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McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved
BLUE OCEAN STRATEGY
Group 2
1.VICTOR MARBUN M987Z259
2.HOANG THI NGOC HUYEN M977Z239
3.NGUYEN PHAN ANH HUY M987Z264
4.NGUYEN THI THUY HANG M987Z236
5.BUI THI THUY M987Z204
McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved
OUTLINEI. INTRODUCTION
VIII. CONCLUSION
II. BLUE AND RED OCEAN
III. THE PARADOX OF STRATEGY
IV. TOWARD BLUE OCEAN STRATEGY
V. THE DEFINING CHARACTERISTICS
VI. BARRIERS TO IMITATION
VII. A CONSISTENT PATTERN
McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved
I. INTRODUCTION
VIII. CONCLUSION
II. BLUE AND RED OCEAN
III. THE PARADOX OF STRATEGY
IV. TOWARD BLUE OCEAN STRATEGY
V. THE DEFINING CHARACTERISTICS
VI. BARRIERS TO IMITATION
VII. A CONSISTENT PATTERN
McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved
““Successful business strategy Successful business strategy is about actively shaping the is about actively shaping the game you play, not just playing game you play, not just playing the game you findthe game you find.”.”
Adam M. Brandenburger and Barry J. NalebuffAdam M. Brandenburger and Barry J. Nalebuff
1-5
What Is a Blue Ocean Strategy?
Seeks to gain a dramatic, durablecompetitive advantage by
Abandoning efforts to beat outcompetitors in existing markets and
Inventing a new industry or distinctivemarket segment to render existingcompetitors largely irrelevant and
Allowing a company to create andcapture altogether new demand
1-6
The rising Imperative of Creating Blue Oceans
• Supply exceeds demand.
• Globalization.
• Accelerated commoditization of products and
services.
• Increasing price wars.
• Shrinking profit margins.
• Brands are becoming more similar.
1-7
What Is Different About a Blue Ocean?
Typical Market Space
Industry boundaries are defined and accepted
Competitive rules are well understood by all rivals
Companies try to outperform rivals by capturing a bigger share of existing demand
Blue Ocean Market Space
Industry does not exist yet
Industry is untaintedby competition
Industry offers wide-open opportunities if a firm has a product and strategy allowing it to
Create new demand and
Avoid fighting over existing demand
1-8
I. INTRODUCTION
VIII. CONCLUSION
II. BLUE AND RED OCEAN
III. THE PARADOX OF STRATEGY
IV. TOWARD BLUE OCEAN STRATEGY
V. THE DEFINING CHARACTERISTICS
VI. BARRIERS TO IMITATION
VII. A CONSISTENT PATTERN
1-9
What’s it like in a Red Ocean?
Companies try to outperform rivals in
order to grab greater share of existing
demand
Space gets more crowded
Prospects for profits and growth reduced
Products turn into commodities
Increasing competition turns water bloody
1-10
RED OCEAN VS BLUE OCEAN STRATEGY
Red Ocean Strategy Blue Ocean Strategy
Compete in existing market space Create uncontested market space
Beat the competition Make the competition irrelevance
Exploit existing demand Create & capture new demand
Make the value/cost trade-off Break the value/cost trade-off
Align the whole system of a company’s activities with its strategic choice of differentiation or low cost.
Align the whole system of a company’s activities in pursuit of differentiation and low cost.
1-11
2 ways to create Blue Oceans
Companies can give rise to complete new
industries, example : Ebay with the online
auction industry
Created WITHIN a Red Ocean when a company
alters the boundaries of an existing company,
example : Cirque du Soleil
1-12
Authors’ studies on Blue Oceans
Cirque du Soleil is just one of more than
150 blue ocean creations
Studies encompass over 30 industries
Data used stretches more than 100 years
Analyzes companies that create blue
oceans vs. companies that are
TRAPPED in red oceans
1-13
ONCE UPON A TIME …
The term blue oceans is NEW but it has always been with us
What industries were unknown 100 years ago?AutomobilesMusic recordingAviationPetrochemicalsPharmaceuticalsManagement Consulting
AUTOMOBILEKey Blue Ocean Creations
Blue Ocean created by a new entrant or incumbent?
