Blue Ocean StrategyBlue Ocean Strategy-Intro

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Creating Blue Oceans


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The Book and the Authors

Prof ReneeMauborgne

JOHN ABBOTT

Prof Chan Kim

JOHN ABBOTT
http://www.blueoceanstrategy.com/downloads/jacket.pdf


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AccoladesOver 2 million copies sold

Translated into over 41 foreign

languagesa world record

Taught as the major theory of strategy atleading business schools

Gives insights to CEOs, Executives,Heads of State and Prime Ministers


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Red Oceans vs. Blue OceansRed oceans

Industry boundaries defined and acceptedCompetitive rules of game known

Companies try to outperform rivals; cutthroat competition

As market space gets crowded, prospects for profit andgrowth reduced

Products become commoditiesRed ocean strategy is a market-competing strategy

Blue oceansUndefined market space, demand creation, opportunity for

highly profitable growth

Most are created from within red oceans by expandingexisting industry boundaries

Rules of game waiting to be set

Competition irrelevant

Blue ocean strategy is a market-creating strategy


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The Rising Imperative ofCreating Blue Oceans

Supply is exceeding demand in most industriesglobal competition is intensifying

Problems:

Accelerated commodization of products andservices

Increasing price wars

Shrinking profit margins

Red oceans becoming bloodier, need to beconcerned with creating blue oceans


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The Continuing Creationof Blue Oceans

Blue oceans have been around for some time;a feature of business life

Industries never stand still, constantly evolving

Significant expansion of blue oceans overyears

So why the focus on red ocean strategy?

Corporate strategy influenced by military strategy

Need to create new market space that is uncontested


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The Impact of Creating Blue Oceans


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From Company and Industryto Strategic Move

Are there lasting visionary companies thatcontinuously outperform the market andcreate blue oceans?

Found success of these model companies wasa result of industry sector performance, notcompanies themselves

Strategic move used as unit of analysis (ratherthan company or industry)

Strategic move: the set of managerial actionsand decisions involved in making a majormarket-creating business offering


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Value Innovation: The

Cornerstone of Blue Ocean StrategyCreators of blue oceansfollow value innovation

Value InnovationEqual emphasis on value andinnovation

Defies value-cost trade-offof competition-based strategy

Successful value innovation:

Drives down costs whiledriving up buyersvalue

Uses a whole-system approach

Follows reconstructionist view



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RedOceanVs. BlueOcean

Compete in existingmarket space

Beat the competition

Exploit existing demand

Make the value-costtrade-off

Align the whole systemof a firms activities withits strategic choice ofdifferentiation or low cost

Create uncontestedmarket space

Make the competition

irrelevant Create and capture new

demand

Break the value-cost

trade-off Align the whole system of

a firms activities inpursuit of differentiationand low cost



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Formulating and ExecutingBlue Ocean Strategy

Six Principles of Blue Ocean StrategyReconstruct market boundaries

Focus on the big picture, not the numbers

Reach beyond existing demand

Get the strategic sequence right

Overcome key organizational hurtles

Build execution into strategy

The remaining chapters will give you theprinciples and generalized frameworks tosucceed in blue oceans


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The Six Principles of Blue Ocean Strategy

Formulation Principles Risk factor each principleattenuates

Reconstruct market boundaries

Focus on the big picture, not thenumbers

Reach beyond existing demand

Get the strategic sequence right

Search risk

Planning riskScale risk

Business model risk

Evaluation principles Risk factor each principleattenuates

Overcome key organizational hurdles

Build execution into strategy

Organizational risk

Management risk

This figure highlights the six principles driving the successful formulation andexecution of blue ocean strategy and the risks that these principles attenuate.


