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BLUE OCEAN

STRATEGY

Blue Ocean Strategy


Blue Ocean Strategy was developed by W. Chan
Kim and Rene Mauborgne.
They describe the bifurcation of the global
business sea into two primary types of
environments/waters: Red Oceans and Blue
Oceans.
This metaphor is used to describe the
differences between the market boundaries and
degree of competition in each sea.
https://www.youtube.com/watch?v=8ExRnpy4rPE

Red Ocean

The red ocean is comprised of all businesses,


operating in a highly competitive marketplace,
marked by relatively undifferentiated,
commoditized products and services.
The boundaries of the red ocean are well
defined and the size of the pie is essentially fixed
based on customer demand - existing companies
and new entrants supply the market with goods
and services while fighting with one another to
steal a bigger share of the relatively fixed
customer demand.

Red Ocean (Contd..)

Organizations attempt to compete by reducing


prices below their competitors in order to attract,
which in turn reduces profit margins to such thin
levels that future opportunities become limited, or
eliminated altogether by the strongest competition
in this "survival of the fittest" environment.
Eventually, the business industry (ocean), which
may have begun as a promising sea of
opportunities (clear waters), will become
unattractive with few growth prospects and much
bloodshed (red ocean).

Blue Ocean

Blue oceans denote all industries NOT in


existence today
The Unknown market space
Untainted by competition
In Blue Oceans, demand is created not
fought over
In Blue Oceans, growth is profitable and
rapid

Once upon a time

The term blue oceans is new but it has


always been with us.
Many industries were unknown 100 years
ago

Automobiles
Music recording
Aviation
Petrochemicals
Pharmaceuticals
Management Consulting

Blue Ocean Vs. Red Ocean

The Paradox of Strategy

In a study of 108 companies

86% of new ventures were line extensions 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, on the 14% invested in
creating new markets it delivered 38%
of the total revenues BUT it delivered
61% of TOTAL PROFITS!!!

Why this 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
When you fight head on both bleed.

Authors studies on Blue Oceans

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.

Two ways to create Blue Oceans

Companies can give rise to complete


new industries
Created within a red ocean when a
company alters the boundaries of an
existing company

Blue Ocean Findings

Blue Oceans are not about technology


innovation
Company and industry are wrong units
of analysis
Creating Blue Oceans builds brands

Blue Oceans & Technology


Innovations

Leading-edge technology is involved but


not the defining feature
This is true even with technology-intensive
industries
Blue oceans are seldom the result of
technology innovation the underlying
technology is often already in existence
About linking technology to what buyers
want and/or simplifying the technology

Creating uncontested market space

Blue ocean strategy doesnt aim to outperform the competition. It aims to make
the competition irrelevant by
reconstructing industry boundaries.

Canon

Canon

Traditional copy machine manufacturers targeted office


purchasing managers, who wanted machines that were
large, durable, fast, and required minimal maintenance.
Defying the industry logic, the Japanese company Canon
created a blue ocean of new market space by shifting
the target customer of the copier industry from
corporate purchasers to users.
With their small, easy-to-use desktop copiers and
printers Canon created new market space.
By shifting focus to a previously overlooked set of
buyers, companies can unlock new value and create
uncontested market space.

Six Paths Framework

Three Tiers of Noncustomers

Typically, to grow their share of a


market, companies strive to retain and
expand their existing customer base.
This often leads to finer segmentation
and greater tailoring of offerings to
better meet customer preferences.
As companies compete to embrace
customer preferences through finer
segmentation, they often risk creating
too-small target markets.

Three Tiers of Noncustomers

To maximize the size of their blue oceans,


companies need to take a reverse course.
Instead of concentrating on customers, they
need to look to noncustomers.
And instead of focusing on customer
differences, they need to build on powerful
commonalities in what buyers value.
This reorientation allows companies to reach
beyond existing demand to unlock a new
mass of customers that did not exist before.

Three Tiers of Noncustomers

Porters Five Forces vs. Blue


Ocean Strategy
Porters Five Forces

Porter warns you for being stuck in


the middle either you choose
differentiation or cost leadership you
cant choose both strategies at the
same time.

Blue Ocean Strategy

Blue ocean strategy pre


recognizes to reach you need to
do both.

Porters Five Forces vs. Blue


Ocean Strategy
Porters Five Forces

Blue Ocean Strategy

Blue ocean strategy is a formula


for the blue oceans.

The five forces analysis is a formula


for the red oceans where competitors
fight head on.

It encourages companies to
focus less on their competitors
and more on alternatives, while
at the same time focusing less
on their current customers and
more on potential new
customers.

Porters Five Forces vs. Blue


Ocean Strategy
Porters Five Forces

The Porters Five Forces is focusing


more on what makes an organization
competitive in existing red markets
and it is concerned with the microenvironmental factors affecting
businesses within the same industry.

Blue Ocean Strategy

Blue Ocean Strategy is a


strategy that is undertaken by
an organization in a new
dimension in which its
competitors havent ventured
into.

Porters Five Forces vs. Blue


Ocean Strategy
Porters Five Forces

Porters model is based on the insight


that a corporate strategy should
meet the opportunities and threats in
the organizations external
environment.

Especially, competitive strategy


should base on and understanding of
industry structures and the way
they change.

Blue Ocean Strategy

The Blue Ocean Strategytake


the view that innovation should
create new market space, tap
into unsatisfied consumer
demand, and find uncontested
market space. In this way,
competition can become quite
irrelevant because the rules of
the game are waiting to be set.

Resource-based view

The resource-based view (RBV) emerged


where the proponents argued that a
firms competitive advantage lies
primarily in the application of a bundle of
valuable, tangible or intangible
resources at the firms disposal.
In other words, resources do matter to
gain competitive advantage.

Dynamic capability view

The dynamic capability view says


the firms ability to integrate, build, and
reconfigure internal and external
competences to address rapidly
changing environments.
In other words, innovation does matter.

Blue ocean strategy

As per Blue ocean strategy you can open


and capture a blue ocean of uncontested
market with an opportunity-maximizing
and risk-minimizing strategy.
In other words value innovation is
necessity to escape from the red ocean
trap.

Value innovation

This drive costs down while


simultaneously driving value up for
buyers by reconstructing industry
boundaries.
In other words, the framework will allow
you to differentiate while simultaneously
lowering your cost.

Southwest Airlines

Southwest tapped into a customer base


who preferred driving to air travel due to
the lower cost.
Instead of competing with other airlines,
Southwest positioned itself as an
alternative to cars and offered reduced
prices, improved check-in times and
increased flight frequency.

The Ford Model T

The Ford Model T

Fords Model T, introduced in 1908.


Until that time, Americas five hundred automakers
built custom-made novelty automobiles.
Despite the number of automakers, the industry was
small and unattractive with cars unreliable and
expensive, costing around $1,500, twice the average
annual family income. But Ford changed all of that
with the Model T.
Although it only came in one color (black) and one
model, the Model T was reliable, durable, and easy
to fix. And it was priced so that the majority of
Americans could afford one.

Conclusion

Blue oceans and red oceans have always coexisted.


At present, competing in red ocean dominates the field of
strategy in theory and practice.
Blue ocean strategies have always existed, its just that it
has been largely unconscious.
Once organizations realize the strategies for creating and
capturing blue oceans works differently from re oceans,
they will be able to create more and more blue oceans.
Blue Ocean Strategies can go unchallenged for some
years.
Companies will need to re-implement their Blue Ocean
Strategy from time to time to continue the success of the
business.

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