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BLUE OCEAN STRATEGY

Authors: W. Chan Kim – Renee Mauborgne

How to Create Uncontested Market Space and

Make the Competition Irrelevant
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I. THE STRATEGY
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New Market Space

RED OCEAN
Represent all the industries in existence today Æ known market space

BLUE OCEAN
Denote all the industries not in existence today Æ unknown market
space
Circus Industry

Traditional Circus: Cirque du Soleil:

• Target Market : Children
• Dependent to : Star performance,
animal shows
• High fun & humor
• High Thrills & dangers
• Target Market : Adults
• Not Dependent to Star
performance & animal shows
• Reduce fun & humor
• Reduce Thrills & dangers
• Unique Venue
• Theme & Theater

High Cost, Low Price Low Cost, High Price

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The Cornerstone of Blue Ocean Strategy

• Value innovation is created in the region where a company’s actions favorably
affect both its cost structure and its value proportion to buyers
• Cost savings are made by eliminating and reducing the factors an industry
competes on
• Buyer values is lifted by raising & creating elements the industry has never
offered
• Over time, costs are reduced further as scale economies kick in due to the high
sales volumes that superior value generates

The Simultaneous Pursuit of Differentiation and Low Cost

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Red Ocean vs Blue Ocean

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The Six Principles of Blue Ocean Strategy

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Four Actions Framew ork

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The Case of Cirque du Soleil

Eliminate Raise
Star Performers Unique venue
Animal Shows
Aisle concession sales
Multiple show arenas
Reduce Create
Fun and humor Theme
Thrill and danger Refined environment
Multiple productions
Artistic music and dance
The Strategy Canvas of Cirque du Soleil

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Ringling Bros Smaller Reg Circuses Cirque du Soleil
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II. FORMULATING BLUE

OCEAN STRATEGY
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Six Path to Blue Ocean Strategy

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Net Jets Case Study

1: 16 Ownership Aircraft

The Strategy Canvas of NetJets

Price Need for Deadhead Speed of travel Ease of travel Flexibility & in-flight service
customers to costs time reability
manage
aircraft

Private Jet Commercial Airlines NetJets

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Curves Case Study

Collective Exercise method

The Strategy Canvas of Curves

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Traditional Health Club Home Exercise Curves
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Novo Nordisk Case Study

Insulin Producer Focus on Doctors

Diabetes Care Company

Direct to Patients
By producing NovoPen
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NABI Case Study

Fiberglass BUS
The Strategy Canvas of NABI

Initial Price Corrotion Maintanance Fuel Environment Aesthetic Customer

Cost Consumpsion Friendly design friendly

Ordinary Transit Bus NABI

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QB House Case Study

Speedy Barbershop

The Strategy Canvas of QB

Price Reservation Extra Range of Hygiene Time Time "air wash"

Desk Services Hair Savings on savings on system
treatments waiting haircut

Ave. Jap Barbershop QB House

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From the value a market delivers today to

the value it might deliver tomorrow

CISCO Æ Growing demand for high speed

data exchange Æ focus on high speed data
technology

CNN Æ the rising tide of globalization Æ the

first real time 24hours global network
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III. VISUALIZING STRATEGY

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Four Steps of Visualizing Strategy

Visual Visual Visual

Visual Awakening
Exploration Strategy Fair Communication

• Compare your • Go into the field to • Draw your “to be” • Distribute your before-
business with your explore the six paths strategy canvas based and-after strategic
competitors’ by to creating blue on insights from field profiles on one page
drawing your “as is” oceans observations for easy comparison
strategy canvas. • Observe the distinctive • Get feedback on • Support only those
• See where your advantages of alternative strategy projects and
strategy needs to alternative products or canvases from operational moves that
change services customers, allow your company to
• See which factors you competitors’ close the gaps to
should eliminate, customers, and actualize the new
create or change noncustomers strategy
• Use feedback to build
the best “to be” future
strategy
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The Three Tiers of Noncustomers

Third
Tier

Second
Tier
First
Tier

Your
Market

First Tier: “Soon-to-be” noncustomers who are on the edge of your

market, waiting to jump ship
Second Tier: “Refusing” noncustomers who consciously choose
against your market
Third Tier: “Unexplored” noncustomers who are in markets distant
from yours
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The Sequence of Blue Ocean Strategy

Buyer Utility
Is there exceptional buyer utility in your
business idea?
No - Rethink
Yes
Price
Is your price easily accessible to the mass
of buyers?
No - Rethink
Yes
Cost
Can you attain your cost target to profit at
your strategic price?
No - Rethink
Yes
Adoption
What are the adoption hurdles in actualizing
your business idea? Are you addressing
them up front? No - Rethink

Yes
A Commercially Viable Blue
Ocean Idea
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IV. EXECUTING BLUE

OCEAN STRATEGY
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The Four Organizational Hurdles to Strategy

Execution
Cognitive Hurdle

An Organization
wedded to the status
quo

Political Hurdle
Resource Hurdle
Opposition from
Limited Resource powerful vested
interests

Motivational Hurdle

Unmotivated staff
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Break through the Cognitive Hurdle Æ face to face with worst operational
problem
Ride the “Electric Sewer”
Meet the Disgruntled Customers

Jump the Resource Hurdle Æ Strategic shift with fewer resources

Low resources input but
Redistribute Resources to the Hot Spots high potential gains
Redirect Resources from the Cold Spots
Engage in Horse Trading Trading your unit’s excess resources in one area
for another unit’s excess resources to fill remaining
resources gap

Jump the Motivational Hurdle Æ Motivate employees fast & low cost
Zoom in on Kingpins Influencer in Organization
Place Kingpins in a Fishbowl Transparency, inclusion & fair process
Atomize to Get the Organization to Change itself
Framing the strategic challenge,
actionable to all levels
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Knock Over the Political Hurdle Æ overcome political forces

Who the most to gain from
Leveraging Angles the strategic shift
Silencing Devils
Getting a consigliore on the top management team
Who knows in advance all the land mines Æ who
will fight you, who will support you
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V. CONCLUSION: Blue
Ocean Sustainability
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I mitation Barriers to Blue Ocean Strategy

• Value innovation does not make sense to a company’s conventional
logic
• Blue ocean strategy may conflict with other companies’ brand image
• Natural monopoly: The market often cannot support a second player
• Patents or legal permits block imitation
• High volume leads to rapid cost advantage for the value innovator,
discouraging followers from entering the market
• Network externalities discourage imitation
• Imitation often requires significant political, operational and cultural
changes
• Companies that value-innovate earn brand buzz and a loyal
customer following that tend to avoid imitators
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