1. Team 3 Blue Ocean Strategy Chapter 1

2. Introduction
Strategy? -A company’s chosen business plan
Two kinds of Strategy Red Ocean Blue Ocean

3. RED OCEANS Existing industries AKA Known Markets
Cut-throat and competitive
Companies fighting over limited demand in market
Example: American Automobile industry

4. BLUE OCEANS Non existing industries Untapped and unknown market space
Create demand
Opportunity for profitable growth
Example: New inventions and expanding boundaries of red oceans -Nike running shoes

5. The Continuing Creation of Blue Oceans
Blue Oceans is a new term but their existence is not new.
A hundred years ago many of today's industries were not known.
Automobiles, music recording, aviation, petrochemicals, heath care, and management consulting are all new.
Just thirty years ago mutual funds, cell phones, gas-fired electric plants, biotechnology, discount retail, express package delivery, minivans, snowboards, and home videos did not exist and now are multibillion dollar industries.
If history is any predictor of the future imagine how many new industries will be in existence in fifty years.

6. The Continuing Creation of Blue Oceans
Industries will always continue to evolve.
We have hugely underestimated the capacity to create new industries and re-create existing ones.
The SIC system was replaced by the NAICS in 1997.
This new system expanded the ten SIC industry sectors into twenty sectors to reflect the emerging realities of new industry territories.
This replacement shows how significant the expansion of blue oceans has been.

7. The Continuing Creation of Blue Oceans
Even though blue oceans are very important the overriding focus of strategic thinking has been focused on competition- based red ocean strategies.
This is partly because the corporate strategy is heavily influenced by military strategy.
The strategy can be described as confronting an opponent and fighting over a given piece of land that is both limited and constant.
Unlike war history shows us that the market universe has never been constant and blue oceans have continuously been created over time.
If we focus on red oceans we are accepting the key constraining factors of war which are limited terrain and the need to beat the enemy to succeed. This denies the distinctive strength of the business world which is the capacity to create new market space that is uncontested.

8. The Impact of Creating Blue Oceans
Quantifying the impact of blue oceans is done through both revenues and profits.
In a study of a 108 companies’ business launches s, 86 percent of the launches were line extensions (improvements within the red ocean).
They account for 62 percent of total revenues and 39 percent of total profits.
Ex: The introduction of the minivan to the automobile industry.
Ex: Coke’s introduction to cherry coke, coke zero, and many others.

9. The Impact of Creating Blue Oceans
The remaining 14 percent of the launches were blue ocean.
38 percent were total revenues
61 percent were total profits.
It is evident that total profits from blue oceans are much greater than those of red oceans line extensions.

10. The Rising Imperative of Creating Blue Oceans
Accelerated technological advances
Improved industrial productivity
Allowed suppliers to produce an array of products and services
Increasing industries = supply exceeds demand
Trade barriers between nations and regions dismantled
Information of products and services becomes instantly and globally available
niche markets and havens for monopolies continue to disappear
EX: Microsoft – dominates the PC world with their window programs

11. The Rising Imperative of Creating Blue Oceans: As a Result…
Accelerated commoditization of products and services
Increasing price wars and shrinking profit margins
Recent industry wide studies on major American brands confirm trend
Differentiating brands become harder
Examples:
Colgate vs Crest
Tide vs Downy
Strategy and management approaches of 21st century are increasingly dissappearing
Management should be more concerned with the blue ocean than fighting the bloody battle in the red ocean

12. From Company & Industry to Strategic Move
Are there lasting “excellent” companies that continuously outperform the market and repeatedly create blue oceans?
To answer, we must determine a basic unit of analysis for research.
Business literature typically studies the company to determine performance. However, it is strategic move, not the company or the industry, that is the right unit of analysis.
Examples: HP (industry sector performance) and Cirque du Soleil (industry performance)

13. From Company & Industry to Strategic Move
What is a strategic move?
Definition: it is the set of managerial actions and decisions involved in making a major market-creating business offering.
Example: Compaq was acquired by HP and ceased to be an independent company.
However, Compaq made strategic moves in creating the server industry that unlocked a new multibillion-dollar market space in computing.

14. From Company & Industry to Strategic Move
Research
After assessing industry, organizational, and strategic variables in over thirty industries, the authors found that the creation of blue oceans were achieved by all types of companies and industries.
The consistent factor in creating blue ocean moves was the approach to strategy

15. Value Innovation: The Cornerstone of Blue Ocean Strategy
New way of thinking about and executing strategy that creates a blue ocean and a break from the competition
Instead of beating competition, focus on making competition irrelevant by creating a leap in value for buyers and your company
Equal emphasis on value and innovation
Occurs only when org’s align innovation with value, price, and cost positions

16. Value Innovation: The Cornerstone of Blue Ocean Strategy
Simultaneous pursuit of differentiation and low cost
Cirque du Soleil example
Circus and theater
Tent, clowns, classic acrobatic acts
Theme and story line

17. Value Innovation: The Cornerstone of 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 firms 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.

18. Formulating & Executing Blue Ocean Strategy
How can companies systematically maximize opportunities while simultaneously minimize the risks associated with executing blue ocean strategy?
-Strategy will always involve both opportunity and risk
-In our current playing field, there is an unbalanced favor for conducting business in red oceans
-As long as this remains true, red oceans will continue to dominate even though there is an imperative for creating blue oceans
-Blue Ocean Strategy seeks to dismantle this current imbalance between red and blue oceans strategy

19. Formulating & Executing Blue Ocean Strategy
Figure 1-4 highlights the Six Principles driving the successful formulation and execution of blue ocean strategy and the risks that these principles satisfy:
The Six Principles of Blue Ocean Strategy:
-Formulation principles: Risk factor each principle satisfies:
Reconstruct market boundaries Search risk
Focus on the big picture Planning risk
Reach beyond existing demand Scale risk
Get the strategic sequence right Business model risk
-Execution principles:
Overcome key org. hurdles Organizational risk
Build execution into strategy Management risk