Blue Ocean Strategy Blue Ocean Strategy unpackedunpacked

““In Blue Oceans, demand is created rather In Blue Oceans, demand is created rather than fought over. There is ample opportunity than fought over. There is ample opportunity

for both growth and profit.” for both growth and profit.” W. Chan KimW. Chan Kim

Think ChangeWhat seems like only a ripple

today...Can become the wave of the

future

What is a Red Ocean?What is a Red Ocean?

• Red Oceans Red Oceans are all the industries in existence are all the industries in existence today—the known market space. In the red today—the known market space. In the red oceans, industry boundaries are defined and oceans, industry boundaries are defined and accepted, and the competitive rules of the game accepted, and the competitive rules of the game are known. are known.

• Here companies try to outperform their rivals to Here companies try to outperform their rivals to grab a greater share of product or service grab a greater share of product or service demand. As the market space gets crowded, demand. As the market space gets crowded, prospects for profits and growth are reduced.prospects for profits and growth are reduced.

• Products become commodities or niche, and Products become commodities or niche, and cutthroat competition turns the red ocean bloody. cutthroat competition turns the red ocean bloody. Hence, the term red ocean is used.Hence, the term red ocean is used.

What is a Blue Ocean?What is a Blue Ocean?

• Blue Oceans Blue Oceans in contrast, denote all the in contrast, denote all the industries not in existence today — the unknown industries not in existence today — the unknown market space, untainted by competition. In blue market space, untainted by competition. In blue oceans, demand is created rather than fought oceans, demand is created rather than fought over. There is ample opportunity for growth that over. There is ample opportunity for growth that is both profitable and rapid. In blue oceans, is both profitable and rapid. In blue oceans, competition is irrelevant because the rules of the competition is irrelevant because the rules of the game are waiting to be set.game are waiting to be set.

• Blue ocean is an analogy to describe the wider, Blue ocean is an analogy to describe the wider, deeper potential of market space that is not yet deeper potential of market space that is not yet explored..explored..

Blue Ocean Strategy in a Blue Ocean Strategy in a nutshellnutshell

• create uncontested markets

• make competition irrelevant

• create & capture new demand

• break value/cost trade-off

• align with differentiation AND low cost

• compete in existing markets

• beat the competition

• explore existing demand

• make the value/cost trade-off

• align with differentiation OR low cost

BLUE OCEANRED OCEAN

Eliminate

Reduce

Create

Raise

VIValue

Innovation

Value Innovation – Creates the Blue Value Innovation – Creates the Blue OceanOcean

Reconstruct Market BoundariesReconstruct Market BoundariesFro

m C

om

peti

ng

Wit

hin

Buyer Group(Purchaser, User, or Influencer)

Strategic Group(Focused on Competition)

Scope(Maximise Products and Services)

Orientation(Improve Price Performance

Functional-Emotional orientation)

Industry(Being the Best - Rivalry)

Time(adapting to external trends as they

occur)

To Creating Across

Blu

e O

cean

Cre

atio

n

Path 1 : Looks across alternative industries

Six Paths Framework

Path 2 : Looks across strategic groups within industry

Path 3 : Redefines the industry buyer group

Path 4 : Looks across complementary product and service offerings

Path 5 : Rethinks the functional –emotional orientation of its industry

Path 6 : Participates in shaping external trends over time

Four Actions Framework – Creating Value Four Actions Framework – Creating Value InnovationInnovation

EliminateWhich of the

factors that the industry takes for granted should be

eliminated?

Reduce

Which factors should be reduced

well below the industry standard?

Raise

Which factors should be raised well above the

industry standard?

Create

Which factors should be created that the industry

has never offered?

A new Value Curve

Focus on the Big Picture, Not the NumbersFocus on the Big Picture, Not the Numbers

1. Visual Awakening• As-is strategy canvass• Identify Changes

2. Visual Exploration• Six Paths• Observe: advantages or alternatives• Factors: Eliminate, Create or change

3. Visual Strategy Fair• To-Be strategy Canvas• Feedback: alternatives from customers• To-Be: Future Strategy

4. Visual Communication• Distribute: before-and-after strategic profiles• Support only initiatives that will close the

gaps

Vis

ual

Stim

ula

tion

Visual Stimulation

Vis

ual

Sti

mu

lati

on

Visualisation: Strategy Canvas – Value Visualisation: Strategy Canvas – Value CurveCurve

High

Low

Industry Value Curve

Blue Ocean Strategy Move

Competing Factors

Offering Level

Pioneers

Migrators

Settlers

As-Is To-be

Visualisation Tool – Pioneer-Migrator-Settler (PMS) Visualisation Tool – Pioneer-Migrator-Settler (PMS) MapMap

Pioneers are Businesses that offer unprecedented value. Blue Ocean Strategist

Migrators are Businesses that offer improved value, but not innovative value. Blue Ocean Strategist

Settlers are Businesses that conform to their industries. Stuck in Red Ocean

Reach Beyond Existing DemandReach Beyond Existing Demand

3rd Tier

2nd Tier

1st TierYour

Market

1st Tier: “Soon-to-be” noncustomers who are on the edge of your market waiting to jump ship

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

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

Sequence of Blue Ocean StrategySequence of Blue Ocean StrategyBUYER

UTILITY: Is there

exceptional buyer utility in your business

idea?

