The Six Paths Framework

Path 1: Look Across Alternative Industries

To sort out personal finance:-

�Hire an accountant

�Use financial software package�Use financial software package

�Use pen and paper

To enjoy a night out:-

�Go to a restaurant

�Go to the movie

Case Study - NetJetsCommercial Airlines NetJets

� Long check-in and security lines

� Hectic flight transfers

� Overnight stays

� Congested airports

Convenience of private jets at the price of commercial airline ticket

� Cut total travel time

� Reduce hassle of congested airports� Congested airports

� Reduce hassle of congested airports

� Allow for point-to-point travel

� More productive and energized executives upon arrival

Private Jets

× Multimillion dollar price

× Set-up flight department

× Deadhead cost

� Cut total travel time

� Reduce hassle of congested airports

� Allow for point-to-point travel

� More productive and energized executives upon arrival

Path 2: Look Across Strategic Groups Within

IndustriesUpscale Health Clubs Home Exercise Programs

� Cater for both gender� Full range of exercise� Juice bar� Instructors

� Exercise videos, books and magazines� Low cost� Little or no exercise equipment� Minimal instruction� Instructors

� Full locker room� Shower and Sauna� Spa� Pool� Expensive membership fee� Social time� City location

� Minimal instruction� Time saving� Privacy

Curves – new blue ocean demand

� Circle equipment arrangement –complete workout in 30 minutes

� Easy to use machines� Female only - no mirrors, no men� Nonprime suburban location� Lower membership fee

Path 3: Look Across the Chain of Buyers

� Users (ease of use) � Purchasers (cost concern)

� Most insulin producer � convinced doctors � recommendto diabetic patients

� Novo Nordisk (Danish insulin company) � PatientNovo Nordisk (Danish insulin company) Patient� 1995 NovoPen (first user-friendly insulin delivery that resembles

fountain pen)

� no more fiddling with needles and syringes

� no more social stigma

� 1989 NovoLet – prefilled disposable insulin injection pen with adosing system

� 1999 Innovo – manage delivery of insulin through built-in memory,display dose, last dose, elapsed time

� Insulin producer � Diabetes care company

Path 4: Look Across Complementary

Product and Service Offerings

� Movie theatres

� Ease and cost of babysitters and parking

Book stores� Book stores

� Lounges for pleasure of reading

� Knowledgeable staff

� Coffee bars

Case Study: NABI (Hungarian bus company)

�major customer Public Transport Properties /municipalities

�competitors compete based on lowest purchase price

�highest cost actually after the purchase – bus kept in�highest cost actually after the purchase – bus kept incirculation for twelve years�Repairs after traffic accidents

�Fuel usage

�Wear and tear – due to bus heavy weight

�Rust prevention

�Demand for clean air


� Use fiberglass instead of steel

� Corrosion-free

� Faster body repairs

� 30-35% lighter – cut fuel consumption� 30-35% lighter – cut fuel consumption

� Reduce emission – more environmentally friendly

� Lower-powered engines, fewer axles � lowermanufacturing cost

� More space inside the bus – more seat

� Higher initial price, lower maintenance


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NABI Avg Transit Bus

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Path 5: Look Across Functional or Emotional

Appeal to BuyersJapan Traditional Barbershop QB House

• Hot towels• Shoulder rubs and massages• Tea / coffee is served• Cut hair and blow drying

• Basic cut• “Air wash” system to vacuum hair instead of

time consuming wash-and-dry• “One-use” policy – new towel and comb for • Cut hair and blow drying

• Shaving• Time: 1 hour• Cost: 3000 to 5000 yen• Emotional

• “One-use” policy – new towel and comb for every customer

• Time: 10 minutes• Cost: 1000 yen• Functional

Mexico Cement Companies Cemex

• Sell retail bags to customers (85% of market)

• Do-it-yourself• Functional

• Gift of dreams - to build rooms of love where laughter and happiness could be shared

• Home delivery, construction classes, technical adviser

• Emotional

Path 6: Look Across Time

� All industries are subject to external trends that affecttheir businesses over time.

