Blue Ocean Strategy

Jack Davis

How to Create Uncontested Market Space

and Make the Competition Irrelevant

W. Chan Kim and Renee MauborgneHarvard Business School Press, 2005

( -or- “Principals of Value-Innovation”)

Red Oceans

Red Oceans are all industries and products in existence today. In Red Oceans:

Industry and product boundaries are defined.

Competitive rules are known.

Companies strive to outperform eachother to grab a larger share of demand.

As the market space gets crowded,prospects for profits and growth shrink.As products become commodities,

competition turns the red ocean blody.

Red Oceans

Successfully competing in Red Oceans will always be important.

Red Oceans are a fact of business life.

Red Oceans have dominated business strategy for the past 25 years.

How to compete skillfully in Red Oceans through price, feature, or performance differentiation is fairly well known.

However, to create new profitable growth companies need to move beyond Red Ocean competition.

Blue OceansBlue Oceans represent all industries, products, and product features not in existence today. Blue Oceans:

Define untapped market space.Create new customer demand.Provide opportunity for rapid growthand high profits.

“Blue Ocean Strategy” provides frameworks and analytics for the systematic pursuit and creation ofBlue Ocean products and markets.

Red Ocean versus Blue Ocean

Red Ocean Strategy

Blue Ocean StrategyCompete in existing market

space

Beat the competition

Exploit existing demand

Make the value-cost trade-off

Align activities with strategic choice of either differentiation or low cost

Adapt to external trends as they occur

Create uncontested market space

Make the competition irrelevant

Create and capture untapped demand

Break the value-cost trade-off

Align activities in pursuit of both differentiation and low cost

Actively shape external trends

Value-Innovation

Costs

Costs

Customer Value

ValueInnovation

Value-Innovation pursues both increasing customer value while simultaneously lowering costs.

Analytic Tools and FrameworksThe Strategy CanvasGraphic depiction of value curves.

The Four Actions FrameworkQuestions to challenge strategic logic and business models.

The Eliminate-Reduce-Raise-Create GridActions to create and define new value curves.

The 3 Characteristics of a Blue Ocean StrategyFocus – Divergence – A Compelling Tag Line

The 6 Principals of Blue Ocean StrategyFormulation and execution principles for value-innovation.

Strategy Canvas

Price

Low

High

EliteImage

High-endMarketing

AgingQuality

VineyardPrestige

WineComplexity

WineRange

Budget Wines

Premium Wines

Value

Strategy Value Points

Wine Industry Value Curves, late 90’s

Strategy Canvas

Price

Eliteimage

Above-the-line Marketing

Agingquality

VineyardPrestige

WineComplexity

WineRange

Premium Wines

Budget Wines

EasyDrinking

Ease ofSelection

Fun andAdventure

Yellowtail

Yellowtail Value Curve, 2003

Low

High

Value

Strategy Value Points

Strategy Canvas

High

Price

Star performer

s

Animal shows

Multiple show arena Fun

and humor

Thrill and

challenge

Unique

venue

Theme

Low

Ringling Bros. & Barnum & Bailey

Cirque du Soliel

Smaller Regional Circuses

Refined watching

environment

Multiple Productio

n Artistic music and

dance

Aisle concession

s

Circus Industry

Analytic Tools and FrameworksThe Strategy CanvasGraphic concise depiction of product value curves.

The Four Actions FrameworkQuestions to challenge strategic logic and business models.

The Eliminate-Reduce-Raise-Create GridActions to create and define new value curves.

The 3 Characteristics of a Blue Ocean StrategyFocus – Divergence – A Compelling Tag Line

The 6 Principals of Blue Ocean StrategyFormulation and execution principles for value-innovation.

The Four Actions Framework Reduce

factorsof limited

value

Createfactors

never before offered

Eliminate factors

of no real value

Raise factors

that improve value

NewValueCurve

Analytic Tools and FrameworksThe Strategy CanvasGraphic concise depiction of product value curves.

The Four Actions FrameworkQuestions to challenge strategic logic and business models.

The Eliminate-Reduce-Raise-Create GridActions to create and define new value curves.

The 3 Characteristics of a Blue Ocean StrategyFocus – Divergence – A Compelling Tag Line

The 6 Principals of Blue Ocean StrategyFormulation and execution principles for value-innovation.

The Eliminate-Reduce-Raise-Create Grid

Eliminate

•Elitist terminology and distinctions.

•Aging Qualities.

•Above-the-line marketing.

Raise

•Price over budget wines.

•Retail store involvement.

Reduce

•Wine complexity.

•Wine range.

•Vineyard prestige.

Create

•Easy drinking.

•Ease of selection.

•Fun and adventure

Price

Eliteimage

Above-the-line Marketing

Agingquality

VineyardPrestige

WineComplexity

WineRange

Premium Wines

Budget Wines

EasyDrinking

Ease ofSelection

Fun andAdventure

Yellowtail

Yellowtail Value Curve, 2003

Low

High

Value

“Value Point” Variables

CREATE

REDUCE

ELIMINATE

RAISE

Eliminate-Reduce-Raise-Create

Three Characteristics of a Great Strategy

High

Price Meals Lounges Seating class

choice

Hub connectivi

ty

Friendly Service

Speed Frequent Point-to-

point departur

e

Low

AverageAirlines

Southwest Airlines

CarTravel

● Focus ● Divergence

● A Compelling Tagline

“The speed of a plane at the price of a car – whenever you need it.”

