Blue Ocean StrategyBlue Ocean StrategyBusiness Creativity & InnovationBusiness Creativity & Innovation

Creating uncontested market spaceCreating uncontested market space

and make the competition irrelevantand make the competition irrelevant

W. Chan KimW. Chan Kim

• The Boston Consulting GroupThe Boston Consulting Group Bruce D. Henderson ChairBruce D. Henderson Chair Professor of Strategy and Professor of Strategy and International ManagementInternational Management

Renée MauborgneRenée Mauborgne

• The INSEAD Distinguished The INSEAD Distinguished Fellow and Professor of StrategyFellow and Professor of Strategy and International Managementand International Management

Red OceanCompete in crowded markets

Blue OceanCreate and

capture new market space

CREATING BLUE OCEANSCREATING BLUE OCEANS

Two types of markets:Two types of markets:

Red Oceans – Red Oceans – all industries in existence today all industries in existence today (known market space)(known market space)

Blue Oceans – Blue Oceans – all industries not in existence all industries not in existence today (unknown market space)today (unknown market space)

NEW MARKET SPACENEW MARKET SPACE

There is a fairly good understanding of how to There is a fairly good understanding of how to compete in Red Oceanscompete in Red Oceans

Blue Oceans are known to exist, however, Blue Oceans are known to exist, however, there is little practical guidance on how to there is little practical guidance on how to create themcreate them

This book focuses on the analytical This book focuses on the analytical frameworks necessary to create Blue Oceans frameworks necessary to create Blue Oceans and the managerial strategy needed to and the managerial strategy needed to sustain themsustain them

NEW MARKET SPACENEW MARKET SPACE

In Red Oceans, industry boundaries are In Red Oceans, industry boundaries are defined and accepted, and the defined and accepted, and the competitive rules of the game are knowncompetitive rules of the game are known

In Blue Oceans, there exists untapped In Blue Oceans, there exists untapped market space, demand creation, and the market space, demand creation, and the opportunity for highly profitable growthopportunity for highly profitable growth

Most Blue Oceans are created from within Most Blue Oceans are created from within red oceans by expanding industry red oceans by expanding industry boundariesboundaries

THE CONTINUING THE CONTINUING CREATION OF BLUE CREATION OF BLUE

OCEANSOCEANS How many of today’s industries were How many of today’s industries were

unknown 100 years ago?unknown 100 years ago? Blue Oceans have continuously been Blue Oceans have continuously been

created over timecreated over time The key to strength in the business world The key to strength in the business world

is to create new, uncontested market is to create new, uncontested market spacespace

Two different worldsTwo different worlds

Red Ocean StrategyRed Ocean Strategy Blue Ocean StrategyBlue Ocean Strategy

Compete in existing market Compete in existing market space.space.

Create uncontested market Create uncontested market space.space.

Beat the competition.Beat the competition. Make the competition Make the competition irrelevant.irrelevant.

Exploit existing demand.Exploit existing demand. Create and capture new Create and capture new demand.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 the whole system of a Align the whole system of a strategic firm's activities with strategic firm's activities with its choice its choice of of differentiation or differentiation or low cost.low cost.

Align the whole system of a Align the whole system of a firm's activities in pursuit of firm's activities in pursuit of differentiation differentiation andand low cost. low cost.

VALUE INNOVATIONVALUE INNOVATION

Imperative of Creating Blue Imperative of Creating Blue OceansOceans

Supply exceeds demandSupply exceeds demand

Accelerated commoditization of products and Accelerated commoditization of products and

servicesservices

Increasing price warsIncreasing price wars

Shrinking profit marginsShrinking profit margins

Brands are becoming more similar Brands are becoming more similar

select based on priceselect based on price

Globalism has made many brands become Globalism has made many brands become

increasingly similar and more of a commodityincreasingly similar and more of a commodity

Technological improvement has caused supply Technological improvement has caused supply

to outweigh demandto outweigh demand

It is now harder than ever to differentiate among It is now harder than ever to differentiate among

brandsbrands

Imperative of Creating Blue Imperative of Creating Blue OceansOceans

IMPACT OF CREATING IMPACT OF CREATING BLUE OCEANSBLUE OCEANS

In a study of the launches of 108 In a study of the launches of 108 companies, 86% were line extensions companies, 86% were line extensions (Red Ocean)(Red Ocean)

However, these only accounted for 62% However, these only accounted for 62% of total revenues and 39% of total profitsof total revenues and 39% of total profits

The other 14% of launches were aimed The other 14% of launches were aimed at creating blue oceans and accounted at creating blue oceans and accounted for 38% of revenue and 61% of total for 38% of revenue and 61% of total profitprofit

