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Creating Blue Oceans
BLUE OCEAN STRATEGY
The Book and the Authors
Prof Renee Mauborgne
© JOHN ABBOTT
Prof Chan Kim
© JOHN ABBOTT
Accolades• Over 2 million copies sold
Translated into over 41 foreign languages – a world record
Taught as the major theory of strategy at leading business schools
Gives insights to CEOs, Executives, Heads of State and Prime Ministers
New Market Space• Red oceans and blue oceans make up market
universe
• Red oceans: all industries in existence
= known market space• Blue oceans: all industries not in existence
= unknown market space
Red Oceans
•Red oceans refers to–Industry boundaries defined and accepted–Competitive rules of game known–Companies try to outperform rivals;
cutthroat competition–As market space gets crowded, prospects
for profit and growth reduced–Products become commodities–Red ocean strategy is a market-competing
strategy
Blue Oceans
•Blue oceans refers to– Undefined market space, demand creation,
opportunity for highly profitable growth– Most are created from within red oceans by
expanding existing industry boundaries– Rules of game waiting to be set– Competition irrelevant– Blue ocean strategy is a market-creating
strategy
The Rising Imperative of Creating Blue Oceans
• Supply is exceeding demand in most industries• global competition is intensifying• Problems:
– Accelerated commodization of products and services– Increasing price wars– Shrinking profit margins
• Red oceans becoming bloodier, need to be concerned with creating blue oceans
Two worlds …Two worlds …
Red OceanCompete in crowded markets
Blue OceanCreate and
capture new market space
The Continuing Creation of Blue Oceans
• Blue oceans have been around for some time; a feature of business life
• Industries never stand still, constantly evolving• Significant expansion of blue oceans over years• So why the focus on red ocean strategy?
– Corporate strategy influenced by military strategy– Need to create new market space that is uncontested
The Impact of Creating Blue Oceans
From Company and Industry to Strategic Move
• Are there lasting visionary companies that continuously outperform the market and create blue oceans?
• Found success of these model companies was a result of industry sector performance, not companies themselves
• Strategic move used as unit of analysis (rather than company or industry)
• Strategic move: the set of managerial actions and decisions involved in making a major market-creating business offering
Value Innovation: The Cornerstone of Blue Ocean Strategy
• Creators of blue oceans follow value innovation
• Value Innovation– Equal emphasis on value
and innovation– Defies value-cost trade-off
of competition-based strategy
– Successful value innovation:
• Drives down costs while driving up buyers’ value
• Uses a whole-system approach
• Follows reconstructionist view
Red Ocean Vs. Blue Ocean • 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
• 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
Formulating and Executing Blue Ocean Strategy
• Six Principles of Blue Ocean Strategy– Reconstruct market boundaries– Focus on the big picture, not the numbers– Reach beyond existing demand– Get the strategic sequence right– Overcome key organizational hurtles– Build execution into strategy
Take Aways
• Red ocean strategy is a market-competing strategy, while blue ocean strategy is a market-creating strategy
• As red oceans are becoming bloodier, we need to create more blue oceans
• “The only way to beat the competition is to stop trying to beat the competition!”
Points of view
•Business often look at the industry from a structuralist (supply) point of view
•What if we looked at the industry from a reconstructionist (demand) point of view?
–Market boundaries are not viewed as given, but could be reconstructed to unlock new demand
Generic Strategies vs. Value Innovation
High
Low
V1
C1
Cost
Quality
HighHigh
High
LowLow
Low
Quality
Cost
•
•
D
LC
V1
C1
Red Ocean Strategy Blue Ocean (VI) Strategy
Structuralist Reconstructionist
Four Steps of VisualizingFour Steps of Visualizing
1. Visual Awakening
2. Visual Exploration
3. Visual Strategy Fair
4. Visual Communication
•Compare your business with your competitors’ by drawing your “as is” canvas
•See where your strategy needs to change
•Go into the field to explore the six paths to creating blue oceans
•Observe the distinctive advantages of alternative products and services
•See which factors you should eliminate, create or change
•Draw your “to be” canvas based on insights from field observations
•Get feedback on alternative strategy canvases from customers, competitors’ customers, and non-customers
•Use feedback to build the best “to be” future strategy
•Distribute your before-and-after strategic profiles on one page for easy comparison
•Support only those projects and operational moves that allow your company to close gaps and actualize the new strategy
What factors should be
eliminated that the industry has taken
for granted?
