Blue Ocean Strategy By Muhammad Zia

W. Chan Kim & Renee Mauborgne (Blue Ocean Strategy Institute, INSEAD, France)

Prepared By: Muhammad Zia Aslam (973596) for Competition & Strategy

Understanding Blue Ocean Strategy • They studied 150 strategic moves in more than 30 industries, over 100 years (1800 2000), and Industrial, Organizational and Strategic variables had been considered for the research. • Competing in overcrowded industries is no way to sustain high performance. The real opportunity is to create blue oceans of uncontested market space. • In Blue Oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid.

Understanding Blue Ocean Strategy

• The most important feature of blue ocean strategy is that it rejects the fundamental conventional strategy of trading off between value and cost. • Conventionally, companies can create either greater value at higher cost or create reasonable value at lower cost. In other words, strategy is essentially a choice between differentiation and low cost. • But, when it comes to creating Blue Oceans, the successful companies pursue differentiation and low cost simultaneously

Creation of Blue Oceans Blue Ocean is created in the region where a company’s actions favorably affect both its cost structure and its value proposition to buyers. Cost savings are made by eliminating and reducing the factors an industry competes on. Buyer value is lifted by raising and creating 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.

Costs

Blue Ocean

Buyer Value

Creation of Blue Oceans • What strategic logic is needed to create blue oceans? • 100 years of business history gives us the answer to the question i.e. • Blue Oceans are not about technology innovation. Leading edge technology, however, is sometimes involved in the creation of blue oceans, but it is not a defining feature of them. • Company and the industry are the wrong units of analysis. The most appropriate unit of analysis for explaining the creation of blue oceans is the strategic move i.e. the set the managerial actions and decisions involved in making a major business move.

Principles of Blue Ocean Strategy Formulation Principles Reconstruct market boundaries Focus on the big picture, not the numbers Reach beyond existing demand Get the strategic sequence right

Evaluation principles Overcome key organizational hurdles Build execution into strategy

Risk factor each principle attenuates Search risk Planning risk Scale risk Business model risk

Risk factor each principle attenuates Organizational risk Management risk

Strategic Sequence of Blue Ocean Strategy Buyer utility Is there exceptional buyer utility in your business idea?

No-- Rethink

Yes

Price Is your price easily accessible to the mass of buyers? No-- Rethink Yes

Cost Can you attain your cost target to profit at your strategic price? No-- Rethink Yes

Adoption What are the adoption hurdles in actualizing your business idea? Are you addressing them up front? Yes

A Commercially Viable Blue Ocean Idea

No-- Rethink

Red Ocean Versus Blue Ocean Strategy In the red ocean, differentiation costs because firms compete with the same best-practice principle. Here, the strategic choices for firms are to pursue either differentiation or low cost. In blue ocean strategy, however, the strategic aim is to create new best-practice rules by breaking the existing value-cost trade-off and thereby creating blue ocean. 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 firm’s 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.

Red Ocean Versus Blue Ocean Strategy

• Why the dramatic imbalance in favor of red ocean strategy then? – Corporate strategy is heavily influenced by its roots in military strategy. – Strategy, in military terms, is all about “red ocean” competition i.e. confronting an opponent and driving him off a battlefield of limited territory. – Therefore, focusing the red ocean strategy means accepting the constraining factors of WAR i.e. limited terrain and the need to beat an enemy to succeed.

THANK YOU