Blue Ocean Strategy Preface Chapter 1: Creating Blue Oceans

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Blue Ocean StrategyPreface Chapter 1 Creating
Blue Oceans

• Group 3
• Anna Rendon
• Olivia Erwin
• Chase Mueller
• Paige Stone
• Tanner Gilreath
• Brandon Laviage
• Ashley Hoptay

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Blue Ocean Strategy
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Blue Ocean Strategy

• To improve the quality of our successes we need
  to study what we did that made a positive
  difference understand how to replicate it.
• Blue Ocean Strategy challenges companies to break
  out of the red ocean of bloody competition by
  creating uncontested market space that makes the
  competition irrelevant.
• Instead of dividing up existing - and often
  shrinking - demand and benchmarking competition,
  blue ocean strategy is about growing demand and
  breaking away from the competition.

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Cirque Du Soleil

• Created in 1984
• Achieved a level of revenues that took Ringling
  Bros. and Barnum Bailey- the global champions
  of the circus industry more than 100 years to
  attain!

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New Market Space Cirque du Soleil

• Why did Cirque du Soleil see so much success?
• Realized that in order to win in the future,
  companies must stop competing with each other.
• Cirque du Soleil did not compete with Ringling
  Bros. and Barnum and Bailey. Instead they
  appealed to a whole new group of customers
  adults and corporate clients.
• They created an unprecedented entertainment
  experience.
• Ex. Nintendo Wii and Millionaire Matchmaker

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Red Oceans VS Blue Oceans

• Red Oceans
• All the industries in existence today the known
  market space
• Industry boundaries and defined and accepted.
• Companies try to outperform rivals
• Market space gets crowded prospects for profits
  and growth are reduced.
• Competition turns the red ocean bloody

• Blue Oceans
• Denote all the industries not in existence today
  the unknown market space
• Defined by untapped market space, demand creation
  and the opportunity for highly profitable growth
• Some created well beyond existing industry
  boundaries, but most are created within red
  oceans by expanding existing industry boundaries
• Competition is irrelevant because the rules of
  the game are waiting to be set.

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Understanding Blue Oceans

• Blue oceans are largely uncharted, so there is
  little practical guidance on how to create them.
• Without the analytical frameworks and principles
  to effectively manage risk, managers have viewed
  the creation of blue oceans to be to risky to
  attempt.

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The Continuing Creation of Blue Oceans

• Although the term blue oceans is new, their
  existence is not.
• Examples Were use to these industries, but they
  werent always in existence.
• Automobiles
• Aviation
• Music Recording
• Cell Phones
• Snowboards
• Coffee Chops
• Think of all of the unknown industries the future
  will reveal.

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Industries Continuously Evolve

• Industries never stand still.
• The Standard Industrial Classification (SIC)
  system was replaced in 1997 by the North American
  Industry Classification System (NAICS).
• The new system expanded the ten SIC industry
  sectors to reflect the emerging realities of new
  industry territories.
• SIC systems replacement is a sign of how
  significant the expansion of blue oceans has been
  because the systems are designed for
  standardization and continuity.

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The Impact of Creating Blue Oceans
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What Does This Mean?

• Blue oceans held a little over a tenth of the
  launches. However, they brought in a more than a
  third of the revenues and almost two-thirds of
  the profits.
• Given that business launches included the total
  investments made for creating red and blue
  oceans, the performance benefits of creating blue
  oceans are evident.

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The Rising Imperative of Creating Blue Oceans

• Supply in an increasing number of industries is
  beginning to exceed demand.
• There has been an accelerated commoditization of
  products and services, increasing price wars and
  shrinking profit margins.
• For major product and service categories, brands
  are generally becoming more similar.

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Without Differentiation

• As brands become more similar, people generally
  select based on price.
• How can you keep customers and sales if brand
  loyalty is eroding?
• How many people buy the same detergent,
  toothpaste, peanut butter or paper towels each
  time? How many people factor in price as the
  major buying determinant?
• Managers are realizing that they will need to be
  more concerned with blue oceans as red oceans
  become increasingly bloody.
• Examples Laptops and the I-phone

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Red Ocean vs. Blue Ocean Strategy

• The big difference in Red Oceans and Blue Oceans
  is the strategy.
• Red Ocean companies took a conventional approach
  of trying to beat the competition.
• Blue Ocean companies didnt use the competition
  as a benchmark, but instead used value
  innovation.

