BLUE OCEAN STRATEGYBLUE OCEAN STRATEGY

How to Create Uncontested How to Create Uncontested Market Space and Make the Market Space and Make the

Competition IrrelevantCompetition Irrelevant

Made by Mrs. Kavita Yogesh Bansal

Creating Blue OceansCreating Blue Oceans

New Market SpaceNew Market Space

The universe is composed of two sorts of The universe is composed of two sorts of oceans- Red Oceans and Blue Oceans.oceans- Red Oceans and Blue Oceans.

Red Oceans-All the industries in existence Red Oceans-All the industries in existence today.today.

Blue Oceans-All the industries not in Blue Oceans-All the industries not in existence today i.e. unknown market spaceexistence today i.e. unknown market space

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

In red oceans industry boundaries are In red oceans industry boundaries are defined and accepted, and the competitive defined and accepted, and the competitive rules of the game are known.rules of the game are known.

In blue oceans, competition is irrelevant In blue oceans, competition is irrelevant because the rules of the game are waiting because the rules of the game are waiting to be set.to be set.

The Continuing Creation ofThe Continuing Creation of Blue Oceans Blue Oceans

Although the term blue oceans is new, their Although the term blue oceans is new, their existence is not.existence is not.

Companies which never existed 50 years Companies which never existed 50 years back are on zoom today.back are on zoom today.

Similarly, companies which are not in Similarly, companies which are not in existence today may exist after a few existence today may exist after a few years & we should think about those.years & we should think about those.

The Impact of Creating The Impact of Creating Blue OceansBlue Oceans

The profit and growth consequences of The profit and growth consequences of creating blue oceans.creating blue oceans.

Business launchBusiness launch

Revenue Impact Revenue Impact

Profit ImpactProfit Impact

86%

62%

39%

14%

38%

61%

Launches within red oceans Launches for creating blue oceans

From Company & Industry to From Company & Industry to Strategic MoveStrategic Move

The study shows that the strategic move, The study shows that the strategic move, and not the company or the industry, is the and not the company or the industry, is the right unit of analysis for explaining the right unit of analysis for explaining the creation of blue oceans and sustained creation of blue oceans and sustained high performance.high performance.

A strategic move is the set of managerial A strategic move is the set of managerial actions and decisions involved in making a actions and decisions involved in making a major market creating business offering. major market creating business offering.

Value Innovation: The cornerstone Value Innovation: The cornerstone of Blue Ocean strategyof Blue Ocean strategy

Value innovation places equal emphasis Value innovation places equal emphasis on value and innovation. Value without on value and innovation. Value without innovation tends to focus on value creation innovation tends to focus on value creation on an incremental scale, something that on an incremental scale, something that improves value but is not sufficient to improves value but is not sufficient to make you stand out in the market place.make you stand out in the market place.

Innovation without value tends to be Innovation without value tends to be technology-driven, market pioneering, or technology-driven, market pioneering, or futuristic, often shooting beyond what futuristic, often shooting beyond what buyers are ready to accept and pay for.buyers are ready to accept and pay for.

Value innovation occurs only when Value innovation occurs only when companies align innovation with utility, companies align innovation with utility, price, and cost positions.price, and cost positions.

People who seek to create blue oceans People who seek to create blue oceans

pursue differentiation and low cost pursue differentiation and low cost simultaneously.simultaneously.

Red Ocean StrategyRed Ocean Strategy Blue Ocean StrategyBlue Ocean Strategy

Compete in existing Compete in existing market space.market space.

Create uncontested Create uncontested market space.market space.

Exploit existing demand.Exploit existing demand. Create and capture new Create and capture new demand.demand.

Make the value-cost Make the value-cost trade-off.trade-off.

Break the value-cost Break the value-cost trade-off.trade-off.

Align the whole system Align the whole system of a firm’s activities with of a firm’s activities with its strategic choice of its strategic choice of differentiation or low differentiation or low cost.cost.

Align the whole system Align the whole system of a firm’s activities in of a firm’s activities in pursuit of differentiation pursuit of differentiation and low cost.and low cost.

