10 Learning & Leading with Technology February 2012The .docx
1. 10 Learning & Leading with Technology | February 2012
The “anchor standards” in the
Common Core State Standards
define college and career read-
iness, in part, as the ability to
“integrate and evaluate content
presented in diverse media and
formats, including visually and
quantitatively, as well as in words.”
www.corestandards.org
Meet the Standards
The NETS for Students address skill sets that include the
interpretation and creation of infographics. The NETS’
Creativity and Innovation indicators include creating
original works and using models, its Communication
and Collaboration indicators speak to communicating
information and ideas using a variety of media, and
the Research and Information Fluency section refers to
processing data and reporting results using a variety of tools.
iste.org/standards/nets-students
Most subject-matter
standards give attention
to sense-making and
information literacy,
both of which students
develop when they
2. interpret and design
infographics.
By Jane Krauss
More Than Words Can Say
Good learning experiences
ask students to investigate
and make sense of the
world. While there are
many ways to do this, K–12
curriculum has traditionally
skewed toward reading
and writing to interpret
and express students’
sense-making. But there
is another way. Infographics
represent data and ideas
visually, in pictures, engag-
ing more parts of the brain
to look at a problem from
more than one angle.
Infographics ask for an
active response from the
viewer, raising the ques-
tions, “What am I seeing?”
and “What does it mean?”
As the old adage goes,
a picture is worth 1,000
words, and pictures can be
essential when complexity
demands more than words
can say.
5. thinking patterns that computer scientists
use to solve problems. CT skills have value
beyond computer science, as they help us
approach problems and apply processes to
solve them. CT can help students practice
with data sets of any size, manipulate that
data, and represent it in an infographic. For
Linguistic
graphic
organizers
modeling
software
computer
simulations
kinesthetic
activities
textbooks
lectures
Robert Marzano
www.marzanoresearch.com
Education researcher
Robert Marzano confirmed
that learners acquire and
store knowledge though
linguistic systems, which
they use when they read
or listen to lectures, and
nonlinguistic systems,
6. which they tap to process
computer simulations
and kinesthetic activities.
The more students use
both systems, the better
they are able to store,
recall, and apply new
understandings.
Because they make use of both
words and visuals, infographics
strike the sweet spot where
linguistic and nonlinguistic
systems converge.
Teach Computational Thinking
example, students can collect statistics
about their friends’ Facebook connections,
analyze the data, and present their findings
graphically.
Recent technological advances have
led to an explosion of available data,
allowing students and teachers to access
a much wider variety of real-time statistics
on such topics as weather patterns,
deforestation, and population movements.
Infographics
Nonlinguistic
CT is essential for working with these large data
8. Their charge is to design a promo-
tional poster that will convince visitors
that Utah’s slogan, “The Greatest Snow
on Earth,” is true. Let them talk to one
another and noodle around a bit with
sketches.
Share Michael Greenberg’s Ski Utah
infographic. Display an enlarged view
from his Graph the Info blog at www.
graphthe.info.
Ask students what they learned about
skiing in Utah from Greenberg’s pictorial
representation. Encourage them to examine
the legend, which describes an unusual
representation of area. Ask what they can
infer about the mountains that may get the
most and least business. Ask them to make
conjectures about how many data sets the
infographic represents and how Greenberg
derived them.
Ask how they could represent other
data of interest to someone contem-
plating a Utah ski vacation, such as
the distance from the airport or winter
temperatures.
Together, read what Greenberg writes
on his blog about the five-step
process he used to create the Ski Utah
infographic.
9. Lesson Plans
The Ski Utah infographic
below, created by
Michael Greenberg when
he was a high school
senior, gives a sense
of how a single
infographic can
represent multiple
data sets.
Step One: Get an idea.
Teaching Infographics
Step Four: Develop proof of concepts.
Does your curriculum ask students
to engage in analysis and interpre-
tation to derive meaning? You can
use infographics as a tool for develop-
ing these capabilities in your students,
both when they interpret the graphics
and when they create them.
Interpret
n Present infographics that ask
students to make sense of
dynamic systems, relational
data, or change over time.
n To build their critical faculties,
present both good and bad
charts, graphs, and infographics
10. for students to examine.
n Part of information literacy is
being alert to the intentions of
the person or group that puts
forth the information. Help stu-
dents determine when statistics
reflect value judgments, are
presented in a distorted scale,
or lie in other ways.
Create
n By making infographics, students
learn that the ways they represent
data are as important as the data
they collect.
n Students learn how to make sense
of statistical data by representing
the important features of a data
set and the relationships between
data sets.
n Teach students that in the pictorial
“narratives” of their infographics,
the data have to be valid, and the
representation has to be true.
Research
has shown that,
of the sensory
receptors in our body,
70% reside in
12. Search for simple
design rules.
Solve a Problem
A middle school class is studying
livability in their town. After a student’s
grandmother breaks her hip on a broken
sidewalk, a project emerges that asks
students to respond to the question: “Can
everyone get where they need to go?”
Students notice that many sidewalks are
broken, making them impassable for people
using strollers, wheelchairs, walkers, and
canes. They notice that trash cans and cars
block bike lanes. They begin to survey their
neighborhoods, recording their neighbors’
mobility challenges and identifying the
worst impediments.
Imagine the data they can collect.
How might they present their information
pictorially to tell a story and make the
case for resolving these problems? What
might their infographic look like? Who
might the audience be for a persuasive
appeal that incorporates the infographic?
More Lesson Plan Ideas
Imagine students pondering:
n An interactive map showing the
percentage of family income that
goes toward food in countries
around the world
13. n A visualization of time-travel
plots in films and TV
n An infographic that represents the
largest bankruptcies in history by
showing insolvent companies as
sinking ships of relative size
Government Function
In Diana Laufenberg’s 12th grade social
studies class at the Science Leadership
Academy in Philadelphia, Pennsylvania,
USA, students learn about U.S. government
functions managed by the executive branch.
Laufenberg has her students interact with
federal functions as anyone might who
navigates a bureaucratic process. They
“apply” for federal student aid or a green
card. They make a request permitted by
the Freedom of Information Act. Along the
way, they analyze each process, make a
pictorial representation of that process, and
recommend ways it might be improved.
By approaching what they are learning
from many different angles—including
participating in real-world tasks and
creating infographics—their understanding
of the myriad ways that citizens interact
with the government is much deeper and
more memorable than it would be if they
had just read about it and written a report.
Tell a story. Supply a context for the
information you are trying to present with
titles, pictures, a legend, or even a key
question, such as, “How well do citizens in
14. our town get around?”
Be clear. If someone can’t tell how
different elements contribute, it’s back to
the drawing board.
Use good data. Use only “fresh” data
from reliable sources. This includes data
you may have collected yourself!
Pay attention. As you move through the
world, you’ll notice infographics everywhere.
Look at each and think about how it might
be a launching pad for learning in your
classroom. Encourage students to bring
infographics to your attention too. As you
and your students become infographic
literate, you’ll want to start creating
infographics of your own.
The National Council
of Teachers of Mathematics
recommends that students
at every grade level undertake
investigations in which they
collect and represent data
graphically.
