Blue Ocean Strategy - Summary and Examples

Blue Ocean Strategy
How to Create Uncontested Market Space
and Make the Competition Irrelevant

Facilitators : Yip Khai Biau (ymike27@hotmail.com)
& Lieu Yoke Sun
Group/Presentation Title
Agilent Restricted
Date ##, 200X

Blue Ocean Strategy (BOS)

 Introduction to BOS
 BOS Tools : Strategy Canvas & E.R.R.C.
 Awakening : As-Is Strategy Canvas
 Exploration : Reconstruct Market
Boundaries
 Strategizing : To-Be Strategy Canvas
 Actualization : Identify actions to actualize
the strategies
 Conclusion

Facilitators : Yip Khai Biau (ymike27@hotmail.com)
& Lieu Yoke Sun

All Rights Reserved – KB Yip/YS Lieu Page : 2

Objectives

 Develop understanding of Blue Ocean Tool Sets and how
to apply them effectively
 Strategy Canvas
 ERRC

 Perform As-Is Analysis to Compare Current Strategy of XYZ
vs Competitors

 Explore Pathways to Breakaway from Market Boundaries to
look for Bigger Playing Field

 Brainstorm and Agree on the To-Be Strategy for XYZ


Introduction to Blue Ocean Strategy

 History & Background
 Defining Red & Blue
Ocean
 Six Principles of BOS
 Reach Beyond Existing
Demand
 Value Innovation


History & Background
• Authored by W. Chan Kim and Renee Mauborgne in
2005.

• Based on a study of 150 strategic moves spanning
more than 100 years and 30 industries.

• BOS is the simultaneous pursuit of differentiation and
low cost.

• The aim of BOS is not to out-perform the competition
in the existing industry, but to create new market
space or a blue ocean, thereby making the
competition irrelevant.

• BOS offers systematic and reproducible
methodologies and processes in pursuit of innovation
by both new and existing firms.

• BOS frameworks and tools are designed to be visual
in order to not only effectively build the collective
wisdom of the company but also to effectively execute
through easy communication.


Defining Red and Blue Ocean
What’s Red, What’s Blue?

Red Ocean Strategy Blue Ocean Strategy

•• Compete in existing market space
Compete in existing market space •• Create uncontested market space
Create uncontested market space
•• Beat the competition
Beat the competition •• Make the competition irrelevant
Make the competition irrelevant
•• Exploit existing demand
Exploit existing demand •• Create & capture new demand
Create & capture new demand
•• Make the value-cost trade off
Make the value-cost trade off •• Break the value- cost trade off
Break the value- cost trade off
•• Align strategy choice of
Align strategy choice of •• Simultaneous pursuit strategy of
Simultaneous pursuit strategy of
differentiation or low cost
differentiation or low cost differentiation and low cost
differentiation and low cost


Examples of Red and Blue Ocean


Six Principles of Blue Ocean Strategy
Formulation Principles Execution Principles

1. Reach beyond existing 5. Overcome key
demand organizational
2. Reconstruct market hurdles
boundaries 6. Build execution into
3. Focus on the big picture, strategy
not the numbers
4. Get the strategic
sequence right


Reach Beyond Existing Demand

 First Tier: “Soon-to-be” non-
customers who are on the edge of
your market, waiting to jump ship
Third
Tier
Second
First Tier  Second Tier: “Refusing non-
cean
Tier customers who consciously
Yourlu
B eO choose against your market.
Market
 Third Tier: “Unexplored” non
customers who are in markets
distant from yours.

Blue Ocean – Go for the Largest Catchment of Non-Customers


Example – [yellow tail]

Traditional Wine : [yellow tail] :
• An elite, refined image in packaging with heavy • No jargon.Simple and nontraditional label.
use of wine terminology. • Aging is not important.
• Aging quality. • Vibrant and fun.
• Prestige of a vineyard and its legacy. • Sweeter and easier to drink.
• Complexity and sophistication of a wine’s taste, • Only one Red (Shiraz) and one White
such as tannins and oak. (Chardonnay).
• A diverse range of wines to cover all varieties
of grapes & consumer preferences


Example – [yellow tail]
Tier 3 – Anyone that drinks water
Tier 1 – Wine drinker market [yellow tail] did not focus
on the wine market only