The Six Principles of Blue The Six Principles of Blue Ocean StrategyOcean Strategy

Formulation PrinciplesFormulation Principles Risk factors each principle Risk factors each principle attenuatesattenuates

Reconstruct market Reconstruct market boundariesboundaries

Focus on the big picture, not Focus on the big picture, not the numbersthe numbers

Reach beyond existing Reach beyond existing demanddemand

Get the strategic sequence Get the strategic sequence rightright

Reduces search riskReduces search risk

Reduces planning riskReduces planning risk

Reduces scale riskReduces scale risk

Reduces business model Reduces business model riskrisk

Execution PrinciplesExecution Principles Risk factors each principle Risk factors each principle attenuatesattenuates

Overcome key Overcome key organizational hurdlesorganizational hurdles

Build execution into strategyBuild execution into strategy

Reduces organizational riskReduces organizational risk

Reduces management riskReduces management risk

Analytical Tools and Analytical Tools and FrameworksFrameworks

Effective blue ocean strategy should be Effective blue ocean strategy should be about risk minimization and not risk taking.about risk minimization and not risk taking.

The Strategy CanvasThe Strategy Canvas

The strategy canvas is both a diagnostic The strategy canvas is both a diagnostic and an action framework for building a and an action framework for building a compelling blue ocean strategy.compelling blue ocean strategy.First it captures the current state of play in First it captures the current state of play in the known market space.the known market space.This allows you to understand where the This allows you to understand where the competition is currently investing, the competition is currently investing, the factors the industry currently competes on factors the industry currently competes on in products, service, & delivery, & what in products, service, & delivery, & what customers receive from the existing customers receive from the existing competitive offerings in the market. competitive offerings in the market.

The Four Actions FrameworkThe Four Actions Framework

A new value curve

ReduceWhich factors should

be reduced well below the industry’s standard?

RaiseWhich factors should be raised

well above the industry’s standard?

CreateWhich factors should be

created that the industry has

never offered?

EliminateWhich of the factors that

the industry takes for granted should be

eliminated?

The Eliminate-Reduce-Raise-The Eliminate-Reduce-Raise-Create GridCreate Grid

Eg. [yellow tail]Eg. [yellow tail]

EliminateEliminate

Enological terminology Enological terminology and and distinctionsdistinctions

Aging qualitiesAging qualities

Above the line Above the line marketingmarketing

RaiseRaise

Price versus budget Price versus budget wineswines

Retail store Retail store involvementinvolvement

ReduceReduce

Wine complexityWine complexity

Wine rangeWine range

Vineyard prestigeVineyard prestige

CreateCreate

Easy drinkingEasy drinking

Ease of selectionEase of selection

Fun and adventureFun and adventure

Three Characteristics of a Three Characteristics of a Good StrategyGood Strategy

1.1. Focus: Every great strategy has focus, Focus: Every great strategy has focus, and a company’s strategic profile, or and a company’s strategic profile, or value curve, should clearly show it.value curve, should clearly show it.

2. Divergence: When a company’s strategy 2. Divergence: When a company’s strategy is formed reactively as it tries to keep up is formed reactively as it tries to keep up with the competition. On the strategy with the competition. On the strategy canvas, therefore, reactive strategists canvas, therefore, reactive strategists tend to share the same strategic profile.tend to share the same strategic profile.

In contrast, the value curves of blue In contrast, the value curves of blue ocean strategists always stand apartocean strategists always stand apart

3.3. Compelling tagline: A good strategy has Compelling tagline: A good strategy has a clear-cut and compelling tagline.a clear-cut and compelling tagline.

Eg. Tagline of SouthWest Airlines Eg. Tagline of SouthWest Airlines

““The speed of a plane at the price of a car-The speed of a plane at the price of a car-whenever you need it.”whenever you need it.”

Some factors showing a company Some factors showing a company caught in the Red Oceancaught in the Red Ocean

Overdelivery without paybackOverdelivery without payback

An Incoherent StrategyAn Incoherent Strategy

Strategic ContradictionsStrategic Contradictions

An internally driven companyAn internally driven company

Formulating Blue Ocean Formulating Blue Ocean StrategyStrategy

Reconstruct Market Reconstruct Market BoundariesBoundaries

Companies trapped in red oceans Companies trapped in red oceans tend to do the following:tend to do the following:

Define their industry similarly and focus on being Define their industry similarly and focus on being the best within it.the best within it.Look at their industries through the lens of Look at their industries through the lens of generally accepted strategic groups (such as generally accepted strategic groups (such as luxury automobiles, economy cars, and family luxury automobiles, economy cars, and family vehicles), and strive to stand out in the strategic vehicles), and strive to stand out in the strategic group they play in.group they play in.Focus on the same buyer group, be it the Focus on the same buyer group, be it the purchaser (as in office equipment industry), the purchaser (as in office equipment industry), the user ( as in clothing industry), or the influencer user ( as in clothing industry), or the influencer (as in pharmaceutical industry).(as in pharmaceutical industry).

