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In

today’s competitive market there is a cut-throat competition between companies for available

market share. Businesses are always looking for ways in which they can better compete with

their contenders. Most of the business management theories, likeFive Force Theoryby Michael

Porter, emphasis on how to compete with the rivals and survive the existing market.But there is

one unique theory which suggests that they should look out for ways in which they will compete

against no one but themselves.

What is Blue Ocean Strategy?

Blue ocean strategy(BOS) is term that describes how organization should try and find a way to

work in a marketplace that isn’t bloodied by the competitors and is free of competition.

The term is coined by professorsW. Chan Kim andRenee Mauborgne in their book"Blue

Ocean Strategy: How to Create Uncontested Market Space and the Make Competition

Irrelevant" (2005).They both are Professors atINSEAD and Co-Directors of the INSEAD Blue

Ocean Strategy Institute. Thestudy is based on 150 strategic moves spanning more than 100

years and 30 industries.

Blue oceansdenote all the industries not in existence today – theunknown market space,

untainted by competition. In blue oceans, demand is created rather than fought over. There is

ample opportunity in BOS for growth that is both profitable and rapid.

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As cited in the book,‘Competing in overcrowded industries is no way high performance. The

real opportunity is to create the oceans of uncontested market space.’The way of creating the

opportunity is Blue ocean strategy.

Difference between Red & Blue Ocean

Majority of the business practices form Red Ocean Strategy. One can hardly talk about strategy

without the language of competition. This is called competitive-advantage worldview where

companies are often driven to outperform the rivals and capture greater share of existing

market. However, to capture this existing share one has to go through head-to-head competition

which turns the ocean bloody, hence, the termRed Ocean.

Red Ocean strategy is assessing what competitors do and striving to do it better. Here, grabbing

a bigger share of the market is seen as a zero-sum game in which one company’s gain is

achieved at another company’s loss. Firm principally seek to capture and redistribute wealth

instead of creating wealth. Here the competition is often so intense that some firms cannot

survive themselves and stop operating.

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The blue ocean theory explains that no doubt this competition is vital. But while focusing on

competition many scholars, companies and consultant usually ignore significant aspects of

strategy. The aspect to find and develop markets where there are little or no competitions-Blue

Oceans- and other is to exploit and maintain blue oceans.

To avoid costly competition, firms can innovate or expand in the hope of finding a blue ocean. A

blue ocean exists where no firms currently operate, leaving the company to expand without

competition.

To elaborate it further let see an example:

Facing one of the biggest recession after the great depression in the late 1920’s, many furniture

giants like Crate& Barrel, Bed, Bath & Beyond, Target & IKEA had to incur huge loss due to

reduced spending by consumers. Furniture industry had become a red blooded marketplace

where each and every brand was competing with each other. During that periodIKEA-world’s

largest retailer, revitalized this industry and made furniture shopping a new experience.

Instead of focusing too much on the competition,IKEAfocused on where the job needs to be

done. They thought out of the box by finding complementary products & services that made

good communication with the consumers. They thought of recombining the market across

segments and industries instead of separating it. They changed their target consumers and

started designing their products for families as well and diverted their focus more on amenities.

And by this change they succeeded in targeting theirold, young and families segment.They

started offering playground for children as well as for restaurants. Prices were kept low while

style, selection and ease were elevated. By raising the amenities they increased their

performance. They increased their profitability by reducing the cost incurred on ambiance and

the interior designs of the stores. Here an innovation in the existing market, a blue ocean

strategy, is applied where demand is created rather than fought over it. There is ample

opportunity for growth over here that is both profitable and rapid.

Mobile phones and electronic gadgets companies, booming online industry etc. can be consider

as Red ocean place. Chances to sustain in these industries will be increased if demand for

innovative idea is created i.e. following BOS.

Value Innovation

In the above example, a new value has being invented in order to survive in such a challenging

industry. This is what is called as ‘Value Innovation’. Value innovation is an important feature of

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Blue Ocean. A blue ocean is created in a region where a company’s action affects both its cost

and value propositions to buyers. Cost savings are made from eliminating and reducing the

factors an industry competes on. Buyer value is lifted by raising and creating elements the

industry has never offered.

Skypein the voice-over-IP (VoIP) industry,they combined voice and video value innovation

whichaccompany users with much higher value at lower cost than alternatives.Its offering

created such exceptional utility for users around the world that Skype has become a verb - to

'Skype' someone means to call someone using the Skype application.

