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Creating Blue Oceans
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The Book and the Authors
Prof ReneeMauborgne
JOHN ABBOTT
Prof Chan Kim
JOHN ABBOTT
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AccoladesOver 2 million copies sold
Translated into over 41 foreign
languagesa world record
Taught as the major theory of strategy atleading business schools
Gives insights to CEOs, Executives,Heads of State and Prime Ministers
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New Market Space
Red oceans and blue oceans make up marketuniverse
Redoceans: all industries in existence
= known market spaceBlueoceans: all industries not in existence
= unknown market space
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Red Oceans vs. Blue OceansRed oceans
Industry boundaries defined and acceptedCompetitive rules of game known
Companies try to outperform rivals; cutthroat competition
As market space gets crowded, prospects for profit andgrowth reduced
Products become commoditiesRed ocean strategy is a market-competing strategy
Blue oceansUndefined market space, demand creation, opportunity for
highly profitable growth
Most are created from within red oceans by expandingexisting industry boundaries
Rules of game waiting to be set
Competition irrelevant
Blue ocean strategy is a market-creating strategy
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The Rising Imperative ofCreating Blue Oceans
Supply is exceeding demand in most industriesglobal competition is intensifying
Problems:
Accelerated commodization of products andservices
Increasing price wars
Shrinking profit margins
Red oceans becoming bloodier, need to beconcerned with creating blue oceans
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The Continuing Creationof 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 overyears
So why the focus on red ocean strategy?
Corporate strategy influenced by military strategy
Need to create new market space that is uncontested
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The Impact of Creating Blue Oceans
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From Company and Industryto Strategic Move
Are there lasting visionary companies thatcontinuously outperform the market andcreate blue oceans?
Found success of these model companies wasa result of industry sector performance, notcompanies themselves
Strategic move used as unit of analysis (ratherthan company or industry)
Strategic move: the set of managerial actionsand decisions involved in making a majormarket-creating business offering
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Value Innovation: The
Cornerstone of Blue Ocean Strategy Creators of blue oceans
follow value innovation
Value Innovation
Equal emphasis on valueand innovation
Defies value-cost trade-offof competition-basedstrategy
Successful valueinnovation: Drives down costs while
driving up buyers value
Uses a whole-systemapproach
Follows reconstructionistview
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RedOceanVs. BlueOcean
Compete in existingmarket space
Beat the competition
Exploit existing demand
Make the value-costtrade-off
Align the whole systemof a firms activitieswith its strategic choiceof differentiation or lowcost
Create uncontestedmarket space
Make the competition
irrelevant Create and capture new
demand
Break the value-cost
trade-off Align the whole system of
a firms activities in
pursuit of differentiationand low cost
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Formulating and ExecutingBlue Ocean Strategy
Six Principles of Blue Ocean StrategyReconstruct 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
The remaining chapters will give you theprinciples and generalized frameworks tosucceed in blue oceans
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Take Aways
Redocean strategy is a market-competing
strategy, while blue ocean strategy is amarket-creating strategy
As red oceans are becoming bloodier, we
need to create more blue oceansThe only way to beat the competition is tostop trying to beat the competition!
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The Six Principles of Blue Ocean Strategy
Formulation Principles Risk factor each principleattenuates
Reconstruct market boundaries
Focus on the big picture, not thenumbers
Reach beyond existing demand
Get the strategic sequence right
Search risk
Planning riskScale risk
Business model risk
Evaluation principles Risk factor each principleattenuates
Overcome key organizational hurdles
Build execution into strategy
Organizational risk
Management risk
This figure highlights the six principles driving the successful formulation andexecution of blue ocean strategy and the risks that these principles attenuate.
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Points of view
Business often look at the industry from astructuralist (supply) point of view
What if we looked at the industry from areconstructionist (demand) point of view?
