Creating Blue OceansTeam 3

Andrew Stack, Jessica Sharpless, Andrea Lapotaire,

Andrew West, Taylor Caroll

“Don’t compete with rivals, make them irrelevant”

Cirque du Soleil

Canadian circus created in 1984

Out performed Ringling Bros. and Barnum & Bailey

Achieved in a declining industry

But did not compete with Ringling Bros. and Barnum & Bailey

Totem Trailer

Gilles Ste-Croix, Guy Laliberté

New Market Space

Stop competing with other companies to win in the future

Red Oceans- Industries in existence today

Blue Oceans- Industries not in existence today

Blue Oceans a uncharted strategy

The Continuing Creation of Blue Oceans

Only the term of blue oceans is new

Industries never stand still

Why the oceans have been red

The Impact of Creating Blue Oceans

Profit Impact

Revenue Impact

Business Launch

39%

62%

86%

61%

38%

14%

Launches within red oceans

Launches for creating blue oceans

The Rising Imperative of Creating Blue Oceans

Accelerated technological advances shifting supply and demand causing:Accelerated commoditization of products and

services Increasing price warsShrinking profit margins

Management will need to become more focused on the creation of blue oceans

From Company and Industry to Strategic MoveHow can a company break out of the red ocean

and create a blue ocean?

Are there lasting companies that are successful in creating blue oceans?

“In Search of Excellence”- bestselling book-Companies in book began to fall from

rankings within 2 years, 2/3 by 5 years

“Built to Last- Same thing happened, although the entire lifespan of firms at least 40 years old were analyzed.

It was found that these books analyzed industry sector performance instead of the companies themselves

From Company and Industry to Strategic Move Cont..

Example: HP, who met the criteria for “Built to Last,” did not outperform the market, or even the industry

Have companies that continuously outperform the market ever existed?

Since Cirque du Soleil created a new market space and has always been successful, It is shown that neither the company nor the

industry is not the best unit of analysisStrategic moves are the right unit of analysisStrategic move: “the set of managerial actions and

decisions involved in making a major market –created business offering “(10)

Value Innovation: The Cornerstone of Blue Ocean StrategyAmong blue ocean companies with profitable

growth, similarities have appeared:

Did not use competition as benchmark; used value innvation

Value Innovation is the cornerstone of blue ocean strategy

Focus on making competition irrelevant Creates a leap in value for buyers and your company Opens up new and uncontested market space

Value Innovation: The Cornerstone of Blue Ocean Strategy Cont…Equal emphasis on value and innovation

Occurs only when companies innovation with utility, price, and cost positions

Defies the value-cost trade off

Blue ocean companies pursue differentiation and low costEither create a greater value at high cost or

reasonable value at lower cost

Ex: Cirque du Soleil

Cirque du Soleil

Paid no attention to what competition did

“Offered people the fun and thrill of the circus, along with the intellectual sophistication and artisitic richness of the theater” (14)

Gained circus and adult theater customers

Did not use animals like the traditional circusAttracted customers who had discomfort from using

animalsSaved money

Cirque du Soleil Cont…

Did away with everything but the tents, clowns, and the acrobatic acts

changed humor from slapstick to a more enchanting, sophisticated style

Glamorized tent and made more comfortable

Added a theme and story line

Multiple productions made people come more frequently

Priced tickets against theater ticket prices

Value Innovation

The figure below depicts the differentiation –low cost dynamics under-pinning value innovation:

In creating blue oceans, a company needs to drive costs down, while driving value up

Integrates the range of a firm’s functional and operational activities

Some innovations can be achieved at subsystem level without impacting companies overall strategy Ex: production innovations

In value innovation market boundaries and industry structure are not given Allows for reconstruction by industry players-

reconstructionist view Ex: Cirque du Soleil

Red Ocean vs Blue Ocean

Formulating and Executing Blue Ocean Strategy

Understanding and limiting riskBOS companies see risk and work around itKnowledge and market understandingKeeping current “no such thing as a riskless strategy”

Implementing BOS

Many companies still ignore BOS despite the facts

Playing field unbalanced in favor of analytical tools

Continuation of Red Oceans of Blue Oceans

The Six Principles of BOS

Formulation Principle Reconstruct market boundaries Focus on the big picture, not the

numbers

Reach beyond existing demand get the strategic sequence right

Execution Principles Overcome key organizational

hurdles Build Execution into strategy

*Figure 1-4 p. 21 BOS

Risk factor each principle attenuates

↓ Search risk

↓ Planning risk

↓ Scale risk

↓ Business model risk

Risk factor each principle attenuates

↓ Organizatoinal risk

↓ Management risk

Sun Cellular

Mobile communications market (Philippines)

Market Leaders: Smart and Globe

Strategy: unlimited text and calls “in network”

AXA Philippines

French insurace company

Industry leaders: AIG, SunLIfe, & Insular Life

Strategy: Partner with Metrobank and offer depositor insurance

Wal-Mart History

Sam Walton’s strategy was built on an unshakeable foundation: The Lowest Prices Anytime, Anywhere

On July 2, 1962, Sam Walton opened the first Wal-Mart store in Rogers, Ark.

History Continued

1971 The first distribution center and Home Office opened in Bentonville, Ark.

1980 Wal-Mart reached $1 billion in annual sales, faster than any other company at that time.

1988 The first Wal-Mart Supercenter opened in Washington, Mo., combining general merchandise and a full-scale supermarket to provide one-stop shopping convenience.

1997 The company celebrated its first $100 billion sales year.

2012 Wal-Mart celebrated 50 years of helping people save money so they can live better. 

The company employs 2.2 million associates worldwide and serves 200 million customers each week at more than 10,000 stores in 27 countries.

Is Wal-Mart a Blue Ocean?

Wal-Mart is a "Large Discount Retailer."

The cluster of Target, K-Mart, and Wal-Mart belongs to the former Blue Ocean Industry of Large Discount Retailers.

Wal-Mart vs. Target

Wal-Mart and Target both are discounters, but they cater to different customers.

Wal-Mart: customers' average household income ranges from $30,000 to $60,000,

Target: customers have a median household income of $64,000 a year