Ch. 1 Creating Blue Oceans

Gerald, Brandon, Scott, Kara, Ryan, Lee, Brett, Courtney

PreviewIntroductionNew Market SpaceThe Continuing Creation of Blue Oceans

(B.O.S)The Impact of Creating Blue OceansThe Rising Imperative of Creating Blue

OceansFrom Company and Industry to Strategic

MoveValue Innovation: The CornerstoneFormulating and Executing B.O.SRecap

IntroductionCirque du Soleil

Outperforms Ringling Bros. in less than 20 years

The Circus is a dying breed Swimming in the ocean blue

AdultsProspective Clients

New Market SpaceRed oceans

represent all the industries in existence today

They have defined and accepted industry boundaries

Blue oceans denote all the industries not in existence

They are defined by untapped market space, demand creation, and the opportunity for highly profitable growth.

Most blue oceans are created from within red oceans by expanding existing industry boundaries

While red oceans remain a fact of business life companies must continue to search for blue oceans in order to increase profit

The Continuing Creation of Blue Oceans

The term “blue oceans” is new, but its existence is very old.

Look back 100 years ago….

Companies like automobiles, music recording, and health care were unheard of

Even 30 years ago a plethora of multibillion-dollar industries jumps out

Mutual funds Cell phones Biotechnology Discount retail Minivans Snowboards Etc….

• Now go forward 50 years….

– How many new industries will likely exist then??

– The reality is that industries continually change and never stand still because they are constantly evolving

– Operations improve– Markets expand– Players come and go

SICNAICSThe half-century-old Standard Industrial

Classification (SIC) was replaced in 1997 by the North American Industry Classification Standard (NAICS) system.

The new system was implemented to reflect the emerging realities of new industry territories.

The Impact of Creating Blue OceansCreating a company in blue waters has

obvious performance benefits versus launching a company in an oversaturated market

Blue Oceans advantage example

Profit and Growth Consequences of Creating Blue OceansThe results of a study that compared the

launches of 108 companies show us an undeniable advantage to creating blue waters

86% were launched in a Red ocean, but counted for only 62% of total revenue and 39% of total profits

14% were launched in a Blue ocean, they made up 38% of total revenue and 61% of total profits

Profit and Growth Consequences of Creating Blue Oceans

Profit Impact

Revenue Impact

Business Launch

0% 10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

39%

62%

86%

61%

38%

14%

Launches within Red OceansLaunches for Creating Blue Oceans

Rising Imperative of Creating Blue Oceans The need for Managers to consider “blue

oceans” is increasing. Overcrowded “red ocean” industries are

becoming less and less profitable.Technological AdvancesGlobalization

Rising Imperative of Creating Blue Oceans Technological Advances

improve industrial productivity

Allow producers to have large array of products

Globalization barriers are dismantled

and information on products becomes available, causing niche markets to disappear due to increase in global competition.

Technology and Globalization have lead to Supply exceeding Demand Accelerated

Commoditization of products and services, Increasing Price wars, Shrinking Profit Margins.

Rising Imperative of Creating Blue Oceans Strategic management in Action, acknowledges these

results as some of the main challenges faced by managers in today's market.“Reduced consumer demand”“severe pressures to cut costs”“openness of globalization”

Focus on “war” and competition for limited market space vs. “blue oceans” and creating new market space.

MAIN IDEA – As “red oceans” become more crowded with competition, creating “blue oceans” becomes more relevant.

From Red to BlueHigh Concentration Low Concentration

How can a company create a blue ocean?

Is there a systematic approach to achieve this and sustain high performance?

Is the Key to a Blue Ocean Systematic? - Are there lasting “excellence” or “visionary” companies who continuously outperform the market?

Top performing companiesAtariNational

SemiconductorData general

Slipped into “oblivion” after 5 years of publication

Only companies 40 years or older

DownfallIndustry sector

performance instead of the company itself

EX: Hewlett-Packard (HP)

In Search of Excellence

Built to Last

Strategic MovesThe set of managerial actions and decisions

involved in making a major market-creating business offering.

HP acquired Compaq - 2001

Value Innovation Make the competition irrelevant by creating an increase in value for

buyers and your company, thereby opening new and uncontested market space.

Value without innovation – value creation

Innovation without value

Value innovation occurs only when companies align innovation with utility, price, and cost positions.

Red Oceans vs. Blue Oceans Red Oceans- Conventional Approach

Compete in existing market space

Beat the competition

Exploit existing demand

Make the value-cost trade-off

Align the whole system of a firm’s activities with its strategic choice of differentiation or low cost

Blue Oceans- value innovation

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 firm’s activities in pursuit of differentiation and low cost

Cirque du Soleil Moved away from the traditional

circus and created all new attractions, while adding the intellectual sophistication and artistic richness of the theater at the same time.

Cirque Du Soleil gained a new understanding of circus acts which led to a whole new concept that broke the value-cost trade-off, and created a blue ocean of new market space.

Value Innovation Created by placing an equal emphasis on value and innovation

Those that seek to create blue oceans must pursue differentiation and low cost simultaneously

Value innovation is achieved by favorably affecting both the companies cost structure and its value proposition to buyers. Cost savings- made by eliminating and reducing the factors an industry

competes on.

Buyer value- is lifted by raising and creating elements the industry has never offered.

Over time- costs are reduced further as scale economies kick in due to the high volume of sales that superior value generates.

Formulating and Executing Blue Ocean StrategyHow to succeed in Blue Oceans?

Maximize opportunities Minimize risks

Strategy will always involve both opportunities and riskBalanced in Blue OceansUnbalanced in Red Oceans

Principles relating to the imbalance of opportunity and risk in forming and executing Blue Ocean strategies

Formulating Principles1. Reconstruct market boundaries

Search risk- paths that create market space across:-Across alternate industries -strategic groups-buyer groups -complement

products/services -functional orientation -time

2. Focus on the big picture, not the numbers

Planning risk- planning process to create and capture opportunities to create value innovations

Formulating Principles Cont3. Reach beyond existing demand

Scale risk- combining demand to maximize size of blue oceans

Build in size through the similarities of noncustomers

4. Get strategic sequence right Business model risk- designing a strategy to

build a business model to produce and maintain profitable growth

Strategy with which both you and the customer win through utility, price, cost, and adoption.

Executing Principles5. Overcome Key Organizational

hurdles Organizational risk

Tipping point leadership- mobilizing organization to overcome hurdles that block implementation of new strategies

6. Build execution into strategy Management risk

Fair process- motivating people to act on and execute new strategy with an emphasis on their attitudes and behaviors

Main IdeasRed oceans represent the known market space with defined boundaries,

while Blue oceans represent the unknown market space and demand creation.

To focus on the red ocean is accepting factors of war and focusing on the need to beat the enemy to succeed which denies the strength to create new market space

With increasing numbers of industries, supply is exceeding demand leading to accelerated commoditization of products. This pushes more customers to select products based on price rather than value.

Strategic move is the right unit of analysis to explain the creation of blue oceans and high performance

Value innovation is focusing on making the competition irrelevant to create a jump in value for you and your customers by aligning utility price and cost position. Thus, drive cost down while at the same time drive value up for buyers.

Maximize opportunities and minimize risks to succeed in blue oceans

Works Cited Barringer, Bruce R., & Ireland, R. Duane.

(2008). Entrpreneurship successfully launching new ventures. Upper Saddle River, NJ: Pearson Prentice Hall.