mcgraw-hill/irwin ©2009 the mcgraw-hill companies, all rights reserved blue ocean strategy group 2...

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved

BLUE OCEAN STRATEGY

Group 2

1.VICTOR MARBUN M987Z259

2.HOANG THI NGOC HUYEN M977Z239

3.NGUYEN PHAN ANH HUY M987Z264

4.NGUYEN THI THUY HANG M987Z236

5.BUI THI THUY M987Z204


OUTLINEI. INTRODUCTION

VIII. CONCLUSION

II. BLUE AND RED OCEAN

III. THE PARADOX OF STRATEGY

IV. TOWARD BLUE OCEAN STRATEGY

V. THE DEFINING CHARACTERISTICS

VI. BARRIERS TO IMITATION

VII. A CONSISTENT PATTERN


I. INTRODUCTION

VIII. CONCLUSION








““Successful business strategy Successful business strategy is about actively shaping the is about actively shaping the game you play, not just playing game you play, not just playing the game you findthe game you find.”.”

Adam M. Brandenburger and Barry J. NalebuffAdam M. Brandenburger and Barry J. Nalebuff

1-5

What Is a Blue Ocean Strategy?

Seeks to gain a dramatic, durablecompetitive advantage by

Abandoning efforts to beat outcompetitors in existing markets and

Inventing a new industry or distinctivemarket segment to render existingcompetitors largely irrelevant and

Allowing a company to create andcapture altogether new demand

1-6

The rising Imperative of Creating Blue Oceans

• Supply exceeds demand.

• Globalization.

• Accelerated commoditization of products and

services.

• Increasing price wars.

• Shrinking profit margins.

• Brands are becoming more similar.

1-7

What Is Different About a Blue Ocean?

Typical Market Space

Industry boundaries are defined and accepted

Competitive rules are well understood by all rivals

Companies try to outperform rivals by capturing a bigger share of existing demand

Blue Ocean Market Space

Industry does not exist yet

Industry is untaintedby competition

Industry offers wide-open opportunities if a firm has a product and strategy allowing it to

Create new demand and

Avoid fighting over existing demand

1-8

I. INTRODUCTION

VIII. CONCLUSION







1-9

What’s it like in a Red Ocean?

Companies try to outperform rivals in

order to grab greater share of existing

demand

Space gets more crowded

Prospects for profits and growth reduced

Products turn into commodities

Increasing competition turns water bloody

1-10

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 irrelevance

Exploit existing demand Create & capture new demand

Make the value/cost trade-off Break the value/cost trade-off

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

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

1-11

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 : Cirque du Soleil

1-12

Authors’ studies on Blue Oceans

Cirque du Soleil is just one of more than

150 blue ocean creations

Studies encompass over 30 industries

Data used stretches more than 100 years

Analyzes companies that create blue

oceans vs. companies that are

TRAPPED in red oceans

1-13

ONCE UPON A TIME …

The term blue oceans is NEW but it has always been with us

What industries were unknown 100 years ago?AutomobilesMusic recordingAviationPetrochemicalsPharmaceuticalsManagement Consulting

AUTOMOBILEKey Blue Ocean Creations

Blue Ocean created by a new entrant or incumbent?

Driven by technology or value pioneering?

At time of creation, industry attractive or unattractive?

Ford Model T New Entrant Value (mostly existing technologies)

Unattractive

GM’s “car for every purse and purpose”

Incumbent Value (some new technologies)

Attractive

Japanese fuel-efficient cars


Unattractive

Chrysler minivan Incumbent Value (mostly existing technologies)

Unattractive

1-15

COMPUTERSKey Blue Ocean Creations

Blue Ocean created by a new entrant or incumbent?

Driven by technology or value pioneering?

At time of creation, industry attractive or unattractive?

CTR tabulating machine (CTR is now IBM)


Unattractive

Apple personal Computer

New Entrant Value (mostly existing technologies)

Unattractive

Compaq PC Servers

Incumbent Value (mostly existing technologies)

Nonexistent

Dell built-to-order computers

New Entrant Value (mostly existing technologies)

Unattractive

1-16

I. INTRODUCTION

VIII. CONCLUSION







1-17

PARADOX OF STRATEGY

In a study of 108 companies 86% of new ventures were line

extension or incremental improvements to existing industries.

