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Blue Ocean Strategy Preface Chapter 1: Creating Blue Oceans

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Title: Blue Ocean Strategy Preface Chapter 1: Creating Blue Oceans


1
Blue Ocean StrategyPreface Chapter 1 Creating
Blue Oceans
  • Group 3
  • Anna Rendon
  • Olivia Erwin
  • Chase Mueller
  • Paige Stone
  • Tanner Gilreath
  • Brandon Laviage
  • Ashley Hoptay

2
Blue Ocean Strategy
3
Blue Ocean Strategy
  • To improve the quality of our successes we need
    to study what we did that made a positive
    difference understand how to replicate it.
  • Blue Ocean Strategy challenges companies to break
    out of the red ocean of bloody competition by
    creating uncontested market space that makes the
    competition irrelevant.
  • Instead of dividing up existing - and often
    shrinking - demand and benchmarking competition,
    blue ocean strategy is about growing demand and
    breaking away from the competition.

4
Cirque Du Soleil
  • Created in 1984
  • Achieved a level of revenues that took Ringling
    Bros. and Barnum Bailey- the global champions
    of the circus industry more than 100 years to
    attain!

5
New Market Space Cirque du Soleil
  • Why did Cirque du Soleil see so much success?
  • Realized that in order to win in the future,
    companies must stop competing with each other.
  • Cirque du Soleil did not compete with Ringling
    Bros. and Barnum and Bailey. Instead they
    appealed to a whole new group of customers
    adults and corporate clients.
  • They created an unprecedented entertainment
    experience.
  • Ex. Nintendo Wii and Millionaire Matchmaker

6
Red Oceans VS Blue Oceans
  • Red Oceans
  • All the industries in existence today the known
    market space
  • Industry boundaries and defined and accepted.
  • Companies try to outperform rivals
  • Market space gets crowded prospects for profits
    and growth are reduced.
  • Competition turns the red ocean bloody
  • Blue Oceans
  • Denote all the industries not in existence today
    the unknown market space
  • Defined by untapped market space, demand creation
    and the opportunity for highly profitable growth
  • Some created well beyond existing industry
    boundaries, but most are created within red
    oceans by expanding existing industry boundaries
  • Competition is irrelevant because the rules of
    the game are waiting to be set.

7
Understanding Blue Oceans
  • Blue oceans are largely uncharted, so there is
    little practical guidance on how to create them.
  • Without the analytical frameworks and principles
    to effectively manage risk, managers have viewed
    the creation of blue oceans to be to risky to
    attempt.

8
The Continuing Creation of Blue Oceans
  • Although the term blue oceans is new, their
    existence is not.
  • Examples Were use to these industries, but they
    werent always in existence.
  • Automobiles
  • Aviation
  • Music Recording
  • Cell Phones
  • Snowboards
  • Coffee Chops
  • Think of all of the unknown industries the future
    will reveal.

9
Industries Continuously Evolve
  • Industries never stand still.
  • The Standard Industrial Classification (SIC)
    system was replaced in 1997 by the North American
    Industry Classification System (NAICS).
  • The new system expanded the ten SIC industry
    sectors to reflect the emerging realities of new
    industry territories.
  • SIC systems replacement is a sign of how
    significant the expansion of blue oceans has been
    because the systems are designed for
    standardization and continuity.

10
The Impact of Creating Blue Oceans
11
What Does This Mean?
  • Blue oceans held a little over a tenth of the
    launches. However, they brought in a more than a
    third of the revenues and almost two-thirds of
    the profits.
  • Given that business launches included the total
    investments made for creating red and blue
    oceans, the performance benefits of creating blue
    oceans are evident.

12
The Rising Imperative of Creating Blue Oceans
  • Supply in an increasing number of industries is
    beginning to exceed demand.
  • There has been an accelerated commoditization of
    products and services, increasing price wars and
    shrinking profit margins.
  • For major product and service categories, brands
    are generally becoming more similar.

13
Without Differentiation
  • As brands become more similar, people generally
    select based on price.
  • How can you keep customers and sales if brand
    loyalty is eroding?
  • How many people buy the same detergent,
    toothpaste, peanut butter or paper towels each
    time? How many people factor in price as the
    major buying determinant?
  • Managers are realizing that they will need to be
    more concerned with blue oceans as red oceans
    become increasingly bloody.
  • Examples Laptops and the I-phone

14
Red Ocean vs. Blue Ocean Strategy
  • The big difference in Red Oceans and Blue Oceans
    is the strategy.
  • Red Ocean companies took a conventional approach
    of trying to beat the competition.
  • Blue Ocean companies didnt use the competition
    as a benchmark, but instead used value
    innovation.

