Professional Documents
Culture Documents
Competitive Strategy
Prof. Rick Smith
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Blue Ocean Strategy
How to Create Uncontested Market Space and Make the
Competition Irrelevant
By W Chan Kim & Renee Mauborgne
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Blue Ocean Strategy
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Blue Ocean Strategy
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Value Innovation
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Blue Ocean Strategy
Blue Ocean Strategy provides a
systematic approach to making the
competition irrelevant.
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Blue Ocean Strategy
The only way to beat the competition is
to stop trying to beat the competition.
Red oceans represent all the industries in
existence today. This is the known market
space.
Blue oceans denote all the industries not
in existence today. This is the unknown
market space.
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Blue Ocean Strategy
It will always be critical to swim successfully
in the red ocean by outperforming rivals.
Red oceans will always matter and will
continue to be a fact of business life.
Blue oceans denote all the industries not in
existence today. This is the unknown market
space.
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Blue Ocean Strategy
BUT with supply exceeding demand in most
industries, competing for a share of dwindling
markets, while necessary, will not be sufficient
to sustain high performance.
Firms need to go beyond competing.
To seize new profit and growth opportunities,
they also need to create blue oceans.
Unfortunately, blue oceans are largely
uncharted.
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Blue Ocean Strategy
The dominant focus of strategy work over the
past 25 years has been on competition-based red
ocean strategies.
The result has been a good understanding of
how to compete skillfully in red water from
analyzing the underlying structure of an existing
industry, to choosing a strategic position of low
cost or differentiation or focus, to benchmarking
the competition.
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Blue Ocean Strategy
There have been some discussions about blue
ocean strategies; however, there is little
practical guidance on how to create them.
Without the usual analytic framework to
create blue oceans and effective principles to
manage risk, creating blue oceans remains
wishful thinking that is viewed as too risky for
managers to pursue as strategy.
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The Continuing Creation of Blue Oceans
Although the term blue oceans is relatively
new, their existence is not. They are a feature of
business life.
How many of todays industries were
unknown 100 years ago?
Now turn the clock back only 30 years.how
many?
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The Continuing Creation of Blue Oceans
Now put the clock forward twenty years and
ask yourself how many now unknown industries
will have appeared by then. If history can be
used as a predictor of the future, again the
answer is many of them.
The reality is that industries never stand still.
They continuously evolve. Operations improve,
markets expand, and players come and go.
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The Continuing Creation of Blue Oceans
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The Continuing Creation of Blue Oceans
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The Continuing Creation of Blue Oceans
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The Continuing Creation of Blue Oceans
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The Continuing Creation of Blue Oceans
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The Impact of Creating Blue Oceans
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The Impact of Creating Blue Oceans
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The Impact of Creating Blue Oceans
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The Impact of Creating Blue Oceans
Given that business launches included the total
investments made for creating red and blue
oceans (regardless of their subsequent revenue
and profit consequences, including failures), the
performance benefits for creating blue waters are
evident.
Introduce Pareto Principle (80-20 rule)
80% of the effects are a result of 20% of the
causes. Introduce general concept only.
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The Rising Imperative of Creating Blue Oceans
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The Rising Imperative of Creating Blue Oceans
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The Rising Imperative of Creating Blue Oceans
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The Rising Imperative of Creating Blue Oceans
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The Rising Imperative of Creating Blue Oceans
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From Company and Industry to Strategic Move
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From Company and Industry to Strategic Move
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From Company and Industry to Strategic Move
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From Company and Industry to Strategic Move
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From Company and Industry to Strategic Move
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From Company and Industry to Strategic Move
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Value Innovation: The Cornerstone of Blue Ocean Strategy
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Value Innovation: The Cornerstone of Blue Ocean Strategy
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Value Innovation: The Cornerstone of Blue Ocean Strategy
Costs
Value
Innovation
Buyer Value
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Value Innovation: The Cornerstone of Blue Ocean Strategy
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Minimizing Risk and Maximizing Opportunity
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Minimizing Risk and Maximizing Opportunity
Search risk
Planning risk
Scope risk
Business model risk
Organizational risk
Management risk
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Minimizing Risk and Maximizing Opportunity
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Minimizing Risk and Maximizing Opportunity
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Minimizing Risk and Maximizing Opportunity
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Minimizing Risk and Maximizing Opportunity
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Minimizing Risk and Maximizing Opportunity
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Blue Ocean Strategy is a Dynamic Process
Blue ocean strategy should not be thought of as a static process.
In order to be truly effective, blue ocean strategy must by
dynamic.