Third Third
Tier
Tier Second
Second
First Tier First Tier
Tier Tier
Your
Red Your
Market
Wine Market
X

[yellow tail] created a Blue
Ocean by making its wine
Tier 2 – “Easier to drink” market, eg.,
beer, cocktails, soft-drink
more appealing to the
bigger population

Reach Beyond Existing Demand

Entertainment
Entertainment
Theater
Performance Theater
Performance
Circus
Circus
Circus
Circus
X
X


Example – [Nintendo]
Electronic Game Nintendo Wii
Industry Nintendo created a Blue Ocean by
reducing the complexity, add the
ease of use and fun!

Everyone Everyone
Girls Else Girls Else
Other Other
Males Males
Young Young
Antisocial Antisocial
Males Males


Value Innovation – The Cornerstone of BOS
 Value innovation places equal emphasis on value and innovation.
 Value innovation is a new way of thinking about and executing strategy that
results in the creation of a blue ocean.
 The creation of blue oceans is about driving costs down while simultaneously
driving value up for buyers.

Cost Cost Saving – Eliminate &
Reduce Competing Factors

Value
Innovation

Buyer Value Lifted – Raise
Buyer Value
& Create New Elements Back


Blue Ocean Strategy Tools

 Strategy Canvas
 Eliminate-Reduce-Raise-Create
(ERRC) Grid


What is Strategy Canvas?
Degree of which each competitor Value Curves
offers/invests in each factor

High

Competitor 1 Factors that
the industry
Offering Level

Competitor 2 competes &
Mid
invests, also
potential
Your Company
areas where
customer
Low
Factor 1 Factor 2 Factor 3 Factor 4 Factor 5 Factor 6 Factor 7 Factor 8 value could be
Competing Factors created.

Graphical Representation of Strategy
+
Big Picture View
+
Landscape Scanning
+
Relative Positioning vs. Competitors


4 Actions Framework
Strategically
Reduce Cost
Reduce
Which factors should be
reduced well below the
industry's standard?

Eliminate Raise
A New
A New
Which of the factors that Which factors should be
the industry takes for
Value
Value raised well above the
granted should be Curve
Curve industry's
eliminated?

Strategically
Create Invest in
Which factors should be
created that the industry
has never offered?


Eliminate-Reduce-Raise-Create
(ERRC) Grid
Eliminate Raise

Reduce Create

Back


Formulating Blue Ocean Strategy

75 mins 120 mins 120 mins

Exploration : Strategizing :
Awakening :
Reconstruct Market To-Be Strategy
As-Is Analysis
Boundaries Canvas

 Activity 1 (45 min)  Activity 3 (90 min)  Activity 5 (90 min)
• Split into 3 Groups • Split into 3 Groups • Split into 3 Groups
• Review As-Is Strategy • Use 6 Paths Framework, • Use ERRC to construct the
Canvas (30 min) reconstruct market Desired Value Curve (60
boundaries & identify
• Presentation (5 min each, mins)
Divergent Factors (60 min)
15 min total) • Presentation (10 min each,
• Presentation (10 min each, 30 mins total)
 Activity 2 (30 min) 30 min total)

• Agree to ONE As-Is  Activity 4 (30 min)  Activity 6 (30 min)
Strategy Canvas
• Agree to Top 3-5 Divergent • Agree to ONE To-Be
Factors Strategy Canvas


Activity 1 & 2 : As-Is Analysis
Review XYZ As-Is Strategy Canvas

High 4.5
4
Offering Level

3.5

3

Mid 2.5

2
1.5 Competitors
1 XYZ
0.5
Low 0

s on h rs
es iti ge at to ie
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st
om na du & fe
C io In m Li
e ut ra
Fe tit og
In
s Pr Competing Factors

Back


Reconstruct Market Boundaries
 There are 6 pathways to reconstruct the market boundaries

Across Alternate Industry

Across Strategic Groups

Across Buyer Groups
Blue
Red
Across Complementary Scope of Ocean
Ocean
Products & Services

Across Functional Emotional
Orientation

Across Time


Across Alternative Industries
BOS Example –
 Alternatives include products or services that have different functions and
forms but the same purpose.

