Blue Ocean Strategy

Red Ocean

Blue Ocean

To fight and conquer in all your battles is not supreme excellence. Supreme excellence is in breaking the enemys resistance without fighting.
Master Sun Tzu in Art of War

Red Oceans represent all industries in existence today.

They have defined rules, competitors, and market boundaries.

Key words might include competition, price wars, market share, commoditization, benchmarking, strategic positioning, value add.

Blue Oceans represent all industries NOT in existence today. This is undefined market space, otherwise known as OPPORTUNITY. Key words might be value innovation, focus,

differentiation, creation of demand, new marketplace

Most blue oceans are created from red ocean companies expanding industry boundaries. For example, Cirque du Soleil or [yellowtail] (more on this in a bit)

The phrase Blue oceans is new, but the concept is not. Think of what industries existed in 1900. Take 3 minutes At your table, brainstorm a list of industries that have emerged since then.

Some of them might be automotives, aviation, health care, plastics, DVDs, computers, personal entertainment devices (iPods, for example).

All of these industries created new market space.

What is Blue Ocean Strategy

Blue Ocean Strategy has literally
changed the way companies do business. It has turned the way we think of competition on its head. It will challenge everything you thought you knew about strategy.

Red Ocean Strategy

Blue Ocean Strategy

The premise is simple:

To win in the future, companies must stop competing with each other.
The only way to beat the competition is to stop trying to beat the competition.

The business environment in which most business strategy and management has been based on is changing, evolving or disappearing. Some of this change is due to technology. Other reasons might be culture, globalization, speed of new information, or the role of demographics in the workplace.

Impact of Creating Blue Oceans

W. Chan Kim en Renee Mauborgne, 2005

Value Innovation
Value innovation is the new strategic logic behind Blue Ocean Strategy. Instead of focussing on beating the competition, you focus on making it irrelevant by creating a leap in value for buyers and creating uncontested market space.

Value innovation only occurs when organizations have aligned innovation with utility, price and costs. The market must be ready to accept the product, meaning that timing is key. The focus is on both differentiation and low cost to provide value to both customers and the organization.

Graph of Value Innovation

VALUE INNOVATORS
Monitor competitors but
dont use them as benchmarks Dont focus on competing Dont offer product and or service features just because the competition is doing so Think fresh: what with all we know - would we do if we were starting anew today?

Think holistically, in terms

of total solutions for the customer (e.g. total cost of ownership)

Case study: Cirque du Soleil

Other circuses focused on: Benchmarking the competition High-profile stars, which increased costs but who were largely unknown to the general public Traditional venue Traditional audiences

Case study: Cirque du Soleil

Cirque du Soleil focused on: Creation of a hybrid between the circus and the theatre Retention of the symbolic and glamorous aspects of circus, such as the tent and the more breathtaking aspects, such as acrobats Incorporation of more comfort, sophistication, elegance and theatrical plots; this brought not only the richness of theatre but a whole new demographic of customers It looked across market boundaries and created new ones.

Analytical Tools and Frameworks

Strategy Canvas Four Actions Framework Eliminate-Reduce-Raise-Create Grid Three Characteristics of a Good Strategy

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The Strategy Canvas

Captures the current state of play in the
market by detailing the factors players compete on in product, service and delivery For example, the wine industry competes on price per bottle, refined image in packaging, marketing strategies, aging quality of wine, prestige of vineyard, complexity of taste and diverse product range

Ranking Scale
12 10 8 6 4 2 0

Pr ice

Competetive Factors

Im ag e ag co in g m pl ex it y pr di e ve rs stig e e po rtf ea ol sy io to d ac rink ce ss ib le Fu n

Possible Wine Canvas

Yellowtail

Mission Hill

Quails Gate

The Strategy Canvas

Each factor is plotted on the canvas, with
a high score reflecting the level of investment a specific company makes in that factor (for example a high score on price means that the price per bottle is high) When you plot all US wineries, they score remarkably similarly

Example of a Strategy Canvas

Blue Ocean Space

The Strategy Canvas

To differentiate yourself in the market
place, you must focus on alternatives and non-customers to re-define the marketplace For example, Casella Wines looked at the strategy canvas and redefined the question: How do you make a fun and non traditional wine that is easy for everyone to drink?

Case Study: [yellowtail]

Casella saw that most US consumers
preferred beer, spirits and pre-packaged cocktails to wine Consumers saw wine as a turn-off due to
It was pretentious The taste was too complex It could be intimidating

Case Study: [yellowtail]

They created a wine that broke out of the
red ocean by creating a wine that:
Appealed to beer and spirits drinkers by being fun and unpretentious as well as to wine drinkers Had a less complex, sweeter and smooth taste Was easy to select as it did not focus on prestige, aging, etc. They eliminated all factors that the wine industry had long competed on

Four Actions: Eliminate/Reduce/Raise/Create

Which of the factors that the industry
takes for granted should be eliminated? Which should be reduced? Which should be raised well above standard? Which factors should be created that have not existed before?

