Strategic Marketing

Blue Ocean Strategy

EXPLORING THE CONCEPT

PRESENTED BY : KHALED FARRAG

PRESENTED TO: DR. RIHAM MOWAD
Strategy Over the Years ( History )
 Strengths and Weakness analysis, SWOT (HBS, late 60s) .
 Portfolio approaches (McKinsey & Eric , 60-70s) .( Microsoft 1987 )
 Shareholder value Model ( Jack Welch (80s-90s) ).
 Industry competitive forces . Michael Porter (1985) .
 Core Competence, Strategic Intent (Hamel, Prahalad, early 90s) .
 Profit Zone (Adrian Slywotzky, 1995) .
 Disruptive technologies (Clay Christensen, 1997) .
 Value Innovation (Chan Kim, Renée Mauborgne, late 90s).
 Blue Ocean Strategy
Business Creativity & Innovation

Creating uncontested market space

and make the competition irrelevant
Two worlds …

Red Ocean
Compete in crowded
markets

Blue Ocean
Create and capture
new market space
Creating Blue Ocean.

 Two types of markets:

Red Oceans – all industries in existence today

(known market space) .

Blue Oceans – all industries not in existence today

(unknown market space) .
New Market Space
 Thereis a fairly good understanding of
how to compete in Red Oceans .
 Blue Oceans are known to exist, however,
there is little practical guidance on how to
create them .
 ThisPresentation focuses on the analytical
frameworks necessary to create Blue
Oceans and the managerial strategy
needed to sustain them .
New Market Space

 In Red Oceans, industry boundaries are defined

and accepted, and the competitive rules of the
game are known .
 In Blue Oceans, there exists untapped market
space, demand creation, and the opportunity
for highly profitable growth .
 Most Blue Oceans are created from within red
oceans by expanding industry boundaries .
The Continuing Creation of Blue
Oceans

 How many of today’s industries were

unknown 100 years ago?
 BlueOceans have continuously been
created over time .
 The key to strength in the business world is
to create new, uncontested market space
Two worlds …
Red Ocean Strategy Blue Ocean Strategy
Compete in existing market space. Create uncontested market space.

Beat the competition. Make the competition irrelevant.

Exploit existing demand. Create and capture new demand.

Make the value-cost trade-off. Break the value-cost trade-off.

Align the whole system of a strategic Align the whole system of a firm's
firm's activities with its choice of activities in pursuit of differentiation
differentiation or low cost. and low cost.
VALUE INNOVATION
The rising Imperative of Creating Blue
Oceans .
• Supply exceeds demand .
• Accelerated commoditization of products and services .
• Increasing price wars .
• Shrinking profit margins .
• Brands are becoming more similar .
• select based on price .
The Rising Imperative of Creating Blue
Oceans .
 Globalism has made many brands become increasingly
similar and more of a commodity .

 Technological improvement has caused supply to

outweigh demand .

 It is now harder than ever to differentiate among brands .

 Core Concept
•Cost Structure Is lowered
through eliminating and
reducing factors the
The Simultaneous industry competes on
Pursuit of but buyers do not value
Differentiation highly .
(Superior Buyer
Value) and Low •High sales volume
Cost . creates scale
economies and further
cost reduction .

•Buyer value is increased

by raising and creating
elements the industry
Source: Blue Ocean Strategy by W. Chan Kim & Renée Mauborgne ©2005 has never offered.
When Should Blue Ocean Strategy
(BOS) Be Used?
 Best Situations
 Leadership is committed to investing in innovation for profitable
growth and significant cost structure reduction .
 Core business or organization is performing well .
 Strategic, future-focused opportunities are not sacrificed to short-
term priorities .
 Leadership embraces new approaches and non-incremental thinking
 Leadership believes in the need for a well balanced portfolio of
offerings/businesses tied to different growth strategies including
Pioneers, not just Settlers and Migrators .

 Will BOS be of value to your clients?

 Frontier Strategy takes clients through an initial audit/ questionnaire
Using BOS for Business Development
 Think differently about how you position your services in this downturn
 BOS helps position your functional expertise and services more
strategically .
 C-level introductions and conversations .
 Appeal to multiple functions and decision-makers .

