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
TYPES of
COMPETITION
1. PURE COMPETITION
2. MONOPOLISTIC COMP.
# OF
FIRMS
PRODUCT
Characteristics
PRICE
CONTROL
ENTRY
To Industry
EASY
MANY,
SMALL
SIMIAR
SUPPLY
&
DEMAND
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
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
14%
38%
61%
Launches for creating blue oceans
Red Ocean Versus Blue Ocean Strategy
Red Ocean Strategy
Compete in existing marketing
Beat the competition
Blue Ocean Strategy
Create uncontested market space
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
The Four Actions Framework
Reduce
IS/IT Role?
Which factors should
reduced well
be ________
below the industry’s
standard?
Eliminate
Which of the factors
that the industry takes
for granted should be
eliminated
_________?
Create
A New
Value
Curve
Raise
Which factors should
raised well above
be ______
the industry’s
standard?
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Which factors should
created that the
be ________
industry has never
offered?
Eliminate-Reduce-Raise-Create Grid:
The Case of Southwest Airlines
Eliminate
Meals
Lounges
Seating class choices
Hub connectivity
Reduce
Price versus
average airlines
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Raise
Friendly service
Speed
Create
Frequent point-topoint departures
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
cost
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Value
Innovation
Value Innovation
Costs
Value
Innovation
Customer Value
The Simultaneous Pursuit of Differentiation and Low Cost.
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
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
• You will be expected to turn in an outline for the term
paper, a draft, and a final version of the paper as indicated
on the schedule. You should turn in a hardcopy and a
softcopy for the final paper. Use Times New Roman 12
font, double space, page numbers and follow the structure
(i.e., title page, abstract with key words, Introduction, main
body, Conclusion, References, Tables and Figures), format
(especially the references) as indicated on the sample
papers on my web site. It is required to employ
appropriate models learned from the class to help achieve
the purpose of your paper. The total number of pages
should be between 15 and 20 pages.
• At least six references should be cited and three of them
should be research-oriented (visit
http://www.gonzaga.edu/Academics/Libraries/Foley+Libra
ry/Indexes+and+Databases/default.htm
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices