Blue Ocean Strategy

Prof.Dr.Aung Tun Thet

Life’s most urgent question is:

What are you doing for others?

 You have two hands.

One is for helping yourself.

The other is for helping others.

 We do no great things,

Only small things with great love.

Introduction
 Competing in overcrowded
industries no way to sustain high
performance
 Create blue oceans of
uncontested market space
 Strategy Formulation
External Internal
Appraisal Appraisal

Threats/ Strengths/
Opportunities Strategy Weaknesses
creation
Key success Distinctive
factors competencies
Strategy
choice Managerial
CSR values

implementation
 Forms of Strategy

Inte
n
stra ded
te g
y

Del
ib
stra erate
te g
y

Unrealized Realized
strategy strategy

Emergent
strategy
Blue and Red Oceans
 100 years ago
• Automobiles
• Music recorders
• Aviation
• Pharmaceutical
• Management consultancy
 30 years ago
• Cellular phones
• Biotechnology
• Express package delivery
• Snowboards
• Coffee bars
• Home videos
20 years from now
• Blue ocean the engine of growth
• Red oceans – established
market spaces shrinking
 Business Universe

Blue Red
Oceans Oceans
• All industries in existence
• Known market space
• Industry boundaries defined and
accepted
• Competitive rules of game
understood
• Try to outperform rivals
• Overcrowded
• Prospects for growth and profits
reduced

Red
Oceans
• Industries not inexistence
• Unknown market space
• Space untainted by competition
• Demand created not fought over
• Opportunity for growth and profits
reduced

Blue
Oceans
Two ways to create Blue Oceans

• Completely new industry –

eBay
• Created from within a Red
Ocean – alters boundaries
of existing industry
• Cirque Soleil – break
through barrier separating
circus and theater
 Blue Ocean
• New term
• Concept not new
The Paradox of Strategy
 Red Oceans
• Common
• 86% of new ventures line extensions
• 14% create new markets or industries
 Contrasts

70 62 61
60
50
39 38
40
%
30

20
10
0
Line extensions New markets and
industries

Revenues Profits
 Imbalance
• Corporate strategy influenced by military
strategy
• Strategy about competition
• Confronting an opponent
• Driving out of territory
 Red Ocean
• Accepting key constraining factors of war
• Limited terrain
• Need to beat an enemy to succeed
• Denying the distinctive strength of the
business world – capacity to create new
uncontested market space
 Red Ocean
• Japanese competition in the 70s and 80s
• Competition the core of corporate success
or failure
• Competitive advantage – companies
outperform rivals and capture greater
market shares
 Focus on competition
• Ignore two important aspects
1. Find and develop markets where there is
little or no competition – blue oceans
2. Exploit and protect blue oceans
 Blue Ocean Strategy
• Doing business where there is no
competitor
• Creating new land – not dividing up
existing land
Towards Blue Ocean
Strategy
 Strategic logic of Blue Ocean
Strategy
• Blue oceans not about technological innovations
• Incumbents often create blue oceans – and
usually within their core business
• Traditional units of strategic analysis – company
and industry – little explanatory power
• Creating blue oceans builds brands
Blue Ocean Strategic Thinking

• Away from traditional

model
• Understanding the
difference Red and Blue
Oceans
 Three Circle
Strategic Thinking
 Executives
• Understand the importance of competitive
advantage to grow and be profitable over the
long term
• Confused by language of strategy
• Bogged down with technical details of analytical
tools
 Three Circles
• Visual representation of strategy
• Simple tool
 Competitors’
offerings

C
Their points
A of difference
D
Points
of parity
E
B White
F Our points Space
of difference (BLUE
OCEAN)
Company’s Customers’
offerings needs
 Three Circles
• First Circle: What the most important customer
or customer segments want or need
• Second Circle: How customers perceive the
company’s offerings
• Overlap of first and second circles: How well
the company’s offerings fulfill customers’ needs
• Third Circle: How customers perceive the
offerings of company’s competitors
 Each area within the circles
• Strategically important
• A, B, and C: Critical in building competitive advantage
• A: How big and sustainable are our advantages? Are
they based on distinctive capabilities?
• B: Are we delivering effectively in the area of parity?
• C: How can we counter our competitors’ advantages?
 Each area within the circles
• E: (White Space): Blue Ocean -
Opportunity for growth
• D, F and G: Value the company or its
competitors create that customers don’t
need
Defining Characteristics
Red Ocean Versus Blue Ocean Strategy

Red Ocean Strategy

Compete in existing market space
Beat the competition
Exploit existing demand
Make value/cost trade-off
Align activities with strategic choice of
differentiation or low cost
 Red Ocean Versus Blue Ocean Strategy

Blue Ocean Strategy

Create uncontested market space
Make the competition irrelevant
Create and capture new demand
Break value/cost trade-off
Align activities in pursuit of differentiati9on
and low cost
 Conventional strategy
• Trade-off exists between value and cost
• Companies create greater value for
customers at higher costs, or
• Reasonable value at lower costs
• Choice between value and low cost
 Blue Ocean Strategy
• Rejects conventional strategy
• Successful companies pursue value and
low cost simultaneously
 Blue Ocean Strategy
• Fundamental change in strategic mind-set
• Reconstructionist view
• Not the environmental determinism or
structuralist view of Red Ocean Strategy
 COSTS

blue
ocean

BUYER VALUE
 The Simultaneous Pursuit of
Differentiation and Low Cost

Blue ocean created in the region where a

company’s actions favourably affect both
its cost structure and its value proposition
to buyers
 Ford Model T
• End of 19th century automobile industry small
and unattractive
• 500 carmakers produce handmade luxury cars
• Unpopular with public
 Ford Model T
• Industry boundaries – fashionable customized
cars and horse-drawn carriages
• Unlocked enormous untapped demand
• One colour – black
• Provided value at lower cost
Circus Business

• Long-term decline
• Decreasing audience
• Increasing costs
• Alternative forms of
entertainment
Cirque Soleil

• Reinvented the circus

• Did not compete within
the confines of the
existing industry
• Did not steal from
competitors
Cirque Soleil

• Created uncontested
market space
• Made competition
irrelevant
• Brought in a new group of
customers – adults,
corporate clients
 Blue Oceans
• CNN
• Home Depot
• Federal Express
Conclusion
 Red and Blue Oceans

• Coexists
• Companies must understand strategic
logic of both types
 Red and Blue Oceans

• Red Oceans dominates in theory and

practice
• Need to create Blue Ocean intensifies
• Better balance in strategic thinking
• “It’s impossible,” says Reason
• “It’s reckless,” says Experience
• “It’s painful,” says Pride
• “Try! Says Dream
•Never laugh at anyone's
dreams.
•People who don't have
dreams don't have much.