BLUE OCEAN STRATEGY
How to Create Uncontested
Market Space and Make the
Competition Irrelevant
Made by Mrs. Kavita Yogesh Bansal
Creating Blue Oceans
New Market Space
The universe is composed of two sorts of
oceans- Red Oceans and Blue Oceans.
Red Oceans-All the industries in existence
today.
Blue Oceans-All the industries not in
existence today i.e. unknown market space
Blue Oceans are defined by untapped
market space, demand creation, and the
opportunity for highly profitable growth.
In red oceans industry boundaries are
defined and accepted, and the competitive
rules of the game are known.
In blue oceans, competition is irrelevant
because the rules of the game are waiting
to be set.
The Continuing Creation of
Blue Oceans
Although the term blue oceans is new, their
existence is not.
Companies which never existed 50 years
back are on zoom today.
Similarly, companies which are not in
existence today may exist after a few
years & we should think about those.
The Impact of Creating
Blue Oceans
The profit and growth consequences of
creating blue oceans.
86%
14%
Business launch
Revenue Impact
Profit Impact
62%
39%
Launches within red oceans
38%
61%
Launches for creating blue oceans
From Company & Industry to
Strategic Move
The study shows that the strategic move,
and not the company or the industry, is the
right unit of analysis for explaining the
creation of blue oceans and sustained
high performance.
A strategic move is the set of managerial
actions and decisions involved in making a
major market creating business offering.
Value Innovation: The cornerstone
of Blue Ocean strategy
Value innovation places equal emphasis
on value and innovation. Value without
innovation tends to focus on value creation
on an incremental scale, something that
improves value but is not sufficient to
make you stand out in the market place.
Innovation without value tends to be
technology-driven, market pioneering, or
futuristic, often shooting beyond what
buyers are ready to accept and pay for.
Value innovation occurs only when
companies align innovation with utility,
price, and cost positions.
People who seek to create blue oceans
pursue differentiation and low cost
simultaneously.
Red Ocean Strategy
Compete in existing
market space.
Blue Ocean Strategy
Create uncontested
market space.
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.
The Six Principles of Blue
Ocean Strategy
Formulation Principles
Risk factors each principle
attenuates
Reconstruct market
Reduces search risk
boundaries
Focus on the big picture, not Reduces planning risk
the numbers
Reach beyond existing
Reduces scale risk
demand
Reduces business model
Get the strategic sequence risk
right
Execution Principles
Risk factors each principle
attenuates
Overcome key
organizational hurdles
Build execution into strategy
Reduces organizational risk
Reduces management risk
Analytical Tools and
Frameworks
Effective blue ocean strategy should be
about risk minimization and not risk taking.
The Strategy Canvas
The strategy canvas is both a diagnostic
and an action framework for building a
compelling blue ocean strategy.
First it captures the current state of play in
the known market space.
This allows you to understand where the
competition is currently investing, the
factors the industry currently competes on
in products, service, & delivery, & what
customers receive from the existing
competitive offerings in the market.
The Four Actions Framework
Reduce
Which factors should
be reduced well
below the industry’s standard?
Eliminate
Which of the factors that
the industry takes for
granted should be
eliminated?
A new
value curve
Create
Which factors should be
created that the
industry has
never offered?
Raise
Which factors should be raised
well above the
industry’s standard?
The Eliminate-Reduce-RaiseCreate Grid
Eg. [yellow tail]
Eliminate
Enological terminology
and distinctions
Aging qualities
Above the line
marketing
Reduce
Wine complexity
Wine range
Vineyard prestige
Raise
Price versus budget
wines
Retail store
involvement
Create
Easy drinking
Ease of selection
Fun and adventure
Three Characteristics of a
Good Strategy
1. Focus: Every great strategy has focus,
and a company’s strategic profile, or
value curve, should clearly show it.
2. Divergence: When a company’s strategy
is formed reactively as it tries to keep up
with the competition. On the strategy
canvas, therefore, reactive strategists
tend to share the same strategic profile.
In contrast, the value curves of blue
ocean strategists always stand apart
3. Compelling tagline: A good strategy has
a clear-cut and compelling tagline.