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G i St t i



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Generic Strategies vs.Value Innovation

High

Low

V1

C1

Cost

Quality

HighHigh

High

LowLow

Low

Quality

Cost

D

LC

V1

C1

Red Ocean Strategy Blue Ocean (VI) Strategy

Structuralist Reconstructionist



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Example:A highly competitive Industry

The AmericanWine Industry
http://images.google.fr/imgres?imgurl=http://www.brushycreekvineyards.com/Wine-Glass-5.jpg&imgrefurl=http://www.brushycreekvineyards.com/legal.htm&h=304&w=300&sz=12&tbnid=yl_qA5hIpFgfTM:&tbnh=112&tbnw=110&hl=fr&start=44&prev=/images?q=glass%252Bwine&start=40&svnum=10&hl=fr&lr=&sa=Nhttp://images.google.fr/imgres?imgurl=http://www.morrys.com/Wine%2520glass.JPG&imgrefurl=http://www.morrys.com/New%2520wines%2520to%2520Morry&h=236&w=200&sz=10&tbnid=zQvPARxSf7Zi7M:&tbnh=104&tbnw=88&hl=fr&start=16&prev=/images?q=glass%252Bwine&svnum=10&hl=fr&lr=http://images.google.fr/imgres?imgurl=http://www.visitocva.com/Wine%2520glass.jpg&imgrefurl=http://www.visitocva.com/burnley.htm&h=968&w=584&sz=25&tbnid=efuSFM6vJpQA1M:&tbnh=148&tbnw=89&hl=fr&start=2&prev=/images?q=glass%252Bwine&svnum=10&hl=fr&lr=http://images.google.fr/imgres?imgurl=http://www.blairstripsteel.com/map%2520north%2520america.jpg&imgrefurl=http://arte-sano.blogspot.com/2004_08_01_arte-sano_archive.html&h=423&w=700&sz=84&tbnid=IK_BjX8b51x6ZM:&tbnh=83&tbnw=138&hl=fr&start=3&prev=/images?q=map+america&svnum=10&hl=fr&lr=&sa=G



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What the industry offersPremium Wines Budget Wines

Massive Choice

PolarisedStrategic Groups
http://images.google.co.uk/imgres?imgurl=http://www.satravelco.com/images/wine_label.jpg&imgrefurl=http://www.satravelco.com/winelands_history.php&h=272&w=220&sz=10&tbnid=VjSLa60caLUb9M:&tbnh=108&tbnw=87&hl=en&start=2&prev=/images?q=wine+label&svnum=10&hl=en&lr=&sa=Ghttp://images.google.co.uk/imgres?imgurl=http://images.tvnz.co.nz/tvnz_images/news2005/art_culture/wine_211205_232.jpg&imgrefurl=http://tvnz.co.nz/view/page/425823/642348&h=129&w=232&sz=7&tbnid=qCLNI9rjft7CPM:&tbnh=57&tbnw=103&hl=en&start=23&prev=/images?q=wine+screwtop&start=20&svnum=10&hl=en&lr=&sa=N


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American Wine IndustryTop 8 producers had 75% of the market; 1600

had the remaining 25%

$ millions spent in marketing - Titanic battles

intense competition

Sever price pressure

The dominant growth strategy was towards

premium winesmore complexity, betterimage, more prestigious vineyards, number ofmedals won at wine festivals.



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What wine customers said

It is too confusing and complex

Wine descriptions and terminology

The shopping experience

The lack of clear guidance on what to buy anddrink

Thus, massively intimidating fornoncustomers

(the large majority of theUS population who were not wine drinkers)

Wh t l



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What are peoplelooking for in a wine?
http://www.cellarnotes.net/chateau_petrus.html



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Segmentation of Market and Brands

Low

Involvement

High

InvolvementEasy Going Enjoyers Aspirationals Appreciators Connoisseurs

Glass withfriends

Least care

choosing a wine

Not winepreferrers

Price is a stronginfluencer

EverydayenjoymentTo relax/unwindStick with limited

list of knownbrandsChoose in-storeNot interested inwine language

Influenced by

major brandadvertising

Image importantWine preferrers(sic)Varietal

knowledgeInterested insome winelanguageEnjoy trying newwines

Visit wineries /read wine articles

Want todiscover wineKnowledge ofwine regions

Frequently buy>$10 winesJoin wine clubsDont stick toknown brands

Ideal wine is

complex &interesting

SophisticateddrinkerDiscerning winetastes

Dont decide in

storeHave a cellarLess influencedby specials/promotions

Actively pursuewine knowledge

Brand: LindemansRosemount

EstateWolf Blass Penfolds

Demographic: M/F: 50/50 Age:

