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Operations, Project, & Supply Chain Management Strategy, Entrepreneurship, & Innovation Business Ethics & Social Responsibility Global Business, International Law & Relations Business Communications & Negotiation Management, Leadership, & Organizational Behavior Economic Analysis & Monetary Policy Research, Quantitative Analysis, & Decision Science Investments, Trading, and Financial Markets Banking, Lending, and Credit Industry Business Finance, Personal Finance, and Valuation Principles Update The blue ocean strategic concept was developed by Profs. Kim and Mauborgne of INSEAD Business School. It posits that creating a new market can be more beneficial than competing in an existing market with established competitors. These new markets are blue oceans. Creating a blue ocean is difficult and generally requires the company to innovate (a concept coined as value innovation) in a way that creates a previously non-existent or unrealized demand. Value innovation involves the pursuit of both differentiation and low-cost strategies to open up new and non-competitive markets. This innovation may take place at any or all stages of the value chain. The result is the development of a market that is devoid of competition and allows for extensive growth or growth potential without the need for competitive differentiation or cost advantage. Back to: STRATEGY & PLANNING Blue Ocean vs Red Ocean StrategyThe counter to the blue ocean is the red ocean. A red ocean is a saturated market with industry competitors. These competitors may possess a competitive advantage driven by cost, differentiation, or niche market strategies. The result of the competition is destruction, which draws the analogy of red blood in the ocean water. Thus, the red ocean generally offers less opportunity for growth. A blue ocean strategy seeks to avoid competition completely; thus, competitive strategies are less important. Competitive strategies are necessary, but they are not adequate to grow a market position. In a red ocean strategy, a structuralist view is that a competitive market is structured by conditions that force firms to compete. This is also known as environmental determinism. Gaining advantage in a red ocean is a supply-side focus where cost and differentiation strategies are trade-offs. A blue ocean strategy adopts the belief that markets and industries are not structured to beget competition. They can be reconstructed by industry players. This is a reconstructionist view. This is a focus on generating additional demand rather than improving or increasing supply through value innovation. Four Principles of Blue Ocean StrategyBlue ocean strategy is based upon four unique principles:
Profs. Kim and Mauborgne developed numerous frameworks and approaches to help a firm implement these principles. Blue Ocean Strategic ApproachProfs. Kim and Mauborgne propose using multiple frameworks in developing and implementing a blue ocean strategy. The objectives of these frameworks is to allow the firm to look beyond the traditional boundaries to competition (six paths framework); aid planning and reduce risk by visualizing the strategic considerations; generating new demand through the three tiers of non-customers; and overcoming hurdles to launch a value offering in a newly created market (through utility or differentiation, pricing, and cost reduction). The effect is to break away from structuralist strategic approaches (competing a red ocean) toward a reconstructionist strategic approach (creating and operating in a blue ocean). Blue Ocean FrameworksNotable frameworks are: Six Paths FrameworkThis framework helps guide a company to look beyond existing markets for the potential for new markets. It asks the company to think creatively and question assumptions about the existing market with the purpose of identifying new value (or value innovation). Remember, the purpose is to move beyond the tendency to compete on known value drivers in a red ocean. The paths to examine are as follows:
Four Actions FrameworkThis framework looks at the value and cost drivers within a companys offerings and seeks to reduce or eliminate unnecessary or incongruent products. This approach allows the company to then focus on develop differentiated products that have the ability to generate a new customer market. The four individual actions include:
ERRC GridThe factors identified in four-action framework must be organized and employed efficiently for use. The Eliminate-Reduce-Raise-Create Grid (ERRC) is a four-quadrant grid that allows the company to list and categorize value drivers in a visual format. Strategy CanvasThe next step is to employ the the strategy canvass to visualize aspects of the value chain. This tool asks a business to identify all of the functions or factors of the value chain and place them along the x-axis of a graph. The y-axis represents value or importance to the business. Each of these factors represent some aspect of a businesss operations and value delivery process that stands to be changed. Then the company must plot a point on the graph a point that represents the value or importance of this factor. Connecting these dots shows a linear representation of the importance of these factors. Now, the business will overlay a competitor (either direct competitor or substitute product or service) or industry benchmarks to see a comparison of the value of each factor. This helps the business visualize the importance that competitors or the industry in general places on the factor versus the importance the company places. Seeing the comparison of importance will demonstrate the potential sources of competitive advantage for competitors. The business does not try to compete on a competitors advantage, as this is a traditional red ocean strategy. This