Commercial Corporate Corporate
Airline Jet Commercial
Airlines Jet

• Pay per use • Less Travel
Time
Good • No
Maintenance • Less Hassle
• P2P

1/16 Ownership Smaller
50 hrs/yr
@ $375k Airplanes,
• Not P2P
Airport,
• High Travel
Bad • High Cost Less Staff
Time
• Security
Concern Point-to-point, Faster,
Less Hassle, Increase Productivity


Strategy Canvas - NetJets
Eliminate Raise

• Speed of travel time
• Ease of travel
• Flexibility and Reliability
• In flight service

Reduce Create

• Price
• Need for customers to
manage aircraft
• Deadhead costs

High

Private Jet

NetJets' Value
Curve

Com m ercial Airlines

Low Price Need for Deadhead Speed of total Ease of travel Flexibility and In- flight service
customer's to costs travel time reliability
manage aircraft


Across Alternative Industries
BOS Example –
Conventional Airline Coach

Across
Alternative
Industries  Slow
 Cheap
 Point to Point

 Fast
 Expensive
 Better Services Now Everyone Can Fly!
 Flight Connections

 Price of Coach &
Speed of Flight
 P2P Direct Flight
 No Frill – User Pay
 Budget Travel
Package


Strategy Canvas - Air Asia
Eliminate Raise

 Price Competition • Quality of Safety
 Seat Selection • Point to Point Direct
 Free Food & Beverages Flight
 Air Ticket
 VIP Lounge
 Flight Connection

Reduce Create

 Air Fare • Web Registration
 Capital • Express Boarding
 Stopover time • Budget Hotel
 Staffing (ground and
air)

High

Air Asia
Offering Level

Other Local Airline

Land Transportation

Low
e p n y et ge on
l e g
et
y F g dg ote
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Pr Co ele up Ti un tC ap Ti af S af ire b H
e S r Lo h C
ve
r St D e B
ge
t
ic t S od Ai P Fl
ig P W ss
Pr S ea F o VI opo P2 re ud
B
St Xp





Across Buyer Groups
Blue
Red
Ocean
Products & Services

Orientation

Across Time


BOS Example –
 Strategic Groups –Groups of companies within an industry that pursue a similar
strategy.
 E.g., Automobiles – Luxury (Mercedes, BMW), Economical (Toyota, Proton).

Traditional Home
Health Club Exercise Traditional
Health Club
Womanly
Fun
• Full range • Low Cost
exercise and
• Privacy >10k
Good sporting
options Easy to Use Outlets &
Machine > 4M
members
• Expensive. (as of
Peer Oct,
• Not easily
accessible. Support
Bad • Low 2006)
• Complicated. motivation

• Lack of
Privacy Affordable
Home Exercise


Strategy Canvas - Curves
Eliminate Raise

• Non threatening same
sex environment

Reduce Create

 Price • Womanly fun
 Amenities atmosphere

 Workout equipment
 Availability of Instructors

High

Curve s

Hom e Exercise Program

Traditional Health Clubs

Low Price Amenit ies Workout Workout Time A vailabilt y of Environment Nonthreatening Convenience Womenly fun
Equipment instructors encouraging same- sex at mosphere
discipline and environment
motivation in
exercise


BOS Example – OldTown

 Expensive
 Hygienic
 Good Ambience &
Relaxing Environment

 Rightly Priced
 Economical  Hygienic
 Less Hygienic  Better Environment
 Less Appealing Environment  Emotional Appeal


BOS Example – Tune Hotel
4/5 Stars Hotels

Nice Sleep!
Hot Shower!

 Luxury
 Expensive
 Service
 Facilities

Backpacker Hostels

 No Frill
 Cheap - Pay For What You Use!
 Optional Add-ons:
 Cheap  Limited service, basic
 Sleep & Go  Low on price, high on personality
 Walk in





Across Buyer Groups
Blue
Red
Ocean
Products & Services

Orientation

Across Time


Across Chain of Buyers
BOS Example –
 There is a chain of ‘buyers’ who are directly or indirectly involved in the buying
decision.
Purchasers – pay for the product or service
Users – use the product or service
Influencers – influence the decision in the purchase
Corporate
Jet
Example : Novo Nordick - from insulin producer to a diabetes care company

Traditionally Now

Prescribe Request

Better Better Easy No
Medicine Pricing To Use Unpleasant
Feeling
Insulin
Industry


Across Chain of Buyers
BOS Example – Nintendo Wii
Everyone is a gamer!

