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Report - BLUE OCEAN STRATEGY

Blue Ocean Strategy involves creating new market space by moving away from saturated markets with fierce competition. It focuses on exploring uncontested markets with little or no competition. The strategy was introduced in a 2005 book by W. Chan Kim and Renee Mauborgne. They provide an example of how Ford created the blue ocean of affordable automobiles by standardizing production of the Model T. The six principles of Blue Ocean Strategy are reconstructing market boundaries, focusing on the big picture, reaching beyond existing demand, getting the strategic sequence right, overcoming organizational hurdles, and building execution into the strategy.

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25 views

Report - BLUE OCEAN STRATEGY

Blue Ocean Strategy involves creating new market space by moving away from saturated markets with fierce competition. It focuses on exploring uncontested markets with little or no competition. The strategy was introduced in a 2005 book by W. Chan Kim and Renee Mauborgne. They provide an example of how Ford created the blue ocean of affordable automobiles by standardizing production of the Model T. The six principles of Blue Ocean Strategy are reconstructing market boundaries, focusing on the big picture, reaching beyond existing demand, getting the strategic sequence right, overcoming organizational hurdles, and building execution into the strategy.

Uploaded by

Lejani Quiocho
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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BLUE OCEAN

STRATEGY
MARITES L. VILLAVERDE
What is Blue Ocean Strategy?

Professors W. Chan Kim and Renee Mauborgne


introduced the strategy in their book ‘Blue Ocean
Strategy: How to Create Uncontested Market Space and
Make the Competition Irrelevant.”

In their 2005 publication, the authors stated that


companies were better off exploring new markets.
They believed that competing in a saturated market
was a bad choice.
What is Blue Ocean Strategy?
Blue Ocean Strategy is a marketing theory in which a
business enters a market that has little or no
competition. The strategy focuses on moving away
from an existing market and searching for new
markets.

Specifically, these new markets give a company a very


high competitive advantage as well as low price/cost
pressure.

Put simply; the strategy involves getting out of a


fiercely competitive, saturated market and into ‘virgin
territory.’
What is Blue Ocean Strategy?
Blue Ocean Strategy Example: Automobile Industry

• In the 1890s, the horse and buggy was the primary mode of
transportation.
• In 1893, the Duryea brothers created the first automobile. Despite being
unreliable, they cost $1,500, twice the average annual income. They thus
became a publicly maligned symbol of excess.
• In 1908, 500 American automakers existed making custom automobiles.
Henry Ford created the Model T, the first standardized, mass-produced
automobile.
It cost $850, half the price of existing cars. By 1924 the price was down
to $290.
By 1923, the majority of American households owned an automobile.
Market share increased from 9% in 1908 to 61% in 1921
• In 1924, General Motors introduced variety – “a car for every purse and
purpose.”
Blue Ocean Strategy Example: Automobile Industry

A range of options created new demand as buyers went up or down-


market relative to the Model T.
With frequent updates to cars, they were replaced more frequently,
driving up demand.
From 1926 to 1950, GM increased market share from 20% to 50%, while
Ford’s fell from 50% to 20%.
But Ford and Chrysler followed this strategy, and they began a red
ocean period of competition and imitation. The Big 3 owned 90% of the
US market.
• In the 1970s, Japanese manufacturers created a blue ocean of small,
efficient, high-quality cars. US automakers, who had fallen complacent
and focused on luxury, were caught by surprise.
Red Ocean VS Blue Ocean

Compete in existing markets space. Create uncontested markets 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 organization with Aligning the organization with


differentiation OR low cost. differentiation AND low cost.
Value Innovation

Value Innovation is the cornerstone of Blue


Ocean Strategy and is created through a series of
strategic moves resulting in a product or service
substantially different from any other offering.
These strategic moves also function to lower
costs to the producer of the product or service,
resulting in the capability to offer a high value
product or service that has not been seen
before, at a very reasonable price to the buyer.
Six principles of the Blue Ocean
Strategy

Blue Ocean Strategy targets six principles


that can be used in every organization so that
they can arrive at a successful development
and fulfilment of new markets. A distinction is
made between preliminary and executive
principles.
Six principles of the Blue Ocean
Strategy
Preliminary principles
• reconstruct market boundaries
• focus on the big picture, not the numbers in the here
and now
• reach beyond the existing supply and demand
• approach the right strategic sequence

Executive principles
• overcome the main organizational hurdles
• build in victory into the organizational strategy
Six principles of the Blue Ocean
Strategy

1. Reconstruct market boundaries.

This principle identifies the paths by which managers can


systematically create uncontested market space across diverse
industry domains, hence attenuating search risk. It teaches
companies how to make the competition irrelevant by looking
across the six conventional boundaries of competition to open up
commercially important blue oceans.
The Six Paths Framework in
Formulating Blue Ocean Strategy
Industry

Strategic Group

Buyer Group
From
Competing Scope of product or service To Creating
Within offering Across
Functional-emotional
orientation of an industry
Time
Six principles of the Blue Ocean
Strategy

2. Focus on the big picture, not the numbers.

Illustrates how to design a company's strategic planning process to


go beyond incremental improvements to create value innovations.
It presents an alternative to the existing strategic planning process,
which is often criticized as a number-crunching exercise that keeps
companies locked into making incremental improvements. This
principle tackles planning risk. Using a visualizing approach that
drives managers to focus on the big picture rather than to be
submerged in numbers and jargon, this principle proposes a four-
step planning process whereby you can build a strategy that creates
and captures blue ocean opportunities.
The Strategy Canvas
Six principles of the Blue Ocean
Strategy

3. Reach beyond existing demand.

To create the greatest market of new demand, managers must


challenge the conventional practice of aiming for finer
segmentation to better meet existing customer preferences. This
practice often results in increasingly small target markets. Instead,
this principle shows how to aggregate demand, not by focusing on
the differences that separate customers but by building on the
powerful commonalities across noncustomers to maximize the size
of the blue ocean being created and new demand being unlocked,
hence minimizing scale risk.
Six principles of the Blue Ocean
Strategy

4. Get the strategic sequence right.

This principle describes a sequence which companies should follow


to ensure that the business model they build will be able to produce
and maintain profitable growth. When companies meet the
sequence of utility, price, cost and adoption requirements, they
address the business model risk and the blue ocean idea they
created will be a commercially viable one.
Six principles of the Blue Ocean
Strategy

5. Overcome key organizational hurdles.

Tipping point leadership shows managers how to mobilize an


organization to overcome the key organizational hurdles that block
the implementation of a blue ocean strategy. This principle deals
with organizational risk. It lays out how leaders and managers alike
can surmount the cognitive, resource, motivational, and political
hurdles in spite of limited time and resources in executing blue
ocean strategy.
Six principles of the Blue Ocean
Strategy

6. Build execution into strategy.

By integrating execution into strategy making, people are


motivated to act on and execute a blue ocean strategy in a
sustained way deep in an organization. This principle introduces,
what Kim & Mauborgne call, fair process. Because a blue ocean
strategy perforce represents a departure from the status quo, fair
process is required to facilitate both strategy making and execution
by mobilizing people for the voluntary cooperation needed to
execute blue ocean strategy. It deals with management risk
associated with people's attitudes and behaviors.

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