McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved BLUE OCEAN STRATEGY Group 2 1.VICTOR MARBUNM987Z259 2.HOANG THI NGOC HUYENM977Z239 3.NGUYEN PHAN ANH HUYM987Z264 4.NGUYEN THI THUY HANG M987Z236 5.BUI THI THUY M987Z204

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved OUTLINE I. INTRODUCTION VIII. CONCLUSION II. BLUE AND RED OCEAN III. THE PARADOX OF STRATEGY IV. TOWARD BLUE OCEAN STRATEGY V. THE DEFINING CHARACTERISTICS VI. BARRIERS TO IMITATION VII. A CONSISTENT PATTERN

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved I. INTRODUCTION VIII. CONCLUSION II. BLUE AND RED OCEAN III. THE PARADOX OF STRATEGY IV. TOWARD BLUE OCEAN STRATEGY V. THE DEFINING CHARACTERISTICS VI. BARRIERS TO IMITATION VII. A CONSISTENT PATTERN

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved “Successful business strategy is about actively shaping the game you play, not just playing the game you find.” Adam M. Brandenburger and Barry J. Nalebuff

1-5 What Is a Blue Ocean Strategy? Seeks to gain a dramatic, durable competitive advantage by  Abandoning efforts to beat out competitors in existing markets and  Inventing a new industry or distinctive market segment to render existing competitors largely irrelevant and  Allowing a company to create and capture altogether new demand

1-6 The rising Imperative of Creating Blue Oceans Supply exceeds demand. Globalization. Accelerated commoditization of products and services. Increasing price wars. Shrinking profit margins. Brands are becoming more similar.

1-7 What Is Different About a Blue Ocean? Typical Market Space Industry boundaries are defined and accepted Competitive rules are well understood by all rivals Companies try to outperform rivals by capturing a bigger share of existing demand Blue Ocean Market Space Industry does not exist yet Industry is untainted by competition Industry offers wide-open opportunities if a firm has a product and strategy allowing it to  Create new demand and  Avoid fighting over existing demand

1-8 I. INTRODUCTION VIII. CONCLUSION II. BLUE AND RED OCEAN III. THE PARADOX OF STRATEGY IV. TOWARD BLUE OCEAN STRATEGY V. THE DEFINING CHARACTERISTICS VI. BARRIERS TO IMITATION VII. A CONSISTENT PATTERN

1-9 What’s it like in a Red Ocean? Companies try to outperform rivals in order to grab greater share of existing demand Space gets more crowded Prospects for profits and growth reduced Products turn into commodities Increasing competition turns water bloody

1-10 RED OCEAN VS BLUE OCEAN STRATEGY Red Ocean StrategyBlue Ocean Strategy Compete in existing market spaceCreate uncontested market space Beat the competitionMake the competition irrelevance Exploit existing demandCreate & capture new demand Make the value/cost trade-offBreak the value/cost trade-off Align the whole system of a company’s activities with its strategic choice of differentiation or low cost. Align the whole system of a company’s activities in pursuit of differentiation and low cost.

ways to create Blue Oceans Companies can give rise to complete new industries, example : Ebay with the online auction industry Created WITHIN a Red Ocean when a company alters the boundaries of an existing company, example : Cirque du Soleil

1-12 Authors’ studies on Blue Oceans Cirque du Soleil is just one of more than 150 blue ocean creations Studies encompass over 30 industries Data used stretches more than 100 years Analyzes companies that create blue oceans vs. companies that are TRAPPED in red oceans

1-13 ONCE UPON A TIME … The term blue oceans is NEW but it has always been with us What industries were unknown 100 years ago?  Automobiles  Music recording  Aviation  Petrochemicals  Pharmaceuticals  Management Consulting

AUTOMOBILE Key Blue Ocean Creations Blue Ocean created by a new entrant or incumbent? Driven by technology or value pioneering? At time of creation, industry attractive or unattractive? Ford Model TNew EntrantValue (mostly existing technologies) Unattractive GM’s “car for every purse and purpose” IncumbentValue (some new technologies) Attractive Japanese fuel- efficient cars IncumbentValue (some new technologies) Unattractive Chrysler minivanIncumbentValue (mostly existing technologies) Unattractive

1-15 COMPUTERS Key Blue Ocean Creations Blue Ocean created by a new entrant or incumbent? Driven by technology or value pioneering? At time of creation, industry attractive or unattractive? CTR tabulating machine (CTR is now IBM) IncumbentValue (some new technologies) Unattractive Apple personal Computer New EntrantValue (mostly existing technologies) Unattractive Compaq PC Servers IncumbentValue (mostly existing technologies) Nonexistent Dell built-to- order computers New EntrantValue (mostly existing technologies) Unattractive