Bill Gates felt
compelled to fund
malaria eradication efforts
after seeing a 1997 New York
16. United Nations Statistics Division:
http://unstats.un.org/unsd/default.htm
Wolfram Alpha Computational Knowledge
Engine: www.wolframalpha.com
Infographic Sources
Cool Infographics: www.coolinfographics.com
Floating Sheep: www.floatingsheep.com
Flowing Data: http://flowingdata.com
GapMinder: www.gapminder.org
GOOD/Transparency: www.good.is
Infographics Showcase: www.infographics
showcase.com (author grades infographics
on information and display qualities)
Information Aesthetics: http://infosthetics.com
Information Is Beautiful:
www.informationisbeautiful.net
The New York Times Learning Network:
http://learning.blogs.nytimes.com
Tools for Creating Infographics
For Purchase
Adobe Illustrator: www.adobe.com/products/
illustrator.html
17. Adobe InDesign: www.adobe.com/products/
indesign.html
Adobe Photoshop: www.adobe.com/products/
photoshop.html
Lucid Chart: www.lucidchart.com
Free Online
Google Spreadsheets: www.google.com/google-
d-s/spreadsheets
Inkscape: http://inkscape.org
Many Eyes: www-958.ibm.com/software/data/
cognos/manyeyes
Rhino 3D: www.rhino3d.com
Science Pipes: http://sciencepipes.org/beta/home
Tableau Public: www.tableausoftware.com/public
Visual.ly: http://visual.ly/labs
On Hand
Graph paper
Presentation software (Powerpoint, Keynote)
Protractors and compasses
Spreadsheet software (Excel, Numbers)
David McCandless (www.david
mccandless.com) has a passion for visual-
izing information—facts, data, ideas, sub-
jects, issues, statistics, and questions—all
with a minimum of words. He is interested in
how designed information can help people
understand the world by revealing its hidden
connections, patterns, and stories.
18. Hans Rosling (www.gapminder.org)
uses visualization software he developed
to animate observations about broad social
and economic trends. A professor of global
health at Sweden’s Karolinska Institute,
Rosling uses infographics to dispel com-
mon myths about the developing world.
Nathan Yau (http://nathanyau.com)
plays with data. His focus is on
visualization and data for non-
professionals, and he blogs
about statistics and visualization at
FlowingData (www.flowingdata.com).
Edward Tufte (www.edwardtufte.com)
has one simple but powerful idea:
Represent as much data as possible
with as little ornamentation as possible.
Let the data speak for itself.
Infographics Gurus
For a little infographic inspiration, check out these people:
Jane Krauss, a past director of professional development at
ISTE and
co-author of Reinventing Project-Based Learning, is a
curriculum and
program development consultant. Her new book, The Project
Leap,
will be published in 2012.
Sources for infographics abound. Make their interpretation one
of the regular ways
you bring the outside world into your classroom.
24. yo
ab
St
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tie
tie
The myriad activities that go into creating,
producing, selling, and delivering a product
service are the basic units of competitive
vantage. Operational effectiveness
eans performing these activities better—
at is, faster, or with fewer inputs and
fects—than rivals. Companies can reap
ormous advantages from operational ef-
tiveness, as Japanese firms demon-
ated in the 1970s and 1980s with such
actices as total quality management and
ntinuous improvement. But from a com-
titive standpoint, the problem with oper-
onal effectiveness is that best practices
easily emulated. As all competitors in an
ustry adopt them, the productivity
ntier—the maximum value a company
n deliver at a given cost, given the best
ailable technology, skills, and manage-
ent techniques—shifts outward, lowering
sts and improving value at the same
e. Such competition produces absolute
provement in operational effectiveness,
t relative improvement for no one. And
25. e more benchmarking that companies
, the more competitive convergence
u have—that is, the more indistinguish-
le companies are from one another.
rategic positioning attempts to achieve
stainable competitive advantage by
eserving what is distinctive about a com-
ny. It means performing different activi-
s from rivals, or performing similar activi-
s in different ways.
This document is authorized for use only by EZEKIE
customerse
Three key principles underlie strategic positioning.
1. Strategy is the creation of a unique and
valuable position, involving a different set
of activities. Strategic position emerges from
three distinct sources:
• serving few needs of many customers (Jiffy
Lube provides only auto lubricants)
• serving broad needs of few customers
(Bessemer Trust targets only very high-
wealth clients)
• serving broad needs of many customers
in a narrow market (Carmike Cinemas op-
erates only in cities with a population
under 200,000)
2. Strategy requires you to make trade-offs
in competing—to choose what not to do.
Some competitive activities are incompatible;
26. thus, gains in one area can be achieved only
at the expense of another area. For example,
Neutrogena soap is positioned more as a me-
dicinal product than as a cleansing agent. The
company says “no” to sales based on deodor-
izing, gives up large volume, and sacrifices
manufacturing efficiencies. By contrast, Maytag’s
decision to extend its product line and ac-
quire other brands represented a failure to
make difficult trade-offs: the boost in reve-
nues came at the expense of return on sales.
3. Strategy involves creating “fit” among a
company’s activities. Fit has to do with the
ways a company’s activities interact and rein-
force one another. For example, Vanguard
Group aligns all of its activities with a low-cost
strategy; it distributes funds directly to con-
sumers and minimizes portfolio turnover. Fit
drives both competitive advantage and sus-
tainability: when activities mutually reinforce
each other, competitors can’t easily imitate
them. When Continental Lite tried to match a
few of Southwest Airlines’ activities, but not
the whole interlocking system, the results
were disastrous.
Employees need guidance about how to
deepen a strategic position rather than
broaden or compromise it. About how to ex-
tend the company’s uniqueness while
strengthening the fit among its activities. This
work of deciding which target group of cus-
tomers and needs to serve requires discipline,
the ability to set limits, and forthright commu-
nication. Clearly, strategy and leadership are
30. R
V
E
D
.
harvard business review • november–
This document is authorized for use only
I. Operational Effectiveness Is Not
Strategy
For almost two decades, managers have been
learning to play by a new set of rules. Compa-
nies must be flexible to respond rapidly to
competitive and market changes. They must
benchmark continuously to achieve best prac-
tice. They must outsource aggressively to gain
efficiencies. And they must nurture a few core
competencies in race to stay ahead of rivals.
Positioning—once the heart of strategy—is
rejected as too static for today’s dynamic mar-
kets and changing technologies. According to
the new dogma, rivals can quickly copy any
market position, and competitive advantage is,
at best, temporary.
But those beliefs are dangerous half-truths,
and they are leading more and more companies
down the path of mutually destructive compe-
tition. True, some barriers to competition are
falling as regulation eases and markets become
global. True, companies have properly invested
energy in becoming leaner and more nimble.
In many industries, however, what some call
31. hypercompetition is a self-inflicted wound, not
the inevitable outcome of a changing paradigm
of competition.
The root of the problem is the failure to dis-
tinguish between operational effectiveness and
strategy. The quest for productivity, quality, and
speed has spawned a remarkable number of
management tools and techniques: total quality
management, benchmarking, time-based com-
petition, outsourcing, partnering, reengineering,
change management. Although the resulting
operational improvements have often been
dramatic, many companies have been frustrated
by their inability to translate those gains into
sustainable profitability. And bit by bit, almost
imperceptibly, management tools have taken
the place of strategy. As managers push to im-
prove on all fronts, they move farther away
from viable competitive positions.
Operational Effectiveness: Necessary but Not
Sufficient. Operational effectiveness and strategy
are both essential to superior performance,
which, after all, is the primary goal of any en-
terprise. But they work in very different ways.
december 1996 page 2
by EZEKIEL BONILLAS ([email protected]). Copying or
posting is an infringement of copyright. Please contact
[email protected] or 800-988-0886 for additional copies.
