CH 1. Creating Blue Oceans

Creating Blue Oceans
BUSI 5805
MBA IRAN
Cirque du Soleil
• Why do blue oceans exist?
– Business and markets never stands still
• Achieved rapid growth in declining market
• Found new market space
• Customer focus
– Eliminated animal acts
– Introduced Theater ideas and storyline
• Offer fun and thrill of circus with
sophistication of theater.
Cirque du Soleil
Cirque du
Soleil
Circus Theater
Markets
BLUE RED
OCEANS OCEANS
All unknown markets or markets Established markets. All known

not in existence today markets in existence
-Industry boundaries are -Industry boundaries are
undefined defined
-Competitive rules unknown -Competitive rules known and
and companies look for demand companies compete on
creation traditional methods
Blue Oceans
• Created (generally) from expansion of red
oceans.
– Management ideas, opportunities, SWOT,
Environmental scan, R&D, Technology
• No Competition – No competitors
• Traditional focus of strategic management based
on red ocean strategies
– analyze underlying economic structure,
– determining strategic position/strategy
– Benchmarking industry
– Convergence to target market
Examples in past 30 years
• Mutual funds • Ford
• Cell phones • CNN
• Biotechnology • Starbucks
• Coffee bars (Starbucks) • Microsoft
• Home video, VCD, DVD • Southwest Airlines
• CD, MP3 • Cirque du Soleil
• Minivans • Chrysler
• Snowboards
• Internet
Growing Blue Oceans
Launches from Red Oceans
Business
86% 14%
launch
62% Revenue
38%
Impact
Profit
39% 61%
Impact
Launches from Blue Oceans

Driving Forces for Blue Oceans
• Accelerated technological advances
– Improved industrial productivity
– Limited competitive advantage for
technological advances (shorter time horizon)
• Trend towards globalization
– Decline of trade barriers, niche markets and
monopolies
– Increasing supply without increasing demand
is forcing companies to look for new
markets/opportunities
Results
• Accelerated commoditization of products
and services
– As products become standardized, selection
is based more on prices
• Increasing price wars
• Shrinking profit margins
Strategic Moves to succeed
• Strategic move: The set of managerial actions
and decisions involved in making a major market-
creating business offering.
• Commonality seems to exist in strategic moves by
all firms finding blue oceans.
• However, there was not commonality in types of
firms:
– small/large - attractive/unattractive industries
– Young/mature - private/public
– Low/hi tech - diverse national origins
Value Innovation
• Instead of focusing on competition, focus on making
the competition irrelevant by creating a leap in value
for buyers, and opening uncontested market space.
• Value without innovation – red ocean strategy of
value creation on incremental scale (new bells or
whistles)
• Innovation without value – red ocean technology
innovation (often beyond what consumers are ready
to accept or pay for).
• Value innovation occurs when companies align
innovation with utility, price and cost positions
thereby defying the traditional Cost-Value Tradeoff.
• Focus on differentiation and low cost simultaneously
Value Innovation
Costs
Simultaneous pursuit of
Differentiation and Low Value
Costs. Innovation
*****
Buyer value
Red Ocean vs. Blue Ocean
• Red Ocean Strategy • Blue Ocean Strategy
• Competes in existing • Create uncontested
market space. market space
• Beat the competition • Make the competition
• Exploit existing demand irrelevant
• Make the value-cost • Create and capture new
trade-off demand
• Align firms activities with • Break the value-cost
strategic choice of trade-off
differentiation OR low • Align activities in pursuit
cost of differentiation AND low
cost.
Formulating and Executing Blue
Ocean Strategy
• General belief (red ocean) that going
beyond existing industry space is low odds
of success.
• Most business strategy is red ocean
focused.
– Based on 6 principles
• Decreasing search risk, planning risk, scale risk,
business model risk, organizational risk and
management risk.
Four Guiding Formulation
Principles
• Identify paths to systematically create
uncontested market space and make the
competition irrelevant (search risk)
• Design strategic planning to go beyond
incremental improvements to create value
innovations (planning risk)
• Maximize the blue ocean to create the greatest
market of new demand. (scale risk)
• Design strategy to allow companies to provide a
leap in value to buyers and build viable business
model to produce and maintain profitable growth
for itself. (business model risk).
Two Guiding Execution Principles
• Mobilize the organization to overcome key
organizational hurdles that block
implementation of a blue ocean.
(Organizational risk)
• Motivating people to act on and execute a
blue ocean strategy (management risk).
Six Principles of Blue Ocean
Strategy
• Formulation Principles • Risk Factors
– Reconstruct market – Decrease search risk
boundaries
– Focus on big picture, not – Decrease planning risk
numbers
– Reach beyond existing
– Decrease scale risk
demand
– Get the strategic sequence
straight – Decrease business model
risk
• Execution Principles
– Overcome key
• Risk Factor
organizational hurdles – Organizational risk
– Build execution into
strategy – Management risk

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Creating Blue Oceans

All unknown markets or markets Established markets. All known

Launches from Blue Oceans

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