The document summarizes the key concepts of blue ocean strategy as outlined in the book by Kim and Mauborgne. It discusses reconstructing market boundaries to create new demand rather than competing solely based on existing customers. It also emphasizes the importance of getting the strategic sequence right by ensuring there is buyer utility, affordable price, and cost structure to deliver value before entering a new market space. The blue ocean strategy framework involves eliminating some factors, reducing others, creating new ones, and raising some to shift industry standards and open up uncontested market space.
2. Creating New Market Space
To win in the future New Market
Space, companies must stop
competing with each other.
Because the only way to beat the
competition is to stop trying to beat
the competition.
4. Two Oceans …
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 strategic firm's activities
with its choice of
differentiation or low cost.
Align the whole system of a
firm's activities in pursuit of
differentiation and low cost.
VALUE INNOVATION
From Kim & Mauborgne, 2005
5. BOS Logic: The Core Principles
Reconstruct Market
Boundaries
… overcome believes.
Reach beyond
existing Demand
… go for uncontested space.
Get the strategic
sequence right
… value [innovation] first.
VIVI
COST
VALUE
6. BOS Logic: Reconstruct market boundaries
Industry
Focuses on rivals within its
industry
Strategic Group
Focuses on competitive position
within strategic group
Buyer Group
Focuses on better serving the
buyer group
Scope of Product
and Service
Offerings
Focuses on maximizing the value
of product and service offerings
within the bounds of its industry
Functional-emotional
Orientation of an
Industry
Focuses on improving price-
performance with the functional-
emotional orientation of this
industry
Time/Trends
Focuses on adapting to external
trends as they occur
Looks across alternative
industries
Looks across strategic groups
within its industry
Redefines the buyer group of the
industry
Looks across to complementary
product and service offerings that
go beyond the bounds of its
industry
Rethinks the functional-emotional
orientation of its industry
Participation in shaping external
trends over time
Boundaries of
Competition
Head-to-Head
Competition
Creating
New Market Space
8. BOS Logic: Get the Strategic Sequence right
Buyer utility
Is there exceptional buyer
utility in your business idea?
Adoption
What are the adoption hurdles in
actualizing your business idea?
Are you addressing them up
front?
Price
Is your price easily accessible to
the mass of buyers?
Cost
Can you attain your cost target to
profit at your strategic price?
A commercially viable Blue Ocean Strategy
YES
YES
YES
YES
No Rethink
No Rethink
No Rethink
No Rethink
9. Which Strategy?
Compete in existing market
space
Beat the competition
Exploit existing demand
Make the value/cost trade-off
Align the whole system of an
organization’s activities with its
strategic choice of
differentiation OR low cost
SUSTAINING
(RED)
DISRUPTIVE
(BLUE)VS.
Create uncontested market space
Make the competition irrelevant
Create and capture new demand
Break the value/cost trade-off
Align the whole system of an
organization’s activities in pursuit
of differentiation AND low cost.
From Kim & Mauborgne, 2005
10. What factors
should be
eliminated that the
industry has taken
for granted?
Eliminate
What factors
should be reduced
well below the
industry standard?
Reduce
What factors should
be created that the
industry has never
offered?
Create
What factors
should be raised
well beyond the
industry standard?
Raise
Four
Actions to
create a
Blue Ocean From Kim & Mauborgne, 2005
11. FIRST STEP
• Sit with your group members & establish your
company.
• Reappoint your members to hold various
positions (please ensure each member has a
different role from previous assignments).
– CEO/MD
– COO
– CRO
– CFO
– CMO
– CTO
– CIO
• Fill in the company’s list form
12. Sailing The Blue Ocean
The Task:
Using the materials provided and not more than
3 materials from your surroundings, use your
creativity to design a creative product using the
Blue Ocean Strategy.
Determine a price for your product.
Display your products with a poster with a
product name, description, features, promotion
tag line and the selling price.
Market & sell your product to the BUYER/Class.
Record your performance/Customers Reaction.
13. BLUE OCEAN PARTS MATERIALS
NO GIVEN PARTS QUANTITY
1 STRAWS 10 PIECES
2 STRING 1 STRAND
3 PAPER 4 PIECES
4 UNKNOWN OBJECT 1 PIECE
NO FOUND PARTS QUANTITY
1
2
3
4
5
COMPANY NAME: DATE:
14. Company’s List
NO. POSITION NAME NICKNAME SIGNATURE
1.