Define the scope of the products and Define the scope of the products and services offered by their industry similarly.services offered by their industry similarly.

Accept their industry’s functional or Accept their industry’s functional or emotional orientation.emotional orientation.

Focus on the same point in time-and often Focus on the same point in time-and often on current competitive threats-in on current competitive threats-in formulating strategy.formulating strategy.

Six Paths Framework Six Paths Framework (Pattern for Creating Blue (Pattern for Creating Blue

Ocean Strategy)Ocean Strategy)

Path 1: Look Across Alternative Industries.Path 1: Look Across Alternative Industries.

Path 2: Look Across Strategic Groups Within Path 2: Look Across Strategic Groups Within Industries. Industries.

Path 3: Look Across the Chain of Buyers.Path 3: Look Across the Chain of Buyers.

Path 4: Look Across Complementary Path 4: Look Across Complementary Product and Service Offerings. Product and Service Offerings.

Path 5: Look Across Functional or Emotional Path 5: Look Across Functional or Emotional Appeal to Buyers.Appeal to Buyers.

Path 6: Look Across Time.Path 6: Look Across Time.

Conceiving New Market Conceiving New Market SpaceSpace

From Head to Head Competition to From Head to Head Competition to Blue Ocean CreationBlue Ocean Creation

Head-to-Head Head-to-Head CompetitionCompetition

Blue Ocean Blue Ocean CreationCreation

IndustryIndustry Focuses on rivals Focuses on rivals within its industrywithin its industry

Look across Look across alternative alternative industriesindustries

Strategic GroupStrategic Group Focuses on Focuses on competitive position competitive position within strategic within strategic groupgroup

Looks across Looks across strategic groups strategic groups within industrywithin industry

Buyer GroupBuyer Group Focuses on better Focuses on better serving the buyer serving the buyer groupgroup

Redefines the Redefines the industry buyer industry buyer groupgroup

Head-to-Head Head-to-Head CompetitionCompetition

Blue Ocean Blue Ocean CreationCreation

Scope of product/ Scope of product/ service offeringservice offering

Focuses on Focuses on maximizing the maximizing the value of product & value of product & service offerings service offerings within the bounds within the bounds of its industryof its industry

Looks across to Looks across to complementary complementary product and service product and service offeringsofferings

Functional-Functional-emotional emotional orientation (feo)orientation (feo)

Focuses on Focuses on improving price improving price performance within performance within the feo of its the feo of its industryindustry

Rethinks the feo of Rethinks the feo of its industryits industry

TimeTime Focuses on Focuses on adapting to external adapting to external trends as they trends as they occuroccur

Participates in Participates in shaping external shaping external trends over timetrends over time

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

Drawing Your Strategy Drawing Your Strategy CanvasCanvas

The Four Steps of The Four Steps of Visualizing StrategyVisualizing Strategy

1.Visual 1.Visual AwakeningAwakening

2. Visual 2. Visual ExplorationExploration

3. Visual 3. Visual Strategy FairStrategy Fair

4. Visual 4. Visual CommunicationCommunication

Compare your Compare your business with business with your your competitors’ by competitors’ by drawing your drawing your ”as is” strategy ”as is” strategy canvas.canvas.

See where See where your strategy your strategy needs to needs to changechange

Go into the Go into the field to explore field to explore the six paths to the six paths to creating blue creating blue oceans.oceans.

Observe the Observe the distinctive distinctive advantages of advantages of alternative alternative products and products and servicesservices

See which See which factors you factors you should should eliminate, create eliminate, create or changeor change

Draw your “to Draw your “to be” strategy be” strategy canvas based canvas based on insights from on insights from field field observations.observations.

Get feedback Get feedback on alternative on alternative strategy strategy canvases from canvases from customers, customers, competitors’ competitors’ customers, & customers, & non customers.non customers.