� By looking at the value a market delivers today to thevalue it might deliver tomorrow – managers canvalue it might deliver tomorrow – managers canactively shape their future and lay claim to blue ocean.

� Trends can be a discontinuity in technology, rise ofnew lifestyle, change in regulatory or socialenvironments.

Case Study: Apple� Late 1990s – flood of illegal music sharing through

Napster, Kazaa and Limewire

� Apple’s iPod become a hit

� 2003 – Launch iTunes music store� 2003 – Launch iTunes music store� Legal

� Easy-to-use

� Flexible a la carte song downloads

� Strategic pricing

� Sound quality

� Copyright protection

Drawing Your Strategy CanvasDrawing Your Strategy Canvas

The soul never thinks without an image ~Aristotle~

The Four Steps of Visualizing Strategy

1. VisualAwakening

� VisualExploration

3. Visual Strategy Fair

4. Visual Communication

�Compare yourbusiness with your competitors by drawing your “as

�Go into the field to explore the six paths to creating blue oceans.

�Draw your “to be” strategy canvas based on insights from field

�Distribute your before –and-after strategic profiles on one page for drawing your “as

is” strategy canvas.

�See where your strategy needs to change.

blue oceans.

�Observe the distinctive advantages of alternative products and services.

�See which factors you should eliminate, create or change.

from field observations.

�Get feedback on alternative strategy canvases from customers. Competitors’ customers, and noncustomers.

�Use feedback to build the best “to be” future strategy.

on one page for easy comparison.

�Support only those projects and operational moves that allow your company to close the gaps to actualize the new strategy.

Step 1: Visual Awakening

� Congregate top executives

� Divide into at least two teams

� Get executives to draw the value curve of theircompany’s strategycompany’s strategy

� Come up with memorable tagline true to the team’svalue curve

� Time: 90 minutes

� Observe the strategies between two teams as well as ofcompetitors

Step 2: Visual Exploration

� Send team into the field to explore six paths in creatingblue oceans.

� Managers must make sense how people use or don’t usetheir products or servicestheir products or services

� Tips: Do not outsource. Great artists don’t paint from otherpeople’s description.

� See customers and users (new, existing and lost), as well asnoncustomers (competitors’ or alternative products’ users)

� Watch them in action

� Time: 4 weeks

Step 3: Visual Strategy Fair� Propose new strategy � draw six new value curves and

write a compelling tagline that captures the essence of thestrategy.

� Time to prepare: 2 weeks

Time to present: 10 minutes� Time to present: 10 minutes

� Attendees: different people met during visual explorationas judges

� Attendees given 5 sticky notes to put on their favorites andlater to explain why they make their choices and why theydid not choose the others.

� Draw value curves again.

Step 4: Visual Communication� Distribute one page picture showing new and old

strategic profiles to every employee.

� Senior managers should hold meeting with directreports who should then pass the message downwards.reports who should then pass the message downwards.Walk with them through the pictures, explain whatneeds to be eliminated, reduced, raised and created topursue a blue ocean.

Pioneer-Migrator-Settler (PMS) Map

� Pioneers – businesses that offers unprecedented value

�The only ones with a mass following of customers

� Migrators – businesses that offers improved value butnot innovative value; strategies fall on the marginnot innovative value; strategies fall on the marginbetween red and blue oceans

�Business offerings better than most in the marketplace

� Settlers – businesses whose value curves conform tothe basic shape of the industry’s.

� “me-too” businesses


Pioneer

Migrators

Settles

Today Tomorrow


� If current and planned = settlers � low growth trajectory,confined to red oceans and need to push for valueinnovations. Maybe cash generators but may fall into trapof competitive benchmarking, imitation and intense pricecompetition. ** Have great opportunity to value-innovateand create blue ocean.competition. ** Have great opportunity to value-innovateand create blue ocean.

� If current and planned = migrators � reasonable growthcan be expected but company not exploiting its potentialfor growth and risks being marginalized by a company thatvalue-innovates.

