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Blue Ocean StrategyBlue Ocean Strategygygy
Business Creativity & InnovationBusiness Creativity & Innovation
Creating uncontested market spaceCreating uncontested market spaceg pg pand make the competition irrelevantand make the competition irrelevant
About the About the FoundersFounders: Chan & Renee: Chan & Renee
W. Chan Kim
Tool 4: Blue Ocean StrategyTool 4: Blue Ocean Strategy
• The Boston Consulting GroupBruce D. Henderson ChairProfessor of Strategy and International Management
Renée Mauborgne
• The INSEAD Distinguished Fellow and Professor of Strategyand International Management
Two worlds …Two worlds …
Red OceanCompete in crowdedcrowded 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 all industries in existence today (known market space)today (known market space)
––Blue Oceans Blue Oceans –– all industries not in all industries not in existence today (unknown market existence today (unknown market space)space)
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New Market SpaceNew Market Space
•• There is a fairly good understanding of how toThere is a fairly good understanding of how toThere 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, there Blue Oceans are known to exist, however, there is little practical guidance on how to create themis little practical guidance on how to create them
•• This book focuses This book focuses on the analytical frameworks the analytical frameworks necessary to create Blue Oceans and thenecessary to create Blue Oceans and thenecessary to create Blue Oceans and the necessary to create Blue Oceans and the managerial strategy needed to sustain themmanagerial strategy needed to sustain them
New Market SpaceNew Market Space
•• In Red Oceans, industry boundaries are definedIn Red Oceans, industry boundaries are definedIn Red Oceans, industry boundaries are defined In Red Oceans, industry boundaries are defined and accepted, and the competitive rules of the and accepted, and the competitive rules of the game are knowngame are known
•• In Blue Oceans, there exists untapped market In Blue Oceans, there exists untapped market space, demand creation, and the opportunity for space, demand creation, and the opportunity for highly profitable growthhighly profitable growthg y p gg y p g
•• Most Blue Oceans are created from within red Most Blue Oceans are created from within red oceans by expanding industry boundariesoceans by expanding industry boundaries
The Continuing Creation of Blue The Continuing Creation of Blue OceansOceans
•• How many of today’s industries wereHow many of today’s industries wereHow many of today s industries were How many of today s industries were unknown unknown 100 100 years ago?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 y gy gis to create new, uncontested market is to create new, uncontested market spacespace
Two worlds …Two worlds …
Red Ocean Strategy Blue Ocean Strategy
Compete in existing market Create uncontested marketCompete in existing market space.
Create uncontested market space.
Beat the competition. Make the competition irrelevant.
Exploit existing demand. Create and capture new demand.
Make the value cost trade off Break the value cost trade offMake the value-cost trade-off. Break the value-cost trade-off.
Align the whole system of a strategic firm's activities with its choice of differentiation or low cost.
Align the whole system of a firm's activities in pursuit of differentiation and low cost.
VALUE INNOVATION
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The rising Imperative of Creating The rising Imperative of Creating Blue OceansBlue Oceans
• Supply exceeds demandSupply exceeds demand
•• Accelerated commoditization of products Accelerated commoditization of products
and servicesand services
•• 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
The Rising Imperative of Creating Blue The Rising Imperative of Creating Blue OceansOceans•• Globalism has made many brands Globalism has made many brands
become increasingly similar and more of a become increasingly similar and more of a
commoditycommodity
•• Technological improvement has caused Technological improvement has caused
supply to outweigh demandsupply to outweigh demand
•• It is now harder than ever to differentiate It is now harder than ever to differentiate
among brandsamong brands
The Impact of Creating Blue The Impact of Creating Blue OceansOceans
•• In a study of the launches of 108In a study of the launches of 108In 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 at The other 14% of launches were aimed at creating blue oceans and accounted for creating blue oceans and accounted for 38% of revenue and 61% of total profit38% of revenue and 61% of total profit
The Profit and Growth The Profit and Growth Consequences of Blue OceansConsequences of Blue Oceans
Launches With Red OceansLaunches With Red Oceans
62%
86%
38%
14%
revenue impactrevenue impact
Business LaunchBusiness Launch
Launches With Blue OceansLaunches With Blue Oceans
39% 61%Profit ImpactProfit Impact
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From Company and Industry to From Company and Industry to Strategic MoveStrategic Move
•• The company is not the appropriate unit ofThe company is not the appropriate unit ofThe 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 rather Blue Oceans focus on the strategic move rather than the company or industrythan the company or industry
