Blue Ocean Strategy

Blue Ocean Strategy

• Companies traditionally work in a “Red
Ocean” environment where businesses
compete each other to grab a bigger piece of
the pie.
• Conversely, in “Blue Ocean”, the aim is not to
win over the competitors, instead the aim is to
make the competition irrelevant.
 Blue Ocean Strategy
• Chan Kim and Renee Mauborgne derived the
term “Blue Ocean Strategy” to explain this new
business model in 2005.
• Blue Ocean Strategy (BOS) puts forward a new
approach which talks about an environment
with absolutely zero competition.
• Rather than competing in an existing market
with your product, create a space where you
enjoy hundred percent monopoly.
 Blue Ocean vs Red ocean
• Red ocean aims at defending existing position
– Compete on cost, economies of scale, promotion,
pricing
– Tough competition
• Blue ocean pursues innovation and new
opportunities
– Novelty of ideas
– New market space
– No competition
 Blue Ocean vs Red ocean
Red Ocean Blue Ocean
Head to Head Competition Beyond competition
Compete in existing market Create new market space
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
Strategic choice between Strategic choice of
differentiation or low-cost differentiation and low-cost
 Imperative of
Creating Blue Oceans
• Supply is exceeding demand in most industries
• global competition is intensifying
• Problems:
– Accelerated commoditization of products and
services
– Increasing price wars
– Shrinking profit margins
• Red oceans becoming bloodier
 Formulating and Executing Blue Ocean
Strategy: Six Principles
Principles Risk factors
Formulation Principles
1 Reconstruct market boundaries Search risk
2 Focus on the big picture, not the Planning risk
numbers
3 Reach beyond existing demand Scale risk
4 Get the strategic sequence right Business model risk
Evaluation Principles
5 Overcome key organizational Organizational risk
hurdles
6 Build execution into strategy Management risk
 Three tiers of non-customers
• First Tier: your buyers
who are Soon to be non-
buyers; they purchase your
industry offerings due to
no other opportunity.
• Second Tier: Refusing Third Tier
buyers who consciously Second Tier
First Tier
choose your competitors
Your
• Third Tier: Unexplored customers
who are in markets distant
from yours
 Expand the scope of latent
demand
• 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)
 Strategy Canvas
• The strategy canvas is both a diagnostic tool and an
action framework for building a blue ocean strategy.
• Captures current state of affairs
– What is existing competition
– Critical success factors in the market
– Customers
• Two stages
– Draw the canvas by four step visualising
– Draw four action framework
• Helps in drawing the value curve
 Four Steps of Visualizing
1. Visual 2. Visual 3. Visual 4. Visual
Awakening Exploration Strategy Fair Communication
• Compare your • Go into the field • Draw your “to • Distribute your
business with to explore the six be” canvas based before-and-after
your competitors’ paths to creating on observations strategic profiles
by drawing your blue oceans • Get feedback on on one page for
“as is” canvas • Observe the alternative easy comparison
• See where your distinctive strategy • Support only
strategy needs to advantages of canvases from those projects
change alternative customers, and operational
products and competitors’ moves that allow
services customers, and your company to
• See which non-customers close gaps and
factors you • Use feedback to actualize the new
should eliminate, build the best “to strategy
create or change be” future
strategy
Four Action Framework of New Value

Reduce Create
Which factors should be Which factors should be
reduced well below the created that the industry
industry’s standard? has never offered?
New value
curve
Eliminate Raise
Which factors that the Which factors should be
industry has long competed raised well above the
on should be eliminated? industry’s standard?
 Value Innovation
• 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
 Hospitality: Three tiers of non-customers
• First Tier: frequent
travellers who want
comfort at affordable
rates.
• Second Tier: who trust only
Third Tier
star ratings as a symbol of
assurance Second Tier
First Tier
• Third Tier: who do not stay Your
in hotels at all customers
 Four Steps of Visualizing
1. Visual 2. Visual 3. Visual 4. Visual
Awakening Exploration Strategy Fair Communication
• Compare non • Observe the • Draw your “to • Distribute your
star hotels with distinctive be” canvas before-and-after
star rated hotels advantages of based on strategic profiles
and other options other options observations on one page for
on “as is” and compare • Assurance of easy comparison
canvas them, e.g. quality, quality and • Support only
• See where your comfort, service, comfort, at those projects
strategy needs to security, affordable price, and operational
change accessibility, and access. moves that allow
affordability your company to
•Use feedback to
• See which build the best “to close gaps and
factors you be” future actualize the
should eliminate, strategy new strategy
create or change
 OYO Rooms
• Ritesh Agarwal founded OYO Rooms, formerly known as
Oravel.com, in the year 2013.
• Today, OYO Rooms has its presence in 174 cities with 4500+
hotels offering standardized stay experience.
• It eases travelers to find budget hotels which are on par with
star hotels in value offering with the use of technology.
• The network of OYO is guaranteed to provide standardized
services and hygiene of sophisticated hotels.
• The business concept of OYO Rooms eliminated extravagant
features of 3-star and higher hotels, such as stylish lounges,
sports club, spa, and so on but.
• Significantly reduced the price per room compared to three-
star hotels.
 Four Action Framework : OYO

Create
Reduce Standardization in
Rooms
Room Tariff
Budget hotels which
are at par with star
hotels
Eliminate Raise
Extravagant features Use of technology
 Value Innovation
• Standardised services in every room irrespective
of location, including minimum accessories.
• Attractive interiors to complement for no frills
• High use of technology to ensure access,
allotment, payments, feedback
• Combines the coziness of motels or guest
houses with the style of hotels at affordable
price