2. • It is “a consistent pattern of strategic thinking behind the creation of
new markets and industries where demand is created rather than
fought for and the rule of competition is irrelevant”
• The Strategy and related concepts are developed by W. Chan Kim and
Renée Mauborgne in 2004.
• This strategy advocates that competition does not lead to success but
rather the Desire to Dare to be different.
Explore the Unknown!!!
3.
4. I] RED OCEAN VS. BLUE OCEAN STRATEGY
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.
5.
6. Elements of
Development
Head-to-Head Competition Blue Ocean Creation
Industry Focuses on rivals within its industry Looks across alternative
industries
Strategic Group Focuses on competitive position
within strategic group
Looks across strategic
groups within industry
Buyer Group Focuses on better serving the
buyer group
Redefines the industry
buyer group
Scope of Product or
Service Offering
Focuses on maximizing the value of
product and service offerings
within the bounds of its industry
Looks across to
complementary product
and service offerings
Functional-emotional
Orientation
Focuses on improving the price
performance within the functional-
emotional orientation of its
industry
Rethinks the functional-
emotional orientation of
its industry
Time Focuses on adapting to external
trends as they occur
Participates in shaping
external trends over time
7. • Value Innovation is the simultaneous
pursuit of differentiation and low cost,
creating a leap in value for both buyers
and the company.
• It is the cornerstone of market-creating
strategy.
• Because value to buyers comes from the
offering’s utility minus its price, and
because value to the company is
generated from the offering’s price minus
its cost, value innovation is achieved only
when the whole system of utility, price,
and cost is aligned.
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.
II] Value Innovation
8. The strategy canvas is a
central diagnostic tool for
getting clear on the current
state of play and making
your blue ocean move. It
graphically captures, in one
simple picture, the current
strategic landscape and the
future prospects for an
organization.
9. STRATEGY CANVAS
• The strategy canvas serves two purposes:
1)To capture the current state of play in the known market space, which allows
users to clearly see the factors that the industry competes on and where the
competition currently invests
2)To propel users to action by reorienting their focus
from competitors to alternatives and from customers to noncustomers of the
industry
• The horizontal axis on the strategy canvas captures the range of factors that
an industry competes on and invests in, while the vertical axis captures the
offering level that buyers receive across all of these key competing factors.
• The value curve or strategic profile 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. A strong value curve has focus, divergence as
well as a compelling tagline.
10. It is a simple matrix like tool that drives companies to focus simultaneously
on eliminating and reducing, as well as raising and creating while unlocking
a new blue ocean.
• Eliminate : Which factors that the industry has long competed on should
be eliminated ?
• Raise : Which factors should be raised well above the industry’s standard?
• Reduce : Which factors should be reduced well below the industry’s
standard?
• Create : Which factors should be created that the industry has never
offered?
12. PIONEER-MIGRATOR-SETTLER (PMS) MAP
• A useful exercise for a corporate management team pursuing
profitable growth is to plot the company’s current and planned
portfolios on the Pioneer-Migrator-Settler Map.
• Settlers are defined as me-too businesses, migrators are business
offerings better than most in the marketplace, and a
company’s pioneers are the businesses that offer unprecedented
value.
• These are a company’s blue ocean strategic moves, and are the most
powerful sources of profitable growth. They are the only ones with a
mass following of customers.
13. • Customers of your industry.
• “Soon-to-be” noncustomers
who are on the hedge of your
market waiting to jump ship
• “Refusing” noncustomers
who consciously choose
against your market.
• “Unexplored” noncustomers
who are in markets distant
from yours.
VI] THREE TIERS OF NONCUSTOMERS
14. • Typically, to grow their share of a market, companies strive to retain and
expand their existing customer base.
• Although the universe of noncustomers typically offers blue ocean
opportunities, few companies have keen insight into who noncustomers are
and how to unlock them. To convert this huge latent demand into real
demand in the form of new customers, companies need to deepen their
understanding of the universe of noncustomers.
• The first tier of noncustomers is closest to the current market, sitting just on
the edge. They are buyers who minimally purchase an industry’s offering out
of necessity but are mentally noncustomers of the industry.
• The second tier of noncustomers is people who refuse to use an industry’s
offering. These are buyers who have seen the current offering as an option to
fulfill their needs but have decided against participating.
• The third tier of noncustomers is farthest from the market. They are
noncustomers who have never considered the market’s offering as an option.
• By focusing on key commonalities across these noncustomers and existing
customers, companies can understand how to pull them into their new
market.
15. VII] SEQUENCE OF BLUE OCEAN
STRATEGY
Buyer Utility
Is there exceptional buyer utility in your business idea?
Price
Is your price easily accessible to the mass of buyers?
Cost
Can you attain your cost target to profit at your strategic price?