Use feedback Use feedback to build the best to build the best “to be” future “to be” future strategy.strategy.

Distribute your Distribute your before-and-after before-and-after strategic profiles strategic profiles on one page for on one page for easy easy comparisoncomparison

Support only Support only those projects those projects and operational and operational moves that moves that allow your allow your company to company to close the gaps close the gaps to actualize the to actualize the new strategy.new strategy.

Reach Beyond Existing DemandReach Beyond Existing Demand

The three tiers of NoncustomersThe three tiers of Noncustomers

First tierYour market Second

tier

Third tier

First tier-”soon to be” noncustomers who are on the edge, waiting to jump ship.Second tier-’’Refusing’’ noncustomers who consciously choose against your marketThird tier: ‘’Unexplored’’ noncustomers who are in markets distant from yours

Get the Strategic Sequence Get the Strategic Sequence RightRight

Buyer utility

Is there exceptional buyer utilityin your business idea?

Price

Is your price easily accessible to the mass of buyers?

Cost

Can you attain your cost targetto profit at your strategic price?

Adoption

What are the adoption hurdles in actualizing your business idea?Are you addresing them up front?

A commercially viableBlue ocean idea

No-rethink

No-rethink

No-Rethink

No-Rethink

Yes

Yes

Yes

Yes

Testing for Exceptional UtilityTesting for Exceptional Utility

The Buyer Utility MapThe Buyer Utility Map

The Six Stages of the Buyer Experience CycleThe Six Stages of the Buyer Experience Cycle

CustomerProductivity

Simplicity

Convenience

Risk

Fun & Image

Environmentalfriendliness

1. 2. 3. 4. 5. 6.Purchase Delivery Use Suplemnts mainte Disposal nance

The Buyer Experience CycleThe Buyer Experience Cycle

How long does it How long does it take to find the take to find the product you product you need?need?

Is the place of Is the place of purchase purchase attractive & attractive & accessibleaccessible

How secure is How secure is the transaction the transaction environment?environment?

How rapidly can How rapidly can you make a you make a purchase?purchase?

Purchase

How long does How long does it take to get the it take to get the product product delivered?delivered?

How difficult is it How difficult is it to unpack and to unpack and install the new install the new product?product?

Do buyers have Do buyers have to arrange to arrange delivery delivery themselves? If themselves? If yes, how costly yes, how costly and difficult is and difficult is this?this?

Delivery

Does the product require Does the product require training or expert training or expert assistance?assistance?

Is the product easy to store Is the product easy to store when not in use?when not in use?

How effective are the How effective are the product’s features and product’s features and functions?functions?

Does the product or Does the product or service deliver far more service deliver far more power or options than power or options than required by the average required by the average user? Is it overcharged user? Is it overcharged with bells and whistles?with bells and whistles?

Use

Do you need Do you need other products other products & services to & services to make this make this product work?product work?

If so, how If so, how costly are they?costly are they?

How much time How much time do they take?do they take?

How much pain How much pain do they cause?do they cause?

How easy are How easy are they to obtain?they to obtain?

Supplements

Does the Does the product require product require external external maintenance?maintenance?

How easy is it How easy is it to maintain & to maintain & upgrade the upgrade the product?product?

How costly is How costly is maintenance?maintenance?

Maintenance

Does use of the Does use of the product create product create waste items?waste items?

How easy is it How easy is it to dispose of to dispose of the product?the product?

Are there legal Are there legal or or environmental environmental issues in issues in disposing of the disposing of the product safely?product safely?

How costly is How costly is disposal?disposal?

Disposal

Uncovering the Blocks to Uncovering the Blocks to Buyer UtilityBuyer Utility

PurchasePurchase DeliveryDelivery UseUse SupplemeSupplementsnts

MaintenaMaintenancence

DisposalDisposal

Customer Productivity: in which stages are the biggest blocks to customer Customer Productivity: in which stages are the biggest blocks to customer productivity?productivity?

Simplicity: in which stages are the biggest blocks to simplicity?Simplicity: in which stages are the biggest blocks to simplicity?

Convenience: In which stages are the biggest blocks to convenience?Convenience: In which stages are the biggest blocks to convenience?

Risk: In which stages are the biggest blocks to reducing risks?Risk: In which stages are the biggest blocks to reducing risks?

Fun & Image: In which stages are the biggest blocks to fun & image?Fun & Image: In which stages are the biggest blocks to fun & image?

