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Blue Ocean Strategy
Prof. W. Chan Kim and Prof. Renee Mauborgne



           Dvir@simplesolutions.co.il
Background
Red ocean = strong competition
Blue Ocean Strategy (BOS) aims to create a new market space, by
challenging the conventional assumptions about how to compete
(business innovation)



        14%
                                  38%                39%
                            62%                               61%
   86%Sales


 New products                Sales                     Profits


                            * According to survey of 108 large firms in USA

                                                                        2
Example - Cirque du Soleil
The circus industry in North America - a declining industry,
mainly for children (low prices), “once in a life time”, stars,
alternative forms of entertainment.
Declining revenue and profits, unattractive market


Cirque du Soleil –
 – Theater show with circus format
 – Adults and corporate clients
   (higher price), several times
 – Created in 1984 by a group of street performers.
   Achieved revenues that took the global champion of the
   circus industry more than one hundred years to attain




                                                              3
Value Innovation
Traditional strategy process - SWOT analysis, firms try to
compete better in their business environment
Blue Ocean Strategy reconstructs market boundaries in order
to reach beyond existing demand
Establish it through business innovation and new values for
customers
Align the whole system – values, price, cost




                                                              4
Example – US wine industry
 Strong competition (from domestic
 and imported wines). Price pressure,
 high advertisement costs, high power
 of buyers, steady demand

High
                                           Fine wine




                                      Commodities


Low
   Price    Terms   Sales    Aging   Reputation   Complexity   Variety
             and    effort
           awards


                                                                         5
Four actions to create a new value curve

   New values that have never been
   offered                             Create new values to
                                       create a new market space
   Raise existing values well above
   market standards




   Eliminate Values
                                       Cost reduction
   Reduce existing values well below
   market standards




                                                           6
Example cont. - Australia's Casella Winery
  Small and unknown. In 2001 started to market wine to customers who
  used to drink beer and cocktails. Most customers didn’t care about
  complexity or aging.
  They decreased the aging (fast incomes) and the variety (less inventory),
  created simple and designed labels (easy understanding), suggested
  adventure feeling.
  Number one imported wine, fastest growing brand in the history

High
                                            Fine wine



                                       Commodities


                                           Casella
Low
   Price   Terms    Sales    Aging   Reputation   Complexity   Variety   Soft    Easy to   Adventure
            and     effort                                               drink   choose
           awards
                                                                                              7
Good strategy
Unique and efficient business profile
New values that reconstruct market boundaries
Large market that interests in these values
Adjust all other parameters to strategy




                                                8
Reconstructing market boundaries
Firms tend to:
  Define their industry similarly
  Look at their industries through the lens of generally accepted
  strategic groups
  Focus on the same buyer group
  Focus on the same point in time




  To swim out from the red ocean - you should examine six paths




                                                                    9
Path 1- Look Across Alternative Industries

  Products or services may have different forms but offer same
  functionality




  Customers have alternative solutions from different industries
  Yet, firms don’t examine other industry’s customers
  You should analyse why custemrs chose one alternative over
  the other



                                                                 10
Example – Netjets
      The most lucrative customers in the aviation industry are corporate travelers.
      Executives can fly business/first class or purchase a private aircraft.
      NetJets offers its customers one-sixteenth ownership
      of an aircraft , each one entitled to fifty hours of flight
      time per year. A jet is available with four hours’ notice
      Seventy thousand flights, a multibillion-dollar business

High
                                         Private airplane


                                               Netjets



                                                                             Business flight
Low
  Investment      On going    Cost per       Time        Easiness   Flexibility   Service
                    cost       flight
                                                                                        11
Path 2 - Look Across Strategic Groups
               within Industries
Each branch has strategic groups which distinct in two
dimensions:
– Price
– Performance
You should understand which factors determine customers’
decisions to trade up or down between groups




                                                           12
Example: Curves - women’s fitness company
      Redefining market boundaries between health clubs (12% of the entire
      population) and home exercise programs for women
      Smaller spaces in nonprime locations, Low price,
      Simple machines for women, circle,
      nonjudgmental atmosphere
      Two million members, revenues of US$ 1 billion