Everyone can play!

Reduced Graphics Nintendo outsold Sony and
Microsoft 6:1. Can’t keep
product on shelves!

Family Fun
Wii Fit
Increased motion control


Strategy Canvas : Nintendo Wii
Eliminate Raise

• Complexity • Game Library
• Movie • Ease of Use

Reduce Create

 Price • Interaction/Group Fun
 Graphics • Magic Wand
 Physics
 Online Pay

High
Nintendo Wii

Gam e Industry

e s s y i ty ie ry se Fu
n d
Low ic ic ic Pa ex ov ra an
Pr ph ys e pl M ib fU up W
ra Ph nl
in
om
L o
ro ic
G e se G ag
O C am Ea n/ M
G tio
c
ra
te
In





Across Buyer Groups
Blue
Red
Ocean
Products & Services

Orientation

Across Time


Across Complementary Products & Services
BOS Example – NABI
 Define the total solution buyers seek when they choose a product or service.
 Think about what happens before, during, and after your product is used.

Corporate
Example : Jet
Traditional : Buses made from Steel
• Less Space
• Low Initial Price • More Fuel • High •High

Supplementa Maintenanc
Purchase Delivery Use Disposal
ry e

• High Initial Price • More Space • Low • Low
• Less Fuel

NABI : Buses made from Fibre Glass


Strategy Canvas - NABI
Eliminate Raise

• Environmental
friendliness

Reduce Create

 Corrosion • Aesthetic design
 Maintenance cost • Customer friendliness
 Fuel consumption

High

NABI

Average U.S Transit Bus

Low

Initial purchase Corrosion Maintenance Fuel Environmental Aesthetic Customer
price cost consumption friendliness design friendliness


Across Complementary Products and Services
BOS Example: Operated 798 stores in all 50 U.S. states
and the District of Columbia, as well as
Purchasing stores in Australia and Canada
Process

Before During After

 Book Selection  Customer Enquiry  Go to Coffee Shop
 Sit Down  Paying  Read the Book
 Browse Through  Book Signing
Selection  Buy DVD, Games, Gift
 Attend an event

Carrying bag
Immediate Enjoyment!
Book Selection

Event : Story Telling for Kids DVD & Games
Book Signing

Across Complementary Products and Services
BOS Example -
• Largest EMS (Electronics Manufacturing
Services) in the World.
• Ranked 132 at Fortune Global with $51B
revenue, higher than Intel (188), Motorola
(200), Flextronics (292).
• Employs 550,000 employees worldwide
with design centers/factories at >10
countries.
• Make Apple Mac/iPod/iPhone, Intel
motherboards, Dell, HP, Sony PlayStation,
Nintendo Wii, Microsoft Xbox, cell phones
for Nokia/Samsung/Motorola/LG/Sony-
Ericsson.
• Shenzhen facility at Longhua
• Covers about a square mile.
• Has its own fire brigade, hospital,
swimming pool, restaurants, banks,
supermarkets, internet cafe.


BOS Example - Foxconn
Repair &
Servicing

Repair &
Servicing
Logistics &
Distribution
Conventional
Distribution EMS
Mass
Production

Logistics
Mass
Production VI Part
Sourcing &
Production

Inventory
Prototyping Control
Prototyping

Sourcing
Design
Design
Vertical Integration
(VI) Model


Strategy Canvas - Foxconn
High

Foxconn

Othe r EM Se s

Low
e ss g y ss er
y li ty t io
n
e
en olo oc e l iv ua ra
iv hn Pr Q g
ti t ec
D
n te
pe T a lI
m
Co r ti c
st Ve
Co





Across Buyer Groups
Blue
Red
Ocean
Products & Services

Orientation

Across Time


Across Functional or Emotional Appeal
BOS Example – QB House
 Some industries compete principally on price and function - their appeal is
rational.
 Other industries compete largely on feelings - their appeal is emotional.

