LONDON SCHOOL OF COMMERCE

ID No.: L0609WTWT0212

NAME: AZAMAT ANVAROV

COURSE: BABMS4

EMAIL: L0609WTWT0212@student.lsclondon.co.uk

SUJECT: STRATEGIC INFORMATION

MANAGEMENT

TEACHER: DAVID ACQUAYE

LONDON 2012

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Table of Contents1.0 Introduction PART A.....................................................................................3

2.0 Difference between Blue Ocean and Red Ocean............................................3

2.1 Market Space...............................................................................................4

2.2 Competition.................................................................................................4

2.3 Demand........................................................................................................4

2.4 The value-cost trade-off...............................................................................5

2.5 Value Innovation.........................................................................................5

3.0 The four-actions model...................................................................................5

3.1 Reduce and Eliminate..................................................................................6

3.2 Create and Raise..........................................................................................7

4.0 The application of the four actions model PART B.......................................7

4.1 “Air Asia” Industry analyses.......................................................................8

4.2 “Air Asia” Four Action Framework............................................................9

4.3 “Pet Smart” Industry analyses...................................................................11

4.4 “Pet Smart” Four Actions Model..............................................................12

5.0 Conclusion....................................................................................................13

5.1 Critical analyses of Blue Ocean Strategy (BOS).......................................13

Bibliography.......................................................................................................14

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1.0 Introduction PART A

At the end of the day time has changed often

people don’t realise how to do it and what to do it

when there is a strong competition. The most important

thing is in the business one is not successful being

strongest and smartest but, who is most adaptive. It is

all about redefining, renovating and reimagining

success as cartoon shows if things go bad we have to

redefine what actually success is (Andi Simon, 2012).

Here is comes Blue Ocean Strategy tells managers to

change their attitude of fighting competitors for market

share. However they have to see themselves as explorers, looking to discover new market

demand which brings to earn higher profit.

Blue Ocean Strategy is 15 years research done by W. Chan Kim and Renee Mauborgne who

are studied 150 companies in 30 industries over 100 years horizon. It is about how do companies

actually open a new market space create demand and sustain in the market. Blue ocean

strategy challenges companies to break out of the bloody competition by creating uncontested

market space which leads the competition irrelevant. Instead of dividing up existing and often

shrinking demand and benchmarking competitors, blue ocean strategy is about increasing

demand and running away from the competition (Chan Kim, 2005).

2.0 Difference between Blue Ocean and Red Ocean

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Source: (Mauborgne, 2010)

2.1 Market Space

All industries existed today are

represented by Red Ocean which is

known as market space. In contrast,

Blue Ocean indicates all the

industries not in existence today

which is unknown market space.

As we know in the Red Ocean all

rules of the game are known and boundaries Source: (Anvarov, 2012)

are accepted and here companies fight with each other to gain greater share in the market.

And chance of getting high profit is very low whereas Blue Oceans are denoted by

unexploited market space demand creation and chance of highly profitable growth

(Tomoshunas, 2004). Moreover, there is a focus in the Blue Ocean on trying to increase the

size of the industry by attracting people who have never purchased in that business

2.2 Competition

The main focus of Red Ocean strategy is competition-based strategies which is fairly

good understands of how to compete skilfully in red waters by from analyzing the basic

economic structure of an existing industry. In contrast, in Blue Ocean competition becomes

irrelevant because the rules of the market have not set yet. The whole idea of Blue Ocean

Strategy is to have high value at low cost. Companies need to go beyond competing to seize

new profit and growth chances to create blue oceans.

2.3 Demand

You want to attract new customers to the industry, instead of focusing on only the

current customers. This may be difficult and costly; so many businesses don't even try

because they rely on their current customers, which mean Red Ocean concept. However, with

the Blue Ocean concept, concentrating on new customers you will be creating value so high

that you will be attracting customers that never before would have considered entering the

market. For instance Southwest Airlines appealed to auto travellers (Dr. Sarah Layton, 2009).

