Blue Ocean Strategy

Preface

Chapter 1: Creating Blue Oceans

Group 3

Anna Rendon Olivia Erwin Chase Mueller Paige Stone Tanner Gilreath Brandon Laviage Ashley Hoptay

Blue Ocean Strategy

Blue Ocean Strategy

To improve the quality of our successes we need to study what we did that made a positive difference & understand how to replicate it. Blue Ocean Strategy challenges companies to break out of the red ocean of bloody competition by creating uncontested market space that makes the competition irrelevant. Instead of dividing up existing - and often shrinking demand and benchmarking competition, blue ocean strategy is about growing demand and breaking away from the competition.

Cirque Du Soleil

Created in 1984 Achieved a level of revenues that took Ringling Bros. and Barnum & Bailey- the global champions of the circus industry more than 100 years to attain!

New Market Space: Cirque du Soleil

Why did Cirque du Soleil see so much success? Realized that in order to win in the future, companies must 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 corporate clients. They created an unprecedented entertainment experience. Ex.: Nintendo Wii and Millionaire Matchmaker

Red Oceans VS Blue Oceans

Red 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 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 Oceans

Blue oceans are largely uncharted, so there is little practical guidance on how to create them. Without the analytical frameworks and principles to effectively manage risk, managers have viewed the creation of blue oceans to be to risky to attempt.

The Continuing Creation of Blue Oceans

Although the term blue oceans is new, their existence is not.

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 will reveal.

Industries Continuously Evolve

Industries never stand still. The Standard Industrial Classification (SIC) system was replaced 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 industry territories. SIC systems replacement is a sign of how significant the expansion of blue oceans has been because the systems are designed for standardization and continuity.

The Impact of Creating Blue Oceans

What Does This Mean?

Blue oceans held a little over a tenth of the launches. However, they brought in a more than a third of the revenues and almost two-thirds of the profits. Given that business launches included the total investments made for creating red and blue oceans, the performance benefits of creating blue oceans are evident.

The Rising Imperative of Creating Blue Oceans

Supply in an increasing number of industries is beginning to exceed demand. There has been an accelerated commoditization of products and services, increasing price wars and shrinking profit margins. For major product and service categories, brands are generally becoming more similar.

Without Differentiation

As brands become more similar, people generally select based on price. How can you keep customers and sales if brand loyalty is eroding? How many people buy the same detergent, toothpaste, peanut butter or paper towels each time? How many people 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 become increasingly bloody.

Examples: Laptops and the I-phone

Red Ocean vs. Blue Ocean Strategy

The big difference in Red Oceans and Blue Oceans is the strategy. Red Ocean companies took a conventional approach of trying to beat the competition. Blue Ocean companies didnt use the competition as a benchmark, but instead used value innovation.

Value Innovation: The Cornerstone of Blue Ocean Strategy

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

Value + Innovation

Value without innovation focuses on value creation but does not make you stand out in the marketplace. Innovation without value tends to be futuristic and go beyond what buyers are ready for. Value innovation must align innovation with utility, price, and cost position.

Value-Cost Trade Off

Red Ocean companies tend to choose between low cost and differentiation. Blue Ocean companies aim for both simultaneously.

Value Innovation: The Cornerstone of Blue Ocean Strategy

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

How do you achieve value innovation?

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

So what does it mean?

Value innovation is more than innovation

Its about strategy that embraces the entire system of a company's activities

What do you need to create it?

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

Structuralist view

Also known as

Environmental determinism

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

Reconstructionist view

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

Red Ocean vs. Blue Ocean Strategy

Red Ocean Strategy Compete in existing market space Beat the competition Exploit existing demand Make the value-cost trade-off Align the whole system of a firms activities with its strategic choice of differentiation or low cost Blue Ocean Strategy Create uncontested market space Make the competition irrelevant Create and capture new demand Break the value-cost trade-off Align the whole system of a firms activities in pursuit of differentiation and low cost

Company/Industry Strategic 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

Basic Unit of Analysis Strategic Move

Blue Ocean Strategy

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 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

Is a set of managerial actions and decisions involved in making a major market creating business offering Capture?
New Market Space Increased Demand

Examples of Blue Oceans

Ford

Model T
Styled cars to emotions 24/7 News Channel Sophisticated Entertainment

General Motors

CNN

Cirque Du Soleil

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 successful formulation 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 all addressed as new strategies. Chapter 9: Discusses the dynamic aspects of blue ocean strategythe issues of sustainability and renewal.

The Six Principles of Blue Ocean Strategy

Class Take Aways

Blue Ocean Strategy challenges companies to break out of the red ocean of bloody competition by creating uncontested market space that makes the competition irrelevant. The big difference in Red Oceans and Blue Oceans is the strategy. Value Innovation is the cornerstone of Blue Ocean Strategy. Strategic moves should be aimed at delivering products and services that open and capture new market space, with a significant leap in demand.