Blue Ocean Strategy

By W. Chan Kim & Renee

Mauborgne
Notes by Prof A K Mitra
• Companies have long engaged in head-to-head
competition in search of sustained, profitable
growth. They have fought for competitive
advantage, battled over market share, and
struggled for differentiation.
• In red oceans--that is, in all the industries already
existing--companies compete by grabbing for a
greater share of limited demand in the known
market space . As the market space gets more
crowded, prospects for profits and growth
decline. Products turn into commodities, and
increasing competition turns the water bloody.
• Blue Ocean Strategy challenges
companies to break out of Red ocean of
bloody competition by creating
uncontested market space that makes
competition irrelevant. "Don’t Compete
with Rivals—Make Them Irrelevant"
• In Blue Ocean, demand is created rather
than fought over, by breaking away from
the competition.
• Blue Ocean denotes all the industries not in
existence today. It is thus defined by untapped
or unknown market space, demand creation ,
and the opportunity for highly profitable growth.
• Although some blue oceans are created well
beyond existing industry boundaries, most are
created from within red oceans by expanding
existing industry boundaries.
• In blue oceans, competition is irrelevant
because the rules of the game are waiting to be
set.
• It will always be important to swim successfully
in the red ocean by outcompeting the rivals. But
this will not be sufficient to sustain high
performance.
• To seize new profit and growth opportunities,
they also need to create blue oceans.
• Unfortunately , blue oceans are largely
uncharted. The dominant focus of strategy over
the past 25 years have been on competition
based red ocean strategies
• The authors elaborate the principles that
define and separate blue ocean strategy
from competition based strategic thoughts.
• They introduce a set of analytical tools and
frameworks that show how to
systematically proceed to create blue
oceans.
• According to book "Blue Ocean Strategy,"'
the metaphor blue ocean elegantly
summarizes the vision of the kind of
expanding, competitor-free markets that
innovative companies can navigate.
• This is the opposite of "red oceans," which
are well explored and crowded with
competitors, "blue oceans" represent
"untapped market space" and the
"opportunity for highly profitable growth."
• Author’s hypothesis is that since markets are
constantly changing in their levels of favorability
and companies, over time, vary in their levels of
performance, it is the particular strategic move
of the company and not the company itself or
the industry, which is the correct criterion for
evaluating the difference between Red and Blue
Ocean strategies.
• This strikes at the heart of Michael Porter’s
competitive framework.
• Impact of Creating Blue Oceans
• Strategic Moves
• Value Innovation : the corner Stone of
Blue Ocean strategy
• Analytical Tools & frame Works
– Strategy Canvas
– Value Curve
– The Four Actions Frame Work
• Value innovation is a strategic move that
allows a company to create a blue ocean.
Typically, companies in the red ocean
pursue incremental improvements for
customers through either low cost or
differentiation.
• Value innovation helps companies make
giant leaps in the value provided to
customers through the simultaneous
pursuit of differentiation and low cost.
• Value Innovation is created in the region where
a company’s actions favorably affect both its cost
structure and its value proposition to buyers.
• 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.
• Over time, costs are reduced further as scale
economies kick in due to the high sales volumes
that superior value generates.
• It shouldn’t be a trade off between the two;
exceptional value and innovation should
be inseparable.
• Offer buyers a huge leap in value, and that
will give rise to new markets. That’s how
you make the competition irrelevant.
• Strategy Canvas : is both a diagnostic and an
action framework for building a compelling blue
ocean strategy.
• It captures the current state of play in the known
market space. This allows you to understand
where the competition is currently investing, the
factors the industry currently competes on in
products, service, and delivery, and what
customers receive from the existing competitive
offerings on the market
• The horizontal axis captures the range of factors
the industry competes on and invests in.
• The vertical axis captures the offering level that
buyers receive across all these key competing
factors.
• The value curve then provides a graphic
depiction of a company’s relative performance
across its industry’s factors of competition.
 The Four Actions Framework

• The four Actions Framework offers an

technique that breaks the trade-off
between differentiation and low cost and to
to create a new value curve. The authors
recommend four different means to do
this:
• Eliminate :eliminating what is not valued,
• Reduce: reducing what is valued less,
• Raise : raising what is valued more, and
• Create :creating what no one else has.
• Four Actions Framework -
Eliminate/Reduce/Raise/Create Grid The four actions
framework offers an technique that breaks the trade-off
between differentiation and low cost and to create a new
value curve.
• It answers the four key questions of
– what industry takes for granted and needs to be eliminated;
– what factors need to be reduced below industry
standards;
– what factors need to be raised above industry
standards; and
– what should be created that the industry has never
offered.
• The eliminate-reduce-raise-create grid pushes
companies not only to ask all four questions in
the four actions framework but also to act on all
four to create a new value curve.
• By driving companies to fill in the grid with the actions of
eliminating, reducing, raising, and creating, the grid
provides four immediate benefits: it pushes them to
simultaneously pursue differentiation and low costs;
identifies companies who are only raising and creating
thereby raising costs; makes it easier for managers to
understand and comply; and it drives companies to
scrutinize every factor the industry competes on.
 Six paths to open blue ocean…………..

• Look Across alternate industries

• Look across strategic groups within
Industries
• Look Across chain of buyers
• Look across complementary products &
services
• Look across functional or emotional
appeal to buyers
• Look across time