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2.4 The value-cost trade-off

In the red ocean, the competitions are immaterial because there is no one can easily copy

the ideas which will allow for commercial success. In contrast, in Blue Ocean strategy there

is high value for a lower cost and developed the tools to do it (Glenn Buckman, 2010). In

fact, if you don’t break the value cost trade-off, competitors will easily copy what you are

doing and the ocean will once again become red. Blue Ocean strategy founded on importance

of innovation which give chance to break out from the value cost trade off.

2.5 Value Innovation

If we focus on value, afterwards risk may get wedged by building incremental

developments the length of existing vital value size. It may be a bit painful for the company

to get away from competition but later on performance of the company will be superior. For

making customers willing to pay company have to concentrate on innovation with the little

intention by following the bleeding frame of technology changes and revolutionising new

markets (Paul Simister, 2011). For example, Apple Company created Blue Ocean by

innovating high sensitive touch screen mobile “Iphone” in 2007.

3.0 The four-actions model

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Source: (Renee Marborgne, Kim W Chan, 2005)

A company has to have an exact vision and mission in the shape of a strategy which

defines its direction to the great achievement. Sometimes costumers get confuse because right

from the start this strategy may gets unclear as a result its customers cannot distinguish from

other competitors. Firm’s game plan is asked to realign and focus by the 4 actions model. The

4 actions model suggests to the company to use to reconstruct consumer’s value in the

industry clarifying a space or look for new value. The picture as you see in above identifies

the 4 action model factors that raise, eliminate, reduce and value creation.

3.1 Reduce and Eliminate

By using four action model companies save it costs by eliminating and reducing the

factors an industry competes on. Things can’t be like itself and you cannot just say that I am

going to create low cost and differentiation. Company have to look for every corner and gap

of its processes to delay unnecessary cost. The

whole company have to be united by this

method and anything that does not contribute to

value which gets reduced and it can be the most

well-organized method to run a firm whether it

is in a blue ocean or traditional ocean (Peter

Ducker, 1986). For example Nintendo reduced

its price policy, graphics and console

specification and eliminate complexity to cut its

cost and attract more customers.

Source: (Kim & Marborgne, 2009).

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3.2 Create and Raise

These factors are extremely

important in the four action

model. Even the company do not

reduce its cost but it must create

and raise some sort of thing in the

company or have to make

innovation to change the

company towards profitable

statistics. Buyer values are lifted

by rising & creating elements in

the industry has never offered. For instance, Southwest Airline raises its Speed and friendly

service and creates frequent point to point departures (Source: (Chen, 2010)) to create

uncontested market by using four actions model.

4.0 The application of the four actions model PART B

As we see below in the graph from the Kim and Renee, who are studied 108 companies

revenue and profit, shows that companies which in Blue Ocean invested less than companies

in Red Ocean, and earned more profit. Now I am going to analyse Air Asia and PetSmart

Companies which has experienced Blue Ocean Strategy successfully by using four action

models. Source: (W. Chan Kim, Renee Mauborgne, 2005)

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4.1 “Air Asia” Industry analyses

Air Asia is one of the largest low

price airlines in the Asia growing

rapidly since 2001. With fleet of 72

aircrafts Air Asia flies to over 61

domestic and international destinations

with 108 routes, and operates over 400

flights daily from hubs located in

Malaysia, Thailand, and Indonesia and

today Air Asia has flown over 55 million guests across the region.. AirAsia have changed the

definition of airlines that air travel is a luxury and it is only for the upper segment of the

population. The key point of low cost carriers is to increase their reach and provide the

services to a large segment and it says “Now everyone can fly”

Source: (Tony Fernandes, 2009)

Air Asia did record revenue of 1.1 billion pounds, up 13% from revenue of around 800

million pounds reported in 2010. Operating profit was reported at 300 million pounds, up

12% from an operating profit of 210 million pounds reported in the previous year. Core net

income for the same period was 220 million pounds, up 18% from a core net income of

201.12 million in 2010 (Aziz Laikar, Benyamin Ismail, 2012).

