Blue Ocean Strategy
Blue Ocean Strategy
Blue Ocean Strategy
Accolades
• Many current multibillion dollar industries today did not exist just thirty
years ago.
• Cell phones
• Coffee bars
• Snowboards
• Unlike war, the history of the industry shows that the market universe has
never been constant; blue oceans have been continuously created over time
• Red Ocean focus denies distinctive strength of the business world and denies
your capacity to created new market space
Profit and Growth Consequences of Creating Blue Oceans
Rising Imperative of
Creating Blue Oceans
• Accelerated technological advances
• Globalization
A: In short, no.
Industry role in the
development of blue oceans
Myths:
• Public/Private companies play role in which ocean you
live in
• High tech industries have better chance of creating blue
oceans
• New companies can avoid red oceans
• Unattractive industries lead companies to live in the red
oceans
Value Innovation: The Cornerstone
of Blue Ocean Strategy
It compares core
competencies for
competition and their
level of importance for
each player in the
market.
How to use it in BOS?
1. Eliminate
4. Create
Which factors that the
A New Value Which factors should be
industry takes for
Curve created that the industry
granted should be
has not seen before?
eliminated?
3. Raise
Which factors should be
raised well above the
industry standard?
Figure 2-2
The Four Actions Framework
1. Eliminate (competition)
• Factors your industry competes on
• Change in what buyers value
2. Reduce (competition)
• Overdesigned products
• Over served customers
3. Raise (customers)
• Eliminate compromises
4. Create (customers)
• New sources of value
• New demand
McDonald’s Framework
• Create New Sources of Value:
• Brand
• customer care
• cost structure
• its patent
• target audience
*http://ezinearticles.com/?McDonalds-Business-Analysis&id=687438
Eliminate-Reduce-Raise-Create Grid
Figure 2-5: The Case of McDonald’s
Eliminate Raise
Super Size Option •Health Standards
Reduce Create
•Calories in burgers Salad Menu
Characteristics of a Good Strategy
• Focus
• Divergence
• Compelling Tagline
FOCUS
• Identify key factors of competition
• EX. Quality, speed, price, innovation…..
• Six paths
• Six basic approaches to remaking market boundaries
• Leading companies to visible blue ocean ideas
Path 1: Look Across Alternative
Industries
• Companies compete with their competitors as well as
alternatives to their product or services
• Substitutes
• Alternatives
-Example: Coca-Cola
• Substitutes: Pepsi, Dr. Pepper
• Alternatives: Tap Water, Freshly squeezed fruit or vegetable
juice, Wine, Milk, Coffee
Path 1: Look Across Alternative
Industries
Buyers implicitly weigh purchasing alternatives, often
unconsciously
Sellers rarely think about how their customers make trade-offs
with alternatives
Space between alternative industries provides opportunities for
value innovation
By focusing on the key factors that lead buyers to trade across
alternative industries and eliminating or reducing everything
else, you can create a blue ocean of new market space
Examples: Companies Looking Across
Alternative Industries
• Home Depot:
• Expertise of professional home contractors at markedly lower prices
than hardware stores
• They have transformed ordinary homeowners into do-it-yourselfers
• Southwest Airlines:
• Speed of air travel at price of car travel
Coca-Cola
• Coca-Cola looked across alternative industries and entered the
markets of:
• Sporting Events
• Bowling Alleys
• Movie Theaters
• Make themselves available to all thirsty consumers
Path 2: Look Across Strategic
Groups Within Industries
1. Purchasers
2. Users
3. Influencers
• Individual companies often target different customer
segments
• -ex: Large vs small customers
• An industry typically comes together at a single buyer
group
• Such as:
• Pharmaceutical industry on influencers: doctors
• Office equipment industry on purchasers: corporate
purchasing department
• Clothing industry sells predominately to users
When someone challenges industries
wisdom about which buyer group to
target can lead to new ocean
discoveries.
Novo Nordisk
SAP
• Shifted focus of business application software from
functional user to corporate purchaser
• Created successful real-time integrated software business
• Example: Coca-Cola
NABI
• Hungarian bus company that applied Path 4 to U.S. transit bus
industry
• Competition competed on offering the lowest purchase price for
buses
• But,
• Designs outdated
• Delivery times were late
• Quality was low
NABI
• Discovered it was costs that came after initial bus was purchased
• Maintenance over it’s 12 year cycle
• Repairs after accidents
• Fuel usage
• Wear and tear
• Rusting
• Rising demand for cleaner air
NABI Finds Total Solution
• Normally made of steel
• Heavy
• Corrosive
• Hard to replace parts after accidents
• NABI adopted fiberglass when making it’s buses
• Solution that killed 5 birds with one stone
Fiberglass Buses
• Cut costs by being corrosion free
• Light weight cut fuel consumption and emissions
• After accidents they didn’t have to replace a whole panel rather they
could cut the damaged area and replace it
• Lighter weight also meant lower powered engines and fewer axles
which cut costs
• And gave more space inside the bus
Other Examples
• The British Teakettle
• Virgin Entertainment
• Dyson
Path 5: Competition in Industries
• 2. Must be irreversible
Eliminate Raise
Reduce Create
Example:
• Merrill Lynch announcing online brokerage service.
Business Partners
Those that have a vested interest want to know how the
implementation of a new business idea will effect current revenues
from existing offerings.
Example:
• Southwest offering international flights
The General Public
Hesitation among the general public can be triggered by a product that
is very new and innovative; therefore threatening social or political
norms.
Example:
• Monsanto producing genetically modified foods.
Blue Ocean Idea Index
Philips Motorola DoCoMo i-mode
CD-I Iridium Japan
Utility Is there exceptional
utility? Are there
compelling reasons to - - +
buy your offering?
Political Hurdle
Resource Hurdle
Opposition from powerful
Limited resources
vested interests
Motivational Hurdle
Unmotivated staff
New York Police Department in the Early
1990s
• Murder-rate at all-time high
• Bill Bratton turned NYC into the safest large city in the U.S.
-When individuals feel recognized for their intellectual worth, they are
willing to share their knowledge.
Emotional Recognition
-Treating individuals with full respect and dignity and appreciating them
for their work