High                              Traditional health clubs


                                                                                    Curves




Low                       Home exercise

       Price   Services   Equipment   Trainers Discipline       Non       Arrival     Women
                                                             judgmental    time      company
                                                             atmosphere                13
Path 3 - Look Across the Chain of Buyers
 Many people are involved in the purchase decision (buyers,
 end users, consultants, market leaders and more)
 An industry typically converges on a single buyer group
 (pharmaceutical industry – doctors, Office equipment -
 purchasing departments, Computers – IT departments)
 Challenging which buyer group to target can lead to the
 discovery of a blue ocean


 Example - Novo Nordisk
  – Insulin producer
  – The industry focused on doctors, who wanted pure insulin
  – Novo Nordisk examined patients’ needs and developed
    NovoPen, the first user-friendly insulin delivery solution

                                                                 14
Path 4 – Complementary services
 Most products require complementary service in order to be
 effective
 A firm should understand the connection between its product
 to these services, what do customers do before and after
 using its product and to offer other values
 Examples –
  – Barnes & Noble - lounges and coffee bars to
    create an environment that celebrates reading.
    In six years, emerged as one of the two largest
    bookstore chains in the United States


  – Movie theaters – offered baby sitting services




                                                               15
Path 5 - Functional or emotional orientation

  Usually there is major functional or emotional factor that drives
  the purchasing decision
  Firm should think if it can supply values that will change the
  relevant factor


  Examples:
   – Swatch – changed the low end watches market
     from functional to emotional one
   – Body Shop made the opposite for the cosmetics products




                                                                   16
Path 6 – Looking across the time
 Companies should understand trends and their influence
 Examples –
 – Apple - Observed the flood of illegal music file sharing.
   Launching iTunes in 2003.
   Agreement with five major music. Offered
   legal individual song downloads.


 – Cisco – Observed the need for high speed data transfer


 – HBO – Saw the trend of unmarried women and developed
   “Sex and the city”




                                                               17
Six paths to blue ocean
       The six conventional boundaries of competition

                    Industry (Netjets)

                Strategic group (Curves)

               Buyer group (Novo Nordisk)
  From
                                               To creating
competing
              Scope of product or service        across
  within
                          (B&N)

            Functional – emotional (Swatch)

                      Time (Apple)


                                                             18
Create new market space
     We want to find an ocean and not a puddle
     We need to find markets of “non customers”


   "Refusing” non
      customers-                                   Soon to be non
    chose against                                   customers –
     your market                                   waiting to jump
                                                         ship
                           2nd    1st
                    3rd                    Our
 "Unexplored”              tier   tier
                    tier                  market
non customers
 – in markets
 distant from
     yours


                                                               19
Three tiers of noncustomers
     Tier           Characteristics                    Example
Soon to be non Minimally purchase an        Pret a Manger – Healthy
customers      industry’s offering out of   sandwiches for office workers
               necessity

Refusing non    Saw your industry’s         JCDecaux - street facilities
customers       offerings, but voted        (in 1964) for advertisers that
                against them                didn’t like bus commercials

Unexplored    Never thought of your         Toothpaste producer - offer
non customers market’s offerings as an      whitening products, which
              option                        were regarded as dentists’
                                            business




                                                                             20
Target Price
        Target price should be attractive and to bring
                fast conquering of the market


Two parameters:
– Customer’s alternatives (including not to buy anything)
– Entering of new competitors


Refine the whole system to support that price
– Increasing efficiency
– Cancellation of unimportant values




                                                            21
Pioneer-Migrator-Settler (PMS) Map


 Pioneer




 Migrator




 Settler



                                22
Strategy Implementation
        Company                             LOB’s
          level                              level



       Managerial                       Our markets,
 workshop, PMS Map,                     Current value
   Market Trends,                      curve, six paths
    Technology …                           ………
 …...............................
 Change management

                                    Different    Effective
                                    solution     features
    “Big ideas”
Not in the road map

                                                             23
Other Blue Oceans
 Ford                       Chrysler         IBM                Microsoft     Ralph
               GM                                    Viagra
Model T                     Mini Van         PC                  Office       Lauren

                           Canon                                Quicken
iPhone       UPS           Simple       Dell       Bloomberg                  Google
                                                                90$ finance
                           copiers                                  SW

                                                                          Bagir
                                                          ECI
  Checkpoint           Fox             Tiv Taam                         Washable
                                                         CDMA
                                                                         suites


Nintendo       Kodak            Akzo Nobel         Samsung Total        Universiti
   Wii        Traceless          Paint pot         Petrochemicals     Sain Malaysia


 Microsoft         Nokia       McDonald's          SAS    Carlsberg     Raytheon



                                                                                   24
FAQ’s

          Risks (today)?