� Path to profitable growth – shift future portfolio towardspioneers (have maximum growth potential but oftenconsume cash at the outset as they grow and expand).

How to Maximize the Size of the Blue Ocean

Challenge of Conventional Strategy Practices

� Focus on existing customer

� Finer segmentation and greater tailoring or offerings to better meet customer preferences

� Result: too small target markets� Result: too small target markets

Maximizing Blue Ocean� Look at noncustomer

� Find commonalities on what buyers value

� Result: unlock new mass of customers that did notexist beforeexist before

� Example: Callaway Golf offered Big Bertha, a golf clubwith a large head that made it easier to hit the golfball. It converts noncustomers into customers andpleased many existing customers too.

The Three Tiers of Noncustomers

First Tier: “Soon-to-be”noncustomers who are on theedge of your market waiting tojump ship.

Second Tier: “Refusing”

Third Tier

Second TierSecond Tier: “Refusing”noncustomers who consciouslychoose against your market.

Third Tier: “Unexplored”noncustomers who are inmarkets distant from yours.

Go for the biggest catchment!

Second Tier

Your Market

First Tier

Making a Healthy Profit on Your Blue Ocean Idea

The Sequence of Blue Ocean Strategy

B u y e r U t i l i t yB u y e r U t i l i t y

Is there exceptional buyer utility in your business idea?

P r i c eP r i c e

Is your price accessible to the mass buyers?

No-Rethink

No-Rethink

Yes

C o s tC o s t

Can you attain your cost target to profit at your strategic price?

A d o p t i o nA d o p t i o n

What are the adoption hurdles in actualizing your business idea? Are you

addressing them upfront?

No-Rethink

No-Rethink

Yes

Yes

Yes A Commercially Viable Blue Ocean Ideas

The Buyer Utility Map

The Six Stages of the Buyer Experience Cycle

1. Purchase 2. Delivery

3. Use 4. Supplements

5. Maintenance

6. Disposal

Customer Productivity

Th

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Convenience

Risk

Fun and image

Environmental friendliness

The Buyer Experience Cycle

Purchase Delivery Use Supplements Maintenance Disposal

How long does it take to find the product you need?

Is the place of purchase attractive

How long does it take to get the product delivered?

How difficult is it to unpack and

Does the product require training or expert assistance?

Is the product easy to store when not

Do you need other products and services to make this product work?If so, how costly are they?

Does the product require external maintenance?

How easy is it to maintain and

Does use of the product create waste items?

How easy is it to dispose of the purchase attractive

and accessible?

How secure is the transaction environment?

How rapidly can you make a purchase?

to unpack and install the new product?

Do buyers have to arrange delivery themselves? If yes, how costly and difficult is this?

to store when not in use?

How effective are the product’s features and functions?

Does the product or service deliver far more options than required by the average user? Is it overcharged with bells and whistles?

are they?

How much time do they take?

How much pain do they cause?

How easy are they to obtain?

maintain and upgrade the product?

How costly is maintenance?

dispose of the product?

Are there legal or environmental issues in disposing of the product safely?

How costly is disposal?

Uncovering the Blocks to Buyer Utility

Purchase Delivery Use Supplements Maintenance Disposal

Customer Productivity:In which stage are the biggest blocks to customer productivity?

Simplicity:In which stage are the biggest blocks to simplicity?

Convenience:In which stage are the biggest blocks to convenience?

Risk:In which stage are the biggest blocks to reducing risks?

Fun and Image:In which stage are the biggest block to fun and image?

Environmental Friendliness:

In which stage are the biggest blocks to environmental friendliness?

From Exceptional Utility to Strategic PricingThe Price Corridor of the Mass

Step 1: Identify the price corridor of the mass.

Step 2: Specify a price level within the price corridor.