Malaysia is one of the main hubs of economic ties in Asia. For this reason the chart

shows below the Malaysia capacity sets per week by carrier August 2011 by several

companies in Airlines industry in Asia.

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Source: (CAPA , 2011)

4.2 “Air Asia” Four Action Framework

Value innovation is created in the area

where the Air Asia’s performance positively

affects both its cost structure and its value

proposition to buyers. Admittedly, cutting cost

of luxurious airplane service rules are made by

eliminating and reducing the factors an Air Asia

competes on. Air Asia lifted buyer value by

raising and creating elements the industry has

never opened. Eventually, costs have been

reduced further as scale economies kick in due

to the high ticket sales volumes that superior

value generates. Source: (W. Chan Kim, Renee Mauborgne, 2005)

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Raise- By differentiating it’s terms and conditions from other competitors Air Asia raised its

luggage kilos to 5 kg for its customers. Because, most of users are middle class people who

are used to carry more luggage for travel. Moreover it is required highly to communicate with

customers extremely friendly which plays main role to attract customers consequently.

Additionally, the number of flight within local area and international flight increased as

people liked to get cheaper and easier flights. The speed of the planes are increased by using

a good quality of engine.

Create- Promotions and new deals are being created continuously which means a customer,

who books the ticket before 1 month or more than this period earlier than its flight day, can

buy it for half price. Frequent point departures have been created in Malaysia which gives

tourist to get to the different islands faster for cheap price. One of the main things which is

created by Air Asia is ticket counters. It is like ATM machine which can customer manage it

by touching screen and cash in the money to it and buys ticket to any destination by using

easiest way which have been created ever.

Reduce- One of the key competitive advantages of Air Asia is escaping from luxurious

service. This strategy caused to reduce cost by approximately 30%. For example within the

local flights meals are cancelled which it doesn’t required for shorter flights. Air Asia doesn’t

use International Airports and pay them taxes. It has its small but own aerodrome. Because,

the physiology of Air Asia group is that they think when it comes to customers choosing

airlines for their journeys they doesn’t border with airport location in the city, it is more

important for them to get to the destination city. In a nutshell when the cost is reduced

automatically the ticket prices become cheaper in the Blue Ocean

Eliminate- Seating choices are eliminated because of taking away of luxurious service

physiology and it has only two choices at the moment in most country where Air Asia runs in

them. For giving more flexibility to customers the company discharge travel insurance fees

and warranties customers that their luggage will be safe and reach to destinations undamaged.

Moreover, lounges and hub connectivity have been eliminated to get into Blue Ocean.

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4.3 “Pet Smart” Industry analyses

Pet Smart and Pet Co are competing

in the Pet Care business which are

includes pet clothing, pet healthcare,

pet food and verity of pet services and

this is very attractive industry with

reaching $41 billion a year which has

been doubled comparing to last year. In

USA people spend most of their money

to their pets, take care of them and it is more than what they pay out on entertainments.

Source: (Shazeeye Kirmani, 2011)

Pet Smart’s strategy was to emotionally unite services with pet owners by giving them

such kind of services such as training, pet hotels, grooming, day care and adoption. Thirty

percent of the pet care industry was commanded by the luxurious pet services which make

owners of the pets to feel that pets they are owned are catered as like as family members.

However, In terms of selling a large number of pet in premium price its main competitor Pet

Co held 20 percent of the market share which is Pet Smart’s share is 9 percent less than Pet

Co. Pet Smart’s stores is located in power centres where Pet Co’s outlets in neighbourhood

which are much smaller in shape and size. For fulfilling its hospital requirement Pet Smart

management made a joint venture with Benfield alliances.

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4.4 “Pet Smart” Four Actions Model

Raise- By adding services based on trends Pet Smart continue to focus to health care of

the pets more sharply. Pet obesity becoming more tendencies day by day and for this reason

firm provided and raised pet diet plans and pet diet food for supporting grows of the pet diet

as well as customer support services which make customers feeling free while the use Pet

Smart services. But the disadvantages of this strategy another companies which is specialised

in the diet foods may enter to this business and become one of the main competitor of Pet

Smart

Create- The Company was provided pet fantastic stores such as grooming and hospital

all in one and in these state owners are like to come and for cutting additional cost for their

pets in that shops. The advantage of all in one concept is it takes away pet owner from pop

and mom shops and it will be one stop for all pet owner which attracts them in a wide range.

