Creating Blue Oceans

BLUE OCEAN STRATEGY

The Book and the Authors

© JOHN ABBOTT © JOHN ABBOTT

Prof Chan Kim Prof Renee

Mauborgne
 Accolades
• Over 2 million copies sold

Translated into over 41 foreign

languages – a world record
Taught as the major theory of strategy at
leading business schools
Gives insights to CEOs, Executives,
Heads of State and Prime Ministers
 New Market Space
• Red oceans and blue oceans make up market
universe

• Red oceans: all industries in existence

= known market space
• Blue oceans: all industries not in existence
= unknown market space
 Red Oceans
•Red oceans refers to
–Industry boundaries defined and accepted
–Competitive rules of game known
–Companies try to outperform rivals;
cutthroat competition
–As market space gets crowded, prospects
for profit and growth reduced
–Products become commodities
–Red ocean strategy is a market-competing
strategy
 Blue Oceans

•Blue oceans refers to

– Undefined market space, demand creation,
opportunity for highly profitable growth
– Most are created from within red oceans by
expanding existing industry boundaries
– Rules of game waiting to be set
– Competition irrelevant
– Blue ocean strategy is a market-creating
strategy
 The Rising Imperative of
Creating Blue Oceans
• Supply is exceeding demand in most industries
• global competition is intensifying
• Problems:
– Accelerated commodization of products and services
– Increasing price wars
– Shrinking profit margins
• Red oceans becoming bloodier, need to be
concerned with creating blue oceans
Two worlds …

Red Ocean
Compete in
crowded
markets

Blue Ocean
Create and
capture new
market space
 The Continuing Creation
of Blue Oceans
• Blue oceans have been around for some time; a
feature of business life
• Industries never stand still, constantly evolving
• Significant expansion of blue oceans over years
• So why the focus on red ocean strategy?
– Corporate strategy influenced by military strategy
– Need to create new market space that is uncontested
The Impact of Creating Blue Oceans
 From Company and Industry
to Strategic Move
• Are there lasting visionary companies that
continuously outperform the market and create
blue oceans?
• Found success of these model companies was a
result of industry sector performance, not
companies themselves
• Strategic move used as unit of analysis (rather
than company or industry)
• Strategic move: the set of managerial actions and
decisions involved in making a major market-
creating business offering
 Value Innovation: The
Cornerstone of Blue Ocean Strategy
• Creators of blue oceans
follow value innovation
• Value Innovation
– Equal emphasis on value
and innovation
– Defies value-cost trade-off
of competition-based
strategy
– Successful value
innovation:
• Drives down costs while
driving up buyers’ value
• Uses a whole-system
approach
• Follows reconstructionist
view
 Red Ocean Vs. Blue Ocean
• Compete in existing • Create uncontested
market space market space
• Beat the competition • Make the competition
• Exploit existing demand irrelevant
• Make the value-cost • Create and capture new
trade-off demand
• Align the whole system • Break the value-cost
of a firm’s activities trade-off
with its strategic choice • Align the whole system of
of differentiation or low a firm’s activities in
cost pursuit of differentiation
and low cost
 Formulating and Executing
Blue Ocean Strategy
• Six Principles of Blue Ocean Strategy
– Reconstruct market boundaries
– Focus on the big picture, not the numbers
– Reach beyond existing demand
– Get the strategic sequence right
– Overcome key organizational hurtles
– Build execution into strategy
 Take Aways

• Red ocean strategy is a market-competing

strategy, while blue ocean strategy is a
market-creating strategy
• As red oceans are becoming bloodier, we need
to create more blue oceans
• “The only way to beat the competition is to
stop trying to beat the competition!”
 Points of view

•Business often look at the industry from a

structuralist (supply) point of view

•What if we looked at the industry from a

reconstructionist (demand) point of view?

–Market boundaries are not viewed as given, but

could be reconstructed to unlock new demand
 Generic Strategies vs.
Value Innovation
Red Ocean Strategy Blue Ocean (VI) Strategy

High High

V1 D
• V1

Quality Quality

• LC

Low Low
High C1 Low High C1 Low
Cost Cost

Structuralist Reconstructionist
Four Steps of Visualizing
1. Visual 2. Visual 3. Visual 4. Visual
Awakening Exploration Strategy Fair Communication

•Compare your •Go into the field to •Draw your “to be” •Distribute your
business with your explore the six paths canvas based on before-and-after
competitors’ by to creating blue insights from field strategic profiles on
drawing your “as is” oceans observations one page for easy
canvas comparison

•Observe the •Get feedback on

•See where your distinctive advantages alternative strategy •Support only those
strategy needs to of alternative products canvases from projects and
change and services customers, operational moves
competitors’ that allow your
customers, and non- company to close
•See which factors customers gaps and actualize the
you should eliminate, new strategy
create or change
•Use feedback to build
the best “to be” future
strategy
Four Actions to create a Blue Ocean
Raise
What factors
should be raised
well beyond the
industry standard?

Eliminate Create
What factors What factors should
should be be created that the
eliminated that the industry has never
industry has taken offered?
for granted?

Reduce
What factors
should be reduced
well below the
industry standard?
 Four Actions Framework +
Eliminate/Reduce/Raise/Create Grid
Reduce
The four actions framework offers an technique Which factors should be
that breaks the trade-off between reduced well below
industry standards?
differentiation and low cost and to create a new
value curve. It answers the four key questions
of what industry takes for granted and needs to Eliminate A Create
Which of the factors New Which factors should be
be eliminated; what factors need to be reduced Value created that the industry
that the industry takes
below industry standards; what factors need to for granted should be Curve has never offered?
be raised above industry standards; and what eliminated?
should be created that the industry has never Raise
offered. Which factors should
be raised well above
the industry’s standard?