                                       Strategy – it’s
                                       coming from
                                       Management /
                                       part of bigger
 Standards or
                                        organization
list of “must”
    features

                           We are already
                             have a new
                           innovative idea

                                                         25
Summary
Most firms invest their efforts in the red
ocean battle
Structure and market boundaries exist
only in managers’ minds
Many firms (from various industries)
found their blue ocean
Business innovation (in our business)
Profits are high (even from BOS analysis)
Next step – Implementation session,
team, LOB
Start. Time is running



                                             26

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Blue Ocean Simple

  • 1. Blue Ocean Strategy Prof. W. Chan Kim and Prof. Renee Mauborgne Dvir@simplesolutions.co.il
  • 2. Background Red ocean = strong competition Blue Ocean Strategy (BOS) aims to create a new market space, by challenging the conventional assumptions about how to compete (business innovation) 14% 38% 39% 62% 61% 86%Sales New products Sales Profits * According to survey of 108 large firms in USA 2
  • 3. Example - Cirque du Soleil The circus industry in North America - a declining industry, mainly for children (low prices), “once in a life time”, stars, alternative forms of entertainment. Declining revenue and profits, unattractive market Cirque du Soleil – – Theater show with circus format – Adults and corporate clients (higher price), several times – Created in 1984 by a group of street performers. Achieved revenues that took the global champion of the circus industry more than one hundred years to attain 3
  • 4. Value Innovation Traditional strategy process - SWOT analysis, firms try to compete better in their business environment Blue Ocean Strategy reconstructs market boundaries in order to reach beyond existing demand Establish it through business innovation and new values for customers Align the whole system – values, price, cost 4
  • 5. Example – US wine industry Strong competition (from domestic and imported wines). Price pressure, high advertisement costs, high power of buyers, steady demand High Fine wine Commodities Low Price Terms Sales Aging Reputation Complexity Variety and effort awards 5
  • 6. Four actions to create a new value curve New values that have never been offered Create new values to create a new market space Raise existing values well above market standards Eliminate Values Cost reduction Reduce existing values well below market standards 6
  • 7. Example cont. - Australia's Casella Winery Small and unknown. In 2001 started to market wine to customers who used to drink beer and cocktails. Most customers didn’t care about complexity or aging. They decreased the aging (fast incomes) and the variety (less inventory), created simple and designed labels (easy understanding), suggested adventure feeling. Number one imported wine, fastest growing brand in the history High Fine wine Commodities Casella Low Price Terms Sales Aging Reputation Complexity Variety Soft Easy to Adventure and effort drink choose awards 7
  • 8. Good strategy Unique and efficient business profile New values that reconstruct market boundaries Large market that interests in these values Adjust all other parameters to strategy 8
  • 9. Reconstructing market boundaries Firms tend to: Define their industry similarly Look at their industries through the lens of generally accepted strategic groups Focus on the same buyer group Focus on the same point in time To swim out from the red ocean - you should examine six paths 9
  • 10. Path 1- Look Across Alternative Industries Products or services may have different forms but offer same functionality Customers have alternative solutions from different industries Yet, firms don’t examine other industry’s customers You should analyse why custemrs chose one alternative over the other 10
  • 11. Example – Netjets The most lucrative customers in the aviation industry are corporate travelers. Executives can fly business/first class or purchase a private aircraft. NetJets offers its customers one-sixteenth ownership of an aircraft , each one entitled to fifty hours of flight time per year. A jet is available with four hours’ notice Seventy thousand flights, a multibillion-dollar business High Private airplane Netjets Business flight Low Investment On going Cost per Time Easiness Flexibility Service cost flight 11
  • 12. Path 2 - Look Across Strategic Groups within Industries Each branch has strategic groups which distinct in two dimensions: – Price – Performance You should understand which factors determine customers’ decisions to trade up or down between groups 12