2.
3.
4.
5.
6.
7.
CEO
CFO
COO
CMO
CTO
CRO
CIO
COMPANY NAME: DATE:
15. BLUE OCEAN PRODUCT
PRODUCT NAME
PRODUCT
DESCRIPTION
PRODUCT FEATURE
PRODUCT MARKET
PROMOTION TAG
LINE
PRODUCT PRICE
SELLING PRICE
PROFIT
COMPANY NAME: DATE:
Hinweis der Redaktion
Strategic Thinking JP 7 Jul 2004 (c) Prof. Ahmad Zaki Abu Bakar, UTM W . Chan Kim is The Boston Consulting Group Bruce D. Henderson Chair Professor of Strategy and International Management at INSEAD. He was Professor at the University at Michigan Business School. He has served as a board member as well as and adviser for a number of multinational corporations in Europe, the United States, and Pacific Asia. He has published numerous articles on strategy and managing the multinational. Renée Maoborgne is the INSEAD distinguished Fellow and a professor of strategy and management at INSEAD in Fontainebleau, France, and Fellow of the World Economic Forum. She has published numerous articles on strategy and the multinational. The two of them are the winners of the Eldridge Haynes Prize, awarded by the Academy of International Business and the Eldridge Haynes Memorial Trust of Business International, for the best original paper in the field of international business.
Strategic Thinking JP 7 Jul 2004 (c) Prof. Ahmad Zaki Abu Bakar, UTM To win in the future New Market Space, companies must stop competing with each other. Because the only way to beat the competition is to stop trying to beat the competition. To understand this idea, imagine a market universe composed to two sorts of oceans: -red oceans and -blue oceans.
Strategic Thinking JP 7 Jul 2004 (c) Prof. Ahmad Zaki Abu Bakar, UTM To win in the future New Market Space, companies must stop competing with each other. Because the only way to beat the competition is to stop trying to beat the competition. To understand this idea, imagine a market universe composed to two sorts of oceans: -red oceans and -blue oceans.
Strategic Thinking JP 7 Jul 2004 (c) Prof. Ahmad Zaki Abu Bakar, UTM Red oceans represent all the industries in existence today. This is the known market space. Blue oceans denote all the industries not in existence today. This is the unknown market space. In the red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Here, companies try to outperform their rivals to grab a greater share of existing demand. As the market space gets crowed, prospects for profits and growth are reduced. Products become commodities, and cutthroat competition turns the red ocean bloody. Blue Oceans , in contrast, are defined by untapped market space, demand creation, and the opportunity for highly profitable growth. Although some blue oceans are created well beyond existing industry boundaries, most are created from within red oceans by expanding existing industry boundaries. In blue oceans competition is irrelevant because the rules of the game are waiting to be set. Logic of Blue Ocean Strategy is so called value innovation and is the cornerstone of Blue Ocean Strategy. Value innovation places equal emphasis on value and innovation. It is a new way of thinking about and executing strategy that results in the creation of a blue ocean and a break from the competition. Importantly, value innovation defies one of the most commonly accepted dogmas of competition-based strategy: The value-cost trade-off. It is conventionally believed that companies can either create greater value to the customers at higher cost or create reasonable value at a lower cost. Here strategy is seen as making a choice between differentiation and low cost. In contrast , those that seek to create blue oceans pursue differentiation and low cost simultaneously. Now turn the clock back only thirty years, How many industries of today's industries were then unknown? Mutual funds, cell phones, gas-fired electricity plants, biotechnology, discount retail, snowboards and coffee bars to name a few.
Strategic Thinking JP 7 Jul 2004 (c) Prof. Ahmad Zaki Abu Bakar, UTM Reconstruct Market Boundaries The first principle of Blue Ocean Strategy is to reconstruct market boundaries to break from the competition and create blue oceans. The challenge is to successfully identify , out of the haystack of possibilities that exist, commercially compelling blue ocean opportunities . This challenge is key because managers cannot afford betting their strategy on intuition or on a random drawing.
