There are three overall components to a

successful Blue Ocean Shift.

1 Adopting a blue ocean perspective: looking
to the far horizon, recognizing that different
questions have to be asked, and pondering
what could be;
2 Having practical tools that guide the
process: these will translate a blue ocean
perspective into a whole new offering;
3 Embracing the concept of humanness:
inspire people and build their confidence, so
that they drive the process forward and can
successfully implement the shift to a blue
ocean.
Based on the three components
above, we will look at three key
notions that underpin a
successful Blue Ocean Shift:
(1)understanding the concept of
market creation,
(2)developing a Blue Ocean
mindset, and
(3)developing “humanness.”
1. UNDERSTANDING MARKET CREATION
Many people assume that market creation must
involve some form of destruction or disruption.
It is true that in some cases a new technology
can destroy a market and create others – think
Uber vs. taxis, or e-mail vs. snail-mail. However,
focusing only on disruption gives a
misleadingly incomplete picture of market
creation.
For example, the children’s show Sesame Street
created a new market for preschool
edutainment, without destroying or disrupting
any other aspect of early childhood education.
This is an example of non-disruptive creation.
In reality, market-creating strategies take one of three
forms:
• A breakthrough answer to an existing problem, which
usually takes the form of disruptive creation. For
example, boats and airplanes allowed for a new
marketplace of transportation that did not exist
beforehand.
• Identifying an entirely new opportunity or solving a
new problem, a wholly non-disruptive form of growth
and creation. For example, Cirque Du Soleil created a
new form of circus for both adults and children; they
extended the market for circus goers.
• Redefining the problem and offering a new solution,
which has elements of both disruptive and non-
disruptive market creation. For example the
smartphone disrupted less sophisticated cellular
phones, but also expanded the market by enabling new
mobile experiences.
2. THE BLUE OCEAN MINDSET
Seeing new opportunities instead of nothing but competitive
red oceans requires adopting a different mindset, one based
on four fundamental principles.
• Do not take the conditions and boundaries in your
industry as a given: instead, think in terms of changing
those boundaries to work in your favor. Unleash your
imagination.
• Make the competition irrelevant: do not focus on gaining
an advantage over the competition; that is backward
looking and keeps you focused on what the organization
has achieved to date. Instead, unleash your forward-
looking creativity.
• Rather than fighting over existing customers, focus on
how to create and capture new ones: in most industries,
existing customers are just a tiny sliver of the world of
non-customers waiting out there. Create new demand by
finding these non-customers.
• Go beyond the value-cost trade-off: instead of choosing
between differentiation and low cost, actively pursue both
at the same time.
Blue Ocean Strategy
Business Creativity & Innovation
Creating uncontested market space
and make the competition irrelevant

yunan@muraelpiji.com
Tool 4: Blue Ocean Strategy
About the Founders: Chan & Renee

W. Chan Kim
• The Boston Consulting Group
Bruce D. Henderson Chair
Professor of Strategy and
International Management

Renée Mauborgne
• The INSEAD Distinguished
Fellow and Professor of Strategy
and International Management
Two worlds … 2 markets

Red Ocean
Compete in crowded
markets

Blue Ocean
Create and capture new
market space
 Two worlds …
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 Align the whole system of a firm's

strategic firm's activities with its activities in pursuit of
choice of differentiation or low differentiation and low cost.
cost. VALUE INNOVATION
The rising Imperative of Creating Blue
Oceans
• Supply exceeds demand

• Accelerated commoditization of products and services

• Increasing price wars
• Shrinking profit margins
• Brands are becoming more similar select based on price
•Globalism has made many brands become increasingly similar and more
of a commodity
•Technological improvement has caused supply to outweigh demand
The Rising Imperative of Creating Blue
Oceans
• Globalism has made many brands become
increasingly similar and more of a commodity

• Technological improvement has caused

supply to outweigh demand

• It is now harder than ever to differentiate

among brands
 The Profit and Growth
Consequences of Blue Oceans
From Company and Industry to
Strategic Move
• The company is not the appropriate unit of analysis
for exploring blue oceans
• Blue Oceans focus on the strategic move rather
than the company or industry
• This book focuses on 150 strategic moves made
from 1880 to 2000 in various industries
• Blue Oceans were found to be created by new and
old companies, attractive and unattractive
industries, and both private and public companies
Value Innovation: The Cornerstone
of Blue Ocean Strategy
• Value creation alone improves value but is not sufficient to
make you stand out in the marketplace
• Innovation alone will often create a product that buyers
are not willing to pay for
• Value innovation occurs only when companies align
innovation with utility, price, and cost positions
• Value innovation:
– Make the competition irrelevant
– Create a leap in value for both buyers and your company
– Open up new and uncontested market space
Unlocking non-customer
demand