visualization allows the company to adjust its own priorities accordingly to reduce costs for the factor or differentiate it from existing competitors. That may include focusing on different value drivers or creating new value drivers. In any event, adequate cost advantage or differentiation can provide information used to create or open up new markets for the business. Pioneer Migrator Settlor MapThis framework allows a company to visualize the value drivers (products or services) contribute to the firms growth or market potential. In summary, it is a snapshot of the companys value drivers that allows for strategic decision-making with regard to pursuing growth. The companys value offerings are characterized as Pioneers, Migrators, or Settlers. Pioneers provide lots of value and offer significant growth potential. Generally, pioneers have some level of competitive advantage or are not subject to competition in the monopolized market. Migrators are value offerings with significant value for the company, but lack significant competitive advantage in the market. These offerings demonstrate grow potential but require strategic orientation to achieve it. Settlers are value offerings with little competitive advantage in the market. These offerings compete in traditional red oceans where the potential for growth in the existing market is small. Three Tiers of Non-Customers
Sequence of Blue Ocean StrategyProfs. Kim and Mauborgne established the sequence of blue ocean strategy, as the name states, to guide companies in the development and implementation. The sequence is as follows:
Buyer Utility MapAs stated, the blue ocean strategy requires the creation of exceptional value for the customer. The buyer utility map allows managers to visualize the aspects of utility across the buyers or potential buyers entire experience cycle. More specifically, it allows the firm to focus on the demand-side (customer side) of the value offering. Common stages of buyer utility include: orientation, evaluation, options, purchase, delivery, usage, maintenance, and disposal. The core utility levels include: productivity, simplicity, convenience, risk, fun & image, social responsibility. These levels help the company to visualize the areas of utility that a value offering does or could potentially fill. Price Corridor MapPricing is an important aspect of optimizing revenue for a value proposition. To secure a strong revenue stream for your offering, you have to set the right strategic price. The price corridor map involves understanding the customer sensitivity to price when comparing the product to similar value propositions. The company will categorize offerings as different form/same function (firearm vs bow and arrow) or different form and function/same objective (ceiling fan vs air conditioner) as other offerings. The company must then identify a price range for the value offering that identifies the largest group of buyers. This is the price corridor. The next step involves identifying the highest price level within the corridor that maximizes revenue. This will include strategic decisions, such as intellectual property protection, ownership of key assets, and relevance of core capability. This assessment process will allow the firm to categorize the offering in a lower, middle, or upper price range. The company will analyze pricing to target costing, which involves starting with a strategic price and deducting the desired profit margin to arrive at the target cost. Meeting these target costs might involve streamlining operations, employing cost innovations, partnering, or changing the price model of the industries. Four Hurdles to Strategy ExecutionThis framework seeks to identify the organizational hurdles to executing a blue ocean strategy. The relevant hurdles include:
Strategy of ImplementationImplementing the blue ocean strategy is generally achieved through tipping point leadership and fair process. Implementation requires company to address and overcome any or all of the hurdles to strategy execution. Tipping Point LeadershipTipping point leadership is about going against conventional wisdom to effectuate change. It calls for a manager to overcome hurdles in implementing a strategy. Managers generally face four types of hurdle in implementing a blue ocean strategy, as follows:
Fair ProcessThis involves communicating goals and objectives to the individuals involved in the implementation process. Three elements define the fair process framework: What are the 4 strategies of blue ocean strategy?SEQUENCE OF CREATING A BLUE OCEAN. Companies need to build their blue ocean strategy in the sequence of buyer utility, price, cost, and adoption. This allows them to build a viable business model and ensure that a company profits from the blue ocean it is creating.
What are examples of blue ocean strategies?3 examples of blue ocean strategy. Nintendo Wii. The first example of blue ocean strategy comes from computer games giant, Nintendo, in the form of the Nintendo Wii. ... . Yellow Tail. The development of Yellow Tail, a new wine brand from Casella Wines, is another great example of blue ocean strategy in action. ... . Cirque de Soleil.. How does a company create new markets with a blue ocean strategy?BLUE OCEAN STRATEGY. Create uncontested market space.. Make the competition irrelevant.. Create and capture new demand.. Break the value-cost trade-off.. Align the whole system of a firm's activities in pursuit of differentiation and low cost.. What is blue ocean strategy used for?The goal of a Blue Ocean Strategy is for organizations to find and develop “blue oceans” (uncontested, growing markets) and avoid “red oceans” (overdeveloped, saturated markets). A company will have more success, fewer risks, and increased profits in a blue ocean market.
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