35-49

M/F: 30/70; Age:

30-40

M/F: 70/30; Age:

35-50

Age: 40+



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Strategy CanvasThe strategy canvas is both a diagnostic and an action framework for building acompelling blue ocean strategy. It captures the current state of play in the knownmarket space. This allows you to understand where the competition is currentlyinvesting, the factors the industry currently competes on in products, service, anddelivery, and what customers receive from the existing competitive offerings on themarket. The horizontal axis captures the range of factors the industry competes onan invests in. The vertical axis captures the offering level that buyers receive acrossall these key competing factors. The value curve then provides a graphic depictionof a companys relative performance across its industrys factors of competition.

High

Low

Price Use of

enologicalterminology

Above-the-line

marketing Agingquality

Vineyard prestige

and legacy Winecomplexity

Wine range

Budget Wines

Premium Wines



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Four Steps of Visualizing

1. VisualAwakening 2. VisualExploration 3. VisualStrategy Fair 4. VisualCommunication

Compare yourbusiness with yourcompetitorsbydrawing your as is

canvas

See where yourstrategy needs tochange

Go into the field toexplore the six pathsto creating blueoceans

Observe thedistinctive advantagesof alternative productsand services

See which factorsyou should eliminate,create or change

Draw your to becanvas based oninsights from fieldobservations

Get feedback onalternative strategycanvases fromcustomers,competitors

customers, and non-customers

Use feedback to buildthe best to befuturestrategy

Distribute yourbefore-and-afterstrategic profiles onone page for easy

comparison

Support only thoseprojects andoperational movesthat allow your

company to closegaps and actualize thenew strategy



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What factorsshould be

eliminated that theindustry has taken

for granted?

Eliminate

What factorsshould be reduced

wel l below theindustry standard?

Reduce

What factors shouldbe created that theindustry has never

offered?

Create

What factorsshould be raisedwell beyond the

industry standard?

Raise

Four Actions to create a Blue Ocean



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Four Actions Framework +Eliminate/Reduce/Raise/Create Grid

The four actions framework offers an techniquethat breaks the trade-off betweendifferentiation and low cost and to create a newvalue curve. It answers the four key questionsof what industry takes for granted and needs tobe eliminated; what factors need to be reducedbelow industry standards; what factors need tobe raised above industry standards; and what

should be created that the industry has neveroffered.

The eliminate-reduce-raise-create grid pushescompanies not only to ask all four questions in thefour actions framework but also to acton all fourto create a new value curve. By drivingcompanies to fill in the grid with the actions ofeliminating, reducing, raising, and creating, thegrid provides four immediate benefits: it pushesthem to simultaneously pursue differentiation andlow costs; identifies companies who are onlyraising and creating thereby raising costs; makesit easier for managers to understand and comply;

and it drives companies to scrutinize every factorthe industry competes on.

Eliminate

Enological terminology anddistinctions

Aging qualities

Above-the-line marketing

Raise

Price versus budget wines

Retail Store involvement

Reduce

Wine complexity

Wine range

Create

Easy drinking

Ease of selection

ANew

ValueCurve

Reduce

Eliminate Create

Raise

Which factors should bereduced well belowindustry standards?

Which factors should becreatedthat the industryhas never offered?

Which factors shouldbe raised well abovethe industrysstandard?

Which of the factorsthat the industry takesfor granted should beeliminated?



