Learnings from Blue Ocean Strategy Simulation Submitted to Professor Guoli Chen By Aman Chopra
In the words of Professor W. Chan Kim, The market universe is composed of two types of oceans: red oceans and blue oceans. Red oceans are all the industries in existence today; they are increasingly characterized by intense competition. Blue oceans are all the industries not in existence today; they are untouched and uncontested. To prosper in the future, companies need to go beyond competing; they need to create blue oceans. The issue is how to do so? During the course of sessions and my experience from BOSS, I learned an extraordinary amount about the importance of Blue Ocean and non‐customer insights. This course made me realize that to be unique and maintain competitive advantage, the non‐customer needs to be the one to receive focus. We have to listen to the non‐customers, find out what we should do from their perspective and then do what we can to design a product for them – that is what gives a company competitive advantage and helps a company know new markets it can enter. Also, I learned that effective and efficient implementation of Blue ocean strategy is of vital importance. Conceiving an idea is one thing but sustaining it is a challenge. The main threat to a Blue Ocean is the competitors imitating you and entering your blue ocean and making it red. Blue Ocean is at its best when competitors cannot imitate it. To counter competition, companies can adopt competitive strategies such as selling at too low price, offering heavy discounts etc. For example, in Ford’s case, the Model T was very famous and Ford got first mover advantage, which led to increased sales and revenue. But Ford could not sustain this advantage after General Motors started using the same concept and manufactured the same quality of cars. To get continuous benefits from the Blue Ocean, companies have to constantly innovate and upgrade their products and services. The best example of a company sustaining a Blue Ocean is Apple, which constantly innovated and came up with a range of products. Apple first created i‐Pod and created a Blue Ocean market in the music industry. But competitors soon imitated the i‐Pod and produced the same quality of products at a lower or the same price. When the market for i‐Pod saturated, Apple developed i‐Pod nano, i‐Phone, etc. Thus, to sustain Blue Ocean, value innovation on a continuous basis is essential. In class, I learned some of the key concepts and tools of blue ocean strategy such as Value Innovation, the simultaneous pursuit of differentiation and low cost, and key analytical tools and frameworks such as the strategy canvas, the four actions framework and the eliminate‐reduce‐raise‐create grid. Moreover, I also learned how using these tools we should offer customers a value proposition that attracts them to the company and a profit proposition that enables the company to make money out of this value proposition. One example of this is Cirque du Soleil, the Canadian company that repositioned (Using blue ocean strategy) circus industry in the 1980s. Under conventional strategy analysis, the circus industry was a dead industry. Star performers had a lot of power (bargaining power of suppliers) over the company. The industry had threat from substitutes i.e threat from sporting events, home entertainment systems, which were relatively inexpensive and on the rise. Moreover, their was an increased pressure from animal rights groups on circuses because of the way they treated animals.
Using the eliminate‐reduce‐raise‐create grid, Cirque du Soleil Created New Value Curve. Reduced much of the thrill and danger associated with conventional circuses Eliminated the Introduced dramatic themes, features that included A New artistic music and animals, star value dance, and a more performers, and the upscale, refined Curve environment. three separate rings Increased the uniqueness of the venue by developing its own tents, rather than performing within the confines of existing venues Cirque du Soleil discontinued acts by the animals and reduced the importance of individual stars. It created a new form of entertainment that combined dance, music and athletic skill to appeal to a high‐end adult audience that had abandoned the traditional circus. Secondly, The simulation was helpful in learning the formulation of blue ocean strategy: how to create uncontested market space by reconstructing market boundaries, how to focus on the big picture, how to reach beyond existing demand and getting the strategic sequences right. In my opinion, these four formulation principles address how an organization can create blue ocean by looking across the conventional boundaries (Six Paths Framework) of competition, reduce their planning risk by following the four steps of visualizing strategy, create new demand by unlocking demands of noncustomers and launch a commercially‐viable blue ocean idea by aligning a new utility of an offering with strategic pricing and target costing.
Nintendo’s wii is a perfect example of this. According to Blue Ocean Strategy theory, there are three groups of noncustomers that any company can reach out to: First Tier: “soon‐to‐be” noncustomers who are on the edge of the market, waiting to jump ship. Second Tier: “Refusing” who consciously choose against your market and Third Tier: “Unexplored” noncustomers, who are in distant markets. The Wii offers the first tier a lot of value that attracts them. While the second tier customers seem mostly unaffected, it is the thirds tier that seems to have been attracted the most by the Wii. The Wii has even been used as means of recovery and used in physical therapy for patients. Nintendo has changed the industry (by changing customers) with its new videogame approach. High‐definition is no more the defining matter in video games; it would be absurd to deny its importance, especially in hard‐core gamers, but for the casual gamer, it’s almost a non‐issue. Now gamers are playing with their families and friends, and not alone in the dark at night (which was the typical gamer concept until then). With the Wii Sports package, comes a bundle with the Console, and includes Baseball, Bowling, Boxing, Golf and Tennis. This game‐pack allows for hours of fun and entertainment in a highly competitive, yet mobile and fitness‐oriented environment. Analysis of my own BOS idea In my own personal experience with Publishing Industry the Blue Ocean opportunity is clearly there. The book publishing industry is on the verge of its toughest competition. Amazons Kindle, through its 3G Wireless capability to download electronic books, offers an innovative alternative to paper books. Moreover, Apples iPad’s easy‐to‐use interface allows users to play games, navigate the internet and download electronic books. The electronic movement through technological innovation has created a crowded red ocean of competition for the book publishing industry. Amazon and Apple continue to take huge bites of profit out of the book publishing industry requiring an inevitable Blue Ocean Strategy change. The major publishing companies and online retailers are competing and worrying about the strategies for competing. For example, publishing companies are pricing their books based not on what is costs or what people want to pay for it, but based on another format that is completely different, just because they want to keep the old format alive.
The current industry concerns are discord versus cooperation with retailers and e‐pricing and royalty rates. But, if the publishers consider the solution from a different approach – a Blue Ocean Strategy approach, and come up with innovative products developed in‐house and combine them with their own books and distribute them through their own channels, they can create tremendous value for the company. The electronic movement has resulted in the inevitable. But, Can the publisher’s make the market more attractive with electronic products? How will they do it? In my opinion, it will require the application of the fundamental aspects of Blue Ocean Strategy –value innovation, strategy canvas, differentiation and low cost to survive.