What Is Strategy?
32. harvard business review • november–
Michael E. Porter
is the C. Roland
Christensen Professor of Business
Administration at the Harvard Business
School in Boston, Massachusetts.
This article has benefited greatly
from the assistance of many individuals
and companies. The author gives spe-
cial thanks to Jan Rivkin, the coauthor
of a related paper. Substantial research
contributions have been made by
Nicolaj Siggelkow, Dawn Sylvester, and
Lucia Marshall. Tarun Khanna, Roger
Martin, and Anita McGahan have pro-
vided especially extensive comments.
This document is authorized for use only
A company can outperform rivals only if it can
establish a difference that it can preserve. It must
deliver greater value to customers or create
comparable value at a lower cost, or do both.
The arithmetic of superior profitability then fol-
lows: delivering greater value allows a company
to charge higher average unit prices; greater
efficiency results in lower average unit costs.
Ultimately, all differences between companies
in cost or price derive from the hundreds of ac-
tivities required to create, produce, sell, and de-
33. liver their products or services, such as calling
on customers, assembling final products, and
training employees. Cost is generated by per-
forming activities, and cost advantage arises
from performing particular activities more effi-
ciently than competitors. Similarly, differentia-
tion arises from both the choice of activities and
how they are performed. Activities, then are the
basic units of competitive advantage. Overall ad-
vantage or disadvantage results from all a com-
pany’s activities, not only a few.1
Operational effectiveness (OE) means per-
forming similar activities better than rivals per-
form them. Operational effectiveness includes
but is not limited to efficiency. It refers to any
number of practices that allow a company to bet-
ter utilize its inputs by, for example, reducing de-
fects in products or developing better products
faster. In contrast, strategic positioning means
performing different activities from rivals’ or per-
forming similar activities in different ways.
Differences in operational effectiveness among
companies are pervasive. Some companies
are able to get more out of their inputs than
others because they eliminate wasted effort,
employ more advanced technology, motivate
employees better, or have greater insight into
managing particular activities or sets of activ-
ities. Such differences in operational effective-
ness are an important source of differences in
profitability among competitors because they
directly affect relative cost positions and
levels of differentiation.
34. Differences in operational effectiveness
were at the heart of the Japanese challenge to
Western companies in the 1980s. The Japa-
nese were so far ahead of rivals in operational
effectiveness that they could offer lower cost
and superior quality at the same time. It is
worth dwelling on this point, because so much
recent thinking about competition depends
on it. Imagine for a moment a productivity
frontier that constitutes the sum of all existing
best practices at any given time. Think of it as
the maximum value that a company deliver-
ing a particular product or service can create
at a given cost, using the best available tech-
nologies, skills, management techniques, and
purchased inputs. The productivity frontier
can apply to individual activities, to groups
of linked activities such as order processing
and manufacturing, and to an entire com-
pany’s activities. When a company improves
its operational effectiveness, it moves toward
the frontier. Doing so may require capital in-
vestment, different personnel, or simply new
ways of managing.
The productivity frontier is constantly shift-
ing outward as new technologies and man-
agement approaches are developed and as
new inputs become available. Laptop com-
puters, mobile communications, the Internet,
and software such as Lotus Notes, for exam-
ple, have redefined the productivity frontier
for sales-force operations and created rich
possibilities for linking sales with such activi-
ties as order processing and after-sales sup-
35. port. Similarly, lean production, which involves a
family of activities, has allowed substantial
improvements in manufacturing productivity
and asset utilization.
For at least the past decade, managers have
been preoccupied with improving operational
effectiveness. Through programs such as TQM,
time-based competition, and benchmarking,
they have changed how they perform activities
in order to eliminate inefficiencies, improve
customer satisfaction, and achieve best practice.
Hoping to keep up with shifts in the produc-
tivity frontier, managers have embraced con-
tinuous improvement, empowerment, change
management, and the so-called learning orga-
nization. The popularity of outsourcing and
the virtual corporation reflect the growing
recognition that it is difficult to perform all
activities as productively as specialists.
As companies move to the frontier, they can
often improve on multiple dimensions of per-
formance at the same time. For example, manu-
facturers that adopted the Japanese practice of
rapid changeovers in the 1980s were able to
lower cost and improve differentiation simul-
taneously. What were once believed to be
real trade-offs—between defects and costs, for
example—turned out to be illusions created by
poor operational effectiveness. Managers have
learned to reject such false trade-offs.
december 1996 page 3
by EZEKIEL BONILLAS ([email protected]). Copying or
posting is an infringement of copyright. Please contact
[email protected] or 800-988-0886 for additional copies.
36. What Is Strategy?
harvard business review • november–
Operatio
Versus S
dereviled e ulav rey u b ecirp no
N
low
high
high
This document is authorized for use only
Constant improvement in operational ef-
fectiveness is necessary to achieve superior
profitability. However, it is not usually suffi-
cient. Few companies have competed success-
fully on the basis of operational effectiveness
over an extended period, and staying ahead of
rivals gets harder every day. The most obvious
reason for that is the rapid diffusion of best
practices. Competitors can quickly imitate
management techniques, new technologies,
input improvements, and superior ways of
meeting customers’ needs. The most generic
solutions—those that can be used in multiple
settings—diffuse the fastest. Witness the pro-
37. liferation of OE techniques accelerated by
support from consultants.
OE competition shifts the productivity fron-
tier outward, effectively raising the bar for
everyone. But although such competition pro-
duces absolute improvement in operational ef-
fectiveness, it leads to relative improvement
for no one. Consider the $5 billion-plus U.S.
commercial-printing industry. The major players—
R.R. Donnelley & Sons Company, Quebecor,
World Color Press, and Big Flower Press—are
competing head to head, serving all types of
customers, offering the same array of printing
technologies (gravure and web offset), in-
vesting heavily in the same new equipment,
running their presses faster, and reducing crew
sizes. But the resulting major productivity
gains are being captured by customers and
equipment suppliers, not retained in superior
profitability. Even industry-leader Donnelley’s
profit margin, consistently higher than 7% in
the 1980s, fell to less than 4.6% in 1995. This
pattern is playing itself out in industry after
industry. Even the Japanese, pioneers of the
new competition, suffer from persistently low
profits. (See the insert “Japanese Companies
Rarely Have Strategies.”)
The second reason that improved opera-
tional effectiveness is insufficient—competitive
convergence—is more subtle and insidious. The
more benchmarking companies do, the more
they look alike. The more that rivals out-
source activities to efficient third parties,
38. often the same ones, the more generic those
activities become. As rivals imitate one an-
other’s improvements in quality, cycle times,
or supplier partnerships, strategies converge
and competition becomes a series of races
down identical paths that no one can win.
Competition based on operational effective-
ness alone is mutually destructive, leading
to wars of attrition that can be arrested only
by limiting competition.
The recent wave of industry consolidation
through mergers makes sense in the context of
OE competition. Driven by performance pres-
sures but lacking strategic vision, company
after company has had no better idea than to
buy up its rivals. The competitors left standing
are often those that outlasted others, not com-
panies with real advantage.