THE PROFIT AND GROWTH THE PROFIT AND GROWTH CONSEQUENCES OF BLUE CONSEQUENCES OF BLUE

OCEANSOCEANS

FROM COMPANY AND FROM COMPANY AND INDUSTRY TO STRATEGIC INDUSTRY TO STRATEGIC

MOVEMOVE The company is not the appropriate unit of The company is not the appropriate unit of

analysis for exploring blue oceansanalysis for exploring blue oceans

Blue Oceans focus on the strategic move Blue Oceans focus on the strategic move rather than the company or industryrather than the company or industry

This book focuses on 150 strategic moves This book focuses on 150 strategic moves made from 1880 to 2000 in various industriesmade from 1880 to 2000 in various industries

Blue Oceans were found to be created by new Blue Oceans were found to be created by new and old companies, attractive and and old companies, attractive and unattractive industries, and both private and unattractive industries, and both private and public companiespublic companies

VALUE INNOVATION: VALUE INNOVATION: THE CORNERSTONE OF BLUE THE CORNERSTONE OF BLUE

OCEAN STRATEGYOCEAN STRATEGY

Value creation alone improves value but is not sufficient Value creation alone improves value but is not sufficient to make you stand out in the marketplaceto make you stand out in the marketplace

Innovation alone will often create a product that buyers Innovation alone will often create a product that buyers are not willing to pay forare not willing to pay for

Value innovation occurs only when companies align Value innovation occurs only when companies align innovation with utility, price, and cost positionsinnovation with utility, price, and cost positions

Value innovation:Value innovation:

Make the competition irrelevantMake the competition irrelevant

Create a leap in value for both buyers and your Create a leap in value for both buyers and your companycompany

Open up new and uncontested market spaceOpen up new and uncontested market space

UtilityUtilityCreate new Create new

buyerbuyerutilitiesutilities

PricePriceSet a price that Set a price that attracts a massattracts a mass

of buyersof buyers

CostCostSet the structure Set the structure based on a targetbased on a target

Value InnovationValue Innovation

Unlocking non-customer demandUnlocking non-customer demand

MINIMIZING RISKS AND MAXIMIZING MINIMIZING RISKS AND MAXIMIZING OPPORTUNITIES IN FORMULATING AND OPPORTUNITIES IN FORMULATING AND EXECUTING BLUE OCEAN STRATEGYEXECUTING BLUE OCEAN STRATEGY

Formulation RisksFormulation Risks

Execution RisksExecution Risks

Search RiskSearch Risk

Planning RiskPlanning Risk

Scale RiskScale Risk

Business Model RiskBusiness Model Risk

Organizational RiskOrganizational Risk

Management RiskManagement Risk

Core/Formulation PrinciplesCore/Formulation Principles

Reconstruct market boundaries

Reach beyond existing demand

Get the strategic sequence right

Execution PrinciplesExecution Principles

Focus on the big picture, not the numbers

Overcome key organizational hurdles

Build execution into strategy

© Kim & Mauborgne 2006

BOS Logic: The Core PrinciplesBOS Logic: The Core Principles

Reconstruct Market Reconstruct Market BoundariesBoundaries… overcome believes.

Reach beyondexisting Demand… go for uncontested space.

Get the strategic sequence right… value [innovation] first.

VIVI

COST

VALUE

BOS Logic: Reconstruct market boundariesBOS Logic: Reconstruct market boundaries

IndustryFocuses on rivals within its industry

Strategic GroupFocuses on competitive position within strategic group

Buyer GroupFocuses on better serving the buyer group

Scope of Product and Service

Offerings

Focuses on maximizing the value of product and service offerings within the bounds of its industry

Functional-emotional Orientation of an

Industry

Focuses on improving price-performance with the functional-emotional orientation of this industry

Time/TrendsFocuses on adapting to external

trends as they occur

Looks across alternative industries

Looks across strategic groups within its industry

Redefines the buyer group of the industry

Looks across to complementary product and service offerings that go beyond the bounds of its industry

Rethinks the functional-emotional orientation of its industry

Participation in shaping external trends over time

Boundaries of Competition

Head-to-HeadCompetition

Creating New Market Space

BOS Logic: The Core PrinciplesBOS Logic: The Core Principles

Reconstruct Market Boundaries… overcome believes.

Reach beyondReach beyondexisting Demandexisting Demand… go for uncontested space.Get the strategic sequence right… value [innovation] first.

VIVI

COST

VALUE

BOS Logic: Reach beyond existing demand

Core Customer Noncostumer

Soon-to-be-NC Refusing Customer

THREE TIERS OF THREE TIERS OF CUSTOMERSCUSTOMERS

1st

2nd

3rd

There is a universe of There is a universe of noncustomers which can be noncustomers which can be turned into customers to offer a turned into customers to offer a big blue ocean market.big blue ocean market.

