Creating Blue Oceans Team 3 Andrew Stack, Jessica Sharpless, Andrea Lapotaire, Andrew West, Taylor Caroll “Don’t compete with rivals, make them irrelevant”

Cirque du Soleil Canadian circus created in 1984 Out performed Ringling Bros. and Barnum & Bailey Achieved in a declining industry But did not compete with Ringling Bros. and Barnum & Bailey Totem Trailer Gilles Ste-Croix, Guy Laliberté

New Market Space Stop competing with other companies to win in the future Red Oceans- Industries in existence today Blue Oceans- Industries not in existence today Blue Oceans a uncharted strategy

The Continuing Creation of Blue Oceans Only the term of blue oceans is new Industries never stand still Why the oceans have been red

The Impact of Creating Blue Oceans

The Rising Imperative of Creating Blue Oceans Accelerated technological advances shifting supply and demand causing: Accelerated commoditization of products and services Increasing price wars Shrinking profit margins Management will need to become more focused on the creation of blue oceans

From Company and Industry to Strategic Move How can a company break out of the red ocean and create a blue ocean? Are there lasting companies that are successful in creating blue oceans? “In Search of Excellence”- bestselling book -Companies in book began to fall from rankings within 2 years, 2/3 by 5 years “Built to Last- Same thing happened, although the entire lifespan of firms at least 40 years old were analyzed. It was found that these books analyzed industry sector performance instead of the companies themselves

From Company and Industry to Strategic Move Cont.. Example: HP, who met the criteria for “Built to Last,” did not outperform the market, or even the industry Have companies that continuously outperform the market ever existed? Since Cirque du Soleil created a new market space and has always been successful, It is shown that neither the company nor the industry is not the best unit of analysis Strategic moves are the right unit of analysis Strategic move: “the set of managerial actions and decisions involved in making a major market –created business offering “(10)

Value Innovation: The Cornerstone of Blue Ocean Strategy Among blue ocean companies with profitable growth, similarities have appeared: Did not use competition as benchmark; used value innvation Value Innovation is the cornerstone of blue ocean strategy Focus on making competition irrelevant Creates a leap in value for buyers and your company Opens up new and uncontested market space

Value Innovation: The Cornerstone of Blue Ocean Strategy Cont… Equal emphasis on value and innovation Occurs only when companies innovation with utility, price, and cost positions Defies the value-cost trade off Blue ocean companies pursue differentiation and low cost Either create a greater value at high cost or reasonable value at lower cost Ex: Cirque du Soleil

Cirque du Soleil Paid no attention to what competition did “Offered people the fun and thrill of the circus, along with the intellectual sophistication and artisitic richness of the theater” (14) Gained circus and adult theater customers Did not use animals like the traditional circus Attracted customers who had discomfort from using animals Saved money

Cirque du Soleil Cont… Did away with everything but the tents, clowns, and the acrobatic acts changed humor from slapstick to a more enchanting, sophisticated style Glamorized tent and made more comfortable Added a theme and story line Multiple productions made people come more frequently Priced tickets against theater ticket prices

Value Innovation The figure below depicts the differentiation –low cost dynamics under-pinning value innovation:

In creating blue oceans, a company needs to drive costs down, while driving value up Integrates the range of a firm’s functional and operational activities Some innovations can be achieved at subsystem level without impacting companies overall strategy Ex: production innovations In value innovation market boundaries and industry structure are not given Allows for reconstruction by industry players-reconstructionist view Ex: Cirque du Soleil

Red Ocean vs Blue Ocean

Formulating and Executing Blue Ocean Strategy Understanding and limiting risk BOS companies see risk and work around it Knowledge and market understanding Keeping current “no such thing as a riskless strategy”

Implementing BOS Many companies still ignore BOS despite the facts Playing field unbalanced in favor of analytical tools Continuation of Red Oceans of Blue Oceans

The Six Principles of BOS Formulation Principle Reconstruct market boundaries Focus on the big picture, not the numbers Reach beyond existing demand get the strategic sequence right Execution Principles Overcome key organizational hurdles Build Execution into strategy *Figure 1-4 p. 21 BOS Risk factor each principle attenuates ↓ Search risk ↓ Planning risk ↓ Scale risk ↓ Business model risk Risk factor each principle attenuates ↓ Organizatoinal risk ↓ Management risk

Sun Cellular Mobile communications market (Philippines) Market Leaders: Smart and Globe Strategy: unlimited text and calls “in network”

AXA Philippines French insurace company Industry leaders: AIG, SunLIfe, & Insular Life Strategy: Partner with Metrobank and offer depositor insurance

Wal-Mart History Sam Walton’s strategy was built on an unshakeable foundation: The Lowest Prices Anytime, Anywhere On July 2, 1962, Sam Walton opened the first Wal-Mart store in Rogers, Ark.

History Continued 1971 The first distribution center and Home Office opened in Bentonville, Ark Wal-Mart reached $1 billion in annual sales, faster than any other company at that time The first Wal-Mart Supercenter opened in Washington, Mo., combining general merchandise and a full-scale supermarket to provide one-stop shopping convenience The company celebrated its first $100 billion sales year Wal-Mart celebrated 50 years of helping people save money so they can live better. The company employs 2.2 million associates worldwide and serves 200 million customers each week at more than 10,000 stores in 27 countries.

Is Wal-Mart a Blue Ocean? Wal-Mart is a "Large Discount Retailer." The cluster of Target, K-Mart, and Wal-Mart belongs to the former Blue Ocean Industry of Large Discount Retailers.

Wal-Mart vs. Target Wal-Mart and Target both are discounters, but they cater to different customers. Wal-Mart: customers' average household income ranges from $30,000 to $60,000, Target: customers have a median household income of $64,000 a year