After a decade of impressive gains in opera-
tional effectiveness, many companies are facing
diminishing returns. Continuous improvement
has been etched on managers’ brains. But its
tools unwittingly draw companies toward imi-
tation and homogeneity. Gradually, managers
have let operational effectiveness supplant strat-
egy. The result is zero-sum competition, static or
declining prices, and pressures on costs that
compromise companies’ ability to invest in the
business for the long term.
II. Strategy Rests on Unique
Activities
Competitive strategy is about being different.
It means deliberately choosing a different set
39. of activities to deliver a unique mix of value.
Southwest Airlines Company, for example,
offers short-haul, low-cost, point-to-point service
between midsize cities and secondary airports
nal Effectiveness
trategic Positioning
Relative cost position
low
Productivity Frontier
(state of best practice)
december 1996 page 4
by EZEKIEL BONILLAS ([email protected]). Copying or
posting is an infringement of copyright. Please contact
[email protected] or 800-988-0886 for additional copies.
What Is Strategy?
harvard business review • november–
Japanese Companies
The Japanese triggered a global revol
tion in operational effectiveness in th
1970s and 1980s, pioneering practices
such as total quality management an
40. continuous improvement. As a result,
Japanese manufacturers enjoyed sub-
stantial cost and quality advantages fo
many years.
But Japanese companies rarely de
veloped distinct strategic positions
the kind discussed in this article.
Those that did—Sony, Canon, and Sega,
for example—were the exception rathe
than the rule. Most Japanese compa
nies imitate and emulate one anothe
All rivals offer most if not all produc
varieties, features, and services; the
employ all channels and match one
anothers’ plant configurations.
The dangers of Japanese-style comp
tition are now becoming easier to rec
ognize. In the 1980s, with rivals opera
ing far from the productivity frontier,
seemed possible to win on both cost
and quality indefinitely. Japanese com
panies were all able to grow in an ex-
panding domestic economy and by
penetrating global markets. They ap-
This document is authorized for use only
in large cities. Southwest avoids large airports
and does not fly great distances. Its customers
include business travelers, families, and stu-
dents. Southwest’s frequent departures and
low fares attract price-sensitive customers who
otherwise would travel by bus or car, and
convenience-oriented travelers who would
41. choose a full-service airline on other routes.
Most managers describe strategic position-
ing in terms of their customers: “Southwest
Airlines serves price- and convenience-sensitive
travelers,” for example. But the essence of strat-
egy is in the activities—choosing to perform
activities differently or to perform different ac-
tivities than rivals. Otherwise, a strategy is
nothing more than a marketing slogan that
will not withstand competition.
A full-service airline is configured to get
passengers from almost any point A to any point
B. To reach a large number of destinations and
serve passengers with connecting flights, full-
service airlines employ a hub-and-spoke system
centered on major airports. To attract passengers
who desire more comfort, they offer first-class
or business-class service. To accommodate
passengers who must change planes, they co-
ordinate schedules and check and transfer
baggage. Because some passengers will be
traveling for many hours, full-service airlines
serve meals.
Southwest, in contrast, tailors all its activities
to deliver low-cost, convenient service on its par-
ticular type of route. Through fast turnarounds at
the gate of only 15 minutes, Southwest is able to
keep planes flying longer hours than rivals and
provide frequent departures with fewer aircraft.
Southwest does not offer meals, assigned seats,
interline baggage checking, or premium classes
of service. Automated ticketing at the gate
42. encourages customers to bypass travel agents, al-
lowing Southwest to avoid their commissions.
A standardized fleet of 737 aircraft boosts the
efficiency of maintenance.
Southwest has staked out a unique and valu-
able strategic position based on a tailored set
of activities. On the routes served by South-
west, a full-service airline could never be as
convenient or as low cost.
Ikea, the global furniture retailer based in
Sweden, also has a clear strategic positioning.
Ikea targets young furniture buyers who want
style at low cost. What turns this marketing
concept into a strategic positioning is the tai-
lored set of activities that make it work. Like
Southwest, Ikea has chosen to perform activi-
ties differently from its rivals.
Consider the typical furniture store. Show-
rooms display samples of the merchandise.
One area might contain 25 sofas; another will
display five dining tables. But those items rep-
resent only a fraction of the choices available
to customers. Dozens of books displaying fabric
swatches or wood samples or alternate styles
offer customers thousands of product varieties
to choose from. Salespeople often escort cus-
tomers through the store, answering questions
and helping them navigate this maze of choices.
Once a customer makes a selection, the order
is relayed to a third-party manufacturer. With
luck, the furniture will be delivered to the cus-
tomer’s home within six to eight weeks. This is
a value chain that maximizes customization
43. and service but does so at high cost.
In contrast, Ikea serves customers who are
happy to trade off service for cost. Instead of
Rarely Have Strategies
u-
e
d
r
-
of
r
-
r.
t
y
e-
-
t-
it
-
peared unstoppable. But as the gap in
operational effectiveness narrows, Jap-
anese companies are increasingly
caught in a trap of their own making. If
they are to escape the mutually destruc-
44. tive battles now ravaging their perfor-
mance, Japanese companies will have
to learn strategy.
To do so, they may have to overcome
strong cultural barriers. Japan is noto-
riously consensus oriented, and com-
panies have a strong tendency to medi-
ate differences among individuals
rather than accentuate them. Strategy,
on the other hand, requires hard
choices. The Japanese also have a
deeply ingrained service tradition that
predisposes them to go to great
lengths to satisfy any need a customer
expresses. Companies that compete in
that way end up blurring their distinct
positioning, becoming all things to
all customers.
This discussion of Japan is drawn from
the author’s research with Hirotaka
Takeuchi, with help from Mariko
Sakakibara.
december 1996 page 5
by EZEKIEL BONILLAS ([email protected]). Copying or
posting is an infringement of copyright. Please contact
[email protected] or 800-988-0886 for additional copies.
What Is Strategy?
harvard business review • november–
45. Finding New Position
Strategic competition can be thought o
the process of perceiving new position
woo customers from established positi
draw new customers into the market. F
ample, superstores offering depth of m
chandise in a single product category t
market share from broad-line departm
stores offering a more limited selection
many categories. Mail-order catalogs p
customers who crave convenience. In p
ple, incumbents and entrepreneurs fac
same challenges in finding new strateg
sitions. In practice, new entrants often
the edge.
Strategic positionings are often not o
ous, and finding them requires creativit
insight. New entrants often discover un
This document is authorized for use only
having a sales associate trail customers around
the store, Ikea uses a self-service model based
on clear, in-store displays. Rather than rely
solely on third-party manufacturers, Ikea designs
its own low-cost, modular, ready-to-assemble
furniture to fit its positioning. In huge stores,
Ikea displays every product it sells in room-like
settings, so customers don’t need a decorator
to help them imagine how to put the pieces to-
gether. Adjacent to the furnished showrooms
is a warehouse section with the products in
46. boxes on pallets. Customers are expected to do
their own pickup and delivery, and Ikea will
even sell you a roof rack for your car that you
can return for a refund on your next visit.
Although much of its low-cost position comes
from having customers “do it themselves,” Ikea
offers a number of extra services that its com-
petitors do not. In-store child care is one. Ex-
tended hours are another. Those services are
uniquely aligned with the needs of its custom-
ers, who are young, not wealthy, likely to
have children (but no nanny), and, because
they work for a living, have a need to shop
at odd hours.
