Blue Ocean Strategy:
The Four Actions Framework
Jason C. H. Chen, Ph.D.
Professor of MIS
School of Business Administration
Gonzaga University
Spokane, WA 99258 USA
chen@jepson.gonzaga.edu
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Red Ocean vs. Blue Ocean
• RED OCEAN
 It represents all the industries in existence today – the
known market
 Industry boundaries are defined and accepted, and the
competitive rules of the game are known.
 Competition-based
• BLUE OCEAN
 It represents all the industries not in existence today –
the unknown market
 Is defined by untapped market space, demand creation,
and the opportunity for highly profitable growth.
 Innovation-based
 It is with unlimited business opportunities.
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
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TYPES of
COMPETITION
PURE COMPETITION
1. ___________________
MONOPOLISTIC COMP.
2. ___________________
# OF
FIRMS
PRODUCT
Characteristics
PRICE
CONTROL
ENTRY
To Industry
MANY,
SMALL
SIMIAR
SUPPLY
&
DEMAND
EASY
MANY,
LARGE
&SMALL
DIFFERENT
SOME
FAIRLY
EASY
FEW
SIMILAR
OR DIFF.
A LOT
HARD
ONE
NO
SUBSTITUTE
REGULATED
NO
WAY!
3. ___________________
OLIGOPOLY
4. ___________________
MONOPOLY
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
The Profit and Growth Consequences of
Creating Blue Oceans
86%
Business launch
Revenue Impact
Profit Impact
62%
39%
Launches within red oceans
14%
38%
61%
Launches for creating blue oceans
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
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Red Ocean Versus Blue Ocean Strategy
Red Ocean Strategy
Compete in existing marketing
Blue Ocean Strategy
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 firm’s
activities with its strategic
Choice of differentiation or low
Cost.
Align the whole system of a firm’s
activities in pursuit of
differentiation and low cost.
Figure 1-3 (p. 18)
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Eliminate-Reduce-Raise-Create
Grid
Eliminate
Raise
Reduce
Create
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
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IS/IT Role?
The Four Actions Framework
force us to consider
those factors no
longer have value or
may even detract
from value
determine whether products or
service have been overdesigned in
the race to match and beat the
competition. Here, companies
overserve customers, increasing
their cost structure for no gain.
Reduce
Which factors should
reduced well
be ________
below the industry’s
standard?
Eliminate
Create
Which of the factors
that the industry takes
for granted should be
eliminated
_________?
push us to uncover
and eliminate the
compromises your
industry forces
customers to make
Which factors should
created that the
be ________
industry has never
offered?
A New
Value
Curve
help us to discover
entirely new source of
value for buyers and to
create new demand and
shift the strategic
pricing of the industry
Raise
Which factors should
raised well above
be ______
the industry’s
standard?
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Eliminate-Reduce-Raise-Create Grid:
The Case of Southwest Airlines
Eliminate
•
•
•
•
Raise
Meals
Lounges
Seating class choices
Hub connectivity
•
•
Create
Reduce
•
Price versus
average airlines
Friendly service
Speed
•
•
•
Frequent point-topoint departures
Ticketless
Culture & Fun
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
4
Eliminate-Reduce-Raise-Create Grid
Eliminate
Raise
Reduce
Create
In relation to Porter’s Five-Force Model:
Eliminate and ________:
Reduce Low Cost
__________
Raise
Create customer value and new
__________
and ________:
demand [differentiation] (i.e., value innovation)
eliminating and
Of particular importance are the actions of __________
creating
________, which push company to go beyond value
maximization exercise with existing factors of competition.
Eliminating and creating prompt companies to change the factors
themselves hence making the existing rules of competition
irrelevant
___________
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Winners vs. Losers
• What separates winners from losers in creating
(ultimate) strategic competitive advantage is
neither bleeding-edge technology nor “timing for
market entry.”
• It is from “value innovation”
utility
Firm
Innovation
price
Value
Innovation
cost
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
5
Value Innovation
Costs
Value
Innovation
Customer Value
Low Cost.
Differentiation and ___________
The Simultaneous Pursuit of ______________
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Characteristics of a Good Strategy
Three characteristics of a good strategy
• Focus
 a firm does not diffuse its efforts across all key factors
of competition
• Diverge
 diverge from the other players’
• Compelling Tagline
 strategic profile is clear; a fun and simple to follow
(enjoy)
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
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Why Information Systems?
“Chaotics”
“Globalization and technology are the two main forces
that helped to create a new level of interlocking
fragility in the world economy. While global
interdependence works in everyone’s favor in good
times, it rapidly spreads much pain and damage in
bad times.”
by Philip Kolter and John Caslione (AMACOM 2009)
N
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Top-Ten Innovation Mistakes a Company
Can Make During a Turbulent Economy
•
•
•
•
•
•
•
•
•
•
Fire talent.
Cut back on technology.
Reduce risk.
Stop product development.
Allow boards to replace growth-oriented CEOs with costcutting CEOs.
Retreat from globalization.
Allow CEOs to replace innovation as key strategy.
Change performance metrics.
Reinforce hierarchy over collaboration.
Retreat into walled castle.
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
7
Homework
• Describe (find) a business example and
employ “The Actions Framework” to
create/improve value innovation (i.e.,
strategic competitive advantage).
• Both example description and model are
due next class (using Word).
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
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