•• This book focuses on 150 strategic moves made This book focuses on 150 strategic moves made from 1880 to 2000 in various industriesfrom 1880 to 2000 in various industriesfrom 1880 to 2000 in various industriesfrom 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 unattractive and old companies, attractive and unattractive industries, and both private and public industries, and both private and public companiescompanies
Value Innovation: The Cornerstone Value Innovation: The Cornerstone of Blue Ocean Strategyof Blue Ocean Strategy
•• Value creation alone improves value but is not sufficient Value creation alone improves value but is not sufficient ppto 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:•• 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
Unlocking nonUnlocking non--customer customer demanddemand
UtilityCreate new
buyerutilities
PriceSet a price that attracts a mass
of buyers
CostSet the structure
based on a target
Value Innovation
y g
Generic Strategies vs. Value InnovationGeneric Strategies vs. Value Innovation
Red Ocean Strategy Blue Ocean Strategy
High
V1
Quality
High
Quality
•
•
V1
LowC1
CostHighHigh LowLow
Low
Cost
•
C1
Structuralist Reconstructionist
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Minimizing Risks and Maximizing Minimizing Risks and Maximizing Opportunities in Formulating and Executing Opportunities in Formulating and Executing Blue Ocean StrategyBlue Ocean Strategy
Formulation Risks
Search Risk
Planning Risk
Scale Risk
Business Model Risk
Core/Formulation Principles
Reconstruct market boundaries
Reach beyond existing demand
Get the strategic sequence right
Focus on the big picture, not the numbers
Execution Risks
Business Model Risk
Organizational Risk
Management Risk
Get the strategic sequence right
Execution Principles
Overcome key organizational hurdles
Build execution into strategy
© Kim & Mauborgne 2006
BOS Logic: The Core PrinciplesBOS Logic: The Core Principles
Reconstruct Market Reconstruct Market BoundariesBoundariesBoundariesBoundaries… overcome believes.
Reach beyondexisting Demand… go for uncontested space. COST
Get the strategic sequence right… value [innovation] first.
VIVI
VALUE
BOS Logic: Reconstruct market boundaries
Industry Focuses on rivals within its Looks across alternative industries
Boundaries of Competition
Head-to-HeadCompetition
Creating New Market Space
Industry industry
Strategic Group Focuses on competitive position within strategic group
Buyer Group Focuses on better serving the buyer group
Scope of Product and Focuses on maximizing the value of product and service offerings
industries
Looks across strategic groups within its industry
Redefines the buyer group of the industry
Looks across to complementary product and service offerings that
Service Offerings 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/Trends Focuses on adapting to external trends as they occur
p ggo beyond the bounds of its industry
Rethinks the functional-emotional orientation of its industry
Participation in shaping external trends over time
BOS Logic: The Core Principles
Reconstruct Market Boundaries… overcome believes.
Reach beyondReach beyondexisting Demandexisting Demand… go for uncontested space
COST
space.Get the strategic sequence right… value [innovation] first.
VIVI
VALUE
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BOS Logic: Reach beyond existing demand
Core Customer Noncostumer
Soon-to-be-NC Refusing Customer
Three Tiers of CustomersThree Tiers of Customers
There is a universe of There is a universe of noncustomers which can be noncustomers which can be turned into customers to offer a big turned into customers to offer a big
1st
2nd
3rdblue ocean market.blue ocean market.
1st tier: “Soon1st tier: “Soon--toto--be” 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 whononcustomers whononcustomers 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 nonThree tiers of non--customers:customers:–– 11: buyers who purchase your industry offerings out of : buyers who purchase your industry offerings out of
necessity; will jump ship if given an opportunity.necessity; will jump ship if given an opportunity.
Three Tiers of CustomersThree Tiers of Customers
ecess ty; ju p s p g e a oppo tu tyecess ty; ju p s p g e a oppo tu ty–– 22: buyers who purchase alternative offerings that serve the : buyers who purchase alternative offerings that serve the
same function same function –– 33: people who don’t consume even the alternatives to your : people who don’t consume even the alternatives to your
offeringsofferings
•• NonNon--customer demand is unlocked by providing customer demand is unlocked by providing new buyer utilities, at a price that attracts a mass new buyer utilities, at a price that attracts a mass of buyers, given target costs. of buyers, given target costs.
•• Buyers could be not only endBuyers could be not only end--users, but also other users, but also other participants in a value chain (e.g. distributors)participants in a value chain (e.g. distributors)
BOS Logic: The Core Principles
Reconstruct Market Boundaries… overcome believes.
Reach beyondexisting Demand… go for uncontested space. COST
Get the strategic Get the strategic sequence rightsequence right… value [innovation] first.
VIVI
VALUE
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BOS Logic: Get the Strategic Sequence right
Buyer utilityIs there exceptional buyer
utility in your business idea?