• Simple • Pricey
• Low Cost • Extras
• Low Price • Feelings

Functional Emotional

Traditional Hair
Saloon
• Hot Towels
QB House
Rev • Message
• Emotional Service -> None
• Tea/Coffee
• Hair Wash -> Air Wash
• Special Hair /Skin
• $9 Treatments
1996 2003 • $27 - $45


Across Functional or Emotional Appeal
BOS Example –
Institute / College

Across  High Fee
Multiple
 WW Recognized
Pathways
Certification
 Low Fee  Strategic  Branches in UK, Africa
& China
Group
 Low Recognition of • Functional ->
 Collaboration w other
Universities
Education Quality Emotional  6000 students from 90 countries
 Open Education  Vibrant, multicultural and international
 Conventional System
Education System
 Free & Creative
 Many Environmental Environment
Constraints  Diverse Student Base Academic Exchange
 Local Market  Fun Learning

 Exposure
 Global Classroom Encourage
Entrepreneurship


Strategy Canvas - LimKokWeng
Eliminate Raise

 Foreign Cert • Globalization
Competition
Superiority
• Asian Culture
 Environmental
Constraints • Creative Thinking
• Flexibility Culture
• Exposure
• Entrepreneurship

Reduce Create

 Student  Unconventional
Constraints Teaching Method
 Fee Competition  Ecosystem

High

Lim Kok Weng

Private Colleges

Low
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Across Buyer Groups
Blue
Red
Ocean
Products & Services

Orientation

Across Time


Across Time
BOS Example – iTune

Apple launched Apple teamed up with
iTunes online major Music & Picture
music store Companies
 Sell Individual song /
entire album
 30 sec free listening
 Strategically price

Napster started
> 2 billion illegally
music flies were being
online music file
traded every month
sharing service

 iTunes had sold >
1999 2003 4 billion songs 2008
 20 million songs
on Dec 25, 2007


Across Time
BOS Example :
 A video sharing website
for upload, view and share
video clips
 User can post video
'responses' and subscribe
to content feeds
 Created in mid-February
2005 by three former
PayPal employees
 Uses Adobe Flash
technology to display a
wide variety of user-
generated video content
 Acquired by Google in Nov
2006 for $1.6B

As of Apr 2008, hosting 83.4 million videos and 3.75 million user channels
> 100 million videos were being watched every day


Strategy Canvas - YouTube
Eliminate Raise

• Need for HTML • Web space allotted
know-how per user
• Hassle of
undergoing
numerous steps
• Fees

Reduce Create

 Uploading / • Ease of Use
downloading time technology
• FLV technology
• Ready-made website
• Social networking
• Video tags & Search

High

YouTube

Ordinary Webhosting
Low

ow sl
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e er gy te gy ng ch
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-h as Fe eb no or
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w te te ad te N gs
L
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V al ta
TM d/ oc f- u FL ci
H oa al
l dy So de
a
r -o ea
fo pl ce
s Vi
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pa Ea R
ee
N e bs
W


Look across Time

Weird Science

Climate Change Future of the
Individual

Longevity
Medicine Innovation
Ten Trends Economy
of
the Extreme
Fueling the
Future
Next Workforce
Future

Securing the
Globalization Future

US- China Future

From the Book “Extreme Future”


From Head-to-Head Competition to Blue Ocean Creation

Head-To-Head Competition Blue Ocean Creation

Looks across alternative
Industry Focuses on rivals within its industry
industries

Focuses on competitive position within Looks across strategic groups
Strategic Group
strategic group within industries

Focuses on better serving the buyer Redefines the industry buyer
Buyer Group
group group

Focuses on maximizing the value of
Scope of Product or Looks across to complementary
product and service offerings within
Service Offering and service offerings
the bounds of its industry

Focuses on improving price Rethinks the functional-
Functional-Emotional
Functional-
performance within the functional - emotional orientation of its
Orientation
emotional orientation of its industry industry

Focuses on adapting to external trends Participates in shaping external
Time
as they occur trends over time


Across Multiple Pathways
BOS Example – NV Multi Corporation
Traditional Graveyard NV Multi Corporation
Total Peace of Mind

 Economical  Expensive
 Unpleasant Environment  Pleasant Environment
 Pollution  1 Stop Service
 No Maintenance  After Sales Service