Value Innovation

Utility Price Cost

Create new Set a price that Set the structure
buyer attracts a mass based on a target
utilities of buyers
 Generic Strategies vs. Value Innovation

Red Ocean Strategy Blue Ocean Strategy

High High

V1
• V1

Quality Quality

•
Low Low
High C1 Low High C1 Low
Cost Cost

Structuralist Reconstructionist
 BOS Logic: Reconstruct market boundaries

Boundaries of Head-to-Head Creating

Competition Competition New Market Space
Looks across alternative industries
Industry Focuses on rivals within its industry

Looks across strategic groups within

Focuses on competitive position
Strategic Group its industry
within strategic group

Focuses on better serving the buyer Redefines the buyer group of the
Buyer Group industry
group

Looks across to complementary

Focuses on maximizing the value of
Scope of Product and product and service offerings that go
product and service offerings within
Service Offerings beyond the bounds of its industry
the bounds of its industry

Rethinks the functional-emotional

Functional-emotional Focuses on improving price- orientation of its industry
Orientation of an performance with the functional-
Industry emotional orientation of this industry

Participation in shaping external

Focuses on adapting to external
Time/Trends trends over time
trends as they occur
BOS Logic: Reach beyond existing
demand

Core Customer Noncostumer

Soon-to-be-NC Refusing Customer

 Three Tiers of Customers

There is a universe of noncustomers

which can be turned into customers
to offer a big blue ocean market.
3rd
1st tier: “Soon-to-be”
noncustomers who are on the edge
of your market 2nd

2nd tier: “Refusing”

noncustomers who consciously 1st
choose against your market

3rd tier: “Unexplored”

noncustomers who are in markets
distant from yours
Three Tiers of Customers
• Three tiers of non-customers:
– 1: buyers who purchase your industry offerings out of necessity;
will jump ship if given an opportunity.
– 2: buyers who purchase alternative offerings that serve the same
function
– 3: people who don’t consume even the alternatives to your
offerings
• Non-customer demand is unlocked by providing new
buyer utilities, at a price that attracts a mass of
buyers, given target costs.
• Buyers could be not only end-users, but also other
participants in a value chain (e.g. distributors)
 BOS Logic: Get the Strategic Sequence right
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 Strategy
Four Actions Framework: Key to Value Curve
Reduce
The key to discovering a What factors should
new value curve lies in be reduced well below
answering four basic the industry standard?
questions

Eliminate Create/Add
Creating
What factors that the What factors that the
new markets:
industry has taken for industry has never
A new value
granted should be offered should be
curve
eliminated? created or added?

Raise
Cirque du Soleil example
What factors should
be raised well above
the industry standard?
 Strategy Canvas
high

low

Industry Variables
Four Steps of Visualizing
1. Visual 2. Visual 3. Visual Strategy 4. Visual
Awakening Exploration Fair Communication

•Compare your business •Go into the field to •Draw your “to be” canvas •Distribute your before-
with your competitors’ by explore the six paths to based on insights from and-after strategic profiles
drawing your “as is” creating blue oceans field observations on one page for easy
canvas comparison
•Observe the distinctive •Get feedback on
•See where your strategy advantages of alternative alternative strategy •Support only those
needs to change products and services canvases from customers, projects and operational
competitors’ customers, moves that allow your
and non-customers company to close gaps
•See which factors you
and actualize the new
should eliminate, create or
strategy
change •Use feedback to build the
best “to be” future
strategy
The Case of Cirque du Soleil

• Cirque du Soleil achieved rapid growth in a

declining industry with low profit potential
• Cirque du Soleil created uncontested new
market space that made the competition
irrelevant
• http://www.youtube.com/watch?v=M4lAPI5
BAuk
Example: Cirque du Soleil

• Instead of simply trying to outpace the

competition, Cirque du Soleil offered people
both the fun and thrill of the circus and the
intellectual sophistication of the theater
• Because of this, Cirque du Soleil appealed to
both circus customers and noncustomers
Example: Cirque du Soleil

• Each show, like a theater production, had its

own unique theme and storyline
• This allowed customers to return to the
show more frequently
• They also did away with the traditional high-
priced concessions and vendors thereby
cutting costs
Example: Cirque du Soleil

• Cirque du Soleil effectively combined the

best of both the circus and the theater while
eliminating everything else
• This allowed them to achieve both
differentiation and low cost
Eliminate-Reduce-Raise-Create

