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In order to break the trade-off between differentiation and low cost and create a new value curve…
ENTREPRENEURSHIPPROF. Jorge Saguinsin ANGELICA O. HIZON
What Is Blue Ocean Strategy? Provides a systematic approach in making the competition irrelevant Growing the demand and breaking-away from competition Maximize opportunity and minimize risk Go where profits and growth are and where the competition isn’t - Kim and Mauborgne-
PRINCIPLES of BLUE OCEAN RED OCEAN STRATEGY Compete in existing market space Beat the competition Exploit existing demand Make the value-cost trade-off Align the whole system of a company’s activities with its strategic choice of differentiation OR low cost BLUE OCEAN STRATEGY INNOVATION Create unknown market space Make the competition irrelevant Create and capture new demand Break the value-cost trade-off Align the whole system of a company’s activities in pursuit of differentiation AND low cost Ringling Brothers vs Cirque de Soleil
SIX PATHS TO BLUE OCEAN STRATEGY Focusing on competing within an industry Looking across alternative industries A company confining itself to established strategic groups Looking across strategic groups within industries To Creating Across Focusing on the same buyer group as the rest of the industry From competing within Looking across the chain of buyers A company limiting itself to the scope of an industry's products and services Looking across complementary products and services Accepting an industry's functional or emotional orientation Looking across functional or emotional appeal to buyers Focusing on the same point in time as the rest of the industry Looking across time
VALUE INNOVATION Cornerstone of Blue Ocean Strategy Focuses on making competition irrelevant by creating a leap in value for buyers and the organization, thus opening new and uncontested market place Defies the most commonly accepted dogmas in competition; the value-cost trade-off (high value = high cost & vice-versa). It pursues differentiation and cost simultaneously. Ex: Cirque – adult vs children
Value Innovation Costs Value innovation is created when the organization’s strategy results to a favorable effect to both its cost and its value proposition for its customers. Cost savings are 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 sales volumes that superior value generates. Eliminate Reduce Value Innovation Raise Create Buyer Value
Four Actions Framework-how to create new value curve Reduce Factors that should be reduced well below the industry’s standard New Value Curve Create Eliminate Factors that should be created, which the industry has never offered Elimination of the animals in the circus Raise Factors that should be raised well above the industry’s standards
STRATEGY CANVASS The strategy canvas is the central diagnostic and action framework for building a compelling blue ocean strategy. The horizontal axis captures the range of factors that the industry competes on and invests in, and the vertical axis captures the offering level that buyers receive across all these key competing factors. Objectives: Captures the current state of play Gears an organization’s focus from customers to non-customers
ERRC GRID cirque du soleil ERRC GRID Pampanga’s Best TOCINO Kapampangan market only
Minimizing Risks and Maximizing Opportunities in Formulating and Executing Blue Ocean Strategy Formulation Principles Formulation Risks Search Risk Reconstruct market boundaries Planning Risk Focus on the big picture, not the numbers Scale Risk Reach beyond existing demand Get the strategic sequence right Business Model Risk Execution Principles Execution Risks Organizational Risk Overcome key organizational hurdles Build execution into strategy Management Risk
Is BLUE OCEAN STRATEGY NEW? Although the term blue oceans is new, their existence is not. They are a feature of business life, past and present. Look back one hundred years and ask yourself, How many of today's industries were then unknown? The answer: Many industries as basic as automobiles, music recording, aviation, petrochemicals, health care, and management consulting were unheard of or had just begun to emerge at the time. Now turn the clock back only thirty years. Again, a plethora of multibillion-dollar industries jumps out - mutual funds, cell phones, gas-fired electricity plants, biotechnology, discount retail, express delivery, minivans, snowboards, coffee bars, and home videos to name a few. Just three decades ago, none of these industries existed in a meaningful way.
How durable is the advantage associated with a blue ocean strategy and what is the process for defending it? Creating blue oceans is not a static achievement but a dynamic process. Once a company creates a blue ocean and its powerful performance consequences are known, sooner or later imitators appear on the horizon. However, a blue ocean strategy brings with it considerable barriers to imitation. Some of these are cognitive, and others are operational. The first barrier is often cognitive. Competitors are often blocked from imitating because of brand image conflicts, or the blue ocean strategy just does not fit conventional strategic logic. For many years CNN, for example, was ridiculed by the industry as chicken noodle news by established players. The second barrier is organizational. Because imitation often requires companies to make substantial changes to their existing business practices, politics often kick in, delaying for years a company's commitment to imitate a blue ocean strategy. The third level includes the economic forces of blue oceans. The high volume generated by a value innovation leads to rapid cost advantages, placing potential imitators at an ongoing cost disadvantage. By heightening these barriers to imitation, companies can defend the blue oceans they created for some time. However, it should be noted that creating a blue ocean is not a static strategy process, but a dynamic one. By: Authors - Kim & Mauborgne
References www.blueoceanstrategy.com Some Images were copied from the website of Blue Ocean Strategy File video of Cirque du Soleil is from Youtube FAQ’s are from the authors