 Use Innovation positioning to increase appeal and demand for new

project work .
 Corporate innovation isn’t just about new products and top-line
revenues, it’s about cost structure and building capabilities too .
 Companies who invest now can make a break from competitors who
are hunkering down .
 Plus, connect what you do to a popular, recognized approach for added
credibility .
Using the BOS Toolkit During Projects
 BOS Methodology includes unique tools that relate to and can be applied to projects in a
variety of areas, e.g.,
 Current situation assessment/audit
 New product/service development
 Customer research
 Competitive analysis
 Branding
 Pricing
 Performance improvement work
 e.g., Process re-engineering
 Organizational transformation
 Restructuring/new staffing models, etc.
 Systems and infrastructure
 New operations and business models
 Four-Step Blue Ocean Strategy Process
1. Visual 2. Visual 3. Visual 4. Visual
Awakening Exploration Strategy Fair Communication

•Compare your • Go into the field to • Draw your “to be”

strategy canvas based
• Distribute your before-and-
after strategic profiles on
explore the six paths
business with to creating blue on insights from field one page for easy
your oceans observations comparison
competitors’ by EXPLANATION
• Get feedback on
• Observe the
drawing your distinctive
alternative strategy
canvases from • Support only those projects
“as is” strategy advantages of customers, non- and operational moves that
canvas alternative products customers, and allow your company to
and services competitors’ customers close the gaps to actualize
the new strategy.
•See where your • See which factors you • Use feedback to build
strategy needs should eliminate, the best “to be” future
strategy
to change create, or change
EXPECTATION
CLARITY
ENGAGEMENT
Source: Blue Ocean Strategy by W. Chan Kim & Renée Mauborgne ©2005
Four Actions Framework: Key to Value Curve
Reduce
The key to discovering a new What factors should
value curve lies in answering be reduced well below
four basic questions the industry standard?

Eliminate Create/Add
Creating
What factors that the new markets: What factors that the
industry has taken for A new value industry has never offered
granted should be curve should be created or
eliminated? added?

Raise
What factors should
be raised well above the
industry standard?
The Impact of Creating Blue Oceans
 Ina study of the launches of 108
companies, 86% were line extensions (Red
Ocean)
 However, these only accounted for 62% of
total revenues and 39% of total profits
 The other 14% of launches were aimed at
creating blue oceans and accounted for
38% of revenue and 61% of total profit .
( Source Blue ocean strategy hand book , W Chan Kim & Renee Mauborgne )
 The Profit and Growth
Consequences of Blue Oceans
Launches With Red Oceans Launches With Blue Oceans

Business Launch 86% 14%

revenue impact 62% 38%

Profit Impact 39% 61%

From Company and Industry to
Strategic Move
 The company is not the appropriate unit
of analysis for exploring blue oceans
 Blue Oceans focus on the strategic move
rather than the company or industry
 Blue Oceans were found to be created by
new and old companies, attractive and
unattractive industries, and both private
and public companies
Value Innovation: The Cornerstone of
Blue Ocean Strategy
 Value creation alone improves value but is not sufficient to
make you stand out in the marketplace
 Innovation alone will often create a product that buyers are
not willing to pay for
 Value innovation occurs only when companies align
innovation with utility, price, and cost positions
 Value innovation:
 Make the competition irrelevant
 Create a leap in value for both buyers and your company
 Open up new and uncontested market space
Minimizing Risks and Maximizing Opportunities in Formulating and
Executing Blue Ocean Strategy
Core/Formulation Principles

Reconstruct market boundaries Formulation Risks

Search Risk
Focus on the big picture, not the numbers
Planning Risk
Reach beyond existing demand
Scale Risk
Get the strategic sequence right
Business Model Risk

Execution Principles
Execution Risks
Overcome key organizational hurdles
Organizational Risk
Build execution into strategy Management Risk
© Kim & Mauborgne 2006
 BOS Logic: The Core Principles
Reconstruct Market
Boundaries
… overcome believes.

Reach beyond
existing Demand
COST
… go for uncontested space.
VI
VI
Get the strategic
sequence right VALUE
… value [innovation] first.
 BOS Logic: Reconstruct market boundaries
Boundaries of Head-to-Head Creating
Competition Competition New Market Space
Looks across alternative industries
Industry Focuses on rivals within its industry

Focuses on competitive position within Looks across strategic groups within its
Strategic Group industry
strategic group

Redefines the buyer group of the industry

Buyer Group Focuses on better serving the buyer group

Focuses on maximizing the value of product Looks across to complementary product and
Scope of Product and service offerings that go beyond the bounds
and service offerings within the bounds of its
Service Offerings of its industry
industry

Rethinks the functional-emotional orientation

Focuses on improving price-performance
Functional-emotional of its industry
with the functional-emotional orientation of
Orientation of an Industry
this industry

Focuses on adapting to external trends as Participation in shaping external trends over

Time/Trends time
they occur
BOS Logic: Reach beyond existing demand

Core Customer Noncostumer

Soon-to-be-NC Refusing Customer

Examples
References

• W. Chan Kim, Renée Mauborgne, Blue Ocean Strategy, 2005,

Havard Business School Press.

• http://www.blueoceanstrategy.com

• HANDELSBLATT, Donnerstag, 06. Oktober 2005,

Mit Nichtkunden neue Märkte finden.

• http://www.hotelformule1.com
Thanks