Blue ocean strategy


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Blue ocean strategy

  1. 1. BLUE OCEAN STRATEGY: HOW TO MAKE COMPETITION IRRELEVANT Prepared by: Margarita Unigovskaya Group 5401
  2. 2. BLUE OCEAN STRATEGY – THE BOOK • Blue Ocean Strategy is a book published in 2005 and written by W. Chan Kim and Renée Mauborgne, Professors at INSEAD and Co-Directors of the INSEAD Blue Ocean Strategy Institute. • Based on a study of 150 strategic moves spanning more than a hundred years and thirty industries, they show that companies can succeed not by battling competitors, but rather by creating ″blue oceans″ of uncontested market space. • These strategic moves create a leap in value for the company, its buyers, and its employees, while unlocking new demand and making the competition irrelevant. • The book presents analytical frameworks and tools to foster organization's ability to systematically create and capture blue oceans
  3. 3. RED AND BLUE OCEANS - THE METAPHOR • Red oceans represent all the industries in existence today – the known market space. In the red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Products become commodities or niche, and cutthroat competition turns the ocean bloody. • Blue oceans, in contrast, denote all the industries not in existence today – the unknown market space, untainted by competition. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set.
  4. 4. WHAT IS BLUE OCEAN? Blue oceans are defined by untapped market space, demand creation and the opportunity for highly profitable growth.
  5. 5. IN CONTRAST – THE RED OCEAN Companies in the red ocean followed conventional approach of trying to outperform their rivals to grab a greater share of existing demand. As market space gets crowded, prospects for profits and growth are reduced.
  6. 6. THE DIFFERENCE • In the red ocean there is only marginal innovation; when A increases sales, B loses sales, no creative destruction is involved, only displacement • In the blue ocean, competition proceeds through innovation in products (often inseparable connected with technological innovation). Creative destruction is directly or indirectly (redirecting purchasing power from old to new products) involved.
  7. 7. CREATING BLUE OCEAN The creators of blue ocean use value innovation to make competition irrelevant by creating a leap in value for buyers and their company which opens up new and uncontested market space. .
  8. 8. TYPES OF VALUE INNOVATION • Value without innovation – focuses on value creation on incremental scale. Improves value but insufficient to standout in market place. • Innovation without value – technology driven market pioneering or futuristic which are sometimes beyond what buyers are ready to accept and pay for. • Value innovation – requires companies to orient the whole system toward achieving a leap in value for both buyers and themselves where innovation is aligned with utility, price and cost positions.
  9. 9. THE FOUR ACTIONS FRAMEWORK A new value curve Eliminate Which of the factors that the industry takes for granted should be eliminated? Create Which factors should be created that the industry has never offered? Reduce Which factors should be reduced well below the industry’s standard? Raise Which factors should be raised well above the industry’s standard?
  10. 10. CREATING BLUE OCEAN - RECOMMENDATONS 1. Reconstruct market boundaries 2. Focus on the pictures, not numbers (drawing your strategy canvas) 3. Reach beyond existing demand 4. Get the strategic sequence right 5. Overcome key organizational barriers 6. Build execution into strategy
  11. 11. CORE UNDERLYING PRINCIPLES • Venturing beyond an existing industry space implies a series of risks: search risk, planning risk, scale risk, business model risk, organizational risk and management risk. • Together, they define the underlying philosophy of blue oceans.
  12. 12. EXAMPLES OF BLUE OCEANS FROM THE BOOK • Cirque du Soleil: Blending of opera and ballet with circus format while eliminating star performer and animals • Netjets: fractional jet ownership • Southwest Airlines: offering flexibility of bus travel at the speed of air travel using secondary airports • Curves: redefining market boundaries between health clubs and home exercise programs for women • Home Depot: offering the prices and range of lumberyard, while offering consumers classes to help them with DIY projects • Dyson: Cyclonic Vacuum Cleaners.
  13. 13. Cirque du Soleil – an example of creating a new market space, by blending opera and ballet with the circus format while eliminating star performers and animals
  14. 14. RECENT APPLICATION EXAMPLES • China Mobile: the world's largest mobile phone operator by subscribers with about 760 million • Pitney Bowes: created the Advanced Concept & Technology Group (ACTG), a unit responsible for identifying and developing new products outside • Starwood: American hotel and leisure company • Wii: a console with innovative controls made to attract people that usually do not play video games such as females and the elderly • TATA Motors: "'Nano Car" – 'World's Cheapest Car' with combination of differentiation and low cost
  15. 15. CRITICISMS OF THE CONCEPT AND THE BOOK • Difficult to find uncontested market space – the market is saturated • Whether this concept and its related ideas are descriptive rather than prescriptive • During the research process no control group was used, no way to know how many companies using a Blue Ocean Strategy failed, the deductive process was not followed, and that the examples in the book were selected to "tell a winning story." • Brand and communication are taken for granted and do not represent a key for success. The marketing of a value innovation is taken as a given, assuming the marketing success will come as a matter of course • Blue Ocean Strategy is an extremely successful attempt to brand a set of already existing concepts and frameworks with a highly "sticky" idea