Blue Ocean Strategy: Chapter 9, Appendix A, B, & C

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Blue Ocean Strategy:
Chapter 9, Appendix A, B, & C
Mikey, Michael, Meredithe, Jake,
Charly, Virginie, and Natalie
Blue Ocean strategy analysis
 Blue Ocean Strategy
 Dynamic situation not static
 What does this mean
 Revaluation of strategy; determine possible external
threats, i.e. imitators
 Blue Ocean strategy, on average not challenged
for 10 to 15 yrs.
 There are reasons for this situation
Reasons for decreased imitation
 Patents or legal permits
 Ex. Google and copyright and trademarks
 Revolutionary ideas that are against
industry standards in terms such as brand
image conflict
 Ex. Body shop shunning models, promises of
eternal youth, and expensive packaging
 Quite difficult to imitate due to other companies
current business models placing stock in model
industry
Reasons for decreased imitation
cont.
 Imitation requires companies to make
substantial business model changes
 Ex. SWA’s extreme flexibility; cost of imitation is
unrealistically high
 Brand Buzz and company loyalty held by
consumers in marketplace
 High volume generated by a value innovation
leads to rapid cost advantages
 In effect giving competitors at a huge disadvantage
 Ex. Competing with Walmart in retail or competing
with Google’s search capabilities
Reasons for decreased imitation
cont.
 Network externalities
 value of a product or service is dependent on
the number of others using it.
 Goggles search engine, i.e. Google search
 Natural monopoly
 Industry cannot support second player
 Sometimes does not make sense to a
company's conventional logic
When to Value-Innovate Again
Be careful not to loose focus:
 When competitors arise, companies usually launch
offense to defend their customer base
 Companies can be obsessed with hanging on to
their market share
 Finally, competitors and not customers may come
to occupy the center of the company’s attention
When to Value-Innovate Again
How to avoid the trap of competing?
 By monitoring the value curves on the strategy
canvas.
How does it help you?
 Alerts you to reach out for another ocean when
you curves converge with your competitors ones
 Keeps you from pursuing another ocean when
yours is still profitable
When to Value-Innovate Again
When your Blue ocean turns Red
 Rivalry intensifies and supply exceeds demand
 Your competitors’ value curves converge toward
yours.
 Should begin to reach out for another valueinnovation to create a new blue ocean
 By applying the six principles of blue oceans
strategy , companies should go beyond competing
for share to creating blue oceans and understand
how to make the competition irrelevant
A Sketch of the Historical Pattern of
Blue Ocean Creation
 Overview of the history of three American
industries…
 Automobiles, Computers and Movie Theaters.
 this review intends to be neither comprehensive in
its coverage nor exhaustive in its content. Its aim is
limited to identifying the common strategic
elements across key blue ocean offerings.
 U.S. industries are chosen here because they
represent the largest and least regulated free market
during our study period.
 Appendix A is only a sketch of the historical pattern
of blue ocean creation, several patterns stand out
across these three representative industries.
The Automobile Industry
 Auto industry goes back to 1893, When the
Duryea brothers launched the first onecylinder auto in the United States.
 At this time the primary transportation was the
horse and buggy.
 The autos of the time were a luxurious novelty.
 They were twice the average family's annual
income costing $1,500
The Model T
 In 1908, while America’s five hundred
automakers built custom made novelty
automobiles, Henry Ford introduced the Model
T.
 “The car for the great multitude, constructed of
the best materials”
 Model T was affordable
 1908: $850
 1909: $609
 1924: $290
Small, Fuel Efficient Japanese
Cars
 In 1970’s Japanese created a new blue ocean.
Instead of “ the bigger the better” Japanese altered
the conventional logic, pursuing ruthless quality,
small size, and highly gas efficient cars.
 1970’s an oil crisis occurred, the U.S. consumers
needed fuel- efficient, robust Japanese cars, which
were cars made by Honda, Toyota, and Nissan.