1st tier: “Soon-to-be” 1st tier: “Soon-to-be” noncustomers who are on the noncustomers who are on the edge of your marketedge of your market

2nd tier: “Refusing” 2nd tier: “Refusing” noncustomers who noncustomers who consciously choose against consciously choose against your marketyour market

3rd tier: “Unexplored” 3rd tier: “Unexplored” noncustomers who are in noncustomers who are in markets distant from yoursmarkets distant from yours

Three tiers of non-customers:Three tiers of non-customers: 1: buyers who purchase your industry offerings out of 1: buyers who purchase your industry offerings out of

necessity; will jump ship if given an opportunity.necessity; will jump ship if given an opportunity.

2: buyers who purchase alternative offerings that serve 2: buyers who purchase alternative offerings that serve the same function the same function

3: people who don’t consume even the alternatives to 3: people who don’t consume even the alternatives to your offeringsyour offerings

Non-customer demand is unlocked by Non-customer demand is unlocked by providing new buyer utilities, at a price that providing new buyer utilities, at a price that attracts a mass of buyers, given target costs. attracts a mass of buyers, given target costs.

Buyers could be not only end-users, but also Buyers could be not only end-users, but also other participants in a value chain (e.g. other participants in a value chain (e.g. distributors)distributors)

Three Tiers of Three Tiers of CustomersCustomers

BOS Logic: The Core Principles

Reconstruct Market Boundaries… overcome believes.

Reach beyondexisting Demand… go for uncontested space.

Get the strategic Get the strategic sequence rightsequence right… value [innovation] first.

VIVI

COST

VALUE

BOS Logic: Get the Strategic Sequence rightBOS Logic: Get the Strategic Sequence rightBuyer utility

Is there exceptional buyer utility in your business idea?

Adoption

What are the adoption hurdles in actualizing your business idea?

Are you addressing them up front?

Price

Is your price easily accessible to the mass of buyers?

Cost

Can you attain your cost target to profit at your strategic price?

YES

YES

YES

YES

No Rethink

No Rethink

No Rethink

No Rethink

FOUR ACTIONS FRAMEWORK: FOUR ACTIONS FRAMEWORK: KEY TO VALUE CURVEKEY TO VALUE CURVE

ReduceReduceWhat factors should What factors should be reduced well be reduced well below the industry below the industry standard?standard?

RaiseRaise

What factors should What factors should be raised well above be raised well above the industry the industry standard?standard?

The key to discovering a The key to discovering a new value curve lies in new value curve lies in answering four basic answering four basic questions questions

Creating new markets:A new value curve

Creating new markets:A new value curve

EliminateEliminate

What factors that the What factors that the industry has taken for industry has taken for granted should be granted should be eliminated?eliminated?

Create/AddCreate/Add

What factors that the What factors that the industry has never industry has never offered should be offered should be created or added?created or added?

Cirque du Soleil example

low

high

Industry Variables

STRATEGY CANVAS

FOUR STEPS OF VISUALIZINGFOUR STEPS OF VISUALIZING1. Visual 1. Visual AwakeningAwakening

2. Visual 2. Visual ExplorationExploration

3. Visual 3. Visual Strategy FairStrategy Fair

4. Visual 4. Visual CommunicationCommunication

•Compare your Compare your business with your business with your competitors’ by competitors’ by drawing your “as is” drawing your “as is” canvascanvas

•See where your See where your strategy needs to strategy needs to changechange

•Go into the field to Go into the field to explore the six explore the six paths to creating paths to creating blue oceansblue oceans

•Observe the Observe the distinctive distinctive advantages of advantages of alternative products alternative products and servicesand services

•See which factors See which factors you should you should eliminate, create or eliminate, create or changechange

•Draw your “to be” Draw your “to be” canvas based on canvas based on insights from field insights from field observationsobservations

•Get feedback on Get feedback on alternative strategy alternative strategy canvases from canvases from customers, customers, competitors’ competitors’ customers, and customers, and non-customersnon-customers

•Use feedback to Use feedback to build the best “to build the best “to be” future strategybe” future strategy

•Distribute your Distribute your before-and-after before-and-after strategic profiles on strategic profiles on one page for easy one page for easy comparisoncomparison

•Support only those Support only those projects and projects and operational moves operational moves that allow your that allow your company to close company to close gaps and actualize gaps and actualize the new strategythe new strategy

EXAMPLES IN THE EXAMPLES IN THE PHILIPPINES:PHILIPPINES: