Blue Ocean StrategyPreface Chapter 1: Creating Blue Oceans Group 3 Anna Rendon Olivia Erwin Chase Mueller Paige Stone Tanner Gilreath Brandon Laviage Ashley Hoptay
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.
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!
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
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. Red Oceans VS Blue Oceans
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.
The Continuing Creation of Blue Oceans • Although the term blue oceans is new, their existence is not. • Examples: We’re use to these industries, but they weren’t always in existence. • Automobiles • Aviation • Music Recording • Cell Phones • Snowboards • Coffee Chops • Think of all of the unknown industries the future will reveal.
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 system’s replacement is a sign of how significant the expansion of blue oceans has been because the systems are designed for standardization and continuity.
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.
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.
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
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 didn’t use the competition as a benchmark, but instead used value innovation.
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.
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.
Value-Cost Trade Off • Red Ocean companies tend to choose between low cost and differentiation. • Blue Ocean companies aim for both simultaneously.
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
How do you achieve value innovation? • It is done when the whole system of the company’s utility, price, and cost activities are properly aligned with each other
So what does it mean? • Value innovation is more than innovation • It’s about strategy that embraces the entire system of a company's activities
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)
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
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
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
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
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
Examples of Blue Oceans • Ford • Model T • General Motors • Styled cars to emotions • CNN • 24/7 News Channel • Cirque Du Soleil • Sophisticated Entertainment
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.
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.