YESNo Rethink
PriceIs your price easily accessible to
the mass of buyers?
CostCan you attain your cost target to
profit at your strategic price?
YES
YES
No Rethink
No Rethink
AdoptionWhat are the adoption hurdles in actualizing your business idea?
Are you addressing them up front?
A commercially viable Blue Ocean Strategy
YES
YES
No Rethink
Four Actions Framework: Key to Value CurveFour Actions Framework: Key to Value CurveReduceWhat factors should be reduced well below the industry standard?
The key to discovering a new value curve lies in answering four basic questions standard?questions
Creating
curve
Creatingnew markets:A new valuecurve
Eliminate
What factors that the industry has taken for granted should be eliminated?
Create/AddWhat factors that the industry has never offered should be created or added?
RaiseWhat factors should be raised well above the industry standard?
Cirque du Soleil example
high
Strategy CanvasStrategy Canvas
low
Industry Variables
Four Steps of VisualizingFour Steps of Visualizing1. Visual Awakening
2. Visual Exploration
3. Visual Strategy Fair
4. Visual Communication
•Compare your business with your competitors’ by drawing your “as is” canvas
•See where your strategy needs to change
•Go into the field to explore the six paths to creating blue oceans
•Observe the distinctive advantages of alternative products and services
•Draw your “to be” canvas based on insights from field observations
•Get feedback on alternative strategy canvases from customers, competitors’
•Distribute your before-and-after strategic profiles on one page for easy comparison
•Support only those projects and operational moves that allow your
•See which factors you should eliminate, create or change
customers, and non-customers
•Use feedback to build the best “to be” future strategy
company to close gaps and actualize the new strategy
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The Case of Cirque du SoleilThe Case of Cirque du Soleil
•• Cirque du Soleil achieved rapid growth inCirque du Soleil achieved rapid growth inCirque du Soleil achieved rapid growth in Cirque du Soleil achieved rapid growth in a declining industry with low profit a declining industry with low profit potentialpotential
•• Cirque du Soleil created uncontested new Cirque du Soleil created uncontested new market space that made the competition market space that made the competition irrelevant irrelevant
•• httphttp://www.youtube.com/watch?v=M4lAPI://www.youtube.com/watch?v=M4lAPI5BAuk5BAuk
Example: Cirque du SoleilExample: Cirque du Soleil
•• Instead of simply trying to outpace theInstead of simply trying to outpace theInstead of simply trying to outpace the Instead of simply trying to outpace the competition, Cirque du Soleil offered competition, Cirque du Soleil offered people both the fun and thrill of the circus people both the fun and thrill of the circus and the intellectual sophistication of the and the intellectual sophistication of the theatertheater
•• Because of this, Cirque du Soleil appealed Because of this, Cirque du Soleil appealed to both circus customers and to both circus customers and noncustomersnoncustomers
Example: Cirque du SoleilExample: Cirque du Soleil
•• Each show like a theater production hadEach show like a theater production hadEach show, like a theater production, had Each show, like a theater production, had its own unique theme and storylineits own unique theme and storyline
•• This allowed customers to return to the This allowed customers to return to the show more frequentlyshow more frequently
•• They also did away with the traditional They also did away with the traditional y yy yhighhigh--priced concessions and vendors priced concessions and vendors thereby cutting coststhereby cutting costs
Example: Cirque du SoleilExample: Cirque du Soleil
•• Cirque du Soleil effectively combined theCirque du Soleil effectively combined theCirque du Soleil effectively combined the Cirque du Soleil effectively combined the best of both the circus and the theater best of both the circus and the theater while eliminating everything elsewhile eliminating everything else
•• This allowed them to achieve both This allowed them to achieve both differentiation and low costdifferentiation and low cost
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EliminateEliminate--ReduceReduce--RaiseRaise--CreateCreate
EliminateEliminateSt P f
RaiseRaiseU iStar Performers
Animal showsAisle concession salesMultiple show arenas
Unique venues
ReduceReduce CreateCreateFun and humorThrill and danger
ThemeRefined environmentMultiple productionsArtistic music and dance