The aim here is to dominate the blue ocean over imitators for as
long as possible. But as other companies strategies began to
converge on your market, the blue ocean begins to turn red with
intense competition. This is when companies need to reach out
to create a new blue ocean to break away from the competition
again.
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Blue Ocean Strategy is a Dynamic Process
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Blue Ocean Strategy is a Dynamic Process
Blue ocean strategy is not only a unique strategic methodology
intended to create and to capture blue oceans but also how to
monitor when it is time to search out and develop a new blue
ocean.
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Blue Ocean Strategy is Cirque du Soleil
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Blue Ocean Strategy is Cirque du Soleil
Critical issues with CdS:
Recombination
Reconstruction
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Blue Ocean Strategy is Cirque du Soleil
CdS generated revenues in less than 20 years that it took
Ringling Bros. and Barnum & Baily over 100 years to
generate.
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Blue Ocean Strategy is Cirque du Soleil
They are not technologies nor methods of production.
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Blue Ocean Strategy is Cirque du Soleil
CdS is not about offering a better circus by recombining existing
knowledge or technologies about acts and performances.
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Blue Ocean Strategy is Cirque du Soleil
To reconstruct buyer value elements in crafting a new value
curve, the four actions framework has been developed
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The Four Actions Framework
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Blue Ocean Strategy is Cirque du Soleil
The value curve, the basic component of the strategy canvas, is
a graphic depiction of a companys relative performance across
its industries factors of competition.
Reduce
A New
Eliminate Value Create
Curve
Raise
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Blue Ocean Strategy is Cirque du Soleil
CdS broke the best practice rule for the circus industry, achieving
both differentiation and low cost by reconstructing elements
across existing industry boundaries.
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Blue Ocean Strategy is Cirque du Soleil
Eliminate-Reduce-Raise-Create Grid
Eliminate: Raise:
Star performers Unique venue
Animal shows
Aisle concession sales
Multiple show arenas
Reduce: Create:
Fun and humor Theme
Thrill and danger Refined environment
Multiple productions
Artistic music/dance
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Blue Ocean Strategy is Cirque du Soleil
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Blue Ocean Strategy is Cirque du Soleil
Redefining the problem usually leads to changes in the entire
system and hence, a shift in strategy, whereas recombination of
existing elements may end up finding new solutions to sub-
system activities that serve to reinforce an existing strategic
position.
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Blue Ocean Strategy is Yellowtail
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Blue Ocean Strategy is Yellowtail
Eliminate-Reduce-Raise-Create Grid
Eliminate: Raise:
Reduce: Create:
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Blue Ocean Strategy is Yellowtail
Eliminate-Reduce-Raise-Create Grid
Eliminate: Raise:
Enological terminology Price versus budget
and distinctions wines
Aging qualities Retail store
involvement
Above-the-line
marketing
Reduce: Create:
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Blue Ocean Strategy is Yellowtail
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Blue Ocean Strategy is Southwest
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Blue Ocean Strategy is Southwest
Eliminate-Reduce-Raise-Create Grid
Eliminate: Raise:
Reduce: Create:
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Blue Ocean Strategy is Southwest
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Three Characteristics of a Blue Ocean Strategy
1. Focus
2. Divergence
3. Compelling tagline
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Three Characteristics of a Blue Ocean Strategy
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Three Characteristics of a Blue Ocean Strategy
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Blue Ocean Strategy is Southwest
Focus.
Every great strategy has focus, and a companys strategic profile,
or value curve, should clearly reflect focus. If we look at SWAs
profile, we can see at once that the company emphasizes only
three factors:
Friendly service
Speed
Frequent point-to-point departures
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Blue Ocean Strategy is Southwest
(Focus continued)
These foci have allowed SWA to price against car transportation;
it doesnt incur the costs of in-flight meals, lounges, and assigned
seating.
By contrast, SWAs traditional competitors invest in all the airline
industrys competitive factors, making it much more difficult for
them to match SWAs pricing leadership.
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Blue Ocean Strategy is Southwest
Divergence
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Blue Ocean Strategy is Southwest
Compelling Tagline
A good tagline must not only deliver a clear message but also
advertise an offering truthfully, or else customers will lose trust
and interest.
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Reconstruct Market Boundaries
The first principle of blue ocean strategy is to reconstruct market boundaries in
order to break from the competition and create blue oceans.
This principle addresses the search risk with which many companies
struggle.
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Reconstruct Market Boundaries
There are six fundamental assumptions underlying many companies
strategies. Specifically, companies tend to do the following:
Define their industry similarly and focus on being the best within it.
Focus on the same buyer group, be it the purchaser, the user, etc.
Define the scope of the products and services offered by their industry
similarity.
