CHAPTER 1-CREATING BLUE OCEANS

Bunde WalkerJames Yost

Trent Hemann

Guy Laliberté- CEO Created in 1984 Canada’s largest cultural export Achieved a level of revenues that took Ringling

Bros. and Barnum and Bailey 100 years to attain- in less than 20 years

Cirque du Soleil

Rapid growth was achieved in a declining industry.

Alternative forms of entertainment◦ Urban live entertainment (Concerts)◦ Home entertainment (games/movies)◦ Sporting events

Created an uncontested new market space◦ Appealed to new group of customers

Adults and Corporate clients

Cirque du Soleil- Creating a Blue Ocean

As the market space becomes more crowded, opportunity for profits and growth are reduced.◦ Creates a Red Ocean

Most blue oceans are created within red oceans by expanding existing industry boundaries.

EX: Cirque du Soleil

New Market Space

New Market Space

Blue oceans are a feature of business life, past and present.

Most of today's industries didn’t exist three decade ago.◦ 100 yrs ago?

Ex: Automobiles, aviation, music recording…◦ 30 yrs ago? –

EX: Cell phones, express package delivery, discount retail…

◦ 50 yrs from now…

The Continuing Creation of Blue Oceans

Industries continuously evolve and never stand still.

In 1997, the SIC system published by the U.S. Census was replaced by the NAICS.◦ New system expanded the ten SCI sectors into

twenty sectors.◦ Shows the expansion of new industry territories.

The Continuing Creation of Blue Oceans

Study of business launches in 108 companies◦ 86% Line Extensions

62% of total revenues and only 39% of total profits

◦ 14% aimed at creating blue oceans 38% of total revenues and 61% of total profits

◦ Performance benefits obvious

The Impact of Creating Blue Oceans

Accelerated technological advances Increasing number of industries No clear evidence of an increase in

worldwide demand Major product and service categories

becoming similar

The Rising Imperative of Creating Blue Oceans

Business literature uses the company as basic unit of analysis◦ In Search of Excellence

Within two years of publication companies began to slip

2/3 of firms had fallen within five years◦ Built to Last

Looking for successful habits of visionary companies Much of success a result of industry performance

rather than companies

From Company and Industry to Strategic Move

Strategic move◦ Set of managerial actions and decisions involved

in making a market-creating business offering The right unit of analysis for explaining the

creation of blue oceans◦ Evident across industries and through time ◦ Did not find excellent company or industry◦ Consistent and common patterns of strategic

moves

From Company and Industry to Strategic Move

Caught in the red ocean was a result of a conventional approach◦ Used competition as benchmark

Creators of blue oceans followed value innovation◦ Make competition irrelevant◦ Create a leap in value

Value Innovation: The Cornerstone of Blue Ocean Stategy

Outside the Box Take value from another industries but

break away from traditional aspects◦ For Cirque du Soleil

No animals Not only “star” performers

Audience don’t view equal to movie stars Eliminate Multiple show arenas (3 ring)

Angst among spectators Distractions, and fear of missing something Cost

Aisle concession stands Audience did not like high prices

Take the classic parts of the industry and use them as a cornerstone to relate back

◦ Tent Glamorized by cirque Others started to move away in favor of arenas Reminiscent of grand circus tents of past

◦ Clowns No longer slapstick Enchanting, sophisticated

◦ Classic acrobatic acts Reduced focus More legitimate with artistic flair

Involve Related Industries◦ Theater aspects

Story lines Vague Ties together, harmony

Artistic and Musical Original score and assorted music Music and lights become driving force, giving show more

sophistication Dance Multiple productions

Break away again from circus industry People want to come back

Eliminate competition◦ New form of live entertainment◦ Similar to theater and circus, but with more value,

almost Two for One for audience◦ Lower cost without high cost elements of circus,

better value◦ Value Innovation is drawn from utility and price,

only achieved when a company’s utility, price and cost are aligned

◦ Whole system approach make a blue ocean strategy sustainable

Value Innovation vs. Innovation Innovations that affect one aspect are

different◦ Could lower cost but not add utility (not blue

ocean◦ Can secure or lift a company’s position in an

industry, will not necessarily create a blue ocean Value Innovation is more than Innovation

◦ Orient whole system to achieve a leap for customers and the company

◦ Innovation will not necessary create value innovation if not treated correctly

Reconstruction Red Ocean- Industry’s structural conditions

are given and firm (structuralist view) Blue ocean- Market boundaries and Industry

structure are not given (reconstructionist view)

By reconstructing create something new, new industry◦ Cirque a circus or a theater◦ No agreed on industry name

Risk in Blue Oceans How do companies succeed in blue oceans

◦ High risk◦ How to maximize opportunities◦ If not understood, odds against you

No riskless strategies◦ Companies do not act on calls to expand

industries because red oceans can take all focus◦ Not taking “blue ocean call” seriously

New Boundaries Blue oceans look across conventional

boundaries of competition◦ 6 boundaries of competition

Alternative industries Strategic groups Buyer groups Complimentary products Functional orientation of industry Time

Blue oceans are untapped market space, demand creation, and the opportunity for highly profitable growth.

There is no blue ocean companies, just blue ocean strategies.

Take the classic parts of the industry and use them as a cornerstone to relate back

3 Main Points