BLUE OCEAN STRATEGY History and Background Blue Ocean discipline has been developed by W.

Chan Kim and Renee Mauborgne, professors at INSEAD, who are co-authors of the book, Blue Ocean Strategy, and are codirectors of the Blue Ocean Institute in 2005. It is based on a study of 150 strategic moves spanning more than 100 (1880 2000) years and 30 industries. Such industries include hotel, cinema, retail, airline, energy, computer, broadcasting, home construction, automobile, steel manufacturing, chemicals, cosmetics, software, etc. The variables considered in the study are industrial, organizational and the strategic operations of the participant industries. Blue Ocean Strategy (BOS) is the simultaneous pursuit of differentiation and low cost. The aim of Blue Ocean Strategy is not to out-perform the competition in the existing industry, but to create new market space or a blue ocean, thereby making the competition irrelevant. Blue Ocean Strategy

offers systematic and reproducible methodologies and processes in pursuit of innovation by both new and existing firms. Blue Ocean Strategy frameworks and tools are designed to be visual in order to not only effectively build the collective wisdom of the company but also to effectively execute through easy communication. (Harvard Business School Club of Washington DC, 2009). Concepts Industry history teaches us that blue oceans are not about technology innovation per se. It also teaches us that incumbents often create blue oceans and usually within their core businesses. It also further teaches us that company and industry are the wrong units of analysis and creating blue oceans builds brands (Kim & Mauborgne, 2005). Kim & Mauborgne differentiates Blue Ocean Strategy from Red Ocean Strategy:

BLUE OCEAN STRATEGY Red Ocean Strategy Compete in existing market space Beat the competition Exploit existing demand Make the value-cost trade off Align the whole system of a firms activities with its strategic choice of differentiation or low cost Blue Ocean Strategy Create uncontested market space Make the competition irrelevant Create and capture new demand Break the value-cost trade-off Align the whole system of a firms activities with its strategic choice of differentiation and low cost

Six Principles of Blue Ocean Strategy Formulation Principles 1. Reach beyond existing demand 2. Reconstruct market boundaries 3. Focus on the big picture, not the numbers 4. Get the strategic sequence right Execution Principles 5. Overcome key organizational hurdles 6. Build execution into strategy

Reach Beyond Existing Demand First Tier Soon-to-be non-customers who are on the edge of your market, waiting to jump ship. Second Tier Refusing non-customers who consciously

BLUE OCEAN STRATEGY choose against your market. Third Tier Unexplored non-customers who are in markets distant from yours.

Value Innovation

Value Innovation is the cornerstore of blue ocean strategy. Value innovation is the simultaneous pursuit of differentiation and low cost. Value innovation focuses on making the competition irrelevant by creating a leap of value for buyers and for the company, thereby opening up new and uncontested market space. Because value to buyers comes from the offerings utility minus its price, and because value to the compan y is generated from the offerings price minus its cost, value innovation is achieved only when the whole system of utility, price and cost is aligned. Four Actions Framework

BLUE OCEAN STRATEGY In the Blue Ocean Strategy methodology, the Four Actions Framework and ERRC grid assist managers in breaking the value-cost tradeoff by answering the following questions: What factors can be eliminated that the industry has taken for granted? What factors can be reduced well below the industrys standard? What factors can be raised well above the industrys standard? What factors can be created that the industry has never offered?

Eliminate-Reduce-Raise-Create Grid (ERRC). It is complementary to the four actions framework. It pushes companies not only to ask all four questions in the four actions framework but also to act on all four to create a new value curve, essential for unlocking a new blue ocean.

Eliminate

Raise

Reduce

Create

BLUE OCEAN STRATEGY

By driving companies to fill in the grid with the actions of eliminating and reducing as well as raising and creating, the grid gives companies four immediate benefits: 1. It pushes them to simultaneously pursue differentiation and low cost to break the value-cost trade off. 2. It immediately flags companies that are focused only on raising and creating and thereby lifting the cost structure and often over - engineering products and services - a common plight in many companies. 3. It is easily understood by managers at any level, creating a high level of engagement in its application. Because completing the grid is a challenging task, it drives companies to robustly scrutinize every factor the industry competes on, making them discover the range of implicit assumptions they make unconsciously in competing. Strategy Canvas. The strategy canvas is the central diagnostic and action framework for building a compelling blue ocean strategy. The horizontal axis captures the range of factors that the industry competes on and invests in, and the vertical axis captures the offering level that buyers receive across all these key competing factors. The strategy canvas serves two purposes: Firstly, it captures the current state of play in the known market space. This allows you to understand where the competition is currently investing and the factors that the industry competes on.

BLUE OCEAN STRATEGY Secondly, it propels you to action by reorienting your focus: from competitors to alternatives; and from customers to non customers of the industry. The value curve is the basic component of the strategy canvas. It is a graphic depiction of a company's relative performance across its industry's factors of competition. Application