The Origins of Strategic Positions. Strategic
positions emerge from three distinct sources,
which are not mutually exclusive and often
overlap. First, positioning can be based on pro-
ducing a subset of an industry’s products or
services. I call this variety-based positioning
because it is based on the choice of product
or service varieties rather than customer
segments. Variety-based positioning makes
economic sense when a company can best
produce particular products or services using
distinctive sets of activities.
Jiffy Lube International, for instance, spe-
cializes in automotive lubricants and does not
offer other car repair or maintenance services.
Its value chain produces faster service at a
lower cost than broader line repair shops, a
combination so attractive that many customers
47. subdivide their purchases, buying oil changes
from the focused competitor, Jiffy Lube, and
going to rivals for other services.
The Vanguard Group, a leader in the mutual
fund industry, is another example of variety-
based positioning. Vanguard provides an
array of common stock, bond, and money
market funds that offer predictable perfor-
mance and rock-bottom expenses. The com-
pany’s investment approach deliberately
sacrifices the possibility of extraordinary per-
formance in any one year for good relative
performance in every year. Vanguard is known,
for example, for its index funds. It avoids mak-
ing bets on interest rates and steers clear of
narrow stock groups. Fund managers keep
trading levels low, which holds expenses
down; in addition, the company discourages
customers from rapid buying and selling be-
cause doing so drives up costs and can force a
fund manager to trade in order to deploy new
s: The Entrepreneurial Edge
f as
s that
ons or
or ex-
er-
ake
ent
in
ick off
rinci-
48. e the
ic po-
have
bvi-
y and
ique
positions that have been available but simply
overlooked by established competitors. Ikea,
for example, recognized a customer group
that had been ignored or served poorly. Cir-
cuit City Stores’ entry into used cars, CarMax,
is based on a new way of performing activities—
extensive refurbishing of cars, product guaran-
tees, no-haggle pricing, sophisticated use of in-
house customer financing—that has long
been open to incumbents.
New entrants can prosper by occupying a
position that a competitor once held but has
ceded through years of imitation and strad-
dling. And entrants coming from other indus-
tries can create new positions because of dis-
tinctive activities drawn from their other
businesses. CarMax borrows heavily from
Circuit City’s expertise in inventory manage-
ment, credit, and other activities in consumer
electronics retailing.
Most commonly, however, new positions
open up because of change. New customer
groups or purchase occasions arise; new
needs emerge as societies evolve; new distri-
bution channels appear; new technologies
49. are developed; new machinery or informa-
tion systems become available. When such
changes happen, new entrants, unencum-
bered by a long history in the industry, can
often more easily perceive the potential
for a new way of competing. Unlike incum-
bents, newcomers can be more flexible be-
cause they face no trade-offs with their
existing activities.
december 1996 page 6
by EZEKIEL BONILLAS ([email protected]). Copying or
posting is an infringement of copyright. Please contact
[email protected] or 800-988-0886 for additional copies.
What Is Strategy?
harvard business review • november–
A company can
outperform rivals only if
it can establish a
difference that it can
preserve.
This document is authorized for use only
capital and raise cash for redemptions.
Vanguard also takes a consistent low-cost ap-
50. proach to managing distribution, customer
service, and marketing. Many investors in-
clude one or more Vanguard funds in their
portfolio, while buying aggressively managed
or specialized funds from competitors.
The people who use Vanguard or Jiffy
Lube are responding to a superior value chain
for a particular type of service. A variety-based
positioning can serve a wide array of custom-
ers, but for most it will meet only a subset …
www.GetPedia.com
http://www.getpedia.com/showarticles.php?cat=208
TLFeBOOK
Blue Ocean Strategy
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Blue Ocean
Strategy
51. How to Create Uncontested Market Space and
Make the Competition Irrelevant
W. Chan Kim
Renée Mauborgne
H A R V A R D B U S I N E S S S C H O O L P R E S S
B O S T O N , M A S S A C H U S E T T S
( ) ( ) ( ) ( ) (
FM-Kim.qxd 10/25/04 10:03 AM Page iii
Copyright 2005 Harvard Business School Publishing
Corporation
All rights reserved
Printed in the United States of America
09 08 07 06 05 5 4 3 2 1
No part of this publication may be reproduced, stored in or
introduced into a
retrieval system, or transmitted, in any form, or by any means
(electronic, mechanical,
photocopying, recording, or otherwise), without the prior
permission of the publisher.
52. Requests for permission should be directed to [email protected],
or
mailed to Permissions, Harvard Business School Publishing, 60
Harvard Way, Boston,
Massachusetts 02163.
Library of Congress Cataloging-in-Publication Data
Kim, W. Chan.
Blue ocean strategy: how to create uncontested market space
and make the
competition irrelevant / W. Chan Kim, Renée Mauborgne.
p. cm.
Includes bibliographical references and index.
ISBN 1-59139-619-0 (hardcover: alk. paper)
1. New products. 2. Market segmentation. I. Mauborgne, Renée.
II. Title.
HF5415.153.K53 2005
658.8�02—dc22
2004020857
The paper used in this publication meets the requirements of the
American National
Standard for Permanence of Paper for Publications and
53. Documents in Libraries and
Archives Z39.48–1992
FM-Kim.qxd 10/25/04 10:03 AM Page iv
To friendship and to our families,
who make our worlds
more meaningful
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Contents
Preface ix
Acknowledgments xiii
Part One: Blue Ocean Strategy
1 Creating Blue Oceans 3
2 Analytical Tools and Frameworks 23
Part Two: Formulating Blue Ocean Strategy
54. 3 Reconstruct Market Boundaries 47
4 Focus on the Big Picture, Not the Numbers 81
5 Reach Beyond Existing Demand 101
6 Get the Strategic Sequence Right 117
( ) ( ) ( ) ( )
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Part Three: Executing Blue Ocean Strategy
7 Overcome Key Organizational Hurdles 147
8 Build Execution into Strategy 171
9 Conclusion: The Sustainability and Renewal
of Blue Ocean Strategy 185
Appendix A 191
Appendix B 209
Appendix C 213
Notes 217
Bibliography 223
Index 231
55. About the Authors 239
viii Contents
FM-Kim.qxd 10/25/04 10:03 AM Page viii
( ) ( ) ( ) ( )
Preface
TH I S I S A B O O K about friendship, about loyalty,
aboutbelieving in one another. It was because of that friend-
ship, and that belief, that we set out on the journey to explore
the
ideas in this book and eventually came to write it.
We met twenty years ago in a classroom—one the professor, the
other the student. And we have worked together ever since,
often
seeing ourselves along the journey as two wet rats in a drain.
This
book is not the victory of an idea but of a friendship that we
have
found more meaningful than any idea in the world of business.
It has
made our lives rich and our worlds more beautiful. We were not
alone.
56. No journey is easy; no friendship is filled only with laughter.
But
we were excited every day of that journey because we were on a
mis-
sion to learn and improve. We believe passionately in the ideas
in
this book. These ideas are not for those whose ambition in life
is to
get by or merely to survive. That was never an interest of ours.
If
you can be satisfied with that, do not read on. But if you want
to
make a difference, to create a company that builds a future
where
customers, employees, shareholders, and society win, read on.
We
are not saying it is easy, but it is worthwhile.
( ) ( ) ( ) ( )
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Our research confirms that there are no permanently excellent
companies, just as there are no permanently excellent
industries.