1-16 I. INTRODUCTION VIII. CONCLUSION II. BLUE AND RED OCEAN III. THE PARADOX OF STRATEGY IV. TOWARD BLUE OCEAN STRATEGY V. THE DEFINING CHARACTERISTICS VI. BARRIERS TO IMITATION VII. A CONSISTENT PATTERN

1-17 PARADOX OF STRATEGY  In a study of 108 companies  86% of new ventures were line extension or incremental improvements to existing industries.  Only 14% were aimed at creating new markets or strategies  Line extensions provided 62% of total revenues but only 39% of total profits  In contrast, only the 14% invested in creating new markets it delivered 38% of total revenues but it delivered 61% of total profits

1-18 WHY THE IMBALANCE?  Corporate strategy is heavy influenced by its roots in military strategy  The language of strategy is imbued with military references like officers, headquarters, troops, front lines  The language is the that of a red ocean strategy  The language is about confronting the enemy and driving him off a battlefield of limited territory

1-19 What focusing on the red ocean means  It means accepting the key constraints of war Limited terrain The need to beat an enemy to succeed  Denying the distinctive strength of the business world – the capacity to create new market space that is uncontested

1-20 Competition matters but…  It ignores two very important and far more lucrative aspects of strategy:  To find and develop markets where there is little or no competition (blue oceans)  To exploit and protect blue oceans

1-21 I. INTRODUCTION VIII. CONCLUSION II. BLUE AND RED OCEAN III. THE PARADOX OF STRATEGY IV. TOWARD BLUE OCEAN STRATEGY V. THE DEFINING CHARACTERISTICS VI. BARRIERS TO IMITATION VII. A CONSISTENT PATTERN

1-22 TOWARD BLUE OCEAN STRATEGY Key blue ocean creation (closely touch people live): - Autos; how people get to work. - Computers; what people use at work. - Movie theatre; where people go after work for enjoyment.

1-23 Key Points of Blue Ocean Strategy Blue oceans were seldom the result of technological innovation per se. - In computer industry, the blue ocean didn’t come about through technology innovations alone, but by linking technology to what buyers valued.

1-24 KEY POINTS CONT’D. Incumbents often create blue oceans-and usually within their core business. - GM, the Japanese automakers, and chrysler were established players when they created blue oceans in the auto industry. - Incumbents are not at disadvantage in creating new market spaces.

1-25 Key Points cont’d Company and Industry are the wrong units of analysis. - the most appropriate unit of analysis is strategic move; the set of managerial actions & decisions involved in making a major market- creating business offering. Ex. Compaq is considered unsuccessful because acquired by HP in 2001.

1-26 Key Points cont’d Creating blue oceans build brands. - Model T rolled off Henry Ford’s assembly line in1908, but the company’s brand still benefit form the blue ocean move. - Large R&D budgets are not the key of creating new market space. -The key is making the right strategic moves; create multiple blue oceans overtime.

1-27 I. INTRODUCTION VIII. CONCLUSION II. BLUE AND RED OCEAN III. THE PARADOX OF STRATEGY IV. TOWARD BLUE OCEAN STRATEGY V. THE DEFINING CHARACTERISTICS VI. BARRIERS TO IMITATION VII. A CONSISTENT PATTERN

1-28 Value Innovation: The Cornerstone of Blue Ocean Strategy Value creation alone improves value but is not sufficient to make you stand out in the marketplace Innovation alone will often create a product that buyers are not willing to pay for Value innovation occurs only when companies align innovation with utility, price, and cost positions Value innovation:  Make the competition irrelevant  Create a leap in value for both buyers and your company  Open up new and uncontested market space

Generic Strategies vs. Value Innovation Generic Strategies vs. Value Innovation High Low V1V1 C1C1 Cost Quality High Low Quality Cost V1V1 C1C1 Red Ocean StrategyBlue Ocean Strategy StructuralistReconstructionist

Utility Create new buyer utilities Price Set a price that attracts a mass of buyers Cost Set the structure based on a target Value Innovation Unlocking non-customer demand

The Core Principles Reconstruct Market Boundaries … overcome believes. Reach beyond existing Demand … go for uncontested space. Get the strategic sequence right … value [innovation] first. VI COST VALUE

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

The Core Principles Reconstruct Market Boundaries … overcome believes. Reach beyond existing Demand … go for uncontested space. Get the strategic sequence right … value [innovation] first. VI COST VALUE

1-34 Reach beyond existing demand Core Customer Noncostumer Soon-to-be-NC Refusing Customer

The Core Principles Reconstruct Market Boundaries … overcome believes. Reach beyond existing Demand … go for uncontested space. Get the strategic sequence right … value [innovation] first. VI COST VALUE

