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 Risk factor each principle

attenuates
Reconstruct market boundaries Search risk
Focus on the big picture, not the numbers Planning risk
Reach beyond existing demand Scale risk
Get the strategic sequence right Business model risk

Evaluation principles Risk factor each principle

attenuates
Overcome key organizational hurdles Organizational risk
Build execution into strategy 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?
No-- Rethink

Yes

A Commercially
Viable Blue Ocean
Idea
 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 Align the whole system of a firm’s activities in
with its strategic choice of differentiation or pursuit of differentiation and low cost.
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