Driven by technology or value pioneering?
At time of creation, industry attractive or unattractive?
Ford Model T New Entrant Value (mostly existing technologies)
Unattractive
GM’s “car for every purse and purpose”
Incumbent Value (some new technologies)
Attractive
Japanese fuel-efficient cars
Incumbent Value (some new technologies)
Unattractive
Chrysler minivan Incumbent Value (mostly existing technologies)
Unattractive
1-15
COMPUTERSKey Blue Ocean Creations
Blue Ocean created by a new entrant or incumbent?
Driven by technology or value pioneering?
At time of creation, industry attractive or unattractive?
CTR tabulating machine (CTR is now IBM)
Incumbent Value (some new technologies)
Unattractive
Apple personal Computer
New Entrant Value (mostly existing technologies)
Unattractive
Compaq PC Servers
Incumbent Value (mostly existing technologies)
Nonexistent
Dell built-to-order computers
New Entrant Value (mostly existing technologies)
Unattractive
1-16
I. INTRODUCTION
VIII. CONCLUSION
II. BLUE AND RED OCEAN
III. THE PARADOX OF STRATEGY
IV. TOWARD BLUE OCEAN STRATEGY
V. THE DEFINING CHARACTERISTICS
VI. BARRIERS TO IMITATION
VII. A CONSISTENT PATTERN
1-17
PARADOX OF STRATEGY
In a study of 108 companies 86% of new ventures were line
extension or incremental improvements to existing industries.
Only 14% were aimed at creating new markets or strategies
Line extensions provided 62% of total revenues but only 39% of total profits
In contrast, only the 14% invested in creating new markets it delivered 38% of total revenues but it delivered 61% of total profits
1-18
WHY THE IMBALANCE? Corporate strategy is heavy influenced by
its roots in military strategy The language of strategy is imbued with
military references like officers, headquarters, troops, front lines
The language is the that of a red ocean strategy
The language is about confronting the enemy and driving him off a battlefield of limited territory
1-19
What focusing on the red ocean means
It means accepting the key constraints of war
Limited terrain The need to beat an enemy to succeed
Denying the distinctive strength of the business world – the capacity to create new market space that is uncontested
1-20
Competition matters but…
It ignores two very important and far
more lucrative aspects of strategy:
To find and develop markets where there is little
or no competition (blue oceans)
To exploit and protect blue oceans
1-21
I. INTRODUCTION
VIII. CONCLUSION
II. BLUE AND RED OCEAN
III. THE PARADOX OF STRATEGY
IV. TOWARD BLUE OCEAN STRATEGY
V. THE DEFINING CHARACTERISTICS
VI. BARRIERS TO IMITATION
VII. A CONSISTENT PATTERN
1-22
TOWARD BLUE OCEAN STRATEGY
Key blue ocean creation (closely touch
people live):
- Autos; how people get to work.
- Computers; what people use at work.
- Movie theatre; where people go after work
for enjoyment.
1-23
Key Points of Blue Ocean Strategy
Blue oceans were seldom the result of
technological innovation per se.
- In computer industry, the blue ocean didn’t
come about through technology innovations
alone, but by linking technology to what
buyers valued.
1-24
KEY POINTS CONT’D.
Incumbents often create blue oceans-and
usually within their core business.
- GM, the Japanese automakers, and
chrysler were established players when
they created blue oceans in the auto
industry.
- Incumbents are not at disadvantage in
creating new market spaces.
1-25
Key Points cont’d
Company and Industry are the wrong units of
analysis.
- the most appropriate unit of analysis is strategic
move; the set of managerial actions & decisions
involved in making a major market- creating
business offering. Ex. Compaq is considered
unsuccessful because acquired by HP in 2001.