Environmental friendliness: In which stages are the biggest blocks to Environmental friendliness: In which stages are the biggest blocks to environmental friendliness?environmental friendliness?

From Exceptional Utility to Strategic From Exceptional Utility to Strategic PlanningPlanning

Step 1: Identify the Price corridor of the Step 1: Identify the Price corridor of the MassMass

Step 2: Specify a Level Within the Price Step 2: Specify a Level Within the Price CorridorCorridor

From Strategic Pricing to From Strategic Pricing to Target CostingTarget Costing

The Profit Model of Blue The Profit Model of Blue Ocean StrategyOcean Strategy

The Strategic Price

The Target Profit

The Target Cost

Streamlining & Cost innovations Partnering

Pricing Innovations

Adoption Of Blue Ocean IdeaAdoption Of Blue Ocean Idea

Before moving further and investing in the Before moving further and investing in the new idea, the company must first new idea, the company must first overcome such fears by educating the overcome such fears by educating the following people-following people-

EmployeesEmployees

Business PartnersBusiness Partners

The General PublicThe General Public

Executing Blue Ocean Executing Blue Ocean StrategyStrategy

Overcome Key Overcome Key Organizational HurdlesOrganizational Hurdles

The Four Organizational The Four Organizational Hurdles to Strategy ExecutionHurdles to Strategy Execution

Cognitive Hurdle An organization

wedded to the status quo

Political HurdleOpposition from powerful vested

interests

Resource HurdleLimited resources

Motivational Hurdle Unmotivated Staff

Building Execution into StrategyBuilding Execution into Strategy

A company is not only Top Management, A company is not only Top Management, nor is it only middle management. A nor is it only middle management. A company is everyone from the top to the company is everyone from the top to the front lines.front lines.

The company must create a culture of The company must create a culture of trust & commitment that motivates people trust & commitment that motivates people to execute the agreed strategy.to execute the agreed strategy.

The power of fair processThe power of fair process

How Fair Process Affects How Fair Process Affects People’s Attitudes and People’s Attitudes and

BehaviorBehavior

Strategy Formulation Process

Fair ProcessEngagementExplanation

Expectation clarity

Attitudes Trust and

Commitment“I feel my opinion counts”

Behavior

Voluntary Co-operation“I’ll go beyond the call

of duty”

Strategyexecution

Exceeds expectations Self- Initiated

The Three E Principles of Fair The Three E Principles of Fair ProcessProcess

There are three mutually reinforcing There are three mutually reinforcing elements that define fair process-elements that define fair process-

1.1. EngagementEngagement

2.2. ExplanationExplanation

3.3. Clarity of ExpectationClarity of Expectation

The execution consequences of the presence and absence Of fair process in strategy making

Fair ProcessIntellectual &

Emotional Recognition

Trust & Commitment

VoluntaryCooperation in

Strategyexecution

Violation of Fair Process

Intellectual &Emotional Indignation

Distrust &Resentment

Refusal to Execute Strategy

Imitation Barriers to Blue Ocean Imitation Barriers to Blue Ocean StrategyStrategy

Value innovation does not make sense to Value innovation does not make sense to a company’s conventional logic.a company’s conventional logic.

Blue ocean strategy may conflict with Blue ocean strategy may conflict with other companies’ brand image.other companies’ brand image.

Natural monopoly: The market often Natural monopoly: The market often cannot support a second player.cannot support a second player.

Patents or legal permits block imitation.Patents or legal permits block imitation.

Network externalities discourage imitation.Network externalities discourage imitation.

Imitation Barriers to Blue Ocean Imitation Barriers to Blue Ocean Strategy contd…Strategy contd…

High volume leads to rapid cost advantage High volume leads to rapid cost advantage for the value innovator, discouraging for the value innovator, discouraging followers from entering the market.followers from entering the market.

Imitation often requires significant political, Imitation often requires significant political, operational, & cultural changes.operational, & cultural changes.

Companies that value-innovate earn brand Companies that value-innovate earn brand buzz & a loyal customer following that buzz & a loyal customer following that tends to shun imitators.tends to shun imitators.

Blue Ocean StrategyBlue Ocean Strategy

Written byWritten by

W.Chan Kim W.Chan Kim

Renee MauborgneRenee Mauborgne