57. As we have found on our own tumbling road, we all, like
corpora-
tions, do smart things and less-than-smart things. To improve
the
quality of our success we need to study what we did that made a
positive difference and understand how to replicate it systemati-
cally. That is what we call making smart strategic moves, and
we
have found that the strategic move that matters centrally is to
cre-
ate blue oceans.
Blue ocean strategy challenges companies to break out of the
red
ocean of bloody competition by creating uncontested market
space
that makes the competition irrelevant. Instead of dividing up
exist-
ing—and often shrinking—demand and benchmarking competi-
tors, blue ocean strategy is about growing demand and breaking
away from the competition. This book not only challenges
compa-
nies but also shows them how to achieve this. We first introduce
58. a
set of analytical tools and frameworks that show you how to
sys-
tematically act on this challenge, and, second, we elaborate the
principles that define and separate blue ocean strategy from
compe-
tition-based strategic thought.
Our aim is to make the formulation and execution of blue ocean
strategy as systematic and actionable as competing in the red
wa-
ters of known market space. Only then can companies step up to
the challenge of creating blue oceans in a smart and responsible
way that is both opportunity maximizing and risk minimizing.
No
company—large or small, incumbent or new entrant—can afford
to
be a riverboat gambler. And no company should.
The contents of this book are based on more than fifteen years
of
research, data stretching back more than a hundred years, and a
se-
ries of Harvard Business Review articles as well as academic
59. arti-
cles on various dimensions of this topic. The ideas, tools, and
frameworks presented here have been further tested and refined
over the years in corporate practice in Europe, the United
States,
and Asia. This book builds on and extends this work by
providing a
narrative arc that draws these ideas together to offer a unified
x Preface
FM-Kim.qxd 10/25/04 10:03 AM Page x
framework. This framework addresses not only the analytic as-
pects behind the creation of blue ocean strategy but also the all-
important human aspects of how to bring an organization and its
people on this journey with a willingness to execute these ideas
in
action. Here, understanding how to build trust and commitment,
as
well as an understanding of the importance of intellectual and
emotional recognition, are highlighted and brought to the core
of
60. strategy.
Blue ocean opportunities have been out there. As they have
been
explored, the market universe has been expanding. This
expansion,
we believe, is the root of growth. Yet poor understanding exists
both in theory and in practice as to how to systematically create
and capture blue oceans. We invite you to read this book to
learn
how you can be a driver of this expansion in the future.
Preface xi
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Acknowledgments
WE H AV E H A D S I G N I F I C A N T H E L P in
actualizingthis book. INSEAD has provided a unique environ-
ment in which to conduct our research. We have benefited
greatly
from the crossover between theory and practice that exists at
61. INSEAD, and from the truly global composition of our faculty,
stu-
dent, and executive education populations. Deans Antonio
Borges,
Gabriel Hawawini, and Ludo Van der Heyden provided
encourage-
ment and institutional support from the start and allowed us to
closely intertwine our research and teaching. Pricewaterhouse-
Coopers (PwC) and the Boston Consulting Group (BCG) have
ex-
tended the financial support for our research; in particular,
Frank
Brown and Richard Baird at PwC, and René Abate, John
Clarkeson,
George Stalk, and Olivier Tardy of BCG have been valued
partners.
While we had help from a highly talented group of researchers
over the years, our two dedicated research associates, Jason
Hunter and Ji Mi, who have worked with us for the last several
years, deserve special mention. Their commitment, persistent
re-
search support, and drive for perfection, were essential in
62. realizing
this book. We feel blessed by their presence.
( ) ( ) ( ) ( )
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Our colleagues at the school have contributed to the ideas in the
book. INSEAD faculty members, particularly Subramanian Ran-
gan and Ludo Van der Heyden, helped us to reflect upon our
ideas
and offered valuable comments and support. Many of INSEAD’s
faculty have taught the ideas and frameworks in this book to
execu-
tive and M.B.A. audiences, providing valuable feedback that
sharp-
ened our thinking. Others have provided intellectual encourage-
ment and the energy of kindness. We thank here, among others,
Ron Adner, Jean-Louis Barsoux, Ben Bensaou, Henri-Claude de
Bettignies, Mike Brimm, Laurence Capron, Marco Ceccagnoli,
Karel Cool, Arnoud De Meyer, Ingemar Dierickx, Gareth Dyas,
George Eapen, Paul Evans, Charlie Galunic, Annabelle Gawer,
63. Javier Gimeno, Dominique Héau, Neil Jones, Philippe Lasserre,
Jean-François Manzoni, Jens Meyer, Claude Michaud, Deigan
Morris, Quy Nguyen-Huy, Subramanian Rangan, Jonathan
Story,
Heinz Thanheiser, Ludo Van der Heyden, David Young, Peter
Zem-
sky, and Ming Zeng.
We have been fortunate to have a network of practitioners and
case writers across the globe. They have contributed greatly in
showing how the ideas in this book apply in action and helping
to
develop case material for our research. Among many people,
one
deserves special mention: Marc Beauvois-Coladon, who has
worked
with us from the start and made a major contribution to chapter
4
based on his field experiences practicing our ideas in
companies.
Among the wealth of others, we would like to thank Francis
Gouillart
and his associates; Gavin Fraser and his associates; Wayne
64. Morten-
sen; Brian Marks; Kenneth Lau; Yasushi Shiina; Jonathan
Landrey
and his associates; Junan Jiang; Ralph Trombetta and his associ-
ates; Gabor Burt and his associates; Shantaram Venkatesh; Miki
Kawawa and her associates; Atul Sinha and his associates;
Arnold
Izsak and his associates; Volker Westermann and his associates;
Matt Williamson; and Caroline Edwards and her associates. We
also appreciate the emerging cooperation with Accenture as
kicked
off with Mark Spelman, Omar Abbosh, Jim Sayles, and their
team.
Thanks are also due to Lucent Technologies for their support.
xiv Acknowledgments
FM-Kim.qxd 10/25/04 10:03 AM Page xiv
During the course of our research, we have met with corporate
executives and public officers around the world who generously
gave us their time and insight, greatly shaping the ideas in this
65. book. We are grateful to them. Among many private and public
ini-
tiatives for putting our ideas into practice, the Value Innovation
Program (VIP) Center at Samsung Electronics and the Value
Inno-
vation Action Tank (VIAT) in Singapore for the country’s
govern-
ment and private sectors have been major sources of inspiration
and learning. In particular, Jong-Yong Yun at Samsung
Electronics
and all the Permanent Secretaries of Singapore Government
have
been valued partners. Warm thanks also to the members of the
Value Innovation Network (VIN), a global community of
practice
on the Value Innovation family of concepts—especially to those
we
were unable to mention here.
Finally, we would like to thank Melinda Merino, our editor, for
her wise comments and editorial feedback, and the Harvard
Busi-
ness School Publishing team for their commitment and
enthusias-
66. tic support. Thanks also to our present and past editors at
Harvard
Business Review, in particular David Champion, Tom Stewart,
Nan
Stone, and Joan Magretta. We owe a great deal to INSEAD
M.B.A.’s and Ph.D.’s and executive education participants.
Particu-
larly, participants in both Strategy and Value Innovation Study
Group (VISG) courses have been patient as we have tried out
the
ideas in this book. Their challenging questions and thoughtful
feedback clarified and strengthened our ideas.
