Creating Blue Oceans• Cirque Du Soleil

• Created By Guy Laliberte in 1984• Attained levels of revenue that took the Ringling

Brothers and Barnum&Bailey more than 100 years to achieve

• Revamped the dying circus industry• Industry with little room for growth• Incorporated many different types of entertainment• Very unattractive industry from a strategic standpoint

New Market Space• Cirque Du Soleil’s Success• Realized that to beat the competition they had to quit trying to

beat the competition• Blue Oceans Vs. Red Oceans• Red Oceans

• Represent the industries in existence today• Industry boundaries competitive rules of the game are known and

accepted • Companies try to outperform their rivals to attain a larger share of

the market

• Blue Oceans• Defined by untapped market space with room for very profitable

growth• Most are created within red oceans and then expanding

boundaries• Competition is irrelevant because rules are waiting to be set

Term Blue Oceans is new, but existence is not

• Look back 100 years and ask how many of todays industries were unknown then?• Automobiles• Aviation• Music recording

• Many current multibillion dollar industries today did not exist just thirty years ago.• Cell phones• Coffee bars• Snowboards

• This trend can be expected to continue, as industries are constantly evolving. • 20 years from now what unknown industries will appear? • A century old Standard Industrial Classification system published by US census was replaced in

1997 by North American Industry Classification Standard.

Red Ocean Principles

• Red Ocean Strategy was heavily influenced by Military Strategy

• Military strategy is about confronting an opponent and fighting over a given “piece of land”

• To focus on Red Ocean is constraining yourself to the “factors of war”, it is limited

• Unlike war, the history of the industry shows that the market universe has never been constant; blue oceans have been continuously created over time

• Red Ocean focus denies distinctive strength of the business world and denies your capacity to created new market space

Profit and Growth Consequences of Creating Blue Oceans

Rising Imperative of Creating Blue Oceans

• Accelerated technological advances

• Globalization

• Brands becoming increasingly similar

Accelerated Technological Advances

• Substantially improved industrial productivity

• In many industries, the result is that supply exceeds demand.

Globalization• Information on products and

prices becoming instantly and globally available.

• Niche markets and havens for monopoly continue to disappear.

• Supply is on the rise, but there is no evidence of an increase in demand worldwide.

Globalization Results• The result has been accelerated commoditization of products and

services, increasing price wars, and shrinking profit margins.

Recent Studies on American Brands• Reveal that for major product

and service categories, brands are generally becoming more similar.

• People selecting more based on Price

• Sales price becoming more important than brand recognition

From Company and Industry to Strategic Move• How can a company break out of the red

ocean of bloody competition?• How can it create a blue ocean?• Is there a systematic approach to achieve this

and thereby sustain high performance?

What do companies have to do with creating blue oceans?

Q: Are there lasting “excellent” or “visionary” companies that continuously outperform the market and repeatedly create blue oceans?

A: In short, no.

Example: Industry sector performance and success

Industry role in the development of blue oceans

• Companies do NOT need to compete head on in a given industry space

• Industries are constantly being created and expanded• Ex. Cirque du Soleil and Under Armour

Strategic Move and its affect on blue ocean development

• Strategic move, NOT the company or industry is the correct unit of analysis for explaining blue oceans• A set of managerial actions and decisions involved

in making a major market-creating business offers.• Ex. Hewlett-Packard acquiring Compaq

Strategic Moves Cont.• The book analyzed 150 strategic moves in over 30 industries in 12 years.• What they found? Industry and company had no distinction between organizations in the red/blue ocean.

Myths:• Public/Private companies play role in which ocean you live in• High tech industries have better chance of creating blue oceans• New companies can avoid red oceans• Unattractive industries lead companies to live in the red oceans

Value Innovation: The Cornerstone of Blue Ocean Strategy• The defining characteristic of the strategic move that

separates successful BOS’s from unsuccessful ones.• Creates value for the buyers in a manner that is innovative.

Both qualities must be present for value innovation to occur.• Value- Meets previously unmet needs for consumers• Innovation- Creates utility and/or secures a strong price position

• Clashes with the traditional thinking that a business strategy must be a choice between differentiation and low-cost. Value innovation provides for both.

Value Innovation in Practice• Cirque du Soleil- Their methodology• Created value by combining the sophistication of theater with the

fun and thrills of the circus. Provided consumers with a product that no one else in the world did.

• Innovated by doing away with traditional but cost-inefficient offerings typically given by the circus. They identified that it came down to the tent, the clowns, and the stunts.• No animals• Eliminated the three-ring presentation• No star performers

• Under Armour & Kevin Plank• Created value by offering a new kind of sports apparel with

underutilized fabrics.

Contrasting Red and Blue Ocean Strategies• Red Ocean• Structuralist- Assumes that an industry’s structure cannot be

altered and that companies are forced to compete within them. Also known as Environmental Determinism.• Beat competition, exploit existing demand, choose between

differentiation and low cost.

• Blue Ocean• Reconstructuralist- Considers industry boundaries as things that

can be torn down, expanded, and reconstructed. It’s within this created space that the Blue Ocean exists.• Render competition irrelevant, create new demand, choose both

differentiation and low cost

Book Outline• Chapter 2: Analytic Tools and Frameworks• Chapters 3-6: Formulation Principles• Reconstruct Market Boundaries- Search Risk• Focus on the big picture- Planning Risk• Reach beyond existing demand- Scale Risk• Get strategic sequencing right- Business Model Risk

• Chapters 7-8: Execution principles• Overcome key organization hurdles- Organizational Risk• Build execution into strategy- Management Risk

• Chapter 9: Sustainability and Renewal

Key Points• Value Innovation- Form of strategic thinking that allows for

successful Blue Ocean strategies.• Value- tapping into latent demand (differentiation)• Innovation- reconfiguring industry standard business processes to

provide superior utility and cost positioning (cost)• Red Ocean vs. Blue Ocean- Structuralism(Environmental

Determinism) vs Reconstructionlism• The notion of Blue Ocean strategy being a systematic and

scientific process.