1-26
Key Points cont’d
Creating blue oceans build brands.
- Model T rolled off Henry Ford’s assembly line
in1908, but the company’s brand still benefit form
the blue ocean move.
- Large R&D budgets are not the key of creating
new market space.
-The key is making the right strategic moves;
create multiple blue oceans overtime.
1-27
I. INTRODUCTION
VIII. CONCLUSION
II. BLUE AND RED OCEAN
III. THE PARADOX OF STRATEGY
IV. TOWARD BLUE OCEAN STRATEGY
V. THE DEFINING CHARACTERISTICS
VI. BARRIERS TO IMITATION
VII. A CONSISTENT PATTERN
1-28
Value Innovation: The Cornerstone of Blue Ocean Strategy
Value creation alone improves value but is not sufficient to make you stand out in the marketplace
Innovation alone will often create a product that buyers are not willing to pay for
Value innovation occurs only when companies align innovation with utility, price, and cost positions
Value innovation:Make the competition irrelevantCreate a leap in value for both buyers and your
companyOpen up new and uncontested market space
Generic Strategies vs. Value InnovationGeneric Strategies vs. Value Innovation
High
Low
V1
C1
Cost
Quality
HighHigh
High
LowLow
Low
Quality
Cost
•
•
V1
C1
Red Ocean Strategy Blue Ocean Strategy
Structuralist Reconstructionist
UtilityCreate new
buyer
utilities
PriceSet a price that
attracts a mass
of buyers
Cost
Set the structure based on a target
Value Innovation
Unlocking non-customer demandUnlocking non-customer demand
The Core PrinciplesThe Core Principles
Reconstruct Market Reconstruct Market
BoundariesBoundaries
… overcome believes.
Reach beyond
existing Demand
… go for uncontested space.
Get the strategic
sequence right
… value [innovation] first.
VIVI
COST
VALUE
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
CompetitionHead-to-Head
Competition
Creating
New Market Space
The Core Principles
Reconstruct Market
Boundaries
… overcome believes.
Reach beyondReach beyond
existing Demandexisting Demand
… go for uncontested space.Get the strategic
sequence right
… value [innovation] first.
VIVI
COST
VALUE
1-34
Reach beyond existing demand
Core Customer Noncostumer
Soon-to-be-NCRefusing Customer
The Core Principles
Reconstruct Market
Boundaries
… overcome believes.
Reach beyond
existing Demand
… go for uncontested space.
Get the strategic Get the strategic
sequence rightsequence right
… value [innovation] first.
VIVI
COST
VALUE
Get the Strategic Sequence right
Buyer 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?
A commercially viable Blue Ocean Strategy
YES
YES
YES
YES
No Rethink
No Rethink
No Rethink
No Rethink
FOUR ACTIONS FRAMEWORK: KEY TO VALUE CURVE
REDUCEWhat factors should be reduced well below the industry standard?
RAISE
What factors should be raised well above the industry standard?
The key to discovering a new value curve lies in answering four basic questions
Creating new markets:A new value curve
Creating new markets:A new value curve
ELIMINATE
What factors that the industry has taken for granted should be eliminated?
CREATE/ADD
What factors that the industry has never offered should be created or added?
Cirque du Soleil example
1-38
I. INTRODUCTION
VIII. CONCLUSION
II. BLUE AND RED OCEAN
III. THE PARADOX OF STRATEGY
IV. TOWARD BLUE OCEAN STRATEGY
V. THE DEFINING CHARACTERISTICS
VI. BARRIERS TO IMITATION
VII. A CONSISTENT PATTERN
1-39
Barriers to Imitation
Blue ocean strategy creates:
Considerable economic
Cognitive barriers to imitation
Companies that create blue oceans usually
reap the benefits without credible challenges
for 10 to 15 years
1-40
Blue ocean strategy
Immediately attract customers in large volumes, they are able to generate scale economies very rapidly, putting would-be imitators at an immediate and continuing cost disadvantage.