Acknowledgments xv
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( ) ( ) ( ) ( ) (
P A R T O N E
Blue Ocean
67. Strategy
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( ) ( ) ( ) ( )
C H A P T E R 1
Creating Blue Oceans
AONE TIME ACCORDION PLAYER, stilt-walker, and fire-
eater, Guy Laliberté is now CEO of Cirque du Soleil,
one of Canada’s largest cultural exports. Created in 1984 by a
group
of street performers, Cirque’s productions have been seen by
almost
forty million people in ninety cities around the world. In less
than
twenty years Cirque du Soleil has achieved a level of revenues
that
took Ringling Bros. and Barnum & Bailey—the global champion
of
the circus industry—more than one hundred years to attain.
68. What makes this rapid growth all the more remarkable is that it
was not achieved in an attractive industry but rather in a
declining
industry in which traditional strategic analysis pointed to
limited
potential for growth. Supplier power on the part of star
performers
was strong. So was buyer power. Alternative forms of entertain-
ment—ranging from various kinds of urban live entertainment
to
sporting events to home entertainment—cast an increasingly
long
shadow. Children cried out for PlayStations rather than a visit
to
the traveling circus. Partially as a result, the industry was
suffer-
ing from steadily decreasing audiences and, in turn, declining
rev-
enue and profits. There was also increasing sentiment against
the
( ) ( ) ( ) ( )
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69. use of animals in circuses by animal rights groups. Ringling
Bros.
and Barnum & Bailey set the standard, and competing smaller
cir-
cuses essentially followed with scaled-down versions. From the
per-
spective of competition-based strategy, then, the circus industry
appeared unattractive.
Another compelling aspect of Cirque du Soleil’s success is that
it did not win by taking customers from the already shrinking
circus
industry, which historically catered to children. Cirque du
Soleil
did not compete with Ringling Bros. and Barnum & Bailey.
Instead
it created uncontested new market space that made the competi-
tion irrelevant. It appealed to a whole new group of customers:
adults and corporate clients prepared to pay a price several
times
as great as traditional circuses for an unprecedented entertain-
ment experience. Significantly, one of the first Cirque
productions
70. was titled “We Reinvent the Circus.”
New Market Space
Cirque du Soleil succeeded because it realized that to win in the
fu-
ture, companies must stop competing with each other. The only
way
to beat the competition is to stop trying to beat the competition.
To understand what Cirque du Soleil has achieved, imagine a
market universe composed of two sorts of oceans: red oceans
and
blue oceans. Red oceans represent all the industries in existence
today. This is the known market space. Blue oceans denote all
the
industries not in existence today. This is the unknown market
space.
In the red oceans, industry boundaries are defined and accepted,
and the competitive rules of the game are known.1 Here,
companies
try to outperform their rivals to grab a greater share of existing
de-
mand. As the market space gets crowded, prospects for profits
and
71. growth are reduced. Products become commodities, and
cutthroat
competition turns the red ocean bloody.
Blue oceans, in contrast, are defined by untapped market space,
demand creation, and the opportunity for highly profitable
growth.
4 B L U E O C E A N S T R A T E G Y
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Although some blue oceans are created well beyond existing
indus-
try boundaries, most are created from within red oceans by
expand-
ing existing industry boundaries, as Cirque du Soleil did. In
blue
oceans, competition is irrelevant because the rules of the game
are
waiting to be set.
It will always be important to swim successfully in the red
ocean
by outcompeting rivals. Red oceans will always matter and will
al-
72. ways be a fact of business life. But with supply exceeding
demand
in more industries, competing for a share of contracting
markets,
while necessary, will not be sufficient to sustain high
performance.2
Companies need to go beyond competing. To seize new profit
and
growth opportunities, they also need to create blue oceans.
Unfortunately, blue oceans are largely uncharted. The dominant
focus of strategy work over the past twenty-five years has been
on
competition-based red ocean strategies.3 The result has been a
fairly good understanding of how to compete skillfully in red
waters,
from analyzing the underlying economic structure of an existing
industry, to choosing a strategic position of low cost or
differentia-
tion or focus, to benchmarking the competition. Some
discussions
around blue oceans exist.4 However, there is little practical
guid-
73. ance on how to create them. Without analytic frameworks to
create
blue oceans and principles to effectively manage risk, creating
blue oceans has remained wishful thinking that is seen as too
risky
for managers to pursue as strategy. This book provides practical
frameworks and analytics for the systematic pursuit and capture
of
blue oceans.
The Continuing Creation of Blue Oceans
Although the term blue oceans is new, their existence is not.
They
are a feature of business life, past and present. Look back one
hun-
dred years and ask yourself, How many of today’s industries
were
then unknown? The answer: Many industries as basic as
automo-
biles, music recording, aviation, petrochemicals, health care,
and
Creating Blue Oceans 5
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74. management consulting were unheard of or had just begun to
emerge at that time. Now turn the clock back only thirty years.
Again, a plethora of multibillion-dollar industries jumps out—
mu-
tual funds, cell phones, gas-fired electricity plants,
biotechnology,
discount retail, express package 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.
Now put the clock forward twenty years—or perhaps fifty
years—
and ask yourself how many now unknown industries will likely
exist then. If history is any predictor of the future, again the
answer
is many of them.
The reality is that industries never stand still. They continu-
ously evolve. Operations improve, markets expand, and players
come and go. History teaches us that we have a hugely
underesti-
75. mated capacity to create new industries and re-create existing
ones. In fact, the half-century-old Standard Industrial
Classifica-
tion (SIC) system published by the U.S. Census was replaced in
1997
by the North America Industry Classification Standard (NAICS)
system. The new system expanded the ten SIC industry sectors
into
twenty sectors to reflect the emerging realities of new industry
ter-
ritories.5 The services sector under the old system, for example,
is
now expanded into seven business sectors ranging from
informa-
tion to health care and social assistance.6 Given that these
systems
are designed for standardization and continuity, such a replace-
ment shows how significant the expansion of blue oceans has
been.
Yet the overriding focus of strategic thinking has been on com-
petition-based red ocean strategies. Part of the explanation for
this
76. is that corporate strategy is heavily influenced by its roots in
mili-
tary strategy. The very language of strategy is deeply imbued
with
military references—chief executive “officers” in
“headquarters,”
“troops” on the “front lines.” Described this way, strategy is
about
confronting an opponent and fighting over a given piece of land
that is both limited and constant.7 Unlike war, however, the his-
tory of industry shows us that the market universe has never
been
constant; rather, blue oceans have continuously been created
over
6 B L U E O C E A N S T R A T E G Y
01-Kim.qxd 10/25/04 10:02 AM Page 6
time. To focus on the red ocean is therefore to accept the key
constraining factors of war—limited terrain and the need to beat
an enemy to succeed—and to deny the distinctive strength of the
business world: the capacity to create new market space that is
un-
77. contested.
The Impact of Creating Blue Oceans
We set out to quantify the impact of creating blue oceans on a
com-
pany’s growth in both revenues and profits in a study of the
busi-
ness launches of 108 companies (see figure 1-1). We found that
86
percent of the launches were line extensions, that is,
incremental
improvements within the red ocean of existing market space.
