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Blue Ocean Strategy
The basic of an innovative business solution
What is a Blue Ocean Strategy?
• Authored by W. Kim Chan and Renee Mauborgne in 2005
• Based on a study of 150 strategic moves spanning more than 100 years and 30
countries
• BOS is the simultaneous pursuit of differentiation and low-cost
• The aim is not to outperform but to create a new marketing space and making
competition irrelevant
• BOS offers both systematic and reproducible methodologies and procedures in
pursuit of innovation by both new and existing firms
Types of Oceans
RED OCEAN
• Compete in existing market space
• Beat the competition
• Exploiting existing demands
• Make the value-cost trade off
• Align strategy choice of
differentiation or low-cost
BLUE OCEAN
• Create uncontested market space
• Make the competition irrelevant
• Create and capture new demand
• Break the value-cost trade off
• Simultaneous pursuit of strategy
of differentiation and low cost
In Short…Competition
(Thinking into the box)
Creativity
(Out of the box thinking)
Target of Blue Ocean
1
First Tier – “Soon to be”
On the edge of your market ready to
jump ship
2
Second Tier – “Refusing”
Consciously choosing against your
market
3 Third Tier – “Unexplored”
In a market distant from yours
Blue Ocean Strategy Tools
• Two tools are used while making a blue ocean strategy
1. Strategy Canvas
2. ERRC Grid
1. Strategy Canvas
A Strategy Canvas graphically captures in one simple picture, the current strategic
landscape and the future prospects of an organization
1. Strategy Canvas
The Strategy Canvas serves two purposes:
• To capture the current state of play in the known market space, which allows users
to clearly see the factors that the industry competes on and where the competition
currently invests.
• To propel users to action by reorienting their focus from competitors to alternatives
and customers to non-customers of the industry.
2. ERRC (Eliminate, Reduce, Raise, Create)
The Eliminate-Reduce-Raise-Create (ERRC) Grid is a simple matrix like tool that drives
companies to focus simultaneously on eliminating and reducing, as well as raising and
creating while unlocking a new blue ocean.
2. ERRC (Eliminate, Reduce, Raise, Create)
Which factors that the
industry takes for granted
should be eliminated?
Eliminate
Which factors should be
reduced well below the
industry’s standard?
Reduce
Which factors should be raised
well above the industry’s
Raise
Which factors should be
created that the industry has
never offered?
Create
A New Value
Curve
Strategically Reduce
Cost
Strategically Invest In
The Six Principles of Blue Ocean Strategy
• Formulation Principles
• Reach beyond existing demand
• Reconstruct market boundaries
• Focus on the big picture, not the numbers
• Get the strategic sequence right
• Execution Principles
• Overcome key organizational hurdles
• Build execution into strategy
Examples
• NINTENDO
Nintendo Co., Ltd. Is a Japanese
multinational consumer electronics
and video game company
headquartered in Kyoto.
• NINTENDO
(ERRC and Strategy Canvas Diagram)
Examples
• AIRASIA
AirAsia Berhad is a Malaysian
low-cost airline
headquartered near Kuala
Lampur, Malaysia. It is largest
airline in Malaysia by fleet
size and destinations.
• AIRASIA
(ERRC and Strategy Canvas Diagram)
Examples
• BURGERAMT (Berlin)
Burgeramt is a quite popular
restaurant in Berlin, Germany.
Specialty of Burgeramt is its
healthy atmosphere and
delicious burgers.
• BURGERAMT
• Convenience
• Consistency
Reduce
• Price Competition
Eliminate
• Quality and Moral
Raise
• Healthy Food and
Atmosphere
Create
So, are Red Ocean Strategies useless?
• NO, they are not. A company must master its traditional markets by using
conventional strategic planning tools. It will be important to swim in red oceans, red
oceans always matter and they will be a fact of life. Another reason is that not every
body is able to think out the box. So they have to compete anyway in order to run a
business.
• But to focus on Red Oceans is to deny the distinctive strength of the business world,
the capacity to create new market space that is uncontested.
• But to sustain high performance, companies must create their own blue oceans, and
make the competition irrelevant!
• But blue oceans are largely uncharted
• No analytic framework to guide its creation and implementation
• No principles to effectively manage risks
• Therefore too risky for managers to pursue
Red Ocean vs. Blue Ocean
Advantages
a. The market is already established
b. It’s clear what products and services
customers want
Disadvantages
a. There is usually an established market leader
who is very hard to beat
b. Competition is fierce
c. There are numerous niches trying to carve
out market share in subset of total market
Advantages
a. There can be a high-profit margin in new
markets
b. Successful creation of blue ocean can create
equity which can last for years
Disadvantages
a. Create a blue ocean requires large
investments.
b. Blue Oceans will eventually become red
oceans
c. As blue oceans will be new, a lot of time will
need to spent educating customers about
the new marketplace.
From Head-to-Head Competition to Blue
Ocean Competition
Industry Focuses on rivals within its industry Looks across alternative industries
Strategic Group Focuses on competitive position within
strategic group
Looks across strategic groups within
industries
Buyer Group Focuses on better serving the buyer group Redefines the industry buyer group
Scope of Product or Service
Offering
Focuses on maximizing the value of
product and service offerings within the
bounds of its industry
Looks across to complementary and
service offerings
Functional-Emotional
Orientation
Focuses on improving price performance
within the functional emotional orientation
of its industry
Rethinks the functional-emotional
orientation of its industry
Time Focuses on adapting to external trends as
they occur
Participates in shaping external trends
over time
Summary
• Applying Blue Ocean Strategy in current era is very difficult and may require a lot
of time and investment but once implemented, it could revolutionize marketing.
