Blue Ocean Strategy

Prof. W. Chan Kim and Prof. Renee Mauborgne

Dvir Zohar
Dvir@simplesolutions.co.il

Business innovation
2007 iPhone
changed the cellular
market

2000 Google
changed the portal
market

Background
Red ocean = strong competition - SWOT analysis, firms try to
compete better in their business environment
Blue Ocean Strategy reconstructs market boundaries

Business innovation, challenging the conventional assumptions

14%

Sales
86%
New products

62%

38%

39%
61%

Sales

Profits

* According to survey of 108 large firms in USA

Example US wine industry

Strong competition (domestic and
imported wines). Price pressure, high
advertisement costs, high power of
buyers, steady demand
High

Fine wine

Commodities

Low
Price

Terms
and
awards

Sales
effort

Aging

Reputation

Complexity

Variety

Four actions to create a new value curve

New values that have never been
offered
Raise existing values well above
market standards

Create new values to

create a new market space

Eliminate Values
Reduce existing values well below
market standards

Cost reduction

Example cont. - Australia's Casella Winery

Small and unknown. In 2001 started to market wine to customers who
used to drink beer and cocktails. Most customers didnt care about
complexity or aging.
They decreased aging (fast incomes) and variety (less inventory), created
simple labels (easy understanding), suggested adventure feeling.
Number one imported wine, fastest growing brand in the history

High
Fine wine

Commodities

Casella

Low
Price

Terms
and
awards

Sales
effort

Aging

Reputation

Complexity

Variety

Soft
drink

Easy to
choose

Adventure

Path 1- Look Across Alternative Industries

Products or services may have different forms

Customers have alternative solutions from different industries

Analyse why they chose one alternative over the other

Example Netjets
The most lucrative customers in the aviation industry are corporate travelers.
Executives can fly business/first class or purchase a private aircraft.
NetJets offers its customers one-sixteenth ownership
of an aircraft , each one entitled to fifty hours of flight
time per year. A jet is available with four hours notice

Seventy thousand flights, a multibillion-dollar business

High

Private airplane

Netjets

Business flight
Low
Investment

On going
cost

Cost per
flight

Time

Easiness

Flexibility

Service

Path 2 - Look Across Strategic Groups

within Industries
Each branch has strategic groups which distinct in two
dimensions:
Price
Performance
You should understand which factors determine customers
decisions to trade up or down between groups

10

Example: Curves - womens fitness company

Redefining market boundaries between health clubs( 12% of the entire
population) and home exercise programs for women
Smaller spaces at nonprime locations, low price,
simple machines for women, circle,
nonjudgmental atmosphere

Two million members, revenues of US$ 1 billion

Traditional health clubs

High

Curves

Low

Home exercise
Price

Services

Equipment

Trainers

Discipline

Non
judgmental
atmosphere

Arrival
time

Women
company
11

Path 3 - Look Across the Chain of Buyers

Many people are involved in the purchase decision (buyers,
end users, consultants, market leaders and more)
An industry typically converges on a single buyer group
(pharmaceutical industry doctors, Office equipment purchasing departments, Computers IT departments)
Challenging which buyer group to target can lead to the
discovery of a blue ocean
Example - Novo Nordisk
Insulin producer
The industry focused on doctors, who wanted pure insulin
Novo Nordisk examined patients needs and developed
NovoPen, the first user-friendly insulin delivery solution
12

Path 4 Product scope

Most products require complementary services to be effective
A firm should understand the connection between its product
to these services, what do customers do before and after using
its product and to offer other values
Examples
Barnes & Noble - lounges and coffee bars to
create an environment that celebrates reading.
In six years, emerged as one of the two largest
bookstore chains in the United States
Movie theaters offered baby sitting services

13

Path 5 - Functional or emotional orientation

Usually - major functional or emotional factor that drives the
purchasing decision
Firm should think if it can change the relevant factor
Examples:
Swatch changed the low end watches market
from functional to emotional one
Body Shop made the opposite for the cosmetics products

14

Path 6 Looking across the time

Companies should understand trends and their influence
Examples
Apple - Observed the flood of illegal music file sharing.
Launching iTunes in 2003.
Agreement with five major music. Offered
legal individual song downloads.
Cisco Observed the need for high speed data transfer

15

Six paths to blue ocean

The six conventional boundaries of competition
Industry (Netjets)
Strategic group (Curves)
Buyer group (Novo Nordisk)
From
competing
within

Scope of product or service

To creating
across

(B&N)

Functional emotional (Swatch)

Time (Apple)
16

Three tiers of noncustomers

We want to find an ocean and not a puddle. Looking for non customers

Tier

Characteristics

Soon to be non Minimally purchase an

customers
industrys offering out of
necessity
Refusing non
customers

Saw your industrys

offerings, but voted
against them

Unexplored
Never thought of your
non customers markets offerings as an
option

Example
Pret a Manger Healthy
sandwiches for office workers

JCDecaux - street facilities

(in 1964) for advertisers that
didnt like bus commercials

Toothpaste producer - offer

whitening products, which
were regarded as dentists
business

17

Strategy Implementation
Current situation analysis Value diagram

Innovative ideas 6 paths, 4 actions

High level evaluation

Work plan, Business plan, Review

Implementation

18

BOS team main product

Technology

Research
NB7

NB9

NB6

NB2

EB1

EB4

NB4
NB3

NB5
EB2

NB1

EB3

Exist
Strong

Weak

Anchors

19

Other Blue Oceans

Ford

GM

Model T

iPad

Microsoft
Office

Checkpoint

Chrysler

IBM

Mini Van

PC

Starbucks

Fox

Dell

Tiv Taam

Amazon

Bloomberg

ECI
DCME

Kodak

Akzo Nobel

Samsung

Wii

Traceless

Paint pot

Petrochemicals

Nokia

McDonald's

eBay

Lauren

Quicken

Nintendo

Microsoft

UPS

Ralph

SAS

90$ finance
SW

Bagir
Washable
suites

Kimberly
Clark

Carlsberg

Google

Elbit
Pilot helmet

Universiti
Sain Malaysia

Raytheon

20

 Breakthrough requires different way of thinking

BOS is a simple and effective process to create
business innovation

21