Blue Ocean Strategy

Kim & Mauborgne 2006

Think of the industries not existing 100 years back

Think of the industries not existing 30 years back
Put the clock forward by 20 yrs. Think of the industries not existing today but will be there in 2040
Kim & Mauborgne 2006

Business Universe Consists of Two types of Space Red and Blue Oceans

Kim & Mauborgne 2006

Data: 150 blue ocean creations

More than 30 industries, over 100 years (1880-2000)
Hotel, cinema, retailing, airline, energy, computer, broadcasting, home construction, automobile, steel manufacturing, chemicals, cosmetics, software

Kim & Mauborgne 2006

Red Ocean
Represents all the existing industries Industry boundaries are defined and accepted Competitive rules of games are well understood Outperform rivals to grab existing demand As the space gets more and more crowded -blood bath -profit and growth decline -product become commodities
Kim & Mauborgne 2006

Blue Ocean
Denotes all the industries not existing today

Unknown market space untainted by competition

Demand is created rather than fought over Ample opportunities for:
-growth that is profitable and rapid

Two ways to create blue oceans

-Give rise to new industries - e-bay with online auction -In most cases blue ocean is created within red ocean by altering the boundaries of an existing industry

Kim & Mauborgne 2006

The Strategy Canvas of Cirque du Soleil

hi
Ringling Brothers

Cirque du Soleil offering level

Smaller Regional Circus

lo
Price Animal Shows Star Performers Aisle Concessions Multiple Show Arenas Thrills & Danger Fun & Humor Unique Venue Theme Multiple Productions Artistic Music & Dance Refined Viewing Environment

The Strategy Canvas of Cirque du Soleil

hi Eliminate
Ringling Brothers

Reduce

Raise

Create

Cirque du Soleil

offering level

Smaller Regional Circus

lo
Price Animal Shows Star Performers Aisle Concessions Multiple Show Arenas Thrills & Danger Fun & Humor Unique Venue Theme Multiple Productions Artistic Music & Dance Refined Viewing Environment

Red Ocean Versus Blue Ocean Strategy

Red Ocean Strategy
Compete in existing market space

Blue Ocean Strategy

Create uncontested market space

Beat the competition

Make the competition irrelevant

Differentiation or low cost

Differentiation and low cost

Competitive Advantage

Value Innovation

Segment existing customers

Attract noncustomers

Exploit existing demand

Create and capture new demand

Is there a pattern to blue ocean creation!

Drivers of Blue Ocean

1.Globalization 2.Dismantling of trade barriers 3.Transportation mediums 4.Existence of perfect markets Result Niche Markets and Monopolies are disappearing

Substantially Higher Returns from Investments in Blue Oceans Paradox of Strategy

Business Launch
86% 14%

Revenue Impact

62%

38%

Profit Impact
Red Oceans Market-Competing Business Launches

39%

61%

Blue Oceans Market-Creating Business Launches

Reasons
The Positioning School Sun Tzu to Von Clausewitz Terminology borrowed from military HQ Share Dislodge Chief Executive Officer Implies battlefield fight for something limited like land or market share
Kim & Mauborgne 2006

Technology and innovation may be involved in creation of blue oceans but they are not the defining features

Dell e-bay South West

Underlying technology was already in existence

Kim & Mauborgne 2006

Strategy is not all about a choice between differentiation or low cost when it comes to creation of blue ocean, the organizations pursue both simultaneously It is the rejection of the concept of mutually exclusivity

Generic Strategies vs. Blue Ocean

Red Ocean Strategy

High
High

Blue Ocean Strategy

V1

V1 Quality

Quality

Low High Cost

LC

Low C1 Low High Cost

C1

Low

Structuralist

Reconstructionist

Barriers to imitation
Home Depot, Federal Express, South West, CNN Also create economies of scale, difficult to imitate
- WalMart

Create Network Externality-

- ebay- more people to be there - buyer or seller

Kim & Mauborgne 2006

Cognitive Barriers
Jet Blue-Lufthansa Image Problem
Body Shop (No Model)-Estee Lauder (Eternal Youth) Microsoft- Intuit Quicken

Kim & Mauborgne 2006

Ford Model - T

Kim & Mauborgne 2006