Across Multiple Pathways
BOS Example – NV Multi Corporation

Complementary
Prayer Service
Service Team
Products & Services

Professional Band White Ladies
A Service Respect For Woman

• Notifying Friend &
Across Buyer Functional Relatives
• Thank You Cards
Groups to Emotional • Memory Lane
• Video & Slideshow

Across
Alternative
Industries
• Buyer -> User & User -> Buyer
• Pet Memorial Garden • Bereavement
• VIP Memorial Garden Product
• Insurance Protection
• Capital Gain


Strategy Canvas - NV Multi Corporation
Eliminate Raise

• Price Competition • Well Layout
• Fear Cemetery

• Taboos • Staff Appearance
• Pre-arranged
• One Stop Funeral
Services

Reduce Create

 Sophisticated • White Angels
Process • Luxury Cemetery
 Pollution
• Customizable
Burial Plots
• Care Plan

High
NV Multi

Private Cem etary

Public Cemetery
Low

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Activity 3 & 4 : Reconstruct Market Boundaries
Identify Divergent Factors

High 4.5
4 Competitors
Offering Level

3.5
3

Mid 2.5

2
1.5
1 XYZ
0.5
Low
0

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Competing Factors
Pr
In

Identify the
Divergent Factors
that Differentiate XYZ
from Competitors


Activity 3 & 4 : Reconstruct Market Boundaries
Identify Divergent Factors

Sub-Group :

Divergent Factor Description

Note : Each sub-group must determine at least ONE Divergent Factor.

Back


Activity 5 & 6 : To-Be Strategy Canvas
Construct Desired Value Curve for XYZ

Eliminate Create

Divergent Factors
X=
Y=
Z=

Reduce Raise


Activity 5 & 6 : To-Be Strategy Canvas
Construct Desired Value Curve for XYZ

Eliminate Create
Competencies Divergent Factors
X=
Y=
Z=

Reduce Raise

Technology Quality
Process
Talent New Value
Curve

High Existing Value
Curve

Mid

Low

Fee Institutional Industrial Program Facilitators Facilities Lifestyle/ X Y Z
Competencies Recognition Linkage & Career Path Culture


Three Characteristics of a Good Strategy

1. Focus

2. Divergence

Now Everyone Can Fly!
3. Compelling Tagline


Barriers to Imitation

Does not Make Sense Brand Image Conflicts Economies of Scale
based on Conventional
Chanel, CD, etc could not imitate High volume generated by a
Strategic Logic
Body Shop as it would signal an value innovation leads to rapid
NBC, CBS and ABC rediculed invalidation of their current cost advantages
the idea of 24x7 real time news business models
without star broadcasters

Political, Operational and 1st to Market Natural Monopoly
Cultural Changes
When a company offers a leap in Size of market does not make
Major revisions in routing planes, value, it rapidly earns brand buzz sense to support another player
retraining, changing and a loyal following in the
marketing/pricing/culture. Took marketplace
MAS 6 years to come up Firefly Back


Conclusion:
Focus on the Big Picture, not the Numbers
Awakening Exploration Strategy Fair Communication

Compare your Draw your To Be Distribute your
Go into the field to
business with your Strategy Canvas before- and-after
explore the six
competitors' by based on insights strategic profiles on
paths to creating
drawing your As Is from field one page for easy
blue oceans
Strategy Canvas observations comparison

Get feedback on Support only those
Observe the
alternative strategy projects and
distinctive
See where your canvases from operational moves
advantages of
strategy needs to customers, that allow your
alternative
change competitors’ company close the
products and
customers and non gaps to actualize
services
customers the new strategy

See which factors
Use feedback to
you should
build the best 'to be'
eliminate, create or
future strategy
change
Back


Get the Strategic Sequence Right

Red Ocean
Sequence Cost Price Utility Adoption

Buyer Adoption Commercially
Price Cost Viable
Utility Hurdles Blue Ocean Idea

Is there Is your price Can you attain What are
exceptional buyer easily accessible your cost target to adoption hurdles
utility in your to the mass of profit at your in actualizing
business idea? buyers? strategic price? your business
idea? Are you
addressing them
up front?


Blue Ocean Strategy - Summary and Examples

Blue Ocean Strategy - Summary and Examples

Blue Ocean Strategy - Summary and Examples

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