  • 13. Example: Curves - women’s fitness company Redefining market boundaries between health clubs (12% of the entire population) and home exercise programs for women Smaller spaces in nonprime locations, Low price, Simple machines for women, circle, nonjudgmental atmosphere Two million members, revenues of US$ 1 billion High Traditional health clubs Curves Low Home exercise Price Services Equipment Trainers Discipline Non Arrival Women judgmental time company atmosphere 13
  • 14. Path 3 - Look Across the Chain of Buyers Many people are involved in the purchase decision (buyers, end users, consultants, market leaders and more) An industry typically converges on a single buyer group (pharmaceutical industry – doctors, Office equipment - purchasing departments, Computers – IT departments) Challenging which buyer group to target can lead to the discovery of a blue ocean Example - Novo Nordisk – Insulin producer – The industry focused on doctors, who wanted pure insulin – Novo Nordisk examined patients’ needs and developed NovoPen, the first user-friendly insulin delivery solution 14
  • 15. Path 4 – Complementary services Most products require complementary service in order to be effective A firm should understand the connection between its product to these services, what do customers do before and after using its product and to offer other values Examples – – Barnes & Noble - lounges and coffee bars to create an environment that celebrates reading. In six years, emerged as one of the two largest bookstore chains in the United States – Movie theaters – offered baby sitting services 15
  • 16. Path 5 - Functional or emotional orientation Usually there is major functional or emotional factor that drives the purchasing decision Firm should think if it can supply values that will change the relevant factor Examples: – Swatch – changed the low end watches market from functional to emotional one – Body Shop made the opposite for the cosmetics products 16
  • 17. Path 6 – Looking across the time Companies should understand trends and their influence Examples – – Apple - Observed the flood of illegal music file sharing. Launching iTunes in 2003. Agreement with five major music. Offered legal individual song downloads. – Cisco – Observed the need for high speed data transfer – HBO – Saw the trend of unmarried women and developed “Sex and the city” 17
  • 18. Six paths to blue ocean The six conventional boundaries of competition Industry (Netjets) Strategic group (Curves) Buyer group (Novo Nordisk) From To creating competing Scope of product or service across within (B&N) Functional – emotional (Swatch) Time (Apple) 18
  • 19. Create new market space We want to find an ocean and not a puddle We need to find markets of “non customers” "Refusing” non customers- Soon to be non chose against customers – your market waiting to jump ship 2nd 1st 3rd Our "Unexplored” tier tier tier market non customers – in markets distant from yours 19
  • 20. Three tiers of noncustomers Tier Characteristics Example Soon to be non Minimally purchase an Pret a Manger – Healthy customers industry’s offering out of sandwiches for office workers necessity Refusing non Saw your industry’s JCDecaux - street facilities customers offerings, but voted (in 1964) for advertisers that against them didn’t like bus commercials Unexplored Never thought of your Toothpaste producer - offer non customers market’s offerings as an whitening products, which option were regarded as dentists’ business 20
  • 21. Target Price Target price should be attractive and to bring fast conquering of the market Two parameters: – Customer’s alternatives (including not to buy anything) – Entering of new competitors Refine the whole system to support that price – Increasing efficiency – Cancellation of unimportant values 21
  • 22. Pioneer-Migrator-Settler (PMS) Map Pioneer Migrator Settler 22
  • 23. Strategy Implementation Company LOB’s level level Managerial Our markets, workshop, PMS Map, Current value Market Trends, curve, six paths Technology … ……… …............................... Change management Different Effective solution features “Big ideas” Not in the road map 23
  • 24. Other Blue Oceans Ford Chrysler IBM Microsoft Ralph GM Viagra Model T Mini Van PC Office Lauren Canon Quicken iPhone UPS Simple Dell Bloomberg Google 90$ finance copiers SW Bagir ECI Checkpoint Fox Tiv Taam Washable CDMA suites Nintendo Kodak Akzo Nobel Samsung Total Universiti Wii Traceless Paint pot Petrochemicals Sain Malaysia Microsoft Nokia McDonald's SAS Carlsberg Raytheon 24
  • 25. FAQ’s Risks (today)? Strategy – it’s coming from Management / part of bigger Standards or organization list of “must” features We are already have a new innovative idea 25
  • 26. Summary Most firms invest their efforts in the red ocean battle Structure and market boundaries exist only in managers’ minds Many firms (from various industries) found their blue ocean Business innovation (in our business) Profits are high (even from BOS analysis) Next step – Implementation session, team, LOB Start. Time is running 26