Blue Ocean Strategy

Presented by: Warda Ikram Izaz Ali

M. Zeeshan Khattak Behram Khan

Introduction

Business universe consists of:

1. Red Oceans

2. Blue Oceans

RED OCEAN

• All industries in existence today• Known market place• Competition• Companies try to gain a bigger market share• Crowded industries, profits and growth

reduces

BLUE OCEAN

• All industries not in existence• Unknown market place• No competition• Demand is created, not fought over• Two ways to create blue oceans:1. Completely new industries2. Created from with a red ocean

Red Oceans are greatly influenced by Military Strategy

• Attacking• Competing • Winning• Capturing

Toward blue ocean strategy:Blue oceans are not about technology innovation.

Although technology is sometime involves in creation of blue oceans strategies but it is not key

feature of technology.Advanced Technology is used in those industries,

where it is intensive.Exhibit shows that among three representative

industries blue oceans seldom result technology innovation b/c they have certain technology

already.

Cont’d

• Ford’s revolutionary assembly line can be traced back to meat packing in USA.

• Similarly, in computer industries blue oceans did not only come from innovation in technology but by technology which is valued by buyers.

Michael Ford

Incumbents create Blue oceans

• The established old player usually create blue oceans in their core businesses.

• For instance GM Japanese automaker & Chrysler were establish player during creation of blue ocean.

• In cinema industry place theaters and ACM create blue oceans.

• Ford, apple & dell (new entrants)• Nickelodeon (established player)

Cont’d

• Two useful things for incumbents..1. No disadvantage in creating new market.2. Incumbents usually use blue oceans their

core businesses.

Blue Ocean Strategy

New entrant 4incumbent 9

existing technologynew tech-nology

Driven by new/existing tech-nology

Both existing/new Technology

attractive or unattractive industry

attractive

unattractive

non existent

Company & industry are wrong units of analysis

• Traditional units of strategic analysis(company & industry) have little explanatory power when it comes to analyzing how & why blue oceans are created.

• There is no consistently excellent company b/c same company can be brilliant at one & wrong at other time.

• Likewise there is no excellent industry. relative attractiveness is driven by creation of blue oceans.

Cont’d

• The most appropriate unit of analysis for explaining the creation of blue oceans is the strategic move.

• Strategic move is the set of managerial actions and decisions involved in making a major market creating business offering. for example

• Compaq. People considered it to unsuccessful b/c in 2001 It was acquired by HP & cease to be a company.

• But Compaq does not invalidate the smart strategic move because it create multibillion dollar market in PC servers.

Creating blue oceans builds brands

• Blue oceans strategy is so powerful that BO strategy move create brand equity which exists for decades.

• Henry ford‘s assembly line in 1908, but company’s brand still benefits form that Blue oceans move.

• IBM is also regarded as US institution for its blue oceans strategy it created in computer. e.g 360 series

Cont’d

• The findings from blue oceans strategy encouraging the executives of large established corporations that are victims of market space creation.

• Large R&D is not key to create new market space but the key is making right strategic move.

• Any company that understand what drives a good strategic move will be well placed to create multiple blue oceans over time.

The End…………

Blue Ocean Features

Never Use Competition as

Benchmark

Reject the conventional strategy

Create uncontested market place

Product differentiations VS Low Cost

Cirque du soleil – differentiation and Low cost

Whole system approach – utility and price, cost structure.

Re-constrionist view vs. traditional competitive strategy

Red Ocean

Competing in existing market

Beat the competition

Exploit existing market

Make the value/cost trade off

Align the whole system of a company’s activities with its strategic choice of

differentiation or low cost

Blue Ocean

Create uncontested market

Make the competition irrelevant

Create and capture new demand

Break the value/cost trade off

Align the whole system of a company’s activities in pursuit of differentiation and

low cost

Barriers to Imitation

• Creating a blue ocean strategy is not a static achievement but a dynamic process

• As the company and early imitators succeed and expand the blue ocean more companies eventually jump in.

Barriers to Imitation

A blue ocean brings barriers to imitation; some being operation and others cognitive.

• A value innovative move does not make sense based on conventional strategic logic– EX: CNN

• Brand image conflict prevents companies from imitating a blue ocean strategy. – EX: The Body Shop

Barriers To Imitation

• Natural monopoly blocks imitation when the size of a market cannot support another player– EX: Megaplex in Brussels

• Patents or legal permits block imitation

Barriers to Imitation

• Cost Advantages: High volume by value innovation– Ex: Apple ‘i’ products helped discourage imitation

for awhile

• Network externalities: the more customers, the more attractive a company looks– Ex: ebay – many buyers/sellers; hard to get them

to move to a potential imitator

Barriers to Imitation

• Politics and Culture: Imitation often requires companies to make changes to existing business practices and culture– Ex: Southwest (offers speed of travel with cost/flex. of

driving)– Would mean major revisions in routing, training,

marketing, and pricing• Brand Buzz: High leap in value leads to loyal

followers– Ex: Apple products (“I’m a Mac” campaign)