Blue Ocean Strategy:

A Summary
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What is Blue Ocean?

• Rather than competing in current market

space (denotes as the Red Ocean).
• The Blue Ocean strategy focus on
uncharted market space not existed today.
Blue Ocean Cornerstone:

Value Innovation
1. Value and Innovation are created equally
at the same time.
2. Value Innovation requires companies to
orient the whole system toward
achieving a leap in value for both buyers
and themselves.
The Two Oceans in Comparison

Red Ocean Blue Ocean

1. Compete in existing 1. Create uncontested market
market. space.
2. Make the competition
2. Beat the Competition. irrelevant.
3. Exploit existing demand. 3. Create and capture new
4. Make the value-cost demand.
trade off. 4. Break the value-cost trade-
off.
5. Choice: differentiation 5. Pursuit diferentiation and low
or low cost cost
Principles of the Blue Ocean
How can one company reach beyond its current market space, for venturing
out its core business might endanger the company’s survivalibility? Kim &
Mauborgne create a principle, namely: Opportunity-maximizing, risk-
minimizing which address Six risk factors in creating Blue Ocean.

Formulation principles Risk factor addressed

1. Reconstruct market boundaries Ð Search risk
2. Focus on the big picture, not the number Ð Planning risk
3. Reach beyond existing demand Ð Scale risk
4. Get the strategic sequence right Ð Business model risk

Execution Prinicples Risk factor addressed

5. Overcome key organizational hurdles
Ð Organizational risk
6. Build execution into strategy Ð Management risk
1. Reconstruct Market Boundaries
Aims to minimize Search risk
Method:
• Seek out your industry’s strategy. Do you really
understand your industry’s common strategy?
• Six paths to undertand your current strategy:
1. Path 1: Look across alternative industries
2. Path 2: Look across strategic group within industries
3. Path 3: Look across the chain of buyers
4. Path 4: Look across complementary product and service offerings
5. Path 5: Look across functional or emotional appeal to buyers
6. Path 6: Look across time
• Then, draw it…
1. Reconstruct (cont’d)
Aims to minimize Search risk
Euroepan Foreign Exchange (EFS) estimation of its industry’s average strategy

High

EFS and its non-bank

competitors

Banks The EFS strategy is said to be

converged with existing competition
Low

Price Corporate Speed Ease of use Knowledge

dealers
Risk Relationship Responsiveness
Flexible payment
management management
terms
consultancy
2. Focus on the Big Picture
Aims to minimize Planning risk
Four Actions Framework in creating new value:

1. Eliminate. Which factors that the Goal:

market takes for granted should be To meet Cost
eliminated? Structure
2. Reduce. Which factors should be
reduced below industry’s standard?

3. Raise. Which factors should be

raised above industry’s standard? Goal:
4. Create. Which factors should be Delivering Value
to customers
created that the industry has never
offered?

Thus… creating new Value Curve

 2. Focus on the Big Picture (Cont’d)
Aims to minimize Planning risk
Euroepan Foreign Exchange (EFS) final Strategy Canvas
EFS “After” Strategy
High

Other traditional Competitor

and EFS “Before” Strategy
Low

Price Account Ease of use Accuracy Market Tracking

executives commentary
Risk Security Speed Confirmation
Corporate
management dealeres
consultancy
Characteristics of a Good Strategy

• Focus (as opposed to grab everything).

• Divergence (as opposed to be converged
with existing competition).
• Compelling Tagline (as a result of Focus &
Divergence).
3. Reach Beyond Existing Demand
Aims to minimize Planning risk

Focus on commonalitieis within:

• Costumers
• Non Customers:
– First-tier, soon-to-be who are now non
customers
– Second-tier, refusing customers who
consciously choose against your market
– Third-tier, unexplored customers
4. Get the Strategic Sequence Right
Aims to minimize Business Modeling risk
No-Rethink No-Rethink No-Rethink No-Rethink

Buyer utility Price utility Cost Adoption Blue Ocean

Yes Yes Yes Yes

Are you able to

addres any adoption
hurdles?
Can you attain your cost target to
profit at your strategic price?
Is your price easily accessible to the mass of
buyers?
Is there exeptional buyer utility in your business idea?
4. Get the Strategic Sequence (Cont’d)
Aims to minimize Business Modeling risk

Blue Ocean Profitability:

• ‘Target Price – Cost’ NOT ‘Cost + Margin’
• Is your cost structure perfectly fit into the Target Price?
• Is your price as a result of benchmarking to others (Red
Ocean) or as a result of looking across to alternative
industry?
• Your Target Price should not only to become lower
5. Overcome Key Organizational Hurdles
Aims to minimize Organizational risk

Four major problems:

1. Cognitive hurdle
2. Resource hurdle
3. Motivational hurdle
4. Political hurdle

Key Succes Factor:

Tipping Point Leadership
6. Build Execution into Strategy
Aims to minimize Management risk

• A company is not top management, nor is it only middle

management. A company is everyone from the top to the front line.
• To execute a strategy the whole people in the company must be
involved. The creation of culture of trust and commitment that
motivates people to execute the agreed strategy is extremely
important.

Fair Process Trust & Voluntary Exceeds

Commitment Cooperation Expectation
Engagement “I feel my opinion “I’ll go beyond the Self-initiated
Explanation counts” call of duty”
Expectation clarity
Blue Ocean Case: Casella Wines (1/4)
Reconstruct Market Boundaries Æ Address Search Risk
Once, there are only two wine product category in the
US: the Premium (highly Price) and the Budget (for
those who wants to enjoy wine with limited budget).
Casella Wines enter the market with different offer.
High
Premium Wines

These 2 are in
current competition

Budget Wines

Low

Price Above-the-line Vineyard prestige Wine range Ease of selection

marketing and legacy
Use of wine Wine complexity Easy drinking Fun and
Aging quality
enological adventure
terminology
Blue Ocean Case: Casella Wines (2/4)
The Four Actions Æ Address Planning Risk
Once, there are only two wine product category in the
US: the Premium (highly Price) and the Budget (for
those who wants to enjoy wine with limited budget).
Casella Wines enter the market with different offer.

Eliminate Raise
Enological terminology and distinctions Price versus bugdget wine
Above-the-line marketing Retail store involvement
Aging qualities

Reduce Create
Wine complexity Easy drinking
Wine range Ease of selection
Vineyard prestige Fun and adventure
Blue Ocean Case: Casella Wines (3/4)
Final Strategy Canvas: Focus, Diverge & Compelling
Once, there are only two wine product category in the
US: the Premium (highly Price) and the Budget (for
those who wants to enjoy wine with limited budget).
Casella Wines enter the market with different offer.
High
Premium Wines create these 3 factors

Casella Wines
reduce 3 these factors These 2 are in
raise this factor current competition

Budget Wines New contender:

Casella Wines

Casella Wines eliminate

these 3 factors

Low

Price Above-the-line Vineyard prestige Wine range Ease of selection

marketing and legacy
Use of wine Wine complexity Easy drinking Fun and
Aging quality
enological adventure
terminology
Reach beyond Existing Demand
Blue Ocean Case: Casella Wines (4/4)

Result
Casella Wines become number one in
market share within two years in the United
States, although the facts are not good:
the wine market has reached saturation
level and competition is extremely high.
Conclusion

• Value innovation, not value creation.

• Resist the temptation of benchmarking
competitors in existing market.
• Reorient strategy from customers to non-
customers.
Unlock the potential of creating and
developing new values that makes
competition irrelevant