To break out of red oceans, companies must break out of the accepted boundaries that
define how they compete.
This gives companies keen insight into how to reconstruct market realities to open up
blue oceans.
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Reconstruct Market Boundaries
aka Six Paths Framework
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Path 1. Look Across Alternative Industries
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Path 1. Look Across Alternative Industries (continued)
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Path 1. Look Across Alternative Industries (continued)
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Path 1. Look Across Alternative Industries (continued)
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Path 1. Look Across Alternative Industries (continued)
http://www.netjets.com/
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Path 1. Look Across Alternative Industries (continued)
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Path 2. Look Across Strategic Groups Within Industries
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Path 2. Look Across Strategic Groups Within Industries (cont)
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Path 2. Look Across Strategic Groups Within Industries (cont)
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Path 2. Look Across Strategic Groups Within Industries (cont)
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Path 3. Look Across the Chain of Buyers
Although these three groups may overlap, they often differ. They often
differ because they hold different definitions of value. A purchasing
agent may be far more concerned with cost than the corporate user
who is likely to be more concerned with ease of use. Similarly, a
retailer may value a manufacturers JIT stock replenishment and
innovative financing.
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Path 3. Look Across the Chain of Buyers
Industry Focuses on
Pharmaceuticals Influencers (Physicians)
Office Equipment Purchasers (Corp Purchasing Dept)
Clothing 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.
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Path 3. Look Across the Chain of Buyers
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Path 4. Look Across Complementary Product/Service Offerings
Lets look at movie theaters. The ease and cost of getting as babysitter
and parking your 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 parents
to get babysitters. But they should because it affects the demand for
their business.
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Path 4. Look Across Complementary Product/Service Offerings
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Path 4. Look Across Complementary Product/Service Offerings
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Path 5. Look Across Functional or Emotional Appeal to Buyers
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Path 5. Look Across Functional or Emotional Appeal to Buyers
(cont)
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Path 5. Look Across Functional or Emotional Appeal to Buyers
(cont)
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Path 5. Look Across Functional or Emotional Appeal to Buyers (cont)
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Path 6. Look Across Time
All industries are subject to external trends that affect their business
over time. Think of the rapid rise of the Internet or the global
movement toward protecting the environment. Looking at these trends
with the right perspective can show you how to create blue ocean
opportunities.
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Path 6. Look Across Time (continued)
But key insights into blue ocean strategy rarely come from projecting
the trend itself. Instead they arise from business insights into how the
trend will change value to customers and impact the firms business
model. By looking across time from the value a market delivers
today to the value it might deliver tomorrow managers can actively
shape their future and lay claim to a new blue ocean. Looking across
time is perhaps more difficult than the previous five approaches Ive
presented, but it can be made subject to the same disciplined approach.
Were not talking about predicting the future, something that is
inherently impossible. Rather, were into finding insight in trends that
are observable today.
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Path 6. Look Across Time (continued)
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Path 6. Look Across Time (continued)
In 1998, for example, the mounting Asian crisis was an important trend
certain to have a big impact on financial services. But it was
impossible to predict the direction that trend would take, and therefore
it would have been a risky enterprise to envision a blue ocean strategy
that might result from it. In contrast, the euro has been evolving along
a constant trajectory as it has been replacing Europes multiple
currencies. It is a decisive, irreversible, and clearly developing trend
in financial services upon which blue oceans can be created as the
European Union continues to enlarge.
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Path 6. Look Across Time (continued)
Having identified a trend of this nature, we can then look across time
and ask ourselves what the market would be like if the trend were
taken to its logical conclusion. Working back from that vision of a
blue ocean strategy, we can begin to identify what must be changed
today to unlock a new blue ocean.
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Focus on the Big Picture; Not the Numbers
You are now familiar with the paths to creating blue oceans.
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Focus on the Big Picture; Not the Numbers
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Focus on the Big Picture; Not the Numbers
Students can see why very few strategic plans lead to the creation of
blue oceans or are translated into actions. Executives are paralyzed by
this muddle.
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Focus on the Big Picture; Not the Numbers
A closer look reveals that most plans dont include a strategy at all but
rather a smorgasbord of tactics that individually make sense but collectively
dont add up to a unified clear direction that sets the company apart let
alone makes the competition irrelevant.
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Focus on the Big Picture; Not the Numbers
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Focus on the Big Picture; Not the Numbers
As also pointed out, the strategic profile with high blue ocean potential
has three complementary qualities: focus, divergence, and a compelling
tagline.
If a firms strategic profile does not clearly reveal those qualities, its
strategy is likely to be muddled, undifferentiated, and hard to communicate.
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