Three alternative product/service types:

Same form

Different form,Same function

Different form and function, same objectiveform Same function same objective

Size of circle is proportional to number of buyers that product/service attracts

High degree of legal and resource protection

Difficult to imitate

Some degree of legal and resource protection

Low degree of legal and resource protection

Easy to imitate

Price Corridor of the MassPrice Corridor of the Mass Mid-level pricing

From Strategic Pricing to Target Costing

� Price-minus-costing, NOT cost-plus-pricing

1. Streamline operations and introduce cost innovations from manufacturing to distributing.

2. Partnering2. Partnering

3. Change the price model of the industry e.g. lease instead of sell

From Utility, Price, and Cost to Adoption

� Communicate with employees and defuse threats so that everyone wins, despite shifts in roles, responsibilities and rewards.

� Discuss issues with business partners� Discuss issues with business partners

� Educate general public if idea is very new, innovative, threatening established social or political norms.

Blue Ocean Idea (BOI) IndexStrategy Description Check (✔✔✔✔))))

Utility Is there exceptional utility? Are there compelling reasons to buy your offering?

Price Is your price accessible to the mass of buyers?

Cost Does your cost structure meet the target cost?Cost Does your cost structure meet the target cost?

Adoption Have you addressed adoption hurdles up front?

The Four Organizational Hurdles to Strategy

ExecutionCognitive Hurdle

An organization wedded to the

status quo

Political Hurdle

Opposition from powerful vested

interests

Motivation Hurdle

Unmotivated staff

Resource Hurdle

Limited Resources

Breaking Through Hurdles

Cognitive � Ride the “Electric Sewer” - show the worst reality to superiors� Meet with disgruntled customer

Resource� Redistribute resources to your hotspots� Redirect resources from your cold spotsResource � Redirect resources from your cold spots� Engage in horse trading

Motivational � Zoom in on Kingpins� Place Kingpins in Fishbowl� Atomize to get the organization to change itself

Political � Secure a consigliore on your top management team� Leverage your Angels and silence your Devils

Conventional Wisdom vs. Tipping Point Leadership

Mass of Employees

Company

Conventional Wisdom

Company

Company

ExtremeExtreme

Tipping Point Leadership

Theory of organization change rests on transforming the mass. So change efforts arefocused on moving the mass, requiring steep resources and long time frames.

To change the mass, focus on the extremes – people, acts, and activities that exercise adisproportionate influence on performance to achieve a strategic shift fast at low cost.

The Power of Fair Process

Strategy Formulation

Process

Attitudes

Fair Process

EngagementExplanation

Expectation Clarity

Trust and Commitment

Attitudes

Behavior

Strategy Execution

“I feel my opinion counts”

Voluntary Cooperation

“I’ll go beyond the call of duty”

Exceeds Expectations

Self-initiated

The Execution Consequence of the Presence

and Absence of Fair Process in Strategy Making

Fair ProcessIntellectual

and Emotional Recognition

Trust and Commitment

Voluntary Cooperation in

Strategy Execution

Violation of Fair Process

Intellectual and Emotional

Indignition

Distrust and Resentment

Refusal to Execute Strategy

Imitation Barriers to Blue Ocean Strategy

� Value innovation does not make sense to a company’sconventional logic

� Blue ocean strategy may conflict with other companies’ brandimage

� Natural monopoly: the market often cannot support a secondplayer

� Natural monopoly: the market often cannot support a secondplayer

� Patents or legal permits block imitation� High volume leads to rapid cost advantage for the value

innovator, discouraging followers from entering the market� Network externalities discourage imitation� Imitation often requires significant political, operational and

cultural changes� Companies that value innovate earn brand buzz and a loyal

customer following that tends to shun imitators.

When to Value-Innovate Again?� Monitor value curves on strategy canvas and dominate

the blue ocean as long as possible�Hold on when there is still a huge profit stream to be

collected from your current offerings.

�Focus on lengthening, widening and deepening yourrent stream to operational improvements andgeographic expansion to achieve maximum economiesof scale and market coverage.

� Reach out for another blue ocean when your valuecurve begins to converge with those of thecompetition.

Documents

Blue Ocean Strategy Summary