Market boundaries are not viewed as given,but could be reconstructed to unlock newdemand
G i St t i
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Generic Strategies vs.Value Innovation
High
Low
V1
C1
Cost
Quality
HighHigh
High
LowLow
Low
Quality
Cost
D
LC
V1
C1
Red Ocean Strategy Blue Ocean (VI) Strategy
Structuralist Reconstructionist
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Example:A highly competitive Industry
The AmericanWine Industry
http://images.google.fr/imgres?imgurl=http://www.brushycreekvineyards.com/Wine-Glass-5.jpg&imgrefurl=http://www.brushycreekvineyards.com/legal.htm&h=304&w=300&sz=12&tbnid=yl_qA5hIpFgfTM:&tbnh=112&tbnw=110&hl=fr&start=44&prev=/images%3Fq%3Dglass%252Bwine%26start%3D40%26svnum%3D10%26hl%3Dfr%26lr%3D%26sa%3DNhttp://images.google.fr/imgres?imgurl=http://www.morrys.com/Wine%2520glass.JPG&imgrefurl=http://www.morrys.com/New%2520wines%2520to%2520Morry&h=236&w=200&sz=10&tbnid=zQvPARxSf7Zi7M:&tbnh=104&tbnw=88&hl=fr&start=16&prev=/images%3Fq%3Dglass%252Bwine%26svnum%3D10%26hl%3Dfr%26lr%3Dhttp://images.google.fr/imgres?imgurl=http://www.visitocva.com/Wine%2520glass.jpg&imgrefurl=http://www.visitocva.com/burnley.htm&h=968&w=584&sz=25&tbnid=efuSFM6vJpQA1M:&tbnh=148&tbnw=89&hl=fr&start=2&prev=/images%3Fq%3Dglass%252Bwine%26svnum%3D10%26hl%3Dfr%26lr%3Dhttp://images.google.fr/imgres?imgurl=http://www.blairstripsteel.com/map%2520north%2520america.jpg&imgrefurl=http://arte-sano.blogspot.com/2004_08_01_arte-sano_archive.html&h=423&w=700&sz=84&tbnid=IK_BjX8b51x6ZM:&tbnh=83&tbnw=138&hl=fr&start=3&prev=/images%3Fq%3Dmap%2Bamerica%26svnum%3D10%26hl%3Dfr%26lr%3D%26sa%3DG5/27/2018 Blue Ocean Strategy-Intro
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What the industry offersPremium Wines Budget Wines
Massive Choice
PolarisedStrategic Groups
http://images.google.co.uk/imgres?imgurl=http://www.satravelco.com/images/wine_label.jpg&imgrefurl=http://www.satravelco.com/winelands_history.php&h=272&w=220&sz=10&tbnid=VjSLa60caLUb9M:&tbnh=108&tbnw=87&hl=en&start=2&prev=/images%3Fq%3Dwine%2Blabel%26svnum%3D10%26hl%3Den%26lr%3D%26sa%3DGhttp://images.google.co.uk/imgres?imgurl=http://images.tvnz.co.nz/tvnz_images/news2005/art_culture/wine_211205_232.jpg&imgrefurl=http://tvnz.co.nz/view/page/425823/642348&h=129&w=232&sz=7&tbnid=qCLNI9rjft7CPM:&tbnh=57&tbnw=103&hl=en&start=23&prev=/images%3Fq%3Dwine%2Bscrewtop%26start%3D20%26svnum%3D10%26hl%3Den%26lr%3D%26sa%3DN5/27/2018 Blue Ocean Strategy-Intro
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American Wine Industry3rdlargest in world: worth $20 billion
Californian makes 66% - the rest is from Italy,France, Spain, Chile, Argentina, Australia
Exploding number of new winesnew vineyardsin Oregon, Washington, New York
Customer base stagnant
31st in the world in per capita consumption!
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American Wine IndustryTop 8 producers had 75% of the market; 1600
had the remaining 25%
$ millions spent in marketing - Titanic battles
intense competition
Sever price pressure
The dominant growth strategy was towards
premium winesmore complexity, betterimage, more prestigious vineyards, number ofmedals won at wine festivals.