Eg. Tagline of SouthWest Airlines
“The speed of a plane at the price of a carwhenever you need it.”
Some factors showing a company
caught in the Red Ocean
Overdelivery without payback
An Incoherent Strategy
Strategic Contradictions
An internally driven company
Formulating Blue Ocean
Strategy
Reconstruct Market
Boundaries
Companies trapped in red oceans
tend to do the following:
Define their industry similarly and focus on being
the best within it.
Look at their industries through the lens of
generally accepted strategic groups (such as
luxury automobiles, economy cars, and family
vehicles), and strive to stand out in the strategic
group they play in.
Focus on the same buyer group, be it the
purchaser (as in office equipment industry), the
user ( as in clothing industry), or the influencer
(as in pharmaceutical industry).
Define the scope of the products and
services offered by their industry similarly.
Accept their industry’s functional or
emotional orientation.
Focus on the same point in time-and often
on current competitive threats-in
formulating strategy.
Six Paths Framework
(Pattern for Creating Blue
Ocean Strategy)
Path 1: Look Across Alternative Industries.
Path 2: Look Across Strategic Groups Within
Industries.
Path 3: Look Across the Chain of Buyers.
Path 4: Look Across Complementary
Product and Service Offerings.
Path 5: Look Across Functional or Emotional
Appeal to Buyers.
Path 6: Look Across Time.
Conceiving New Market
Space
From Head to Head Competition to
Blue Ocean Creation
Head-to-Head
Competition
Blue Ocean
Creation
Industry
Focuses on rivals
within its industry
Look across
alternative
industries
Strategic Group
Focuses on
competitive position
within strategic
group
Focuses on better
serving the buyer
group
Looks across
strategic groups
within industry
Buyer Group
Redefines the
industry buyer
group
Scope of product/
service offering
Head-to-Head
Competition
Focuses on
maximizing the
value of product &
service offerings
within the bounds
of its industry
Blue Ocean
Creation
Looks across to
complementary
product and service
offerings
Functionalemotional
orientation (feo)
Focuses on
Rethinks the feo of
improving price
its industry
performance within
the feo of its
industry
Time
Focuses on
Participates in
adapting to external shaping external
trends as they
trends over time
occur
Focus on the Big Picture, Not
the Numbers
Drawing Your Strategy
Canvas
The Four Steps of
Visualizing Strategy
1.Visual
Awakening
2. Visual
Exploration
3. Visual
Strategy Fair
4. Visual
Communication
Compare your
business with
your
competitors’ by
drawing your
”as is” strategy
canvas.
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, create
or change
Draw your “to
be” strategy
canvas based
on insights from
field
observations.
Get feedback
on alternative
strategy
canvases from
customers,
competitors’
customers, &
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
See where
your strategy
needs to
change
Support only
those projects
and operational
moves that
allow your
company to
close the gaps
to actualize the
new strategy.
Reach Beyond Existing Demand
The three tiers of Noncustomers
First tier
Your market
First tier-”soon to be” noncustomers who are
on the edge, waiting to jump ship.
Second tier-’’Refusing’’ noncustomers who
consciously choose against your market
Third tier: ‘’Unexplored’’ noncustomers who are
in markets distant from yours
Second
tier
Third
tier
Get the Strategic Sequence
Right
Buyer utility
Is there exceptional buyer utility
in your business idea?
No-rethink
Yes
Price
Is your price easily accessible to
the mass of buyers?
No-rethink
Yes
Cost
Can you attain your cost target
to profit at your strategic price?
Yes
Adoption
What are the adoption hurdles in
actualizing your business idea?
Are you addresing them up front?
Yes
A commercially viable
Blue ocean idea
No-Rethink
No-Rethink
Testing for Exceptional Utility
The Buyer Utility Map
The Six Stages of the Buyer Experience Cycle
1.
Purchase
Customer
Productivity
Simplicity
Convenience
Risk
Fun & Image
Environmental
friendliness
2.
Delivery
3.
Use
4.
5.
Suplemnts mainte
nance
6.
Disposal
The Buyer Experience Cycle
Purchase
How long does it
take to find the
product you
need?
Delivery
How long does
it take to get the
product
delivered?