Only 14% were aimed at creating new markets or strategies

Line extensions provided 62% of total revenues but only 39% of total profits

In contrast, only the 14% invested in creating new markets it delivered 38% of total revenues but it delivered 61% of total profits

1-18

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

1-19

What focusing on the red ocean means

It means accepting the key constraints of war

Limited terrain The need to beat an enemy to succeed

Denying the distinctive strength of the business world – the capacity to create new market space that is uncontested

1-20

Competition matters but…

It ignores two very important and far

more lucrative aspects of strategy:

To find and develop markets where there is little

or no competition (blue oceans)

To exploit and protect blue oceans

1-21

I. INTRODUCTION

VIII. CONCLUSION







1-22

TOWARD BLUE OCEAN STRATEGY

Key blue ocean creation (closely touch

people live):

- Autos; how people get to work.

- Computers; what people use at work.

- Movie theatre; where people go after work

for enjoyment.

1-23

Key Points of Blue Ocean Strategy

Blue oceans were seldom the result of

technological innovation per se.

- In computer industry, the blue ocean didn’t

come about through technology innovations

alone, but by linking technology to what

buyers valued.

1-24

KEY POINTS CONT’D.

Incumbents often create blue oceans-and

usually within their core business.

- GM, the Japanese automakers, and

chrysler were established players when

they created blue oceans in the auto

industry.

- Incumbents are not at disadvantage in

creating new market spaces.

1-25

Key Points cont’d

Company and Industry are the wrong units of

analysis.

- the most appropriate unit of analysis is strategic

move; the set of managerial actions & decisions

involved in making a major market- creating

business offering. Ex. Compaq is considered

unsuccessful because acquired by HP in 2001.

1-26

Key Points cont’d

Creating blue oceans build brands.

- Model T rolled off Henry Ford’s assembly line

in1908, but the company’s brand still benefit form

the blue ocean move.

- Large R&D budgets are not the key of creating

new market space.

-The key is making the right strategic moves;

create multiple blue oceans overtime.

1-27

I. INTRODUCTION

VIII. CONCLUSION







1-28

Value Innovation: The Cornerstone of Blue Ocean Strategy

Value creation alone improves value but is not sufficient to make you stand out in the marketplace

Innovation alone will often create a product that buyers are not willing to pay for

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

Value innovation:Make the competition irrelevantCreate a leap in value for both buyers and your

companyOpen up new and uncontested market space

Generic Strategies vs. Value InnovationGeneric Strategies vs. Value Innovation

High

Low

V1

C1

Cost

Quality

HighHigh

High

LowLow

Low

Quality

Cost

•

•

V1

C1

Red Ocean Strategy Blue Ocean Strategy

Structuralist Reconstructionist

UtilityCreate new

buyer

utilities

PriceSet a price that

attracts a mass

of buyers

Cost

Set the structure based on a target

Value Innovation

Unlocking non-customer demandUnlocking non-customer demand

The Core PrinciplesThe Core Principles

Reconstruct Market Reconstruct Market

BoundariesBoundaries

… overcome believes.

Reach beyond

existing Demand

… go for uncontested space.

Get the strategic

sequence right

… value [innovation] first.

VIVI

COST

VALUE

RECONSTRUCT MARKET BOUNDARIES

IndustryFocuses on rivals within its industry

Strategic GroupFocuses on competitive position within strategic group

Buyer GroupFocuses on better serving the buyer group

Scope of Product and Service

Offerings

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

Functional-emotional Orientation of an

Industry

Focuses on improving price-performance with the functional-emotional orientation of this industry

Time/TrendsFocuses on adapting to external

trends as they occur

Looks across alternative industries

Looks across strategic groups within its industry

Redefines the buyer group of the industry

Looks across to complementary product and service offerings that go beyond the bounds of its industry

Rethinks the functional-emotional orientation of its industry

Participation in shaping external trends over time

Boundaries of

CompetitionHead-to-Head

Competition

Creating

New Market Space

The Core Principles

Reconstruct Market

Boundaries


Reach beyondReach beyond

existing Demandexisting Demand

… go for uncontested space.Get the strategic

sequence right


VIVI

COST

VALUE

1-34

Reach beyond existing demand

Core Customer Noncostumer

Soon-to-be-NCRefusing Customer

The Core Principles

Reconstruct Market

Boundaries


Reach beyond

existing Demand

… go for uncontested space.

Get the strategic Get the strategic

sequence rightsequence right


VIVI

COST

VALUE

Get the Strategic Sequence right

Buyer utility

Is there exceptional buyer

utility in your business idea?

Adoption

What are the adoption hurdles in actualizing your business idea?

Are you addressing them up front?