Eliminate Raise
Star Performers Unique venues
Animal shows
Aisle concession sales
Multiple show arenas
Reduce Create
Fun and humor Theme
Thrill and danger Refined environment
Multiple productions
Artistic music and dance
 The Strategy Canvas
of Cirque du Soleil
hi
Ringling Brothers

Cirque du Soleil
offering level

Smaller Regional Circus

lo
Animal Shows Multiple Show Theme Multiple
Price Thrills & Danger
Arenas Productions
Star Performers Aisle Concessions Fun & Humor Unique Venue Refined Viewing Artistic Music
Environment & Dance
© Kim & Mauborgne 2006
 The Strategy Canvas
of Cirque du Soleil
Eliminate Reduce Raise Create
hi
Ringling Brothers

Cirque du Soleil
offering level

Smaller Regional Circus

lo
Animal Shows Multiple Show Theme Multiple
Price Thrills & Danger
Arenas Productions
Star Performers Aisle Concessions Fun & Humor Unique Venue Refined Viewing Artistic Music
Environment & Dance
© Kim & Mauborgne 2006
 The Case of Yellow Tail
Eliminate-Reduce-Raise-Create Grid:
Eliminate Raise
Enological terminology and Price versus budget wines
distinctions Retail store involvement
Aging qualities
Above-the-line marketing

Reduce Create
Wine complexity Easy drinking
Wine range Ease of selection
Vineyard prestige Fun and adventure

Source: Blue Ocean Strategy, Kim and Mauborgne

Source: Blue Ocean Strategy, Kim and Mauborgne
 Value Curve for US Wine Industry vs
Yellow Tail Expensive wines
Yellow tail
Cheap wines

High

Low

Price Above-the-line Vineyard Wine Ease of

marketing prestige range selection
Use of technical Aging Wine Easy Fun and
wine terminology quality complexity drinkability adventure
59
 Eliminate Raise
Enological terminology and Price versus budget wines
distinctions Retail store involvement
Strategy Canvas Aging qualities
Above-the-line marketing

Reduce Create
Wine complexity Easy drinking
Wine range Ease of selection
Vineyard prestige Fun and adventure

Four Actions Framework

ERRC Grid

Source: Blue Ocean Strategy, Kim and

Mauborgne
 The Case of Accor's Formule 1
Budget Hotel
From Formule 1’s perspective:
Cost per room 100,000 FF  270,000 FF
Cost of staff 20-23% of sales vs. 23-25%
Profit Margins > 2x industry average
Occupancy rates > 3x industry average

From customers’ perspective:

Hygiene > average 2* hotel
Bed quality > average 2* hotel
Silence > average 2* hotel
Price 100 FF  200 FF of industry

Source: HBR: Value Innovation Logic, Kim and

Mauborgne
Results of Formule 1’s Strategy
The value curve of Formule 1 in the French Low Budget Hotel Industry
The Strategy Canvas of Southwest
Airlines
The value curve of Southwest Airline
High
Southwest

Average Airline

Car Transport

Low
Price Loun Hub Spe Frequent
Meals ges Seatingconnect Frien ed
Class ivity point- to-
dly
choices point
servic
Strategy Canvas of Personal Finance
Software Industry
hi
Quicken

Personal Finance Software

offering level

The Pencil

lo
Price Ease of Use Optional Features Speed Accuracy

© Kim & Mauborgne 2006

3. HUMANNESS
Adopting a blue ocean mindset also
includes embracing the concept of
“humanness.” Building this concept
into the process of a blue ocean shift
inspires your people, gives them
confidence, and allows them to drive
the process of change. Humanness
brings out people’s emotional
engagement so that they have the
confidence to act.
The Blue Ocean Validation process
consists of 4 steps. Actually, any business
idea validation has this steps that should
be validated in the proper sequence.
1 Utility: Can our new product provide
enough value to convince non-
consumers to buy it?
2 Pricing: Is our value proposition priced
at a level that seems reasonable for our
potential customers?
3 Cost: Can we produce, market and
deliver our product at a reasonable cost
that allows us to keep decent revenue?
4 Adoption: Can we address the adoption
challenges fast enough?
Every Blue Ocean Strategist uses 4 principles in order
to gain perspective:
• Every Industry is malleable: think of every pre-
conception of all elements of as building blocks that
can be replaced, modified, added (or even removed)
by other building blocks.
• Don’t try to beat the competition: our goal should be
to render the competition obsolete, not just to be
better at then at certain characteristics of our value
proposition. If you simply try to be better than the
others, you will only be able to make small
improvements. Real progress comes from trying to
figure completely new ways of solving a problem.
• Create new demand: Rather than simply trying to get
a percentage of a pre-existing market share, blue
ocean strategies try to create a new market by itself
where people are currently being under or over–
served.