Analytic Tools and FrameworksThe Strategy CanvasGraphic concise depiction of product value curves.

The Four Actions FrameworkQuestions to challenge strategic logic and business models.

The Eliminate-Reduce-Raise-Create GridActions to create and define new value curves.

The 3 Characteristics of a Blue Ocean StrategyFocus – Divergence – A Compelling Tag Line

The 6 Principals of Blue Ocean StrategyFormulation and execution principles for value-innovation.

The Six Principals of Blue Ocean Strategy

Formulation Principals:Reconstruct Market Boundaries

Focus on the big picture, not the numbers

Reach beyond existing demand

Get the strategic sequence right

Execution Principals:Overcome key organization hurdles

Build execution into strategy

1. Reconstruct Market Boundaries

Path 1: Look Across Alternative IndustriesPath 2: Look Across Strategic Groups

within IndustriesPath 3: Look Across Chain of CustomersPath 4: Look Across Complementary

Products and Service OfferingsPath 5: Look Across Functional or

Emotional Appeal to CustomersPath 6: Look Across Time

Path 1: Look Across Alternative Industries● Focus ●

Divergence● A Compelling Tagline

High

Price (fixed purchase +

variable price per

flight)

Need for customer to

manage aircraft (Aircraft

M&A)

Deadhead costs

Speed of total travel

time

Ease of travel

(including check-in, customs,

etc.)

Flexibility and

reliability

In-flight service

Low

Private JetCorporate travel

NetJet’s Value Curve

Commercial AirlinesFirst and Business-Classes travel

2. Focus on the big picture, not the numbers

Four Steps of Visualizing Strategy

The Pioneer-Migrator-Settler Map

Four Steps for Visualizing Strategy

VisualAwakening

VisualExploration

VisualStrategy Fair

VisualCommunication

• Compare your business with your competitor’s by drawing your “as is” strategy canvas.

• See where your strategy needs to change.

• Go into the field to explore the six paths to creating blue oceans.

• Observe the distinctive advantages of alternative products and services.

• See which factors you should Eliminate, Raise, Create, or Change.

• Draw your ‘to be” strategy canvas based on insights from field observations.

• Get feedback on alternative strategy canvases from customers, competitor's customer, and non-customers.

• Use feedback to build the best “to be” future strategy.

• Distribute your before-and-after strategic profiles on one page for easy comparison.

• Support only those projects and operational moves that allow your company to close the gaps to actualize the new strategy.

The Pioneer-Migrator-Settler MapGraphical representation of customers currently in your market space.Pioneers

Businesses thatoffer unprecedented value

MigratorsBusinesses intransition.

SettlersBusinesseswhose valuecurves followsthe shape of their industry(“me to” companies)

Today TomorrowThe more Settlers today, the greater the opportunity

to value-innovate and create a new Blue Ocean

tomorrow.

3. Reach Beyond Existing Demand

First Tier: “Soon-to-be” non-customers who are on the edge of your market, waiting to jump ship

Second Tier: “Refusing non-customers who consciously choose against your market.

Third Tier: “Unexplored” non customers who are in markets distant from yours.

FirstTier

Second

Tier

ThirdTier

YourCurrentMarket

4. Get the Strategic Sequence Right

CustomerUtility

Price Cost AdoptionViable Blue Ocean Idea

N

O N

O N

O N

O

What are the customer adoption hurdles in actualizing your idea?

Is there exceptional customer value in your idea?

Is your price easily accessible to the mass of buyers?

Can you attain your cost target to profit at your strategic price?

The Six Principals of Blue Ocean Strategy

Formulation Principals:Reconstruct Market Boundaries

Focus on the big picture, not the numbers

Reach beyond existing demand

Get the strategic sequence right

Execution Principals:Overcome key organization hurdles

Build execution into strategy

Barriers to imitating asuccessful Blue Ocean StrategyValue Innovation does not make sense to the

conventional logic of many companies.

Blue Ocean Strategy may conflict with 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 require significant political, operational, and cultural changes.

Companies that value-innovate earn brand buzz anda loyal customer following that tends to shun imitators.

“The reality is that industries never stand still. Operations improve, markets expand, and players come and go. History teaches us that we have a hugely underestimated capacity to create new industries and re-create existing ones.”- W. Chan Kim & Renée Mouborgne, authors Blue Ocean Strategy

For More Information...Blue Ocean Strategy web site

http://www.blueoceanstrategy.com

Blue Ocean Strategy bookhttp://www.amazon.com/Blue-Ocean-Strategy-Uncontested-Competition/dp/1591396190/ref=sr_1_1?ie=UTF8&s=books&qid=1232733006&sr=1-1

http://mslibrary/Books/Pages/fulfillment.aspx?bib=155469&csId=Library

Blue Ocean Strategy unabridged audio CDhttp://www.amazon.com/Blue-Ocean-Strategy-Uncontested-Competition/dp/1596590688/ref=ed_oe_a

http://mslibrary/Books/Pages/fulfillment.aspx?bib=193896&csId=Library

Questions / Commentsjack.davis@microsoft.com

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