Eliminate
What factors should be reduced
well below the industry standard?
Reduce
What factors should be created that the industry has never
offered?
Create
What factors should be raised well beyond the
industry standard?
Raise
Four Actions to create a Blue Ocean
Four Actions Framework + Eliminate/Reduce/Raise/Create Grid
Eliminate
Enological terminology and distinctions
Aging qualities
Above-the-line marketing
Raise
Price versus budget wines
Retail Store involvement
Reduce
Wine complexity
Wine range
Vineyard prestige
Create
Easy drinking
Ease of selection
Fun and adventure
The four actions framework offers an technique that breaks the trade-off between differentiation and low cost and to create a new value curve. It answers the four key questions of what industry takes for granted and needs to be eliminated; what factors need to be reduced below industry standards; what factors need to be raised above industry standards; and what should be created that the industry has never offered.
The eliminate-reduce-raise-create grid pushes companies not only to ask all four questions in the four actions framework but also to act on all four to create a new value curve. By driving companies to fill in the grid with the actions of eliminating, reducing, raising, and creating, the grid provides four immediate benefits: it pushes them to simultaneously pursue differentiation and low costs; identifies companies who are only raising and creating thereby raising costs; makes it easier for managers to understand and comply; and it drives companies to scrutinize every factor the industry competes on.
A New
Value Curve
Reduce
Eliminate Create
Raise
Which factors should be reduced well below industry standards?
Which factors should be created that the industry has never offered?
Which factors should be raised well above the industry’s standard?
Which of the factors that the industry takes for granted should be eliminated?
ERRC Grid yellow tailThe Case of yellow tail
Eliminate
Enological terminology & distractionsAging qualities
Above-the-line marketing
Raise
Price versus budget winesRetain store involvement
Reduce
Wine complexityWine Range
Vineyard prestige
Create
Easy drinkingEase of selectionFun & adventure
Example of yellowtail
• Eliminate
• Reduce
• Raise
• Create
Yellow Tail• Only 2 types initially – Chardonnay and Shiraz• Fruity, soft on palette, sweet-ish – great for those who had not
drunk wine before• Same bottle for red and white – low logistics costs• Simple vibrant packaging – lower case letters/kangaroo• Un-intimidating• They were selling “The essence of a great land … Australia” – ie
they were not selling the wine• Australian clothing for the retail staff – they enthusiastically
promoted a wine they could understand.
Value Innovation of [yellow tail]
Utility proposition(customers, distributors and retailers)
•Creating of a social drink that is accessible to anyone
•Easy drinking, ease of selection, sense of fun and adventure
•Limit number of SKUs
•Price to move at volume
Price proposition •Targeted at the mass of customers
•Priced against the alternative (6-pack)
Cost structure•Elimination of working capital tied up in aging wines
•Fast product turnover
ExamplesExamples
Results• No 1 imported wine (outsells France and Italy)
• Fastest growing imported wine in the history of the USA industry
– New consumers of wine
– Jug drinkers trade up
– Premium wine drinkers trade down
• Industry criticizes them mercilessly at firstNow wine press blurb gives it a “best buy”
for value; winning wine awards.