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 No  Rethink

FOUR ACTIONS FRAMEWORK: KEY TO VALUE CURVE REDUCE What factors should be reduced well below the industry standard? RAISE What factors should be raised well above the industry standard? The key to discovering a new value curve lies in answering four basic questions Creating new markets: A new value curve Creating new markets: A new value curve ELIMINATE What factors that the industry has taken for granted should be eliminated? CREATE/ADD What factors that the industry has never offered should be created or added? Cirque du Soleil example

1-38 I. INTRODUCTION VIII. CONCLUSION II. BLUE AND RED OCEAN III. THE PARADOX OF STRATEGY IV. TOWARD BLUE OCEAN STRATEGY V. THE DEFINING CHARACTERISTICS VI. BARRIERS TO IMITATION VII. A CONSISTENT PATTERN

1-39 Barriers to Imitation Blue ocean strategy creates:  Considerable economic  Cognitive barriers to imitation  Companies that create blue oceans usually reap the benefits without credible challenges for 10 to 15 years

1-40 Blue ocean strategy Immediately attract customers in large volumes, they are able to generate scale economies very rapidly, putting would-be imitators at an immediate and continuing cost disadvantage. Create network externalities When imitation requires companies to make changes to their whole system of activities, organizational politics may impede a would-be competitors ability to switch to divergent business model of a blue ocean strategy.

1-41 Blue ocean strategy The cognitive barriers can be just as effective. When a company offers a leap in value, it rapidly earns brand buzz and a loyal following in the marketplace. Sometimes, attempts to imitate a blue ocean creator conflict with the imitator’s existing brand image

The Body Shop shuns top models and makes no promises of eternal youth and beauty For the established cosmetic brands like Estée Lauder and L’Oréal, imitation was very difficult, because it would have signaled a complete invalidation of their current images, which are based on promises of eternal youth and beauty

1-43 The Simultaneous Pursuit of Differentiation and Low Cost Costs savings are made from eliminating and reducing factors an industry competes on Buyer value is lifted by raising and reacting elements the industry has never offered Over time, costs are reduced further as scale economies kick in, due to the high sales volumes that superior value generates

1-44 I. INTRODUCTION VIII. CONCLUSION II. BLUE AND RED OCEAN III. THE PARADOX OF STRATEGY IV. TOWARD BLUE OCEAN STRATEGY V. THE DEFINING CHARACTERISTICS VI. BARRIERS TO IMITATION VII. A CONSISTENT PATTERN

A CONSISTENT PATTERN the striking parallels between the Cirque du Soleil theater-circus experience and Ford's creation of the Model T. A Consistent Pattern while our conceptual articulation of the pattern may be new, blue ocean strategy has always existed, whether or not companies have been conscious of the fact.

At the end of the nineteenth century, the automobile industry was small & unattractive. Woodrow Wilson caught the spirit of the times when he said in 1906 that "nothing has spread socialistic feeling more than the automobile." He called it "a picture of the arrogance of wealth” to beat the competition and steal a share of existing demand from other automakers reconstructed the industry boundaries of cars and horse-drawn carriages to create a blue ocean It was Henry Ford's understanding of these advantages that showed him how he could break away from the competition & unlock enormous untapped demand. creating fashionable, customized cars for weekends in the countryside, a luxury few could justify. built a car that, like the horse- drawn carriage, was for everyday use

Reliable and durable, designed to travel effortlessly over dirt roads in rain, snow, or sunshine. easy to use and fix went outside the industry for a price point: (the first Model T: $850; 1909:$609, by 1924: down to $290)  Ford converted buyers of horse-drawn carriages into car buyers - just as Cirque turned theatergoers into circusgoers.  Sales ofthe Model T boomed. Ford's market share surged: 9% (1908) -> 61% (1921) -> by 1923: a majority of American households had a car. Ford called the Model T the car "for the great multitude, constructed of the best materials." THE MASS OF BUYERS A LEAP IN VALUE ACHIEVEMENT THE LOWEST COST STRUCTURE IN THE INDUSTRY. Ford's revolutionary assembly line replaced craftsmen with unskilled laborers, each of whom worked quickly and efficiently on one small task. make a car in just four days - 21 days was the industry norm- creating huge cost savings.

1-48 I. INTRODUCTION VIII. CONCLUSION II. BLUE AND RED OCEAN III. THE PARADOX OF STRATEGY IV. TOWARD BLUE OCEAN STRATEGY V. THE DEFINING CHARACTERISTICS VI. BARRIERS TO IMITATION VII. A CONSISTENT PATTERN

1-49 CONCLUSION ＊ Moving into untapped or uncontested markets (blue oceans) is a preferable strategy to fighting it out in saturated markets (red oceans). ＊ Innovation is the key to creating blue oceans. Create something that is new, and you will reap the rewards. ＊ Blue Ocean Strategy can be applied across the entire value chain from products, to services, to delivery, and across industries

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