Strategic Thinking JP 7 Jul 2004 (c) Prof. Ahmad Zaki Abu Bakar, UTM There are a clear pattern for creating blue oceans, with six basics approaches to remarking market boundaries: The six paths framework In the first path companies in the red ocean define their industry similarly and focus on being the best within it. But to create new market space companies must look across alternative industries because a company competes not only with the other firms in its own industry, but also with companies in those other industries that produce alternative products and services. The second path: The next boundary is the strategic group. A strategic group is companies within an industry that pursue a similar strategy. The key in creating new market space is to understand what factors determine buyers´ decision to switch from one strategic group to another. The third path: In most industries, competitors converge on the definition of the target buyer. In the reality, though, there is a chain of buyer who directly or indirectly involved in the buying decision: the purchaser, the user , for example. But by looking across buyer groups, companies can gain new insights into how to redesign their value curves to focus on a previously overlooked set of buyers. The fourth path: In the red ocean: few products and services are used in a vacuum. In most cases, other products and services affect their value. But companies can create new market space by focusing on the complements that detract from the value of their product or service. The fifth path: Competition in an industry tends to converge around two bases of appeal: -Some industries compete principally on price and function , their appeal is rational. Other industries compete largely on feelings, their appeal is emotional . Companies can find new market spaces when they are willing to challenge the functional-emotional orientation of their industry. The sixth path: All industries are subject to external trends that affect their business over time. Firms tend to pace their own thinking to keep up with the development of the trends they are tracking. By finding insights trends that are observable today, firms can unlock innovation that creates new market spaces.
Strategic Thinking JP 7 Jul 2004 (c) Prof. Ahmad Zaki Abu Bakar, UTM Instead of concentration on customers, they need to look to noncustomers. And instead of focusing on customer differences, they need to build on powerful commonalities in what buyers value . That allows companies to reach beyond existing demand to unlock a new mass of customers that did not exist before . There are three types of noncustomer that can be transformed into customers . They differ in their relative distance from the market. -The first of noncustomers is closest to the market. They are buyers who nominally purchase an industry's offering out of necessity , but are mentally noncustomers of the industry. -The second type of noncustomers is people who refuse to use the industry's offerings. These are buyers who have seen the industry's offerings as an option to fulfill their needs but have voted against them. -The third type of noncustomers is farthest from the market. They are noncustomers who have never thought of the market´s offerings as an option. You must look at each of the three types of noncustomers to understand how you can attract them and expand the own blue ocean.
Strategic Thinking JP 7 Jul 2004 (c) Prof. Ahmad Zaki Abu Bakar, UTM This brings us to the fourth principle of the Blue Ocean Strategy: Get the strategic sequence right. As shown in this figure, companies need to build their Blue Ocean Strategy in the sequence of buyer utility, price, cost, and adoption. The starting point is buyer utility . Does your offering unlock exceptional utility? Is there a compelling reason for the mass of people to buy it ? Absent this, there is no Blue Ocean potential to begin with. Here there are only two options. Park the idea, or rethink it until you reach an affirmative answer. When you clear the exceptional utility bar, you advance to the second step: setting the right strategic price . Remember a company does not want to rely on price to create demand. The key question her is this: Is your offering priced to attract the mass of target buyers so that they have a compelling ability to pay for your offering? If it is not, they cannot buy it. Nor will the offering create irresistible market buzz. These two steps address the revenue side of a company's business model. Securing the profit side bring the third element: cost . Can you produce your offering at the target cost and still earn a healthy profit margin ? Can you profit at the strategic price-the price easily accessible to the mass of target buyers? You should not let costs drive prices. Nor should you scale down utility because high costs block your ability to profit at the strategic price. When the target cost cannot be met, you must either forgo the idea because the Blue Ocean won't be profitable, or you must innovate your business model to hit the target cost. It is the combination of exceptional utility, strategic pricing, and target costing that allows companies to achieve value innovation-a leap in value for both buyers and companies. The last step is to address adoption hurdles. What are the adoption hurdles in rolling out your idea? Have you addressed these up front? The formulation of Blue Ocean Strategy is complete only when you address adoption hurdles in the beginning to ensure the successful actualization of your idea. Adoption hurdles include, for example, potential resistance to the idea by retailers or partners. Because Blue Ocean Strategies represent a significant departure from red oceans, it is key to address adoption hurdles up front.
Strategic Thinking JP 7 Jul 2004 (c) Prof. Ahmad Zaki Abu Bakar, UTM
Strategic Thinking JP 7 Jul 2004 (c) Prof. Ahmad Zaki Abu Bakar, UTM