The Case of Cirque du SoleilThe Case of Cirque du Soleil
• Cirque du Soleil achieved rapid growth in a Cirque du Soleil achieved rapid growth in a declining industry with low profit potentialdeclining industry with low profit potential
• Cirque du Soleil created uncontested new market Cirque du Soleil created uncontested new market space that made the competition irrelevant space that made the competition irrelevant
• If you don’t know them you can see some atIf you don’t know them you can see some at• http://www.youtube.com/watch?v=M4lAPI5BAukhttp://www.youtube.com/watch?v=M4lAPI5BAuk
Example: Cirque du SoleilExample: Cirque du Soleil
• Instead of simply trying to outpace the Instead of simply trying to outpace the competition, Cirque du Soleil offered people both competition, Cirque du Soleil offered people both the fun and thrill of the circus and the intellectual the fun and thrill of the circus and the intellectual sophistication of the theatersophistication of the theater
• Because of this, Cirque du Soleil appealed to both Because of this, Cirque du Soleil appealed to both circus customers and noncustomerscircus customers and noncustomers
Example: Cirque du SoleilExample: Cirque du Soleil
• Each show, like a theater production, had its own Each show, like a theater production, had its own unique theme and storylineunique theme and storyline
• This allowed customers to return to the show This allowed customers to return to the show more frequentlymore frequently
• They also did away with the traditional high-They also did away with the traditional high-priced concessions and vendors thereby cutting priced concessions and vendors thereby cutting costscosts
Example: Cirque du SoleilExample: Cirque du Soleil
• Cirque du Soleil effectively combined the best of Cirque du Soleil effectively combined the best of both the circus and the theater while eliminating both the circus and the theater while eliminating everything elseeverything else
• This allowed them to achieve both differentiation This allowed them to achieve both differentiation and low costand low cost
Eliminate-Reduce-Raise-CreateEliminate-Reduce-Raise-Create
EliminateEliminate
Star Performers
Animal shows
Aisle concession sales
Multiple show arenas
RaiseRaise
Unique venues
ReduceReduce
Fun and humor
Thrill and danger
CreateCreate
Theme
Refined environment
Multiple productions
Artistic music and dance
The Strategy Canvas The Strategy Canvas of Cirque du Soleilof Cirque du Soleil
hi
offe
ring
leve
l
loPrice
Fun & Humor Unique VenueAisle Concessions
Multiple Show Arenas Thrills & DangerAnimal Shows
Star Performers
Theme
Refined Viewing Environment
MultipleProductions
Artistic Music & Dance
Cirque du Soleil
ReduceEliminate Raise Create
© Kim & Mauborgne 2006
Ringling Brothers
Smaller Regional Circus
Key Takeaways • Three tiers of non-customers:
– 1: buyers who purchase your industry offerings out of necessity; will jump ship if given an opportunity.
– 2: buyers who purchase alternative offerings that serve the same function
– 3: people who don’t consume even the alternatives to your offerings
• Non-customer demand is unlocked by providing new buyer utilities, at a price that attracts a mass of buyers, given target costs.
• Buyers could be not only end-users, but also other participants in a value chain (e.g. distributors)
Purple Ocean Strategy
• Purple Ocean Strategy Just as Blue Ocean Strategy states that a Red ocean Strategy (Competitive Strategy) does not guarantee success for the firm
• Purple Ocean strategy also claims that Blue Ocean Strategy cannot guarantee the business success in the long run since the Blue Ocean strategy will finally turn Red.
Purple Ocean strategy
• The Purple Ocean strategy believes that in today’s business world organizations require both innovative ideas as well as a series of strategies to compete with rivalry and remain functional in the long term.
• Consequently, the name Purple Ocean strategy was initially adopted following the secondary colour generated by combining red and blue colours.
Green Ocean Strategy • Green Ocean Strategy is not about greening or
saving the environment. • Discipline of strategy that concentrates on
how to maximize both fixed, internal and human resources.
• Instead of copying or benchmarking against the competition, the focus is to be more realistic in relation to what the business can actually commit or deliver.
Green Ocean Strategy
• Using the analogy of beach and ocean, before one reaches the blue part of the ocean, there is the green.
• So it makes more sense that if a business can stay within the Green Ocean, where the water is clearer and nearer the shore, then this would be less risky, more practical, and eminently more desirable.
Conclusion
• While traditional competition-based strategies (red ocean strategies) are necessary, they are not sufficient to sustain high performance.
• Companies need to go beyond competing to seize new profit and growth opportunities.