Ringling Brothers
The Strategy Canvas The Strategy Canvas of Cirque du Soleilof Cirque du Soleilhi
Smaller Regional Circus
offe
ring
leve
l
Cirque du Soleil
loPrice
Fun & Humor Unique VenueAisle Concessions
Multiple Show Arenas Thrills & DangerAnimal Shows
Star Performers
Theme
Refined Viewing Environment
MultipleProductions
Artistic Music & Dance
© Kim & Mauborgne 2006
The Strategy Canvas The Strategy Canvas of Cirque du Soleilof Cirque du Soleilhi ReduceEliminate Raise Create
Ringling Brothers
offe
ring
leve
l
Cirque du Soleil
Smaller Regional Circus
loPrice
Fun & Humor Unique VenueAisle Concessions
Multiple Show Arenas Thrills & DangerAnimal Shows
Star Performers
Theme
Refined Viewing Environment
MultipleProductions
Artistic Music & Dance
© Kim & Mauborgne 2006
The Case of Yellow TailEliminate-Reduce-Raise-Create Grid:
Eliminate RaiseEnological terminology and distinctions
Aging qualities
Above-the-line marketing
Price versus budget wines
Retail store involvement
ReduceWine complexity
CreateEasy drinking
Wine range
Vineyard prestige
Ease of selection
Fun and adventure
Source: Blue Ocean Strategy, Kim and Mauborgne
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Source: Blue Ocean Strategy, Kim and Mauborgne
Value Curve for US Wine Industry Value Curve for US Wine Industry vsvsYellow TailYellow Tail Expensive wines
Yellow tailCheap wines
High
3838
Price
Use of technicalwine terminology
Above-the-linemarketing
Agingquality
Vineyardprestige
Winecomplexity
Winerange
Easydrinkability
Ease ofselection
Fun andadventure
Low
Strategy CanvasValue
Innovation
Costs
EliminateEnological terminology and distinctions
Aging qualities
Above-the-line marketing
RaisePrice versus budget wines
Retail store involvement
Reduce Create
Four Actions Framework
Buyer ValueWine complexity
Wine range
Vineyard prestige
Easy drinking
Ease of selection
Fun and adventure
ERRC Grid
Source: Blue Ocean Strategy, Kim and Mauborgne
Cost per room 100 000 FF ↔ 270 000 FF
From Formule 1’s perspective:
The Case of Accor's The Case of Accor's FormuleFormule 1 1 Budget HotelBudget Hotel
Cost per room 100,000 FF ↔ 270,000 FFCost of staff 20-23% of sales vs. 23-25% Profit Margins > 2x industry averageOccupancy rates > 3x industry average
From customers’ perspective:H i 2* h t lHygiene > average 2* hotelBed quality > average 2* hotelSilence > average 2* hotelPrice 100 FF ↔ 200 FF of industry
Source: HBR: Value Innovation Logic, Kim and Mauborgne
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The value curve of Formule 1 in the French Low Budget Hotel Industry
Results of Formule Results of Formule 11’s Strategy’s Strategy
HighSouthwest
The Strategy Canvas of Southwest The Strategy Canvas of Southwest AirlinesAirlines
The value curve of Southwest Airline
Average Airline
Southwest
Car Transport
LowPrice
Meals
LoungesSeating
Class
choices
Hub
connectivity Friendly
service
Speed Frequent point-
to-point
departure
Strategy Canvas of Personal Finance Strategy Canvas of Personal Finance Software IndustrySoftware Industryhi
Quicken
Personal Finance Software
offe
ring
leve
l
The Pencil
lo
Price Speed AccuracyOptional FeaturesEase of Use
© Kim & Mauborgne 2006
3. Draw the Strategy Canvas: 1 on left, 4 on right
Factors of Competition / Value Factors:
Blue Ocean Strategy1. List 8 to 12 important Factors of Competition2. Enter top 2 or 3 in each ERRC Grid QuadrantExerciseExercise
•• 11. List Factors of . List Factors of CompetitionCompetition
•• 22. Top . Top 2 2 or or 3 3 in ERRC in ERRC G id Q ad antsG id Q ad ants
1. Eliminate: 3. Raise:
Grid QuadrantsGrid Quadrants
Rev: 2006.02.21
2. Reduce: 4. Create:
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8
Project Name:
Very High
10
9
ExerciseExercise3.3. Write on Write on
Worksheet: Worksheet: 7
6
5
4
3
2
1
0
Medium
Low
Very Low
HighE left, C rightE left, C right
4.4. Draw “As Is”Draw “As Is”
5.5. Draw “To Be”Draw “To Be”
Valu
e Fa
ctor
s
ExamplesExamples
ExamplesExamples ExamplesExamples
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References
• W. Chan Kim, Renée Mauborgne, Blue Ocean Strategy, 2005,H d B i S h l PHavard Business School Press.
• http://www.blueoceanstrategy.com
• HANDELSBLATT, Donnerstag, 06. Oktober 2005, Mit Nichtkunden neue Märkte findenMit Nichtkunden neue Märkte finden.
• http://www.hotelformule1.com
Assignment:Choose a real product that is already on theChoose a real product that is already on the
market (it can be either one of the above or your own preferences of product), brainstorm the value
factors of the product and develop the Strategy Canvas
Thank you