Blue Ocean Strategy : Chapter 9 Conclusion: The Sustainability and Renewal of Blue Ocean Strategy

1. Group 1 Jeff Ward Chris Athens Ben Baker Chris Bolinger Jordan Guenther Josh Carver Blue Ocean Strategy : Chapter 9Conclusion: The Sustainability and Renewal of Blue Ocean Strategy

2. Barriers to Imitation A Blue Ocean Strategy should go without credible challenges for 10 -15 years, which is what happened to Cirque du Soleil, Southwest Airlines, Federal Express, The Home Depot, Bloomberg, and CNN, when they started. Barriers to imitation can be cognitive and/or operational

3. Imitation Barriers to Blue Ocean Strategy pg 188 • Value innovation doesn’t make sense to a company’s conventional logic. • Blue ocean strategy may conflict with other companies’ brand image. • Natural monopoly: the market often cannot support a second player. • Patents or legal permits block imitation. • High volume leads to rapid cost advantage for the value innovator, discouraging followers from entering the market. • Network externalities discourage imitation. • Imitation often requires significant political, operational, and cultural changes. • Companies that value-innovate earn brand buzz and a loyal customer following that tends to shun imitators.

4. #1 - Value InnovationExample: CNN Major news networks ridiculed CNN for creating a 24hr 7 day a week news network without star broadcasters. CNN was often referred to as “Chicken Noodle News” Major networks refused to imitate CNN for fear of being ridiculed.

5. #2 – Blue ocean conflicts with others’ brand image. Example: The Body Shop The Body Shop opted for the “everyday woman.” They didn’t choose beautiful models, make promises of eternal beauty and youth, or develop expensive packaging. They Major competitors would not change because they feared that people would assume that their current business model was invalid. The Body Shop swam in their blue ocean for over 10 years with great success.

6. #3 - Natural MonopolyExample: Kinepolis Kinepolis created the 1st cinema megaplex in Europe in the city of Brussels. It has been an enormous success. The city of Brussels is not large enough to handle another megaplex. Therefore, no competitors have attempted it in 15 years. A natural monopoly blocks imitation when the size of a market cannot support another player. Local Example: Lubbock Power & Light

7. #4 – PatentsExample: Geron’s, StemCells, & Aastrom Biosciences • Just recently, the stem cell industry has began to make massive strides. • When Obama passed the bill to give funding to the stem cell industry, many companies were excited to see what will happen in the future. • Everyone of the major stem cell companies has patented their stem cell creation. From Geron’s, to StemCells, to Aastrom Biosciences. • Each one of these companies has a portfolio of patents that no one else can copy. This allows different companies to tap into the stem cell market and hopefully become successful in curing different diseases

8. #5 – High volume leadersExample: Wal-Mart Economies of Scale have provided huge cost advantages Wal-Mart’s purchasing power discourages other companies from imitating its blue ocean strategy. Small companies are unable to startup because of the low profit margins.

9. #6 – Network ExternalitiesExample: eBay Network Externality: A situation in which the price somebody is willing to pay to gain access to a network is based solely on the number of other people who are currently using it. The more customers eBay has online , the more attractive the auction site becomes for buyers and sellers. Imitators have a hard time competing on such network externalities. They usually fail to provide the customers with the variety necessary for popularity.

10. #6 – Network Externalities (continued)Example: Napster • Napster was initially founded to provide a means for a group of friends to share music via the internet. • After gaining popularity, Napster offered their service to the general public for free. The huge volume of users kept other companies from imitating Napster, until legal issues shut the site down. • Napster’s plan was to utilize the popularity and eventually charge customers a fee for use. • Though this touches on ethical issues, Napster chose to use the network externalities to their advantage.

11. #7 - Political, Operational, and Cultural ChangeExample: Southwest Airlines Created a service that offered the speed of air travel with the cost and flexibility of driving. Imitating would mean major revisions in routing planes, retraining staff, and changing marketing and pricing. Imitators have a hard time competing on these politics within the industry.

12. #8 – Brand BuzzExample: Quicken • Large brand buzz and a loyal following in the marketplace. • Imitators have a hard time competing even with large advertising budgets and aggressive tactics. • Microsoft’s Money vs. Quicken • Microsoft’s Money has competed for over 10 years without the same success.

13. #8 – Brand Buzz (continued)Example: IPhone vs Blackberry • Blackberry • Iphone

14. #8 – Brand Buzz (continued)Example: Starbucks • Starbucks was the very first coffee to change the coffee industry by going global. • They state “The bottom line is we always figured that putting people before products just made good common sense. So far, it’s been working out for us. Our relationships with farmers yield the highest quality coffees. The connections we make in communities create a loyal following. And the support we provide our baristas pays off everyday.” • Now, companies have copied Starbucks, but the name is what keeps the company strong and customers are still willing to pay over $5 for a Latte, simply because of the Brand. • Starbuck’s may soon swim in a red ocean with the introduction of McDonald’s “McCafe” and the current economy.

15. When to Value-Innovate Again • All successful companies have learned the art of competing in a red ocean. To ensure continued success, they must learn how to venture into the “blue ocean.” • After establishing their blue ocean, they must then constantly monitor the value curves of themselves and their competitors. • Once these curves start to converge, the business must decide how to innovate or start swimming in a red ocean. • A blue ocean will always turn red over time as total supply begins to exceed demand.

16. Knowing When to Value-Innovate Again • Must monitor value curves on the strategy canvas instead of traditional metrics. • Allows you to reach out for another Blue Ocean when your value curve begins to converge with those of your competitors. • Keeps you focused on your current Blue Ocean when there is still profit left • Resists you from temptation to value-innovate again and instead grow your current Blue Ocean

17. Knowing When to Value InnovateExample: Nintendo • Nintendo swam into a Blue Ocean of their own when they came out with the Wii. • The Wii might have lost its “PIZZAZZ” according to the business world today. • But for about 6 months, the product was on top of the world and everyone from adult to child was wanting to see what it was all about. • The interesting thing will be to see what Nintendo comes out with next to swim into a new blue ocean once the Wii goes to rest. But right now, Nintendo is the only company in this blue ocean. • What will Microsoft and Sony come out with next?

18. Value-Innovate Swim as far as possible in Blue Ocean Make yourself a moving target Distance yourself from imitators Discourage the process (make imitating look unattractive) Casella Wines [yellow tail]

19. Casella Wines’ Innovation Creates Advantage Casella Wines sources its fruit from 33 of Australia's 59 premium wine-growing regions, including the Barossa Valley and Coonawarra in South Australia, and Victoria's Mornington Peninsula. 15% of all wine products leaving Australia are Casella Wines products. All rainwater and wastewater is recycled at Casella Wines. The treatment plant is currently the largest of its type in Australia and is capable of recycling the equivalent of 160 Olympic-sized swimming pools every year. Casella Wines was inducted into Australia's Export Hall of Fame in 2005.

20. Take-Aways • Barriers to Imitation • When to Value-Innovate and when to stay on your current course • Stick to the 6 principles of Blue Ocean Strategy • Reconstruct Market Boundaries • Focus on the Big Picture, Not the Numbers • Reach Beyond Existing Demand • Get the Strategic Sequence Right • Overcome Key Organizational Hurdles • Build Execution into Strategy