The strategy based on total income and rooted in location super stores. Moreover getting vets

become a one part of this stores and revenue will be also increased for other ways. As an

example, when the dog is treated owner of the pet may pamper it at the vet and then buy

some packages such as one month food supply at the pet store. But, for these projects

PetSmart have to invest a lot of capital to create this Blue Ocean

Reduce- Pet smart reduced customers spending time for the queue. By making it interesting

for customers Pet Smart constructed windows in the rooms which give opportunity to

customers to save their waiting progress for their pets treating. Pet grooming rituals are may

be emotional for some customers who want to take part of the procedure and it gives free

watching through rooms where owners can observe their pet’s training.

Eliminate- From selling another type of pets like birds, parrots, fish and etc. Pet Smart makes

2% of its revenue. Pet Smart improved the focus on the lucrative services and supplies and it

utilized the revenue to remain business evaluated. In contrast, it may leads to the change of

limitation scope to only catering cats and dogs. The opinion is in this business customer

relationship management is extremely important because when you cater pets carefully with

the love is like you respecting the owner of the pet and one you create a loyalty between you

and customers it result profitable relationship for the company. The testing of market research

will define the point which in USA few bay be want to see that their pets are being groomed.

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5.0 Conclusion

In the present age businesses are very competitive and it has a lot of theories which

teaches skills of competing in the traditional ocean. But being strong and clever may not lead

to the success but the one who are adaptive may gain the market share. But Blue Ocean

theory break this niche and says we have to look the market not much dominated. And it may

much easier to build market positions where demand is high enough to earn greater profits.

Unfortunately the problem is even that markets may be dominated into small niches which

positioned into specialities.

Blue Ocean Strategy offers a dramatic change which rejects the traditional rules of

business and ideas with “Blue Ocean Six Paths Framework” to innovate something bigger by

making all in one of all small niche segments to the new constructed marketplace

For example it looks like taking a number of jigsaw piece puzzles and choosing right

pieces among them and making them in one to organise a whole new image which has never

done before.

5.1 Critical analyses of Blue Ocean Strategy (BOS)

The coin has two sides if we look to the BOS in a critical way we find that its procedure is

like more descriptive than prescriptive. The people who wrote the BOS used look at

industries success through BOS perspective by looking mainly successful stories where the

cases are fully connected with positive ideas. Thus it does not mean that by following a BOS

you can achieve to success. The survey procedure by Renee Mauborgne and W. Chan Kim

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have been criticised for not enough control grouping so we cannot measure how many BOS

are failed.

. Even the majority of ideas in the BOS are not new they have been beautifully branded

with the strong metaphors. The competition is not made immaterial in the BOS however it

just created a new type of strategy by renaming it. For this reason businesses are still

competing for the market share and consumer’s pocket by offering variety of goods. It just

gives consumers a lot of choices of how can they try to resolve particular issues by

differentiating another aspect

. Just like BOS may not be fresh all the time the time change that slowly it may turn to

Red marketplace, the new market will be dominated by imitators very quickly by following

the innovator. BOS is not as consumer centric as we can imagine since it smacks of building

a better mousetrap disease. BOS does not go to the details about understanding the

customer’s core issues and frustrations with active goods which innovates the chance for the

value creation.

.

Bibliography

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Aziz Laikar, Benyamin Ismail, 2012. Fourth Quarter & Full Year 2011 Results. Financial report. Kuala-Lumpur: Air Asia Air Asia Finance Department.

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Mauborgne, R., 2010. Blue Ocean Strategy. [Online] Harward Business School Productions Available at: http://visipramudia.wordpress.com/ [Accessed 03 April 2012].

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