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ERRC Grid yellow tail

The Case of yellow tail

Eliminate

Enological terminology & distractionsAging qualities

Above-the-line marketing

Raise

Price versus budget winesRetain store involvement

Reduce

Wine complexityWine RangeVineyard prestige

Create

Easy drinkingEase of selectionFun & adventure



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To Be Canvas

Eliminate

Reduce

Raise

Create


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Yellow TailOnly 2 types initiallyChardonnay and Shiraz

Fruity, soft on palette, sweet-ishgreat for those who hadnot drunk wine before

Same bottle for red and whitelow logistics costs

Simple vibrant packaginglower case letters/kangaroo

Un-intimidating

They were selling The essence of a great land Australia

ie they were not selling the wine

Australian clothing for the retail stafftheyenthusiastically promoted a wine they couldunderstand.


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Value Innovation of [yellow tail]

Utility proposition

(customers, distributors andretailers)

Creating of a social drink that is accessible toanyone

Easy drinking, ease of selection, sense of fun andadventure

Limit number of SKUs

Price to move at volume

Price proposition Targeted at the mass of customersPriced against the alternative (6-pack)

Cost structureElimination of working capital tied up in aging wines

Fast product turnover


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ResultsNo 1 imported wine (outsells France and Italy)

Fastest growing imported wine in the history ofthe USA industry

New consumers of wine

Jug drinkers trade up

Premium wine drinkers trade down

Industry criticizes them mercilessly at first

Now wine press blurb gives it a best buy

for value; winning wine awards.


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The Case of Cirque du Soleil

Cirque du Soleil achieved rapid growth in adeclining industry with low profit potential

Cirque du Soleil created uncontested new

market space that made the competitionirrelevant

If you dont know them you can see some at

http://www.youtube.com/watch?v=M4lAPI5BAuk
http://www.youtube.com/watch?v=M4lAPI5BAukhttp://www.youtube.com/watch?v=M4lAPI5BAuk


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Example: Cirque du Soleil

Instead of simply trying to outpace thecompetition, Cirque du Soleil offered peopleboth the fun and thrill of the circus and theintellectual sophistication of the theater

Because of this, Cirque du Soleil appealed toboth circus customers and noncustomers


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Each show, like a theater production, had itsown unique theme and storyline

This allowed customers to return to the show

more frequentlyThey also did away with the traditional high-

priced concessions and vendors therebycutting costs


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Cirque du Soleil effectively combined the bestof both the circus and the theater whileeliminating everything else

This allowed them to achieve bothdifferentiation and low cost


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Eliminate-Reduce-Raise-Create

Eliminate

Star Performers

Animal shows

Aisle concession sales

Multiple show arenas

Raise

Unique venues

Reduce

Fun and humor

Thrill and danger

Create

Theme

Refined environment

Multiple productions

Artistic music and dance


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The Strategy Canvasof Cirque du Soleil

hi

offering

level

loPrice

Fun & Humor Unique VenueAisle Concessions

Multiple ShowArenas

Thrills & DangerAnimal Shows

Star Performers

Theme

Refined ViewingEnvironment

MultipleProductions

Artistic Music& Dance

Cirque du Soleil

ReduceEliminate Raise Create

Kim & Mauborgne 2006

Ringling Brothers

Smaller Regional Circus


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Key Takeaways

Three tiers of non-customers:1: buyers who purchase your industry offerings out of necessity;will jump ship if given an opportunity.

2: buyers who purchase alternative offerings that serve the samefunction

3: people who dont consume even the alternatives to yourofferings

Non-customer demand is unlocked by providingnew buyer utilities, at a pricethat attracts a

mass of buyers, given target costs.Buyers could be not only end-users, but also other

participants in a value chain (e.g. distributors)


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Comparison of approaches

Red Ocean Strategy Blue Ocean Strategy


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Exercise 1. List Factors of

Competition 2. Top 2 or 3 in ERRC

Grid Quadrants

Clearly define the

group of non-

customerthat you are

going after.


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Examples


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Exercise

3. Write onWorksheet:

E left, C right

4. Draw As Is

5. Draw To Be

E l


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Examples

Documents

Blue Ocean StrategyBlue Ocean Strategy-Intro