Creating Blue OceansTeam 3
Andrew Stack, Jessica Sharpless, Andrea Lapotaire,
Andrew West, Taylor Caroll
“Don’t compete with rivals, make them irrelevant”
Cirque du Soleil
Canadian circus created in 1984
Out performed Ringling Bros. and Barnum & Bailey
Achieved in a declining industry
But did not compete with Ringling Bros. and Barnum & Bailey
Totem Trailer
Gilles Ste-Croix, Guy Laliberté
New Market Space
Stop competing with other companies to win in the future
Red Oceans- Industries in existence today
Blue Oceans- Industries not in existence today
Blue Oceans a uncharted strategy
The Continuing Creation of Blue Oceans
Only the term of blue oceans is new
Industries never stand still
Why the oceans have been red
The Impact of Creating Blue Oceans
Profit Impact
Revenue Impact
Business Launch
39%
62%
86%
61%
38%
14%
Launches within red oceans
Launches for creating blue oceans
The Rising Imperative of Creating Blue Oceans
Accelerated technological advances shifting supply and demand causing:Accelerated commoditization of products and
services Increasing price warsShrinking profit margins
Management will need to become more focused on the creation of blue oceans
From Company and Industry to Strategic MoveHow can a company break out of the red ocean
and create a blue ocean?
Are there lasting companies that are successful in creating blue oceans?
“In Search of Excellence”- bestselling book-Companies in book began to fall from
rankings within 2 years, 2/3 by 5 years
“Built to Last- Same thing happened, although the entire lifespan of firms at least 40 years old were analyzed.
It was found that these books analyzed industry sector performance instead of the companies themselves
From Company and Industry to Strategic Move Cont..
Example: HP, who met the criteria for “Built to Last,” did not outperform the market, or even the industry
Have companies that continuously outperform the market ever existed?
Since Cirque du Soleil created a new market space and has always been successful, It is shown that neither the company nor the
industry is not the best unit of analysisStrategic moves are the right unit of analysisStrategic move: “the set of managerial actions and
decisions involved in making a major market –created business offering “(10)
Value Innovation: The Cornerstone of Blue Ocean StrategyAmong blue ocean companies with profitable
growth, similarities have appeared:
Did not use competition as benchmark; used value innvation
Value Innovation is the cornerstone of blue ocean strategy
Focus on making competition irrelevant Creates a leap in value for buyers and your company Opens up new and uncontested market space
Value Innovation: The Cornerstone of Blue Ocean Strategy Cont…Equal emphasis on value and innovation
Occurs only when companies innovation with utility, price, and cost positions
Defies the value-cost trade off
Blue ocean companies pursue differentiation and low costEither create a greater value at high cost or
reasonable value at lower cost
Ex: Cirque du Soleil
Cirque du Soleil
Paid no attention to what competition did
“Offered people the fun and thrill of the circus, along with the intellectual sophistication and artisitic richness of the theater” (14)
Gained circus and adult theater customers
Did not use animals like the traditional circusAttracted customers who had discomfort from using
animalsSaved money
Cirque du Soleil Cont…
Did away with everything but the tents, clowns, and the acrobatic acts
changed humor from slapstick to a more enchanting, sophisticated style
Glamorized tent and made more comfortable
Added a theme and story line
Multiple productions made people come more frequently
Priced tickets against theater ticket prices
Value Innovation
The figure below depicts the differentiation –low cost dynamics under-pinning value innovation:
In creating blue oceans, a company needs to drive costs down, while driving value up
Integrates the range of a firm’s functional and operational activities
Some innovations can be achieved at subsystem level without impacting companies overall strategy Ex: production innovations
In value innovation market boundaries and industry structure are not given Allows for reconstruction by industry players-
reconstructionist view Ex: Cirque du Soleil
Red Ocean vs Blue Ocean
Formulating and Executing Blue Ocean Strategy
Understanding and limiting riskBOS companies see risk and work around itKnowledge and market understandingKeeping current “no such thing as a riskless strategy”
Implementing BOS
Many companies still ignore BOS despite the facts
Playing field unbalanced in favor of analytical tools
Continuation of Red Oceans of Blue Oceans
The Six Principles of BOS
Formulation Principle Reconstruct market boundaries Focus on the big picture, not the
numbers
Reach beyond existing demand get the strategic sequence right
Execution Principles Overcome key organizational
hurdles Build Execution into strategy
*Figure 1-4 p. 21 BOS
Risk factor each principle attenuates
↓ Search risk
↓ Planning risk
↓ Scale risk
↓ Business model risk
Risk factor each principle attenuates
↓ Organizatoinal risk
↓ Management risk
Sun Cellular
Mobile communications market (Philippines)
Market Leaders: Smart and Globe
Strategy: unlimited text and calls “in network”
AXA Philippines
French insurace company
Industry leaders: AIG, SunLIfe, & Insular Life
Strategy: Partner with Metrobank and offer depositor insurance
Wal-Mart History
Sam Walton’s strategy was built on an unshakeable foundation: The Lowest Prices Anytime, Anywhere
On July 2, 1962, Sam Walton opened the first Wal-Mart store in Rogers, Ark.
History Continued
1971 The first distribution center and Home Office opened in Bentonville, Ark.
1980 Wal-Mart reached $1 billion in annual sales, faster than any other company at that time.
1988 The first Wal-Mart Supercenter opened in Washington, Mo., combining general merchandise and a full-scale supermarket to provide one-stop shopping convenience.
1997 The company celebrated its first $100 billion sales year.
2012 Wal-Mart celebrated 50 years of helping people save money so they can live better.
The company employs 2.2 million associates worldwide and serves 200 million customers each week at more than 10,000 stores in 27 countries.
Is Wal-Mart a Blue Ocean?
Wal-Mart is a "Large Discount Retailer."
The cluster of Target, K-Mart, and Wal-Mart belongs to the former Blue Ocean Industry of Large Discount Retailers.
Wal-Mart vs. Target
Wal-Mart and Target both are discounters, but they cater to different customers.
Wal-Mart: customers' average household income ranges from $30,000 to $60,000,
Target: customers have a median household income of $64,000 a year