BLUE OCEAN STRATEGY (BOS)

CIMS B-SCHOOLPinkey GuptaPriya Kumari

What is the BLUE OCEAN?• Blue oceans denote all industries NOT in existence

today• The Unknown market space• Untainted by competition• In Blue Oceans, demand is created not fought over• In Blue Oceans, growth is profitable and rapid

Insights on Blue Ocean Strategy• There is a consistent pattern of strategic thinking

behind the creation of new markets and strategies (called Blue Ocean Strategy)• Blue Ocean strategies part with traditional models

focused on competing in existing market space• Managers’ failure to differentiate between blue and

red ocean strategy lies behind the difficulties many companies encounter to break from the competition

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

Reconstruct Market Boundaries• Path 1: Look Across Alternative Industries• Path 2: Look Across Strategic Groups within Industries• Path 3: Look Across Chain of Buyers• Path 4: Look Across Complementary Products and

Service Offerings• Path 5: Look Across Functional or Emotional Appeal to

Buyers• Path 6: Look Across Time

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: Japanese fuel efficient diesel engine car, Dell built to order computers and so on.

Value Innovation: The Cornerstone of BOS

Costs

Buyer Value

Value Innovation

The Simultaneous Pursuit of Differentiation and Low Cost

Red Ocean vs. Blue Ocean (a comparison of imperatives)

• Compete in existing market space• Beat the competition• Exploit existing demand• Make the value/cost

trade-off• Align the whole system of

company’s activities with its strategic choice of differentiation OR low cost

• Create uncontested market space• Make the competition

irrelevant• Create and capture new

demand• Break the value/cost trade-

off• Align the whole system of a

company’s activities in pursuit of differentiation AND low cost

Red Ocean vs. Blue Ocean (a comparison of world views)

• Structuralist or Environmental Determinism worldview• Companies and

managers are at the mercy of economic forces greater than themselves

• Reconstructionist worldview• Market boundaries and

industries can be reconstructed by the actions and beliefs of industry players

The Six Principles of BOS

Four Actions FrameworkREDUCEWhich factors should bereduced well below the industry’s standards?

CREATEWhich factors should be created that the industry has never offered?

ELIMINATEWhich of the factors thatthe industry take for grantedshould be eliminated?

RAISEWhich factors should be raised well above the industry’s standard?

A New Value Curve

What then is the most appropriate unit of analysis?

To explain blue oceans it must be the :STRATEGIC MOVE – the set of managerial actions and

decisions involved in making a major market-creating business offering

Example : Compaq is considered “unsuccessful” because of its acquisition by HP in 2001 and ceased to be a company. But this “move” led to the creation of a multibillion-dollar market in PC servers. This was key to it’s comeback in the 1990s.

Profit Model of BOS

The Target Profit

The Strategic Price

The Target Cost

Pricing Innovation

Streamlining and Cost Innovative Partnering

The Simultaneous Pursuit of Differentiation and Low Cost

• Blue Oceans are created in the region where a company’s action affects BOTH its cost structure and its value proposition to buyers• Cost savings are made from eliminating and reducing

the factors an industry competes on• Buyer value is lifted by creating elements the industry

NEVER OFFERED• Over time, costs are reduced further as scale

economies kick in, due to the high sales volumes that superior value generates.

Conclusion : Sustainability and Renewal of Blue Ocean Strategy

Imitation Barriers to BOSValue Innovation does not make sense to a company’s

conventional logic.Blue Ocean Strategy may conflict with companies’ brand

image.Natural monopoly: The market often cannot support a

second player.Patents or legal permits block imitation.High volume leads to rapid cost advantage for the value

innovator, discouraging followers from entering the market.Network Externalities discourage imitation.Imitation often require significant political, operational, and

cultural changes.Companies that value-innovate earn brand buzz and a loyal

customer following that tends to shun imitators.

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