Price

Is your price easily accessible to the mass of buyers?

Cost

Can you attain your cost target to profit at your strategic price?

A commercially viable Blue Ocean Strategy

YES

YES

YES

YES

No Rethink

No Rethink

No Rethink

No Rethink

FOUR ACTIONS FRAMEWORK: KEY TO VALUE CURVE

REDUCEWhat factors should be reduced well below the industry standard?

RAISE

What factors should be raised well above the industry standard?

The key to discovering a new value curve lies in answering four basic questions

Creating new markets:A new value curve

Creating new markets:A new value curve

ELIMINATE

What factors that the industry has taken for granted should be eliminated?

CREATE/ADD

What factors that the industry has never offered should be created or added?

Cirque du Soleil example

1-38

I. INTRODUCTION

VIII. CONCLUSION







1-39

Barriers to Imitation

Blue ocean strategy creates:

Considerable economic

Cognitive barriers to imitation

Companies that create blue oceans usually

reap the benefits without credible challenges

for 10 to 15 years

1-40

Blue ocean strategy

Immediately attract customers in large volumes, they are able to generate scale economies very rapidly, putting would-be imitators at an immediate and continuing cost disadvantage.

Create network externalities

When imitation requires companies to make changes to their whole system of activities, organizational politics may impede a would-be competitors ability to switch to divergent business model of a blue ocean strategy.

1-41

Blue ocean strategy

The cognitive barriers can be just as

effective. When a company offers a leap in

value, it rapidly earns brand buzz and a

loyal following in the marketplace.

Sometimes, attempts to imitate a blue ocean

creator conflict with the imitator’s existing

brand image

The Body Shop shuns top models and

makes no promises of eternal youth and

beauty

For the established cosmetic brands like

Estée Lauder and L’Oréal, imitation was

very difficult, because it would have

signaled a complete invalidation of their

current images, which are based on

promises of eternal youth and beauty

1-43

The Simultaneous Pursuit of Differentiation and Low Cost

Costs savings are made from eliminating and reducing factors an industry competes on

Buyer value is lifted by raising and reacting elements the industry has never offered

Over time, costs are reduced further as scale economies kick in, due to the high sales volumes that superior value generates

1-44

I. INTRODUCTION

VIII. CONCLUSION







A CONSISTENT PATTERN

the striking parallels between the Cirque du Soleil theater-circus experience and Ford's

creation of the Model T.

A Consistent Pattern while our conceptual articulation of the pattern may be new, blue ocean strategy has always existed, whether or not companies have been conscious of the fact.

At the end of the nineteenth century, the automobile industry was small & unattractive.

Woodrow Wilson caught the spirit of the times when he said in 1906 that "nothing has spread socialistic feeling more than

the automobile." He called it "a picture of the arrogance of wealth”

to beat the competition and steal a share of existing demand from other automakers

reconstructed the industry boundaries of cars and horse-drawn carriages to create a blue ocean

It was Henry Ford's understanding of these advantages that showed him how he could break away from the competition & unlock enormous untapped demand.

creating fashionable, customized cars for weekends in the countryside, a luxury few could justify.

built a car that, like the horse-drawn carriage, was for everyday use

Reliable and durable, designed to travel effortlessly over dirt roads in rain, snow, or sunshine.easy to use and fixwent outside the industry for a price point:(the first Model T: $850; 1909:$609, by 1924: down to $290)

Ford converted buyers of horse-drawn carriages into car buyers - just as Cirque turned theatergoers into circusgoers. Sales ofthe Model T boomed. Ford's market share surged: 9% (1908) -> 61% (1921) -> by 1923: a majority of American households had a car.

Ford called the Model T the car "for the great multitude, constructed of the best materials."

THE MASS

OF BUYERS

A LEAP

IN VALUE

ACHIEVEMENT

THE LOWEST COST STRUCTURE IN THE INDUSTRY

. Ford's revolutionary assembly line replaced craftsmen with unskilled laborers, each of whom worked quickly and efficiently on one small task.

make a car in just four days - 21 days was the industry norm-creating huge cost savings.

1-48

I. INTRODUCTION

VIII. CONCLUSION







1-49

CONCLUSION＊ Moving into untapped or uncontested markets (blue

oceans) is a preferable strategy to fighting it out in saturated markets (red oceans).

＊ Innovation is the key to creating blue oceans. Create something that is new, and you will reap the rewards.

＊ Blue Ocean Strategy can be applied across the entire value chain from products, to services, to delivery, and across industries

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