Yet
they accounted for only 62 percent of total revenues and a mere
39
percent of total profits. The remaining 14 percent of the
launches
were aimed at creating blue oceans. They generated 38 percent
of
total revenues and 61 percent of total profits. Given that
business
launches included the total investments made for creating red
and
blue oceans (regardless of their subsequent revenue and profit
78. con-
sequences, including failures), the performance benefits of
creating
Creating Blue Oceans 7
F I G U R E 1-1
The Profit and Growth Consequences of Creating Blue Oceans
Launches within red oceans
Launches for creating blue oceans
Business Launch
Revenue Impact
Profit Impact
86% 14%
62% 38%
39% 61%
01-Kim.qxd 10/25/04 10:02 AM Page 7
blue waters are evident. Although we don’t have data on the hit
rate
of success of red and blue ocean initiatives, the global
performance
79. differences between them are marked.
The Rising Imperative of Creating Blue Oceans
There are several driving forces behind a rising imperative to
create
blue oceans. Accelerated technological advances have
substantially
improved industrial productivity and have allowed suppliers to
pro-
duce an unprecedented array of products and services. The
result
is that in increasing numbers of industries, supply exceeds de-
mand.8 The trend toward globalization compounds the situation.
As trade barriers between nations and regions are dismantled
and
as information on products and prices becomes instantly and
glob-
ally available, niche markets and havens for monopoly continue
to
disappear.9 While supply is on the rise as global competition
inten-
sifies, there is no clear evidence of an increase in demand
world-
wide, and statistics even point to declining populations in many
80. developed markets.10
The result has been accelerated commoditization of products
and services, increasing price wars, and shrinking profit
margins.
Recent industrywide studies on major American brands confirm
this trend.11 They reveal that for major product and service
cate-
gories, brands are generally becoming more similar, and as they
are
becoming more similar people increasingly select based on
price.12
People no longer insist, as in the past, that their laundry
detergent
be Tide. Nor will they necessarily stick to Colgate when Crest
is on
sale, and vice versa. In overcrowded industries, differentiating
brands
becomes harder in both economic upturns and downturns.
All this suggests that the business environment in which most
strategy and management approaches of the twentieth century
evolved is increasingly disappearing. As red oceans become
increas-
81. ingly bloody, management will need to be more concerned with
blue
oceans than the current cohort of managers is accustomed to.
8 B L U E O C E A N S T R A T E G Y
01-Kim.qxd 10/25/04 10:02 AM Page 8
From Company and Industry to Strategic Move
How can a company break out of the red ocean of bloody
competi-
tion? How can it create a blue ocean? Is there a systematic ap-
proach to achieve this and thereby sustain high performance?
In search of an answer, our initial step was to define the basic
unit of analysis for our research. To understand the roots of
high
performance, the business literature typically uses the company
as
the basic unit of analysis. People have marveled at how
companies
attain strong, profitable growth with a distinguished set of
strate-
gic, operational, and organizational characteristics. Our
82. question,
however, was this: Are there lasting “excellent” or “visionary”
companies that continuously outperform the market and repeat-
edly create blue oceans?
Consider, for example, In Search of Excellence and Built to
Last.13
The bestselling book In Search of Excellence was published
twenty
years ago. Yet within two years of its publication a number of
the
companies surveyed began to slip into oblivion: Atari,
Chesebrough-
Pond’s, Data General, Fluor, National Semiconductor. As docu-
mented in Managing on the Edge, two-thirds of the identified
model
firms in the book had fallen from their perches as industry
leaders
within five years of its publication.14
The book Built to Last continued in the same footsteps. It
sought
out the “successful habits of visionary companies” that had a
long-
83. running track record of superior performance. To avoid the
pitfalls
of In Search of Excellence, however, the survey period of Built
to
Last was expanded to the entire life span of the companies
while its
analysis was limited to firms more than forty years old. Built to
Last also became a bestseller.
But again, upon closer examination, deficiencies in some of the
visionary companies spotlighted in Built to Last have come to
light.
As illustrated in the recent book Creative Destruction, much of
the
success attributed to some of the model companies in Built to
Last
was the result of industry sector performance rather than the
Creating Blue Oceans 9
01-Kim.qxd 10/25/04 10:02 AM Page 9
companies themselves.15 For example, Hewlett-Packard (HP)
met
the criteria of Built to Last by outperforming the market over
84. the
long term. In reality, while HP outperformed the market, so did
the
entire computer-hardware industry. What’s more, HP did not
even
outperform the competition within the industry. Through this
and
other examples, Creative Destruction questioned whether
“visionary”
companies that continuously outperform the market have ever
ex-
isted. And we all have seen the stagnating or declining
performance
of the Japanese companies that were celebrated as
“revolutionary”
strategists in their heyday of the late 1970s and early 1980s.
If there is no perpetually high-performing company and if the
same company can be brilliant at one moment and wrongheaded
at
another, it appears that the company is not the appropriate unit
of
analysis in exploring the roots of high performance and blue
oceans.
85. As discussed earlier, history also shows that industries are con-
stantly being created and expanded over time and that industry
conditions and boundaries are not given; individual actors can
shape them. Companies need not compete head-on in a given
indus-
try space; Cirque du Soleil created a new market space in the
enter-
tainment sector, generating strong, profitable growth as a result.
It
appears, then, that neither the company nor the industry is the
best
unit of analysis in studying the roots of profitable growth.
Consistent with this observation, our study shows that the
strategic move, and not the company or the industry, is the right
unit of analysis for explaining the creation of blue oceans and
sus-
tained high performance. A strategic move is the set of
managerial
actions and decisions involved in making a major market-
creating
business offering. Compaq, for example, was acquired by
Hewlett-
86. Packard in 2001 and ceased to be an independent company. As a
re-
sult, many people might judge the company as unsuccessful.
This
does not, however, invalidate the blue ocean strategic moves
that
Compaq made in creating the server industry. These strategic
moves not only were a part of the company’s powerful
comeback in
the mid-1990s but also unlocked a new multibillion-dollar
market
space in computing.
10 B L U E O C E A N S T R A T E G Y
01-Kim.qxd 10/25/04 10:02 AM Page 10
Appendix A, “A Sketch of the Historical Pattern of Blue Ocean
Creation,” provides a snapshot overview of the history of three
rep-
resentative U.S. industries drawn from our database: the auto
in-
dustry—how we get to work; the computer industry—what we
use
87. at work; and the cinema industry—where we go after work for
en-
joyment. As shown in appendix A, no perpetually excellent
com-
pany or industry is found. But a striking commonality appears
to
exist across strategic moves that have created blue oceans and
have
led to new trajectories of strong, profitable growth.
The strategic moves we discuss—moves that have delivered
prod-
ucts and services that opened and captured new market space,
with
a significant leap in demand—contain great stories of profitable
growth as well as thought-provoking tales of missed
opportunities
by companies stuck in red oceans. We …
Develop a 5- to 6-slide PowerPoint presentation that addresses
the following:
Explain the concept of a knowledge worker.
Define and explain nursing informatics and highlight the role of
a nurse leader as a knowledge worker.
Develop a simple infographic to help explain these concepts.
Use the document in the resource section entitled: How to
Make an Infographic in PowerPoint
88. Present the hypothetical scenario you originally shared in the
Discussion Forum. Include your examination of the data you
could use, how the data might be accessed/collected, and what
knowledge might be derived from the data. Be sure to
incorporate feedback received from your colleagues' replies.
Slide One: define the concept of a knowledge worker (you can
use the information presented in the assignment instructions to
assist)
Slide Two-Three: Define and explain nursing informatics
Slide Three, Four, and Five: Highlight the role of a nurse
leader as a knowledge worker
Remember: You must include at least three (3) peer reviewed
journal articles AND two (2) course resources for the
assignment.