Creating Blue OceansTeam 3

Andrew Stack, Jessica Sharpless, Andrea Lapotaire, Andrew West, Taylor Caroll

“Don’t compete with rivals, make them irrelevant”

Cirque du SoleilCanadian circus

created in 1984Out performed Ringling

Bros. and Barnum & Bailey

Achieved in a declining industry

But did not compete with Ringling Bros. and Barnum & Bailey

Totem Trailer

Gilles Ste-Croix, Guy Laliberté

New Market Space

Stop competing with other companies to win in the future

Red Oceans- Industries in existence todayBlue Oceans- Industries not in existence todayBlue Oceans a uncharted strategy

The Continuing Creation of Blue OceansOnly the term of blue oceans is newIndustries never stand stillWhy the oceans have been red

The Impact of Creating Blue Oceans

Profit Impact

Revenue Impact

Business Launch

39%

62%

86%

61%

38%

14%

Launches within red oceans

Launches for creating blue oceans

The Rising Imperative of Creating Blue OceansAccelerated technological advances shifting

supply and demand causing:Accelerated commoditization of products and

services Increasing price warsShrinking profit margins

Management will need to become more focused on the creation of blue oceans

From Company and Industry to Strategic MoveHow can a company break out of the red ocean

and create a blue ocean?Are there lasting companies that are successful in

creating blue oceans?“In Search of Excellence”- bestselling book

-Companies in book began to fall from rankings within 2 years, 2/3 by 5 years

“Built to Last- Same thing happened, although the entire lifespan of firms at least 40 years old were analyzed.

It was found that these books analyzed industry sector performance instead of the companies themselves

From Company and Industry to Strategic Move Cont..Example: HP, who met the criteria for “Built to

Last,” did not outperform the market, or even the industry

Have companies that continuously outperform the market ever existed?

Since Cirque du Soleil created a new market space and has always been successful, It is shown that neither the company nor the

industry is not the best unit of analysisStrategic moves are the right unit of analysisStrategic move: “the set of managerial actions and

decisions involved in making a major market –created business offering “(10)

Value Innovation: The Cornerstone of Blue Ocean StrategyAmong blue ocean companies with profitable

growth, similarities have appeared:Did not use competition as benchmark; used

value innvationValue Innovation is the cornerstone of blue ocean

strategyFocus on making competition irrelevant

Creates a leap in value for buyers and your company Opens up new and uncontested market space

Value Innovation: The Cornerstone of Blue Ocean Strategy Cont…Equal emphasis on value and innovationOccurs only when companies innovation with

utility, price, and cost positionsDefies the value-cost trade offBlue ocean companies pursue differentiation and

low costEither create a greater value at high cost or

reasonable value at lower cost

Ex: Cirque du Soleil

Cirque du SoleilPaid no attention to what competition did“Offered people the fun and thrill of the circus,

along with the intellectual sophistication and artisitic richness of the theater” (14)

Gained circus and adult theater customersDid not use animals like the traditional circus

Attracted customers who had discomfort from using animals

Saved money

Cirque du Soleil Cont…Did away with everything but the tents, clowns,

and the acrobatic acts changed humor from slapstick to a more

enchanting, sophisticated styleGlamorized tent and made more comfortableAdded a theme and story lineMultiple productions made people come more

frequentlyPriced tickets against theater ticket prices

Value InnovationThe figure below depicts the differentiation –low

cost dynamics under-pinning value innovation:

In creating blue oceans, a company needs to drive costs down, while driving value up

Integrates the range of a firm’s functional and operational activities

Some innovations can be achieved at subsystem level without impacting companies overall strategy Ex: production innovations

In value innovation market boundaries and industry structure are not given Allows for reconstruction by industry players-

reconstructionist view Ex: Cirque du Soleil

Red Ocean vs Blue Ocean

Formulating and Executing Blue Ocean Strategy

Understanding and limiting riskBOS companies see risk and work around itKnowledge and market understandingKeeping current “no such thing as a riskless strategy”

Implementing BOSMany companies still ignore BOS despite the factsPlaying field unbalanced in favor of analytical

toolsContinuation of Red Oceans of Blue Oceans

The Six Principles of BOS Formulation Principle

Reconstruct market boundaries Focus on the big picture, not the

numbers Reach beyond existing demand

get the strategic sequence right

Execution Principles Overcome key organizational

hurdles Build Execution into strategy

*Figure 1-4 p. 21 BOS

Risk factor each principle attenuates

↓ Search risk ↓ Planning risk↓ Scale risk↓ Business model risk

Risk factor each principle attenuates ↓ Organizatoinal risk↓ Management risk

Sun CellularMobile communications market (Philippines) Market Leaders: Smart and GlobeStrategy: unlimited text and calls “in network”

AXA PhilippinesFrench insurace company Industry leaders: AIG, SunLIfe, & Insular LifeStrategy: Partner with Metrobank and offer

depositor insurance

Wal-Mart HistorySam Walton’s strategy was built on an

unshakeable foundation: The Lowest Prices Anytime, Anywhere

On July 2, 1962, Sam Walton opened the first Wal-Mart store in Rogers, Ark.

History Continued 1971 The first distribution center and Home Office opened in

Bentonville, Ark. 1980 Wal-Mart reached $1 billion in annual sales, faster than any

other company at that time. 1988 The first Wal-Mart Supercenter opened in Washington, Mo.,

combining general merchandise and a full-scale supermarket to provide one-stop shopping convenience.

1997 The company celebrated its first $100 billion sales year. 2012 Wal-Mart celebrated 50 years of helping people save money so

they can live better. 

The company employs 2.2 million associates worldwide and serves 200 million customers each week at more than 10,000 stores in 27 countries.

Is Wal-Mart a Blue Ocean? Wal-Mart is a "Large Discount Retailer."The cluster of Target, K-Mart, and Wal-Mart

belongs to the former Blue Ocean Industry of Large Discount Retailers.

Wal-Mart vs. TargetWal-Mart and Target both are discounters, but

they cater to different customers. Wal-Mart: customers' average household income

ranges from $30,000 to $60,000, Target: customers have a median household

income of $64,000 a year