1. BLUE OCEAN STRATEGY:
HOW TO MAKE COMPETITION
IRRELEVANT
Prepared by: Margarita Unigovskaya
Group 5401
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. 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. WHAT IS BLUE OCEAN?
Blue oceans are defined by untapped
market space, demand creation and
the opportunity for highly profitable growth.
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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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