Create network externalities
When imitation requires companies to make changes to their whole system of activities, organizational politics may impede a would-be competitors ability to switch to divergent business model of a blue ocean strategy.
1-41
Blue ocean strategy
The cognitive barriers can be just as
effective. When a company offers a leap in
value, it rapidly earns brand buzz and a
loyal following in the marketplace.
Sometimes, attempts to imitate a blue ocean
creator conflict with the imitator’s existing
brand image
The Body Shop shuns top models and
makes no promises of eternal youth and
beauty
For the established cosmetic brands like
Estée Lauder and L’Oréal, imitation was
very difficult, because it would have
signaled a complete invalidation of their
current images, which are based on
promises of eternal youth and beauty
1-43
The Simultaneous Pursuit of Differentiation and Low Cost
Costs savings are made from eliminating and reducing factors an industry competes on
Buyer value is lifted by raising and reacting elements the industry has never offered
Over time, costs are reduced further as scale economies kick in, due to the high sales volumes that superior value generates
1-44
I. INTRODUCTION
VIII. CONCLUSION
II. BLUE AND RED OCEAN
III. THE PARADOX OF STRATEGY
IV. TOWARD BLUE OCEAN STRATEGY
V. THE DEFINING CHARACTERISTICS
VI. BARRIERS TO IMITATION
VII. A CONSISTENT PATTERN
A CONSISTENT PATTERN
the striking parallels between the Cirque du Soleil theater-circus experience and Ford's
creation of the Model T.
A Consistent Pattern while our conceptual articulation of the pattern may be new, blue ocean strategy has always existed, whether or not companies have been conscious of the fact.
At the end of the nineteenth century, the automobile industry was small & unattractive.
Woodrow Wilson caught the spirit of the times when he said in 1906 that "nothing has spread socialistic feeling more than
the automobile." He called it "a picture of the arrogance of wealth”
to beat the competition and steal a share of existing demand from other automakers
reconstructed the industry boundaries of cars and horse-drawn carriages to create a blue ocean
It was Henry Ford's understanding of these advantages that showed him how he could break away from the competition & unlock enormous untapped demand.
creating fashionable, customized cars for weekends in the countryside, a luxury few could justify.
built a car that, like the horse-drawn carriage, was for everyday use
Reliable and durable, designed to travel effortlessly over dirt roads in rain, snow, or sunshine.easy to use and fixwent outside the industry for a price point:(the first Model T: $850; 1909:$609, by 1924: down to $290)
Ford converted buyers of horse-drawn carriages into car buyers - just as Cirque turned theatergoers into circusgoers. Sales ofthe Model T boomed. Ford's market share surged: 9% (1908) -> 61% (1921) -> by 1923: a majority of American households had a car.
Ford called the Model T the car "for the great multitude, constructed of the best materials."
THE MASS
OF BUYERS
A LEAP
IN VALUE
ACHIEVEMENT
THE LOWEST COST STRUCTURE IN THE INDUSTRY
. Ford's revolutionary assembly line replaced craftsmen with unskilled laborers, each of whom worked quickly and efficiently on one small task.
make a car in just four days - 21 days was the industry norm-creating huge cost savings.
1-48
I. INTRODUCTION
VIII. CONCLUSION
II. BLUE AND RED OCEAN
III. THE PARADOX OF STRATEGY
IV. TOWARD BLUE OCEAN STRATEGY
V. THE DEFINING CHARACTERISTICS
VI. BARRIERS TO IMITATION
VII. A CONSISTENT PATTERN
1-49
CONCLUSION* Moving into untapped or uncontested markets (blue
oceans) is a preferable strategy to fighting it out in saturated markets (red oceans).
* Innovation is the key to creating blue oceans. Create something that is new, and you will reap the rewards.
* Blue Ocean Strategy can be applied across the entire value chain from products, to services, to delivery, and across industries
1-50
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