BOS Chapter 1

8/13/2019 BOS Chapter 1

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Blue Ocean Strategy


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Blue Ocean Strategy

To improve the quality of our successes we need tostudy what we did that made a positive difference &understand how to replicate it.

Blue Ocean Strategy challenges companies to break outof the red ocean of bloody competition by creatinguncontested market space that makes the competitionirrelevant.

Instead of dividing up existing - and often shrinking -demand and benchmarking competition, blue oceanstrategy is about growing demand and breaking awayfrom the competition.


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Cirque Du Soleil

Created in 1984

Achieved a level of revenues that took RinglingBros. and Barnum & Bailey- the global

champions of the circus industry more than 100years to attain!


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New Market Space: Cirque du Soleil

Why did Cirque du Soleil see so much success?

Realized that in order to win in the future, companiesmust stop competing with each other.

Cirque du Soleil did not compete with Ringling Bros.and Barnum and Bailey. Instead they appealed to a

whole new group of customers: adults and corporateclients.

They created an unprecedented entertainmentexperience.

Ex.: Nintendo Wii and Millionaire Matchmaker


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Red OceansVS Blue Oceans

Red Oceans All the industries in existence

today = the known marketspace

Industry boundaries and

defined and accepted. Companies try to outperform

rivals Market space gets crowded:

prospects for profits andgrowth are reduced.

Competition turns the redocean bloody

Blue Oceans Denote all the industries not in

existence today = the unknownmarket space

Defined by untapped market

space, demand creation and theopportunity for highlyprofitable growth

Some created well beyondexisting industry boundaries,but most are created within redoceans by expanding existingindustry boundaries

Competition is irrelevantbecause the rules of the gameare waiting to be set.


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Understanding Blue Oceans

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

Without the analytical frameworks andprinciples to effectively manage risk, managershave viewed the creation of blue oceans to be torisky to attempt.


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The Continuing Creation of Blue

Oceans

Although the term blue oceans is new, their existence isnot. Examples: Were use to these industries, but they werent

always in existence. Automobiles

Aviation

Music Recording

Cell Phones

Snowboards

Coffee Chops

Think of all of the unknown industries the future willreveal.


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Industries Continuously Evolve

Industries never stand still.

The Standard Industrial Classification (SIC) system wasreplaced in 1997 by the North American Industry

Classification System (NAICS). The new system expanded the ten SIC industry sectors

to reflect the emerging realities of new industryterritories.

SIC systems replacement is a sign of how significantthe expansion of blue oceans has been because thesystems are designed for standardization and continuity.


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The Impact of Creating Blue Oceans


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What Does This Mean?

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

the profits.

Given that business launches included the totalinvestments made for creating red and blue

oceans, the performance benefits of creatingblue oceans are evident.


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The Rising Imperative of Creating

Blue Oceans

Supply in an increasing number of industries isbeginning to exceed demand.

There has been an accelerated commoditizationof products and services, increasing price warsand shrinking profit margins.

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


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Without Differentiation

As brands become more similar, people generally selectbased on price.

How can you keep customers and sales if brand loyaltyis eroding?

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

Managers are realizing that they will need to be more

concerned with blue oceans as red oceans becomeincreasingly bloody. Examples: Laptops and the I-phone


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Red Ocean vs. Blue Ocean Strategy

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

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

Blue Ocean companies didnt use the

competition as a benchmark, but instead usedvalue innovation.


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Value Innovation: The Cornerstone

of Blue Ocean Strategy

Value Innovation - instead of focusing onbeating the competition, focus on making thecompetition irrelevant by creating a leap in value

for buyers and your company, thereby openingup new and uncontested market space.


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Value + Innovation

Value without innovation focuses on valuecreation but does not make you stand out in themarketplace.

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

Value innovation must align innovation withutility, price, and cost position.


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Value-Cost Trade Off

Red Ocean companies tend to choose betweenlow cost and differentiation.

Blue Ocean companies aim for bothsimultaneously.


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Value Innovation: The Cornerstone

of Blue Ocean Strategy


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Cirque de Soleil

Added story line

Less slap stick

Glamorized the tent Made more sophisticated

Reduced cost by eliminating animals

Priced tickets comparable with the theatre


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How do you achieve value

innovation?

It is done when the whole system of thecompanys utility, price, and cost activities are

properly aligned with each other


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So what does it mean?

Value innovation is more than innovation

Its about strategy that embraces the entire system of a

company's activities


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What do you need to create it?

Value innovation requires companies to orientthe whole system toward achieving a leap invalue for both the buyer and themselves

(meaning the company)


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Structuralist view

Also known as

Environmental determinism

Goes in part with red ocean strategy, assumes that

an industry structures are set and you must competein it


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Reconstructionist view

Based on the view that market boundaries andindustry structure are not given and can bereconstructed by the actions and beliefs of

industry players


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Red Ocean vs. Blue Ocean 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 firms

activities with its strategic

choice of differentiation or low

cost

Align the whole system of a firms

activities in pursuit of

differentiation and low cost


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Company/IndustryStrategic Move

Initial Step to define the basic unit of analysis

Previously Published Research

In Search of Excellence

Built to Last Basic Unit of Analysis

Company

Blue Ocean Strategy

Basic Unit of Analysis

Strategic Move


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Results

Basic Unit of Analysis

Company

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

Atari, Data General, Fluor, National Semiconductor

Strategic Move

They delivered products and services that opened and capturednew market space, with a significant leap in demand

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


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Strategic Move


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Strategic Move - Cont

Is a set of managerial actions and decisionsinvolved in making a major market creatingbusiness offering

Capture?

New Market Space

Increased Demand


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Examples of Blue Oceans

Ford

Model T

General Motors

Styled cars to emotions

CNN

24/7 News Channel

Cirque Du Soleil

Sophisticated Entertainment


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Formulating and Executing Blue

Ocean Strategy Chapter 2: Introduces the analytical tools and frameworks that

are essential for creating and capturing blue oceans.

Chapters 3-6: Introduces the principles that drive the successfulformulation and implementation of blue ocean strategy and

explain how they, along with the analytics, are applied in action. Chapters 7-8: Turn to the principles that drive effective

execution of blue ocean strategy. Tipping point leadership,organizational risk, fair process, and management risk are alladdressed as new strategies.

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


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The Six Principles of Blue Ocean

Strategy


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Class Take Aways

Blue Ocean Strategy challenges companies to break outof the red ocean of bloody competition by creatinguncontested market space that makes the competitionirrelevant.

The big difference in Red Oceans and Blue Oceans isthe strategy.

Value Innovation is the cornerstone of Blue OceanStrategy.

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

Documents

BOS Chapter 1