Adoption
What are the adoption hurdles in actualizing your business idea?
Are you addressing them upfront?
A Commercially Viable Blue Ocean Idea
16. • Here Kim and Mauborgne articulate the strategic sequence of creating a commercially viable blue
ocean idea. The starting point is buyer utility. Does your offering unlock exceptional utility? Is there
a compelling reason for the mass of people to buy it?
• Second, is your offering priced to attract the mass of target buyers so that they have a compelling
ability to pay for your offering? If it is not, they cannot buy it. Nor will the offering create irresistible
market buzz.
• These first two steps address the revenue side of a company’s business model. They ensure that you
create a leap in net buyer value. To secure the profit side you need to assess the third element: cost.
The cost side of a company’s business model ensures that it creates a leap in value for itself in the
form of profit—that is, the price of the offering minus the cost of production. The key question here
is: Can you produce your offering at the target cost and still earn a healthy profit margin? You should
not let costs drive prices. Nor should you scale down utility because high costs block your ability to
profit at the strategic price. When the target cost cannot be met, you must either forgo the idea
because the blue ocean won’t be profitable, or you must innovate your business model to hit the
target cost.
• The last step in the sequence is to address adoption hurdles. What are the adoption hurdles in
rolling out your idea? Have you addressed these up front? The formulation of blue ocean strategy is
complete only when you can address adoption hurdles in the beginning to ensure the successful
actualization of your idea
17.
18. • It helps to get managers thinking from a demand-side perspective. It outlines all the
levers companies can pull to deliver exceptional utility to buyers as well as the various
experiences buyers can have with a product or service. This mindset helps managers
identify the full range of utility spaces that a product or service can potentially fill. It
has two dimensions: The Buyer Experience Cycle (BEC) and the Utility levers.
• The Buyer Experience Cycle (BEC): A buyer’s experience can usually be broken into a
cycle of six stages, running more or less sequentially from purchase to disposal.
• Utility levers: Cutting across the stages of the buyer’s experience are what we
call utility levers – the ways in which companies unlock utility for their customers.
• By locating a new offering on one of the spaces of the buyer utility map, managers
can clearly see how, and whether, the new idea creates a different utility proposition
from existing offerings but also removes the biggest blocks to utility that stand in the
way of converting noncustomers into customers. In our experience, managers all too
often focus on delivering more of the same stage of the buyer’s experience. This
approach may be reasonable in emerging industries, where there is plenty of room for
improving a company’s utility proposition. But in many existing industries, this
approach is unlikely to produce a market-shaping blue ocean strategy.
19. IX] THE PRICE CORRIDOR OF THE
MASS
Specify a
price level
within the
price
corridor
Three
alternative
product or
service types
Identify
the price
corridor of
the mass.
Same/Different Form, Function or Objective
Size of circle is proportional to number of
buyers that product/service attracts
20. Cognitive
Waking employees up to the need for a
strategic shift.
Resource
the greater the shift in strategy, the greater
the resources it requires for execution
Motivational
: How do you motivate key players to move
fast and tenaciously to carry out a break
from the status quo?
Political
As one manager put it, “In our
organization you get shot down before
you stand up.”
Hurdles
21. Conventional Wisdom
XI] Tipping Point Leadership
The theory of organizational change rests on
transforming the mass and these efforts require steep
resources and long timeframes.
To achieve a strategic shift at low cost, focus on the
extremes – the people, acts, and activities that
exert a disproportionate influence on performance
22. XII] FAIR PROCESS
Engagement Explanation
Expectation
Clarity
Engagement means
involving individuals in
the strategic decisions
that affect them by
soliciting their input and
allowing them to refute
the merits of one
another’s ideas and
assumptions. Engagement
communicates
management’s respect for
individuals and their point
of view. The result is
better strategic decisions
by management and
genuine commitment
from everyone involved in
execution.
Explanation means that
everyone involved and
affected should
understand why final
strategic decisions are
made. An explanation of
rationale engenders
confidence among
employees that managers
have considered their
opinions and have made
decisions impartially in the
overall interest of the
company, even if their
own ideas have been
rejected. It also serves as a
powerful feedback loop to
enhance learning.
Expectation clarity
requires that after a
strategy is set, managers
clearly state the new rules
of the game. Although the
expectations may be
demanding, employees
know up front the
standards by which their
work will be judged and
the consequences of
failure. When people
clearly understand
expectations, political
jockeying and favoritism
are minimized, and people
can focus on executing the
strategy rapidly.
24. 4 Underpinning Principles of BOS
1. How to create uncontested market space by
reconstructing market boundaries.
2. Focusing on the big picture.
3. Reaching beyond the existing demand.
4. Getting the strategic sequence right.
