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Innovation Strategy:Blue Ocean Strategy

Jonathan WeaverUDM Mechanical Engineering Department

weaverjm@udmercy.edu

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References

• Blue Ocean Strategy, W. Chan Kim & Renee Mauborgne, Harvard Business School Press, 2005 (all embedded figures are from this reference)

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Fundamental Premise

“Don’t Compete with Rivals – Make Them Irrelevant”

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Red Oceans

• Represent all industries in existence today

• Industry boundaries are defined and accepted

• Companies try to outperform each other to gain market share

• The market space becomes crowded and the products become commoditized

• Prospects for profit and growth are reduced

• Competition turns the red ocean bloody

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Blue Oceans

• Defined by untapped market space, demand creation, and high-profit growth potential

• Some are new industries, but most are created from within red oceans by expanding existing industry boundaries or competing with a fundamentally different strategy

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Impact of Blue Oceans

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Examples

• CNN in 1980 with 24/7 news coverage

• Starbucks with upscale coffee/beverages in a pleasant environment

• Southwest airlines with a “better than driving” sort of strategy

• Cirque du Soleil creating a new circus/theatre market

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How to Create Blue Oceans

• Most business research and education (and I’d argue most practice) focuses on competing in the bloody red oceans

• The book provides frameworks and analytics for systematic creation and capture of blue oceans

• The cornerstone is value innovation– Creating a leap in value for your buyers thereby opening

up new and uncontested market space– Pursue differentiation and low cost simultaneously– Involves driving costs down while increasing buyer value

• It is really STRATEGY that is key

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Strategy Canvas

• The Strategy Canvas is one way to understand the competition and clearly show how a Blue Ocean can be created

• Consider the strategy canvas for the U.S. Wine Industry in the Late 1990s

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Casella Wines

• Australia’s Casella Wines studied what turned people off from wine and created a Blue Ocean Strategy shown on the canvas on the next slide

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Four Guiding Principles

1. Reconstruct Market Boundaries

2. Focus on the Big Picture, Not the Numbers

3. Reach Beyond Existing Demand

4. Get the Strategic Sequence Right

Let’s look briefly at each principle.

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Principle 1: Reconstruct Market Boundaries

• Path 1: Look across alternative industries

– NetJets as alternative to private jet or commercial airlines

– Home Depot with expertise of contractors and lower prices than hardware stores

• Path 2: Look Across Strategic Groups Within Industries

– Curves, the Texas based Fitness center for women

• Path 3: Look Across the Chain of Buyers

– Novo Nordisk’s prefilled disposable insulin injectors

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Principle 1: Reconstruct Market Boundaries (Cont.)

• Path 4: Look Across Complementary Product and Service Offerings– Nabi fiberglass buses (competing on lifecycle cost, not

purchase price)• Path 5: Look Across Functional or Emotional Appeal to

Buyers– Swatch transformed functionally driven budget watch

industry into an emotionally driven fashion statement• Path 6: Look Across Time (finding actionable insights on

observable trends)– iTunes leaping past pirated downloads

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Principle 2: Focus on the Big Picture, Not the Numbers

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Principle 3: Reach Beyond Existing Demand

• JCDecaux with it’s outdoor furniture advertisements

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Principle 4: Get the Strategic Sequence Right

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Wrap Up on Blue Ocean Strategy

• See Chapters 7-9 for guidelines on implementing a Blue Ocean Strategy

• Don’t bleed – stay out of Red Oceans and Create Yourself a Blue One!

• There are MANY other examples (not in the book), such as:

– Jiffy Lube

– Jim Poss’s solar powered trash compactors