Eliminate Raise The eliminate-reduce-raise-create grid pushes

Enological terminology and Price versus budget wines
companies not only to ask all four questions in the
distinctions four actions framework but also to act on all four
to create a new value curve. By driving
Retail Store involvement
Aging qualities
companies to fill in the grid with the actions of
eliminating, reducing, raising, and creating, the
grid provides four immediate benefits: it pushes
Above-the-line marketing them to simultaneously pursue differentiation and
Reduce Create low costs; identifies companies who are only
Wine complexity Easy drinking raising and creating thereby raising costs; makes
it easier for managers to understand and comply;
and it drives companies to scrutinize every factor
Wine range Ease of selection
the industry competes on.
 ERRC Grid yellow tail
The Case of yellow tail

Eliminate Raise

Enological terminology & distractions Price versus budget wines

Aging qualities Retain store involvement
Above-the-line marketing

Reduce Create

Wine complexity Easy drinking

Wine Range Ease of selection
Vineyard prestige Fun & adventure
 Example of yellowtail
• Eliminate

• Reduce

• Raise

• Create
 Yellow Tail
• Only 2 types initially – Chardonnay and Shiraz
• Fruity, soft on palette, sweet-ish – great for those who had not
drunk wine before
• Same bottle for red and white – low logistics costs
• Simple vibrant packaging – lower case letters/kangaroo
• Un-intimidating
• They were selling “The essence of a great land … Australia” – ie
they were not selling the wine
• Australian clothing for the retail staff – they enthusiastically
promoted a wine they could understand.
 Value Innovation of [yellow tail]
•Creating of a social drink that is accessible to
anyone
Utility proposition
•Easy drinking, ease of selection, sense of fun and
(customers, distributors and adventure
retailers) •Limit number of SKUs
•Price to move at volume

Price proposition •Targeted at the mass of customers

•Priced against the alternative (6-pack)

•Elimination of working capital tied up in aging wines

Cost structure •Fast product turnover
Examples
 Results
• No 1 imported wine (outsells France and Italy)
• Fastest growing imported wine in the history of the
USA industry
– New consumers of wine
– Jug drinkers trade up
– Premium wine drinkers trade down

• Industry criticizes them mercilessly at first

Now wine press blurb gives it a “best buy”
for value; winning wine awards.
 The Case of Cirque du Soleil

• Cirque du Soleil achieved rapid growth in a

declining industry with low profit potential
• Cirque du Soleil created uncontested new market
space that made the competition irrelevant
• If you don’t know them you can see some at
• http://www.youtube.com/watch?v=M4lAPI5BAuk
 Example: Cirque du Soleil
• Instead of simply trying to outpace the
competition, Cirque du Soleil offered people both
the fun and thrill of the circus and the intellectual
sophistication of the theater
• Because of this, Cirque du Soleil appealed to both
circus customers and noncustomers
 Example: Cirque du Soleil
• Each show, like a theater production, had its own
unique theme and storyline
• This allowed customers to return to the show
more frequently
• They also did away with the traditional high-
priced concessions and vendors thereby cutting
costs
 Example: Cirque du Soleil
• Cirque du Soleil effectively combined the best of
both the circus and the theater while eliminating
everything else
• This allowed them to achieve both differentiation
and low cost
 Eliminate-Reduce-Raise-Create

Eliminate Raise
Star Performers Unique venues
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
Eliminate Reduce Raise Create
hi
Ringling Brothers

Cirque du Soleil
offering level

Smaller Regional Circus

lo
Animal Shows Multiple Show Theme Multiple
Price Thrills & Danger
Arenas Productions
Star Performers Aisle Concessions Fun & Humor Unique Venue Refined Viewing Artistic Music
Environment & Dance
© Kim & Mauborgne 2006
 Key Takeaways
• Three tiers of non-customers:
– 1: buyers who purchase your industry offerings out of necessity; will
jump ship if given an opportunity.
– 2: buyers who purchase alternative offerings that serve the same
function
– 3: people who don’t consume even the alternatives to your offerings
• Non-customer demand is unlocked by providing
new buyer utilities, at a price that attracts a mass
of buyers, given target costs.
• Buyers could be not only end-users, but also other
participants in a value chain (e.g. distributors)
 Purple Ocean Strategy

• Purple Ocean Strategy Just as Blue Ocean

Strategy states that a Red ocean Strategy
(Competitive Strategy) does not guarantee
success for the firm
• Purple Ocean strategy also claims that Blue
Ocean Strategy cannot guarantee the business
success in the long run since the Blue Ocean
strategy will finally turn Red.
 Purple Ocean strategy
• The Purple Ocean strategy believes that in
today’s business world organizations require
both innovative ideas as well as a series of
strategies to compete with rivalry and remain
functional in the long term.
• Consequently, the name Purple Ocean
strategy was initially adopted following the
secondary colour generated by combining red
and blue colours.
 Green Ocean Strategy
• Green Ocean Strategy is not about greening or
saving the environment.
• Discipline of strategy that concentrates on
how to maximize both fixed, internal and
human resources.
• Instead of copying or benchmarking against
the competition, the focus is to be more
realistic in relation to what the business can
actually commit or deliver.
 Green Ocean Strategy
• Using the analogy of beach and ocean, before
one reaches the blue part of the ocean, there
is the green.
• So it makes more sense that if a business can
stay within the Green Ocean, where the water
is clearer and nearer the shore, then this
would be less risky, more practical, and
eminently more desirable.
 Conclusion

• While traditional competition-based

strategies (red ocean strategies) are
necessary, they are not sufficient to sustain
high performance.
• Companies need to go beyond competing to
seize new profit and growth opportunities.