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Value Innovation The Cornerstone of Blue Ocean
Strategy

• Value Innovation - instead of focusing on beating
  the competition, focus on making the competition
  irrelevant by creating a leap in value for buyers
  and your company, thereby opening up new and
  uncontested market space.

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Value Innovation

• Value without innovation focuses on value
  creation but does not make you stand out in the
  marketplace.
• Innovation without value tends to be futuristic
  and go beyond what buyers are ready for.
• Value innovation must align innovation with
  utility, price, and cost position.

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Value-Cost Trade Off

• Red Ocean companies tend to choose between low
  cost and differentiation.
• Blue Ocean companies aim for both simultaneously.

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Value Innovation The Cornerstone of Blue Ocean
Strategy
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Cirque de Soleil

• Added story line
• Less slap stick
• Glamorized the tent
• Made more sophisticated
• Reduced cost by eliminating animals
• Priced tickets comparable with the theatre

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How do you achieve value innovation?

• It is done when the whole system of the companys
  utility, price, and cost activities are properly
  aligned with each other

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So what does it mean?

• Value innovation is more than innovation
• Its about strategy that embraces the entire
  system of a company's activities

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What do you need to create it?

• Value innovation requires companies to orient the
  whole system toward achieving a leap in value for
  both the buyer and themselves (meaning the
  company)

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Structuralist view

• Also known as
• Environmental determinism
• Goes in part with red ocean strategy, assumes
  that an industry structures are set and you must
  compete in it

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Reconstructionist view

• Based on the view that market boundaries and
  industry structure are not given and can be
  reconstructed by the actions and beliefs of
  industry players

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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 irrelevant
Exploit existing demand Create and capture new demand
Make the value-cost trade-off Break the value-cost trade-off
Align the whole system of a firms activities with its strategic choice of differentiation or low cost Align the whole system of a firms activities in pursuit of differentiation and low cost
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Company/Industry Strategic Move

• Initial Step to define the basic unit of analysis
• Previously Published Research
• In Search of Excellence
• Built to Last
• Basic Unit of Analysis
• Company
• Blue Ocean Strategy
• Basic Unit of Analysis
• Strategic Move

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Results

• Basic Unit of Analysis
• Company
• 2/3 of the companies had fallen from their
  perches as industry leaders
• Atari, Data General, Fluor, National
  Semiconductor
• Strategic Move
• They delivered products and services that opened
  and captured new market space, with a significant
  leap in demand
• Ford, GM, CNN, Compaq, Southwest, Cirque du Soleil

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Strategic Move
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Strategic Move - Cont

• Is a set of managerial actions and decisions
  involved in making a major market creating
  business offering
• Capture?
• New Market Space
• Increased Demand

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Examples of Blue Oceans

• Ford
• Model T
• General Motors
• Styled cars to emotions
• CNN
• 24/7 News Channel
• Cirque Du Soleil
• Sophisticated Entertainment

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Formulating and Executing Blue Ocean Strategy

• Chapter 2 Introduces the analytical tools and
  frameworks that are essential for creating and
  capturing blue oceans.
• Chapters 3-6 Introduces the principles that
  drive the successful formulation and
  implementation of blue ocean strategy and explain
  how they, along with the analytics, are applied
  in action.
• Chapters 7-8 Turn to the principles that drive
  effective execution of blue ocean strategy.
  Tipping point leadership, organizational risk,
  fair process, and management risk are all
  addressed as new strategies.
• Chapter 9 Discusses the dynamic aspects of blue
  ocean strategy- the issues of sustainability and
  renewal.

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The Six Principles of Blue Ocean Strategy
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Class Take Aways

• Blue Ocean Strategy challenges companies to break
  out of the red ocean of bloody competition by
  creating uncontested market space that makes the
  competition irrelevant.
• The big difference in Red Oceans and Blue Oceans
  is the strategy.
• Value Innovation is the cornerstone of Blue Ocean
  Strategy.
• Strategic moves should be aimed at delivering
  products and services that open and capture new
  market space, with a significant leap in demand.