BLUE OCEAN

Introduction

Theory proposed by W. Chan Kim and Renee Mauborgne The basic premise behind the theory is that – Competing in overcrowded industries will not result in sustainable high performance The real opportunity lies uncontested market space in creating BLUE OCEANS of

Overcrowded industries are those which have large number of competitors and the market players demonstrate high levels of intensive competition. Such industries are compared to RED OCEANS Kim and Mauborgne propose that the best way to drive profitable but sustainable growth is to stop competing in these ‘RED OCEANS’

Red Oceans  The market space is known. growth and profit prospects shrink Products become commoditized Ever more competition turns the water bloody     . industry boundaries are defined and accepted Companies continuously try to outperform each other to grab bigger slices of existing demand As the limited market space gets increasingly crowded.

Characteristics of Blue Ocean and unknown market space where the competition is Uncontested  irrelevant  Inventing and capturing new demand i. speedy growth and long lasting brand equity   . Demand is CREATED rather than FOUGHT OVER/STOLEN FROM COMPETITORS Converting noncustomers of the industry into customers Offering customers a leap in value while also streamlining costs  High profits.e.

Red Versus Blue Red Ocean Strategy Compete in existing Market Space Beat the Competition Exploit existing demand Make the value-cost trade off Align the whole system of company’s activities with its strategic choice of differentiation or low cost Blue Ocean Strategy Create Uncontested Market Space Make Competition Irrelevant Create and capture new demand Break the value-cost trade off Align the whole system of company’s activities with its strategic choice of differentiation and low cost .

Six Paths to Blue Ocean Strategy Industry Strategic Group From Competing Within Buyer Group Scope of Product or Service Offering Functional-Emotional Orientation of Industry Time To Creating Across The Six Conventional Boundaries of Competition .

Creating Blue Oceans (Four Action Framework) .

following points should be kept in mind:  It’s not necessarily about technology innovation – Rather it has more to do with linking the existing technology with what buyers value.Creating Blue Oceans To create Blue Oceans. Example – Ford Model T. Example – Compaq’s Pro Signia Server Are created from within the red oceans of existing industries – Incumbents often create blue oceans within their core businesses Never use the competition as a benchmark – Rather make it irrelevant by creating a leap in value for both yourself and your customers. Tata Nano Reduce costs while also offering customers more value    .

Not the Numbers Reach beyond existing demand Get the strategic Sequence right Formulation Risk Search Risk Planning Risk Scale Risk Business Model Risk Execution Principles Overcome Key Organizational Hurdles Build Execution into Strategy Execution Risk Organizational Risk Market Risk .Executing Blue Ocean Creation Formulation Principles Reconstruct Market Boundaries Focus on big Picture.

Hurdles to Execution .

Kingfisher Airlines. Jet Airways and regional airlines such as Paramount Airways) by looking into the factors that industry take for granted and also factors that important to customers With the Four Actions Framework proposed by Blue Ocean Strategy authors.Case – Air Deccan  Air Deccan managed to avoid the red ocean (compete with Indian Airlines. Examples of the strategic move as follows:   Eliminate: ◦ Over the counter booking system ◦ Free Food/Beverage on the plane ◦ Seating Class booking system . Air Deccan implemented many strategic moves to ensure they are make competitors irrelevant Air Deccan’s strategic moves led to the creation of Budget airlines industry in India.

Cont… Reduce :  Luxury" facilities provided by Airport Lounge  No of attendance service on the plane  Seat Quality Raise:  Focus on several key destination  Increase frequency of flight Create :  Online Booking system  Point to point travel system .

Air Deccan was able to focus on factors that really bring value to the customers such as point to point travel system.Value Innovation.Cont…  With this strategic move. easy booking system etc This helped Air Deccan to reduce cost and at the same time increase the value to the customers .  .

Tools of Blue Ocean Strategy .

people trust that a level playing field exists. they all look to these elements . This inspires them to cooperate voluntarily in executing the resulting strategic decisions There are three mutually reinforcing elements that define fair process  Engagement  Explanation.Fair Process  Builds execution into strategy by creating people's buy-in up front It is exercised in the strategy making process. and  Clarity of Expectation    Whether people are senior executives or shop employees.

86 % of new ventures were found to be line extensions and a mere 14% were aimed at creating new markets or industries The interesting thing in the study was that while the line extensions did account for 62% of the revenues. while troops on the front lines Also.The ‘Strategy’ factor      In a study of business launches in 108 companies. given to ‘Competitive advantage’. many companies are still operating in the Red Oceans. Strategies are framed to with an objective to counter competitive threats . Companies believe that it is competition which is at the heart of corporate success and failure.e. these days. too much focus and attention is. CEO in headquarters. Reason is that corporate strategy is heavily influenced by its roots in ‘military strategy’ i. they resulted in only 39% of the profits The 14% invested in creating new markets and industries delivered 38% of the revenues but a massive 61% of the profits Despite this.

.

Focusing on competition leads to companies ignoring two most crucial and lucrative aspects of strategy: To find and develop markets where there is little or no competition Ways to exploit and protect these markets  For Blue Oceans. their relative attractiveness is driven largely by the creation of blue oceans from within them What should be analyzed for Blue Oceans is the ‘strategic motive’ – the set of managerial actions and decisions involved in making a major market-creating business offering. though acquired by HP in 2001 made a very smart move in the 1990s which led to the creation of multibillion dollar market in PC servers   . 2. there is no perpetually excellent industry. Company and industry are the wrong units of analysis – There is no consistently excellent company. E. every company rises and falls over time Similarly.g – Compaq.Cont…  1.

thereby opening up new and uncontested market space • • Value to buyers comes from the offering’s utility minus its price. and value to the company is generated from the offering’s price minus its cost • • Value innovation is achieved only when the whole system of utility. price and cost is aligned .Value Innovation • It’s the cornerstone of Blue Ocean Strategy Simultaneous pursuit of differentiation and low cost Focuses on making the competition irrelevant by creating a leap of value for buyers and for the company.

permitting suppliers to produce an unprecedented array of products and services Trade barriers between nations and regions are falling and information on products and prices is now globally and instantly available  niche markets and monopoly markets are going to disappear Also. Blue Oceans will remain the engine of growth as:  Prospects in most established market spaces – red oceans – are shrinking rapidly Technological advances have substantially improved industrial productivity.The way forward Going forward. the demand (particularly in developed countries) is not increasing    .

Cont…  Consumer loyalty is falling and it is becoming more and more difficult to differentiate your products from those of competitors The situation has led to commoditization of products and services. price base their purchase decisions on price   . instigated price wars and shrunk profits margins According to recent studies. And as brands become more and more similar. many American brands in a variety of product and service categories have become more and more alike.