15
Value Innovation The Cornerstone of Blue Ocean
Strategy
  • Value Innovation - instead of focusing on beating
    the competition, focus on making the competition
    irrelevant by creating a leap in value for buyers
    and your company, thereby opening up new and
    uncontested market space.

16
Value Innovation
  • Value without innovation focuses on value
    creation but does not make you stand out in the
    marketplace.
  • Innovation without value tends to be futuristic
    and go beyond what buyers are ready for.
  • Value innovation must align innovation with
    utility, price, and cost position.

17
Value-Cost Trade Off
  • Red Ocean companies tend to choose between low
    cost and differentiation.
  • Blue Ocean companies aim for both simultaneously.

18
Value Innovation The Cornerstone of Blue Ocean
Strategy
19
Cirque de Soleil
  • Added story line
  • Less slap stick
  • Glamorized the tent
  • Made more sophisticated
  • Reduced cost by eliminating animals
  • Priced tickets comparable with the theatre

20
How do you achieve value innovation?
  • It is done when the whole system of the companys
    utility, price, and cost activities are properly
    aligned with each other

21
So what does it mean?
  • Value innovation is more than innovation
  • Its about strategy that embraces the entire
    system of a company's activities

22
What do you need to create it?
  • Value innovation requires companies to orient the
    whole system toward achieving a leap in value for
    both the buyer and themselves (meaning the
    company)

23
Structuralist view
  • Also known as
  • Environmental determinism
  • Goes in part with red ocean strategy, assumes
    that an industry structures are set and you must
    compete in it

24
Reconstructionist view
  • Based on the view that market boundaries and
    industry structure are not given and can be
    reconstructed by the actions and beliefs of
    industry players

25
Red Ocean vs. Blue Ocean Strategy
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 firms activities with its strategic choice of differentiation or low cost Align the whole system of a firms activities in pursuit of differentiation and low cost
26
Company/Industry Strategic Move
  • Initial Step to define the basic unit of analysis
  • Previously Published Research
  • In Search of Excellence
  • Built to Last
  • Basic Unit of Analysis
  • Company
  • Blue Ocean Strategy
  • Basic Unit of Analysis
  • Strategic Move

27
Results
  • Basic Unit of Analysis
  • Company
  • 2/3 of the companies had fallen from their
    perches as industry leaders
  • Atari, Data General, Fluor, National
    Semiconductor
  • Strategic Move
  • They delivered products and services that opened
    and captured new market space, with a significant
    leap in demand
  • Ford, GM, CNN, Compaq, Southwest, Cirque du Soleil

28
Strategic Move
29
Strategic Move - Cont
  • Is a set of managerial actions and decisions
    involved in making a major market creating
    business offering
  • Capture?
  • New Market Space
  • Increased Demand

30
Examples of Blue Oceans
  • Ford
  • Model T
  • General Motors
  • Styled cars to emotions
  • CNN
  • 24/7 News Channel
  • Cirque Du Soleil
  • Sophisticated Entertainment

31
Formulating and Executing Blue Ocean Strategy
  • Chapter 2 Introduces the analytical tools and
    frameworks that are essential for creating and
    capturing blue oceans.
  • Chapters 3-6 Introduces the principles that
    drive the successful formulation and
    implementation of blue ocean strategy and explain
    how they, along with the analytics, are applied
    in action.
  • Chapters 7-8 Turn to the principles that drive
    effective execution of blue ocean strategy.
    Tipping point leadership, organizational risk,
    fair process, and management risk are all
    addressed as new strategies.
  • Chapter 9 Discusses the dynamic aspects of blue
    ocean strategy- the issues of sustainability and
    renewal.

32
The Six Principles of Blue Ocean Strategy
33
Class Take Aways
  • Blue Ocean Strategy challenges companies to break
    out of the red ocean of bloody competition by
    creating uncontested market space that makes the
    competition irrelevant.
  • The big difference in Red Oceans and Blue Oceans
    is the strategy.
  • Value Innovation is the cornerstone of Blue Ocean
    Strategy.
  • Strategic moves should be aimed at delivering
    products and services that open and capture new
    market space, with a significant leap in demand.
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