 Big Three were still hit b a drive in car sales with
losses mounting to $4 billion in 1980. Chrysler the
smallest out of the big three suffered the most.
Chryslers Minivan
 In 1984 Chrysler on the edge of becoming
bankrupt they unveiled the minivan. The
boundary between a car and a van.
 Within the 1st year the Chryslers minivan
became the best selling vehicle.
 With in three years, Chrysler gained $1.5
billion from the minivan’s introduction
alone.
Chryslers SUV
 The success of the Minivan ignited the Sports
Utility Vehicle (SUV) in the 1990s
 Built on a truck chassis
 First designed for off-road driving and towing
boat trailers
 Had carlike handling
 By 1998,total sales of new light trucks
(minivans, SUVs, and pickups) reached 7.5
million, nearly matching the 8.2 million new
car sales.
The Computer Industry
 The United States computer industry traces
back to 1890
 Herman Hollerith invented the punch card
tabulating machine
IBM
 Hollerith sold his company which was later
merger to form the CTR in 1911
 CTR than became IBM
 In 1953, IBM introduced the IBM 650
which was the first computer for business
purposes
 It cost $200,000
The Electronic Computer
 At the end of the 1950s, IBM controlled 85
percent of the electronic computer market
 In 1964, the system 360 was introduced
which included service packages
 In 1978, Apple designed the Apple II home
computer which was more advanced
 Build a blue ocean for home computing
 Came with software ranging from games to
business programs
The Electronic Computer
 In 1980, Apple sold 724,000 home
computers
 Fortune 500 company
 Shortly after twenty new companies were
started
 Caused Apple to make $3 Billion because of
high demand
 IBM survey the market first before taking
any other action
 1982 IBM expanded the blue ocean
Compaq PC Servers and Dell
Computers
 In 1992, IBM Compaq created another blue
ocean by launching the ProSignia
 It change the way file sharing was done
 Dell change the computer industry by allowing
the consumer to order and customized online
 Built-to-order reduced inventory cost
 Leader in PC sales with revenues of $35.5 billion
in 2003
 Each blue ocean that was created in the
computer industry is increasing the profit of
overall growth for all computer companies
The Movie Theater Industry
 1893 Thomas Edison developed the “peep show”
 1895 Edison’s staff made a projecting Kinetoscope, which showed motion
pictures on a screen.
 1905 First Nickelodeon Theater in Pittsburg.Only 5 cents so that lower
class could enjoy the entertainment.
 1914 the U.S had 1,800 Nickelodeon’s with seven million in daily
admissions
 1914-1922 four thousand Palace theaters opened. Samuel “Roxy”
Rothapfel made the theaters elaborate affairs.
 1963 Stan Durwood started a family theater in a Kansas City shopping
center.
 1980’s Cassette tapes, satellite, and cable television hurt the theater
industry.
 1995 AMC created the 24 screen Megaplex
 By 2000 many had closed due to the slowing economy. The theater
industry is ready for a new blue ocean.
Appendix B – Value Innovation
 Strategies need to be related to specific
industry structure
 Two basic strategic views here:
 Structuralist view deals with strategy changes based on
external factors to the company’s structure, buyer and
seller conduct, and end performance
 Reconstructionist view theorizes that economic
structure can be changed by forces internal to the
organization
Reconstructionist View
 If your strategy is molded from within your
organization, you need to replicate not
others ideas, but their innovative
techniques.
 New Growth Strategy
 This internal mind-set is essential for firms that
want to enter Blue Oceans and have new, different
customer demands
Optimal Strategy View?
 Structuralist vs. Reconstructionist views
 Blue Ocean seekers use Reconstructionist
view
 tend to focus on buyer value elements in
products, not strategies based on operations,
cost or technology advancement.
 This view ignores that there are boundaries of
the structure of an industry which creates a blue
ocean of new market space
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