Key Analytical Tools & Frameworks:

•  Strategy Canvas

The strategy canvas is both a diagnostic and an action framework for building a compelling blueocean strategy. It captures the current state of play in the known market place. It allows a

company to understand:

o the factors in the industry currently competes on in products, services and

delivery

o where the competition currently investing

o what customers receive from existing competitive market

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•  Four Action Frameworks

The Four Actions Framework is used to reconstruct buyer value elements in crafting a new value

curve. It breaks the trade-off between differentiation and low cost, and creates a new value

curve. The framework poses four key questions to challenge an industry’s strategic logic.

•  (ERRC) Grid

The Eliminate-Reduce-Raise-Create (ERRC) Grid complements the Four Actions Framework. It

pushes companies not only to ask the questions posed in the Four Actions Framework but alsoto act on all four to create a new value curve, which is essential to unlocking a new blue ocean.

The ERRC grid with reference to the case ofIKEA (World’s Largest Furniture company) cited

aboveis as follows:

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Four Action Frameworks

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E l i m i n & t e

& m ( i & n c e & n d i n t e r i o r d e s i g n s o f t e s t o r e

' e d u c e

d u r & ( i l i t )

d e l i v e r ) s e r v i c e

C u s t o m e r s s e r v i c e s

i n v e n t o r )

' & i s e

* r i c e * e r f o r m & n c e

e & s e o f u s e

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s e l c t i o n

C r e & t e

A m e n i t i e s

Six Principles

of Blue Ocean Strategy

The six principles of BOS are as follows:

Formulation Principles:

1.Reconstruct market boundaries2.Reach beyond existing demand

3.Focus on big pictures, not the numbers

4.Get the strategic sequence right

Execution Principles:

5.Overcome key organizational hurdles

a.Cognitivehurdle

b.Resourcehurdle

c.Motivationalhurdled.Politicalhurdle

6.Build execution into the strategy

Important Cases for the study:

TATA Motors: NANO

TATA NANO is a great example of Blue Ocean Strategy. Tata Motors took a strategic move to

create and launch the Tata Nano-cheapest Indian car. Tata Nano created its exceptional value

proposition and attained a viable profit proposition by following the right strategic sequence.

The vision of Ratan Tata(chairman of Tata Motors' parent, Tata Group) to create an ultralow-

cost car for a new category of Indian consumer is nothing but based on BOS theory. In India

there are people who couldn't afford the $5,000 sticker price of what was then the cheapest car

on the market and instead drove his family around on a $1,000 motorcycle. And yet none of the

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ERRC Grid with Ref. to IKEA

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automakers in India were focused on that segment. In that respect, the Nano is a great example

of the so-called blue ocean strategy.

Nintendo - Wii

Nintendo looked to the gaming industrys noncustomers segment of the market. This non-

customer segment included older non-gamers, parents who wanted their children to play active

games, the elderly and very young children. Once Nintendo understood why these noncustomer

groups shunned video games, they reconstructed elements across market boundaries to create

a console based on simplicity, functionality, and interactivity, with games that dramatically raised

utility for these noncustomers.

Nintendo Wii adopted a Blue Ocean strategy by reducing the complexity as well as by addingfun element in it. They had reached beyond existing demands by designing a video game

console meant for almost all class of people in the society. By following BOS, they made

changes in their four action framework approach. Theyeliminatedthe complexity in the game

controls; they increased their game library collections and raised the standard of the use of the

game;reduced price & online pay hassle and finally created a new interactive group fun box

along with magic wand in it.

Wikipedia

The online encyclopedia industry has evolved from the first printed edition of Encyclopedia

Britannica. Then Microsoft attempted to sustain its Encarta.com, but failed. Later they adopted

three strategy propositions of value, profit and people around both differentiation and low cost to

break the value-cost and created a blue ocean that is hard to imitate. They followed

Reconstructionist approach that pursues both differentiation and low cost.

The BOS strategy is the simultaneous pursuit of differentiation and low cost. It has the theory

not to out-perform the competition in the existing industry, but to create new market space or a

"blue ocean," thereby making the competition irrelevant. For incorporating these kinds of

innovative ideas & theory into your business there is need of an expert. These experts can

guide you to go ahead with the suitable theory and strategy. And to connect with these

professionals you can visitCrossProf.com.We have a huge database of business consultants

and professionals who can provide you key business services in a comprehensive way.

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Ref:

http://www.uhu.es/45122/temas/P&SC/Theme1_BlueOceanStrategy.p! 

http://www."lue#ceanstrategy.c#m

http://www.sl$eshare.net/nusantara%%/"lue#ceanstrategy51%'1

http://www.$n(est#pe$a.c#m/terms/"/"lue_#cean.asp

http://www."us$nessnewsa$ly.c#m/5)4*"lue#ceanstrategy.html

http://gu$es.ws+.c#m/management/strategy/what$s"lue#ceanstrategy/

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