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What wine customers said It is too confusing and complex
Wine descriptions and terminology
The shopping experience
The lack of clear guidance on what to buy anddrink
Thus, massively intimidating fornoncustomers (the large majority of the US
population who were not wine drinkers)
Wh t l
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What are peoplelooking for in a wine?
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Segmentation of Market and Brands
Low
Involvement
High
InvolvementEasy Going Enjoyers Aspirationals Appreciators Connoisseurs
Glass withfriends
Least care
choosing a wine
Not winepreferrers
Price is a stronginfluencer
EverydayenjoymentTo relax/unwindStick with limited
list of knownbrandsChoose in-storeNot interested inwine language
Influenced by
major brandadvertising
Image importantWine preferrers(sic)Varietal
knowledgeInterested insome winelanguageEnjoy trying newwines
Visit wineries /read wine articles
Want todiscover wineKnowledge ofwine regions
Frequently buy>$10 winesJoin wine clubsDont stick to
known brands
Ideal wine is
complex &interesting
SophisticateddrinkerDiscerning winetastes
Dont decide instoreHave a cellarLess influencedby specials/promotions
Actively pursuewine knowledge
Brand: LindemansRosemount
EstateWolf Blass Penfolds
Demographic: M/F: 50/50 Age:
35-49
M/F: 30/70; Age:
30-40
M/F: 70/30; Age:
35-50
Age: 40+
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Strategy CanvasThe strategy canvas is both a diagnostic and an action framework for building acompelling blue ocean strategy. It captures the current state of play in the knownmarket space. This allows you to understand where the competition is currentlyinvesting, the factors the industry currently competes on in products, service, anddelivery, and what customers receive from the existing competitive offerings on themarket. The horizontal axis captures the range of factors the industry competes onan invests in. The vertical axis captures the offering level that buyers receive acrossall these key competing factors. The value curve then provides a graphic depictionof a companys relative performance across its industrys factors of competition.
High
Low
Price Use of
enologicalterminology
Above-the-line
marketing Agingquality
Vineyard prestige
and legacy Winecomplexity
Wine range
Budget Wines
Premium Wines
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Four Steps of Visualizing
1. VisualAwakening 2. VisualExploration 3. VisualStrategy Fair 4. VisualCommunication
Compare yourbusiness with yourcompetitors by
drawing your as is
canvas
See where yourstrategy needs tochange
Go into the field toexplore the six pathsto creating blueoceans
Observe thedistinctive advantagesof alternative productsand services
See which factorsyou should eliminate,create or change
Draw your to be
canvas based oninsights from fieldobservations
Get feedback onalternative strategycanvases fromcustomers,competitors
customers, and non-customers
Use feedback to buildthe best to be future
strategy
Distribute yourbefore-and-afterstrategic profiles onone page for easy
comparison
Support only thoseprojects andoperational movesthat allow your
company to closegaps and actualize thenew strategy
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What factorsshould be
eliminated that theindustry has taken
for granted?
Eliminate
What factorsshould be reduced
wel l below theindustry standard?
Reduce
What factors shouldbe created that theindustry has never
offered?
Create
What factorsshould be raisedwell beyond the
industry standard?
Raise
Four Actions to create a Blue Ocean
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Four Actions Framework +Eliminate/Reduce/Raise/Create Grid
The four actions framework offers an techniquethat breaks the trade-off betweendifferentiation and low cost and to create a newvalue curve. It answers the four key questionsof what industry takes for granted and needs tobe eliminated; what factors need to be reducedbelow industry standards; what factors need tobe raised above industry standards; and what
should be created that the industry has neveroffered.
The eliminate-reduce-raise-create grid pushescompanies not only to ask all four questions in thefour actions framework but also to acton all fourto create a new value curve. By drivingcompanies to fill in the grid with the actions ofeliminating, reducing, raising, and creating, thegrid provides four immediate benefits: it pushesthem to simultaneously pursue differentiation andlow costs; identifies companies who are onlyraising and creating thereby raising costs; makesit easier for managers to understand and comply;
and it drives companies to scrutinize every factorthe industry competes on.
Eliminate
Enological terminology anddistinctions
Aging qualities
Above-the-line marketing
Raise
Price versus budget wines
Retail Store involvement
Reduce
Wine complexity
Wine range
Create
Easy drinking
Ease of selection
ANew
ValueCurve
Reduce
Eliminate Create
Raise
Which factors should bereduced well belowindustry standards?
Which factors should becreatedthat the industryhas never offered?
Which factors shouldbe raised well abovethe industrys standard?
Which of the factorsthat the industry takesfor granted should beeliminated?
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ERRC Grid yellow tail
The Case of yellow tail
Eliminate
Enological terminology & distractionsAging qualities
Above-the-line marketing
Raise
Price versus budget winesRetain store involvement
Reduce
Wine complexityWine RangeVineyard prestige
Create
Easy drinkingEase of selectionFun & adventure
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To Be Canvas
Eliminate
Reduce
Raise
Create
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Yellow TailOnly 2 types initiallyChardonnay and Shiraz
Fruity, soft on palette, sweet-ishgreat for those who hadnot drunk wine before
Same bottle for red and whitelow logistics costs
Simple vibrant packaginglower 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 stafftheyenthusiastically promoted a wine they couldunderstand.
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Value Innovation of [yellow tail]
Utility proposition
(customers, distributors andretailers)
Creating of a social drink that is accessible toanyone
Easy drinking, ease of selection, sense of fun andadventure
Limit number of SKUs
Price to move at volume
Price proposition Targeted at the mass of customersPriced against the alternative (6-pack)
Cost structureElimination of working capital tied up in aging wines
Fast product turnover
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ResultsNo 1 imported wine (outsells France and Italy)
Fastest growing imported wine in the history ofthe 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.
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The Case of Cirque du Soleil
Cirque du Soleil achieved rapid growth in adeclining industry with low profit potential
Cirque du Soleil created uncontested new
market space that made the competitionirrelevant
If you dont know them you can see some at
http://www.youtube.com/watch?v=M4lAPI5BAuk
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Example: Cirque du Soleil
Instead of simply trying to outpace thecompetition, Cirque du Soleil offered peopleboth the fun and thrill of the circus and theintellectual sophistication of the theater
Because of this, Cirque du Soleil appealed toboth circus customers and noncustomers
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Example: Cirque du Soleil
Each show, like a theater production, had itsown unique theme and storyline
This allowed customers to return to the show
more frequentlyThey also did away with the traditional high-
priced concessions and vendors therebycutting costs
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Example: Cirque du Soleil
Cirque du Soleil effectively combined the bestof both the circus and the theater whileeliminating everything else
This allowed them to achieve bothdifferentiation and low cost
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Eliminate-Reduce-Raise-Create
Eliminate
Star Performers
Animal shows
Aisle concession sales
Multiple show arenas
Raise
Unique venues
Reduce
Fun and humor
Thrill and danger
Create
Theme
Refined environment
Multiple productions
Artistic music and dance
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The Strategy Canvasof Cirque du Soleil
hi
offering
level
loPrice
Fun & Humor Unique VenueAisle Concessions
Multiple ShowArenas
Thrills & DangerAnimal Shows
Star Performers
Theme
Refined ViewingEnvironment
MultipleProductions
Artistic Music& Dance
Cirque du Soleil
ReduceEliminate Raise Create
Kim & Mauborgne 2006
Ringling Brothers
Smaller Regional Circus
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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 samefunction
3: people who dont consume even the alternatives to yourofferings
Non-customer demand is unlocked by providingnew buyer utilities, at a pricethat 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)
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Comparison of approaches
Red Ocean Strategy Blue Ocean Strategy
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Exercise 1. List Factors of
Competition 2. Top 2 or 3 in ERRC
Grid Quadrants
Clearly define the
group of non-
customer that you are
going after.
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Examples
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Exercise
3. Write onWorksheet:
E left, C right
4. Draw As Is
5. Draw To Be
E l
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Examples