Creating New Oceans Blue Ocean Strategy W Chan

Creating New Oceans Blue Ocean Strategy W. Chan Kim Renee Mauborne

New Market Space • Cirque du Soleil Red Oceans vs. Blue Oceans Red Oceans- represent all the industries in existence today Blue Oceans- represent the industries NOT in existence today.

Red Oceans • Have a defined set of rules and practices • Competition tries to outperform one another. • The market space gets crowded and profit and margins decrease. • Production becomes a commodity, “cutthroat competitions turn the red ocean bloody. ”

Blue Oceans • “untapped market space” • Creates its own demand with higher margins and higher risk • Higher growth rates • NO RULES because they are the only player. • “Most are created from and within red ocean by expanding existing industry boundaries. ” • Uncharted oceans, instead of competing in less risky red oceans.

Cirque du Soleil • http: //www. cirquedusoleil. com/ • http: //www. youtube. com/watch? v=q. Gj. Prvom DP 0

The Continuing Creation of Blue Oceans • New Industries emerge because of new technologies and further education of red ocean dynamics. • Examples- telegraph to telephone to smart cell phones. • Standard Industrial Classification system was replaced by North America Industry Classification Standard system.

The Continuing Creation of Blue Oceans • STRATEGIC THINKING with Red Oceans • Find the factors of constraints in order to succeed, for example, benchmarking, or specialization in a particular field. • Gaining high ground • Price wars decrease profits

The Impact of Creating Blue Oceans Business Launch 14 Blue Ocean Red Ocean 86

The Impact of Creating Blue Oceans Revenue Impact 38 Blue Ocean Red Ocean 62

The Impact of Creating Blue Oceans Profit Impact 39 Blue Ocean Red Ocean 61

The Rising Imperative of Creating Blue Oceans • Technological Advances • Increase supply and decrease demand • Mature Markets, decrease world population in Developed Markets • Globalization – Trade Barriers – Communications

The Rising Imperative of Creating Blue Oceans • Substitution, brands becoming more similar and selection is based on price. • Differentiating products is more difficult. • Management is increasingly changing focus to Blue Ocean Strategy.

From Company and Industry to Strategic Move • The Fairytale of Industry Leaders does not always have a happy ending. • Example – GM Industry Leader in the 70 -80’s and loss in market share has created a gruesome ending. – Circuit City

From Company and Industry to Strategic Move • Strategic Move is the best unit of analysis in studying the roots of profitable growth, not by company nor the industry. • The creation and capturing of blue oceans were achieved by diverse industries, organizations, firms, and managers.

Value Innovation: The Cornerstone of Blue Ocean Strategy • The creation of value or the perception of value has encouraged profit growth • Low cost strategy, competition based strategy, or value based strategy • Economies of scale.

Red Ocean VS Blue Ocean Strategy Red Ocean Strategy Blue Ocean Strategy Compete in existing market space 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

Formulation and Executing Blue Ocean Strategy Formulating Principles Risk factors each principles attenuates Reconstruct market boundaries Search risk Focus on the big picture, not the numbers Planning risk Reach beyond existing demand Scale risk Get the strategic sequence right Business Model Risk Execution Principles Risk factor each principle attenuates Overcome key organizational hurdles Organizational Risk Build execution into strategy Management Risk