Blue Ocean Strategy Overview

Blue Ocean Strategy (BOS)

• BOS is a strategic planning method developed over 15 years of research
• It studies 150 strategic moves from 30 industries (1880-2000) to analyze successes and failures
• BOS differentiates between Red Oceans (existing markets) and Blue Oceans (new markets)
• Companies wanting to succeed in new markets should avoid competing with each other
• BOS provides tools and frameworks to create a step-by-step process for remarketing boundaries.

Summary of BOS

• It assumes markets are either Red Oceans (existing) or Blue Oceans (new).
• It emphasizes creating new market space and tapping into previously unfulfilled consumer demand.
• Competition is rendered irrelevant when a new market space is created.

BOS Application

• Use "strategy canvas" to chart the competition's shortcomings
• Execution is a part of strategy
• Aligns three propositions for a win-win outcome
• Provides a systematic strategy to create and capture new, uncontested market spaces.

Red Ocean vs. Blue Ocean

• Red Oceans represent existing industries with defined boundaries and known competitive rules.
• Blue Oceans represent untapped or new markets with the potential for significant, high rates of profit
• Companies in red oceans need to compete with existing rivals. Businesses in blue oceans require market creation.

Quick Check: Red or Blue Ocean

• Increased competition from rivals?
• Deep price discounts to drive sales?
• Declining returns from marketing expenses?
• Answering 'yes' to three or more questions points toward a 'red ocean' situation.

Five Forces Model Critique

• Kim and Mauborgne argue that Porter's Five Forces analysis is suited to remain in a red ocean.
• They emphasize the value of creating a 'blue ocean'.

Creating Blue Oceans

• Creating new markets/ industries is possible by finding uncontested market space
• Innovation is achieved by finding a balance between innovation and value to create a leap in value for both customers and the company
• Value innovation defies conventional wisdom about competition based strategy
• Value innovation is achieved by creating new or improved value for buyers and at the same time lowering costs for the company

Barriers to Imitation

• Operational barriers: Operational issues hinder imitation
• Cognitive barriers: existing conventional strategies resist the break from the competition
• Brand image: Brand image conflicts limit imitation of blue ocean strategies
• Natural monopoly: Large market share makes imitation impossible
• Legal barriers: patents or similar legal protections hinder imitation

When to Value-Innovate Again

• Eventually, blue ocean strategies will be imitated
• Defending the hard-earned customer base against imitators
• When your value curve begins to converge with competitors, it is time to value-innovate again

Four Actions Framework

• Eliminate: Eliminate factors customers don't want
• Reduce: Reduce factors already in the industry below standard
• Raise: Raise factors above industry standards
• Create: Create new factors the industry hasn't offered