• Competition will become irrelevant and all companies will work together towards
common goal that will benefit everyone.

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Blue Ocean Strategy

  • 1. Blue Ocean Strategy The basic of an innovative business solution
  • 2. What is a Blue Ocean Strategy? • Authored by W. Kim Chan and Renee Mauborgne in 2005 • Based on a study of 150 strategic moves spanning more than 100 years and 30 countries • BOS is the simultaneous pursuit of differentiation and low-cost • The aim is not to outperform but to create a new marketing space and making competition irrelevant • BOS offers both systematic and reproducible methodologies and procedures in pursuit of innovation by both new and existing firms
  • 3. Types of Oceans RED OCEAN • Compete in existing market space • Beat the competition • Exploiting existing demands • Make the value-cost trade off • Align strategy choice of differentiation or low-cost BLUE OCEAN • Create uncontested market space • Make the competition irrelevant • Create and capture new demand • Break the value-cost trade off • Simultaneous pursuit of strategy of differentiation and low cost
  • 4.
  • 5. In Short…Competition (Thinking into the box) Creativity (Out of the box thinking)
  • 6. Target of Blue Ocean 1 First Tier – “Soon to be” On the edge of your market ready to jump ship 2 Second Tier – “Refusing” Consciously choosing against your market 3 Third Tier – “Unexplored” In a market distant from yours
  • 7. Blue Ocean Strategy Tools • Two tools are used while making a blue ocean strategy 1. Strategy Canvas 2. ERRC Grid
  • 8. 1. Strategy Canvas A Strategy Canvas graphically captures in one simple picture, the current strategic landscape and the future prospects of an organization
  • 9. 1. Strategy Canvas The Strategy Canvas serves two purposes: • To capture the current state of play in the known market space, which allows users to clearly see the factors that the industry competes on and where the competition currently invests. • To propel users to action by reorienting their focus from competitors to alternatives and customers to non-customers of the industry.
  • 10. 2. ERRC (Eliminate, Reduce, Raise, Create) The Eliminate-Reduce-Raise-Create (ERRC) Grid is a simple matrix like tool that drives companies to focus simultaneously on eliminating and reducing, as well as raising and creating while unlocking a new blue ocean.
  • 11. 2. ERRC (Eliminate, Reduce, Raise, Create) Which factors that the industry takes for granted should be eliminated? Eliminate Which factors should be reduced well below the industry’s standard? Reduce Which factors should be raised well above the industry’s Raise Which factors should be created that the industry has never offered? Create A New Value Curve Strategically Reduce Cost Strategically Invest In
  • 12. The Six Principles of Blue Ocean Strategy • Formulation Principles • Reach beyond existing demand • Reconstruct market boundaries • Focus on the big picture, not the numbers • Get the strategic sequence right • Execution Principles • Overcome key organizational hurdles • Build execution into strategy
  • 13. Examples • NINTENDO Nintendo Co., Ltd. Is a Japanese multinational consumer electronics and video game company headquartered in Kyoto.
  • 14. • NINTENDO (ERRC and Strategy Canvas Diagram)
  • 15. Examples • AIRASIA AirAsia Berhad is a Malaysian low-cost airline headquartered near Kuala Lampur, Malaysia. It is largest airline in Malaysia by fleet size and destinations.
  • 16. • AIRASIA (ERRC and Strategy Canvas Diagram)
  • 17. Examples • BURGERAMT (Berlin) Burgeramt is a quite popular restaurant in Berlin, Germany. Specialty of Burgeramt is its healthy atmosphere and delicious burgers.
  • 18. • BURGERAMT • Convenience • Consistency Reduce • Price Competition Eliminate • Quality and Moral Raise • Healthy Food and Atmosphere Create
  • 19. So, are Red Ocean Strategies useless? • NO, they are not. A company must master its traditional markets by using conventional strategic planning tools. It will be important to swim in red oceans, red oceans always matter and they will be a fact of life. Another reason is that not every body is able to think out the box. So they have to compete anyway in order to run a business. • But to focus on Red Oceans is to deny the distinctive strength of the business world, the capacity to create new market space that is uncontested. • But to sustain high performance, companies must create their own blue oceans, and make the competition irrelevant! • But blue oceans are largely uncharted • No analytic framework to guide its creation and implementation • No principles to effectively manage risks • Therefore too risky for managers to pursue
  • 20. Red Ocean vs. Blue Ocean Advantages a. The market is already established b. It’s clear what products and services customers want Disadvantages a. There is usually an established market leader who is very hard to beat b. Competition is fierce c. There are numerous niches trying to carve out market share in subset of total market Advantages a. There can be a high-profit margin in new markets b. Successful creation of blue ocean can create equity which can last for years Disadvantages a. Create a blue ocean requires large investments. b. Blue Oceans will eventually become red oceans c. As blue oceans will be new, a lot of time will need to spent educating customers about the new marketplace.
  • 21. From Head-to-Head Competition to Blue Ocean Competition Industry Focuses on rivals within its industry Looks across alternative industries Strategic Group Focuses on competitive position within strategic group Looks across strategic groups within industries Buyer Group Focuses on better serving the buyer group Redefines the industry buyer group Scope of Product or Service Offering Focuses on maximizing the value of product and service offerings within the bounds of its industry Looks across to complementary and service offerings Functional-Emotional Orientation Focuses on improving price performance within the functional emotional orientation of its industry Rethinks the functional-emotional orientation of its industry Time Focuses on adapting to external trends as they occur Participates in shaping external trends over time
  • 22. Summary • Applying Blue Ocean Strategy in current era is very difficult and may require a lot of time and investment but once implemented, it could revolutionize marketing. • Competition will become irrelevant and all companies will work together towards common goal that will benefit everyone.