PRICE: Is your Price

easily accessible to mass buyers?

COST: Can you attain

your cost target to profit at your strategic Price?

ADOPTION: What are the

adoption hurdles in actualising your business idea? Are you

addressing them up front?

A Commercially Viable Blue Ocean Idea

NO – Re-Think

YES

NO – Re-Think

NO – Re-Think

NO – Re-Think

YES

YES

YES

Exceptional UtilityExceptional Utility

The Buyer Utility MapThe Buyer Utility Map

From Exceptional Utility to Strategic From Exceptional Utility to Strategic PricingPricing The Price Corridor of the The Price Corridor of the

MassMass

Three alternative products/service Types:

Same FormDifferent form, same function

Different form and function, same objective

High degree of legal and resource protection.

Difficult to imitate

Some degree of legal and resource protection

Low degree of legal and resource protection.

Easy to imitate

Size of the circle is Size of the circle is proportional to number of proportional to number of

buyers that product/service buyers that product/service attractsattracts

Upper –level

Upper –level

pricingpricing

Mid–level pricingMid–level pricing

Lower–level

Lower–level pricingpricing

Price Corridor Price Corridor of the Massof the Mass

Step 1: Identify the Step 1: Identify the price corridor of the price corridor of the massmass

Step 2: Specify a price Step 2: Specify a price level within the price level within the price corridorcorridor

From Strategic Pricing to Target CostingFrom Strategic Pricing to Target CostingThe Profit Model of Blue Ocean The Profit Model of Blue Ocean StrategyStrategy

The Strategic Price

The Target Cost

Streamlining and Cost Innovations

Partnering

Pricing Innovation

The Target Profit

Blue Ocean Idea IndexBlue Ocean Idea Index

Organisation Product or Service

UtilityIs there exceptional utility? Are there compelling reasons to buy your offering?

+

Price Is your price easily accessible to the mass buyers? -

Cost Does your cost structure meet the target cost? +/-

Adoption Have you addressed adoption hurdles up front? +

Executing Blue Ocean StrategyExecuting Blue Ocean Strategy

The Four Organisational Hurdles to Strategy ExecutionThe Four Organisational Hurdles to Strategy Execution

COGNITIVE HURDLE

An organisation wedded to the status quo

MOTIVATIONAL HURDLE

An organisation wedded to the status quo

RESOURCE HURDLE

An organisation wedded to the status quo

POLITICAL HURDLE

An organisation wedded to the status quo

Meet with the Customers. Get

involved

Redirect Resources from your Hot Spots

and Cold Spots. Engage in Horse

Trading

Zoom in on King Pins. Place King Pins

in a Fish Bowl. Atomize to get the

organisation to change itself

Secure a consigliere on your top management team. Leverage your Angels and Silence

your Devils

Build Execution into StrategyBuild Execution into StrategyThe Power of Fair ProcessThe Power of Fair Process

Fair ProcessEngagementExplanationExpectation Clarity

Trust and Commitment

“I feel my opinions count”

Voluntary Cooperation“I’ll go beyond the call of duty”

Exceeds Expectations

Self Initiated

Strategy Strategy Formulation Formulation

ProcessProcess

AttitudesAttitudes

BehaviourBehaviour

Strategy Strategy ExecutionExecution

How

Fair

Pro

cess A

ffects

H

ow

Fair

Pro

cess A

ffects

P

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le’s

Att

itu

des a

nd

P

eop

le’s

Att

itu

des a

nd

B

eh

avio

ur

Beh

avio

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The Sustainability and Renewal of Blue Ocean The Sustainability and Renewal of Blue Ocean StrategyStrategy

• Imitation Barriers to Blue Ocean StrategyImitation Barriers to Blue Ocean Strategy– Value Innovation does not sense to a company’s Value Innovation does not sense to a company’s

conventional logicconventional logic– Blue Ocean Strategy may conflict with other companies' Blue Ocean Strategy may conflict with other companies'

brand image.brand image.– Natural Monopoly: The market often cannot often Natural Monopoly: The market often cannot often

support a second playersupport a second player– Patents or legal permits block imitationPatents or legal permits block imitation– High volume leads to rapid cost advantage for the value High volume leads to rapid cost advantage for the value

innovator, discouraging followers from entering the innovator, discouraging followers from entering the market.market.

– Network externalities discourage imitation.Network externalities discourage imitation.– Imitation often requires significant political, operational, Imitation often requires significant political, operational,

and cultural changes.and cultural changes.– Companies that value-innovative earn brand buzz and a Companies that value-innovative earn brand buzz and a

loyal customer following that tends to shun imitatorsloyal customer following that tends to shun imitators

Sources of ReferenceSources of Reference

• W. Chan Kim, Renée Mauborgne, W. Chan Kim, Renée Mauborgne,

Blue Ocean StrategyBlue Ocean Strategy, 2005, Havard , 2005, Havard

Business School Press. ISBN: 1-Business School Press. ISBN: 1-

59139-619-059139-619-0

• http://www.blueoceanstrategy.com