Eliminate-Reduce-Raise-Create Grid
Case Study: Yellow Tail

Eliminate
Enological Terminology Aging qualities Above-the-line Marketing

Raise
Price versus budget wines Retail stores involvement

Reduce
Wine complexity Wine range Vineyard prestige

Create
Easy drinking Ease of selection Fun and adventure

A New Value Curve

Strategy Canvas of Yellow Tail
High

Premium Wines [yellow tail]

Budget Wines CREATE

RAISE
Low
Price Above-the-line marketing ELIMINATE Aging quality Use of enological terminology and distinctions in wine communication

REDUCE
Vineyard prestige Wine complexity Wine range Easy drinking Ease of selection Fun and adventure

Case Study: Cricket Before IPL

High

Test Cricket

One Day

Low

Spectator Time Classic Technique

Value of Team Reputation

Emphasis on Patience & Perseverance

Entertainment

Pacy

Definite Result

Athleticism

Case Study: Cricket After IPL

High

Low
Test Cricket One Day 20-20
Spectator Time Classic Technique Value of Team Reputation Emphasis on Patience & Perseverance Entertainment Pacy Definite Result Athleticism City Loyalty Open to Dummies

Case Study: Value Curve for IPL

Reduce Spectator Time Invested (Competes with Movie/Football) Emphasis on Classic Techniques (Batting/Bowling) Emphasis on Patience, Perseverance Raise Emphasis on Athleticism Pace of the Game Entertainment with Bollywood, Cheerleaders etc. Certainty of Result

Create City Loyalty Welcome to Dummies

Three Characteristics of a Good Strategy

It is focused; it is not diffused across all
potential aspects of the market The shape of the value curve diverges from any potential competitors It has a compelling tagline

The Six Principles of BOS

Formulating Principles

Risk Factor Each Principle Attenuates

Search risk Planning risk Scale risk Business model risk

Reconstruct market boundaries Focus on the big picture, not the numbers Reach beyond existing demand Get the strategic sequence right

Execution Principles
Overcome key organization hurdles Build execution into strategy

Risk Factor Each Principle Attenuates

Organization risk Management risk

Reconstruct Market Boundaries

Look Across Alternative Industries Look Across Strategic Groups within

Industries Look Across Chain of Buyers Look Across Complementary Products and Service Offerings Look Across Functional or Emotional Appeal to Buyers Look Across Time

Summary:
Industry

Conceiving New Market Space

Head-to-Head Competition
Focuses on rivals within its industry
Focuses on competitive position within strategic group

Blue Ocean Creation

Looks across alternative industries
Looks across strategic groups within industry Redefines the industry buyer group Looks across to complementary product and service offerings Rethinks the functional-emotional orientation of to industry Participates in shaping external trends over time

Strategic Group

Buyer Group Scope of Product or Service Offering

Focuses on better serving the buyer group

Focuses on maximizing the value of product and service offering within the bounds of its industry

Functional Emotional Orientation

Time

Focuses on improving price performance within the functionalemotional orientation of its industry
Focuses on adapting to external trends as they occur

Focus on Big Picture

Four Steps of Visualizing Strategy The Pioneer-Migrator-Settler Map

Four Steps of Visualizing Strategy

Visual Awakening Visual Exploration Visual Strategy Fair Visual Communication

Compare your business with your competitors by drawing your as is strategy canvas. See where your strategy needs to change.

Go into the field to explore the six paths to creating blue oceans. Observe the distinctive advantages of alternative products and services. See which factors you should Eliminate, Raise, Create, or Change.

Draw your to be strategy canvas based on insights from field observations. Get feedback on alternative strategy canvases from customers, competitor's customer, and noncustomers. Use feedback to build the best to be future strategy.

Distribute your before-and-after strategic profiles 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.

The PMS Map

Pioneers

Migrators

Settlers

Today

Tomorrow

Reach Beyond Existing Demand

First Tier: Soon-to-be
Second First Tier Tier Third Tier

non-customers who are on the edge of your market, waiting to jump ship

Your Market

Second Tier: Refusing

non-customers who consciously choose against your market.

Third Tier: Unexplored

non customers who are in markets distant from yours.

Get the Strategic Sequence Right

Buyer Utility Price Cost Adoption
Commercially Viable Blue Ocean Idea

Is there exceptional buyer utility in your business idea?

Is your price easily accessible to the mass of buyers?

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

What are adoption hurdles in actualizing your business idea? Are you addressing them up front?

Price Corridor of the Mass

1.Identify the Price Corridor of the mass
Three alternative product/service types:
Same Form Different Form Same Function
Different Form and Function, Same Objective

2.Specify a Price Level within the Price Corridor

High degree of legal and resource protection Difficult to Imitate Price Corridor of the Mass Mid-level pricing Some degree of legal and resource protection Low degree of legal protection Easy to Imitate
Size of circle is proportion to number of buyers that product/service attracts

Profit Model of BOS

The Strategic Price
The Target Profit

The Target Cost

Streamlining and Cost Innovative

Partnering

Pricing Innovation

Overcome Key Organization Hurdles

1. Cognitive Wedded to status quo 2. Political Opposition from powerful
vested interest 3. Motivational Unmotivated 4. Resource Limited resource

Build Execution into Strategy

Strategy Formulation Process` Attitude
Fair Process
Engagement Explanation Expectation clarity

Trust &Commitment

I feel my opinion counts.

Behavior Strategy Execution

Volunteer Cooperation

Ill go beyond the call of duty.

Exceeds Expectation
Self-Initiated

Conclusion

Sustainability and Renewal of Blue Ocean Strategy

Imitation Barriers to BOS

Value Innovation does not make sense to a companys conventional logic. Blue Ocean Strategy may conflict with companies brand image. Natural monopoly: The market often cannot support a second player. 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 require significant political, operational, and cultural changes. Companies that value-innovate earn brand buzz and a loyal customer following that tends to shun imitators.

This is not the end! It is not even the beginning of the end. But it is, perhaps, the end of the beginning of a true blue ocean!
Blue Ocean

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