Is the place of
purchase
attractive &
accessible
How difficult is it
to unpack and
install the new
product?
How secure is
the transaction
environment?
Do buyers have
to arrange
delivery
themselves? If
yes, how costly
and difficult is
this?
How rapidly can
you make a
purchase?
Use
Does the product require
training or expert
assistance?
Is the product easy to store
when not in use?
How effective are the
product’s features and
functions?
Does the product or
service deliver far more
power or options than
required by the average
user? Is it overcharged
with bells and whistles?
Supplements
Do you need
other products
& services to
make this
product work?
If so, how
costly are they?
Maintenance
Does the
product require
external
maintenance?
How easy is it
to maintain &
upgrade the
product?
Disposal
Does use of the
product create
waste items?
How easy is it
to dispose of
the product?
How much pain
do they cause?
Are there legal
or
environmental
issues in
disposing of the
product safely?
How easy are
they to obtain?
How costly is
disposal?
How much time
do they take?
How costly is
maintenance?
Uncovering the Blocks to
Buyer Utility
Purchase
Delivery
Use
Suppleme Maintena
nts
nce
Disposal
Customer Productivity: in which stages are the biggest blocks to customer
productivity?
Simplicity: in which stages are the biggest blocks to simplicity?
Convenience: In which stages are the biggest blocks to convenience?
Risk: In which stages are the biggest blocks to reducing risks?
Fun & Image: In which stages are the biggest blocks to fun & image?
Environmental friendliness: In which stages are the biggest blocks to
environmental friendliness?
From Exceptional Utility to
Strategic Planning
Step 1: Identify the Price corridor of the
Mass
Step 2: Specify a Level Within the Price
Corridor
From Strategic Pricing to
Target Costing
The Profit Model of Blue
Ocean Strategy
The Strategic Price
The Target Profit
The Target Cost
Streamlining & Cost innovations
Partnering
Pricing Innovations
Adoption Of Blue Ocean Idea
Before moving further and investing in the
new idea, the company must first
overcome such fears by educating the
following peopleEmployees
Business Partners
The General Public
Executing Blue Ocean
Strategy
Overcome Key
Organizational Hurdles
The Four Organizational
Hurdles to Strategy Execution
Cognitive Hurdle
An organization
wedded to the status
quo
Political Hurdle
Opposition from
powerful vested
interests
Resource Hurdle
Limited resources
Motivational Hurdle
Unmotivated Staff
Building Execution into Strategy
A company is not only Top Management,
nor is it only middle management. A
company is everyone from the top to the
front lines.
The company must create a culture of
trust & commitment that motivates people
to execute the agreed strategy.
The power of fair process
How Fair Process Affects
People’s Attitudes and
Behavior
Strategy
Formulation
Process
Attitudes
Behavior
Strategy
execution
Fair Process
Engagement
Explanation
Expectation clarity
Trust and
Commitment
“I feel my opinion counts”
Voluntary Co-operation
“I’ll go beyond the call
of duty”
Exceeds expectations
Self- Initiated
The Three E Principles of Fair
Process
There are three mutually reinforcing
elements that define fair process1. Engagement
2. Explanation
3. Clarity of Expectation
The execution consequences of the presence and absence
Of fair process in strategy making
Fair Process
Intellectual &
Emotional
Recognition
Trust &
Commitment
Voluntary
Cooperation in
Strategy
execution
Violation of Fair
Process
Intellectual &
Emotional
Indignation
Distrust &
Resentment
Refusal to
Execute
Strategy
Imitation Barriers to Blue Ocean
Strategy
Value innovation does not make sense to
a company’s conventional logic.
Blue ocean strategy may conflict with
other companies’ brand image.
Natural monopoly: The market often
cannot support a second player.
Patents or legal permits block imitation.
Network externalities discourage imitation.
Imitation Barriers to Blue Ocean
Strategy contd…
High volume leads to rapid cost advantage
for the value innovator, discouraging
followers from entering the market.
Imitation often requires significant political,
operational, & cultural changes.
Companies that value-innovate earn brand
buzz & a loyal customer following that
tends to shun imitators.
Blue Ocean Strategy
Written by
W.Chan Kim
Renee Mauborgne