Ch. 1 Creating Blue Oceans

1. Ch. 1 Creating Blue Oceans Gerald, Brandon, Scott, Kara, Ryan, Lee, Brett, Courtney

2. Preview • Introduction • New Market Space • The Continuing Creation of Blue Oceans (B.O.S) • The Impact of Creating Blue Oceans • The Rising Imperative of Creating Blue Oceans • From Company and Industry to Strategic Move • Value Innovation: The Cornerstone • Formulating and Executing B.O.S • Recap

3. Introduction • Cirque du Soleil • Outperforms Ringling Bros. in less than 20 years • The Circus is a dying breed • Swimming in the ocean blue • Adults • Prospective Clients

4. New Market Space • Red oceans represent all the industries in existence today • They have defined and accepted industry boundaries • Blue oceans denote all the industries not in existence • They are defined by untapped market space, demand creation, and the opportunity for highly profitable growth.

5. Most blue oceans are created from within red oceans by expanding existing industry boundaries • While red oceans remain a fact of business life companies must continue to search for blue oceans in order to increase profit

6. The Continuing Creation of Blue Oceans • The term “blue oceans” is new, but its existence is very old.

7. Look back 100 years ago…. • Companies like automobiles, music recording, and health care were unheard of • Even 30 years ago a plethora of multibillion-dollar industries jumps out • Mutual funds • Cell phones • Biotechnology • Discount retail • Minivans • Snowboards • Etc….

8. Now go forward 50 years…. • How many new industries will likely exist then?? • The reality is that industries continually change and never stand still because they are constantly evolving • Operations improve • Markets expand • Players come and go

9. SICNAICS • The half-century-old Standard Industrial Classification (SIC) was replaced in 1997 by the North American Industry Classification Standard (NAICS) system. • The new system was implemented to reflect the emerging realities of new industry territories.

10. The Impact of Creating Blue Oceans • Creating a company in blue waters has obvious performance benefits versus launching a company in an oversaturated market • Blue Oceans advantage example

11. Profit and Growth Consequences of Creating Blue Oceans • The results of a study that compared the launches of 108 companies show us an undeniable advantage to creating blue waters • 86% were launched in a Red ocean, but counted for only 62% of total revenue and 39% of total profits • 14% were launched in a Blue ocean, they made up 38% of total revenue and 61% of total profits

12. Profit and Growth Consequences of Creating Blue Oceans

13. Rising Imperative of Creating Blue Oceans • The need for Managers to consider “blue oceans” is increasing. • Overcrowded “red ocean” industries are becoming less and less profitable. • Technological Advances • Globalization

14. Rising Imperative of Creating Blue Oceans • Technological Advances • improve industrial productivity • Allow producers to have large array of products • Globalization • barriers are dismantled and information on products becomes available, causing niche markets to disappear due to increase in global competition. • Technology and Globalization have lead to Supply exceeding Demand • Accelerated Commoditization of products and services, Increasing Price wars, Shrinking Profit Margins.

15. Rising Imperative of Creating Blue Oceans • Strategic management in Action, acknowledges these results as some of the main challenges faced by managers in today's market. • “Reduced consumer demand” • “severe pressures to cut costs” • “openness of globalization” • Focus on “war” and competition for limited market space vs. “blue oceans” and creating new market space. • MAIN IDEA – As “red oceans” become more crowded with competition, creating “blue oceans” becomes more relevant.

16. Low Concentration From Red to Blue High Concentration • How can a company create a blue ocean? • Is there a systematic approach to achieve this and sustain high performance?

17. In Search of Excellence Built to Last Is the Key to a Blue Ocean Systematic? - Are there lasting “excellence” or “visionary” companies who continuously outperform the market? • Top performing companies • Atari • National Semiconductor • Data general • Slipped into “oblivion” after 5 years of publication • Only companies 40 years or older • Downfall • Industry sector performance instead of the company itself • EX: Hewlett-Packard (HP)

18. Strategic Moves • The set of managerial actions and decisions involved in making a major market-creating business offering. • HP acquired Compaq - 2001

19. Make the competition irrelevant by creating an increase in value for buyers and your company, thereby opening new and uncontested market space. Value without innovation – value creation Innovation without value Value innovation occurs only when companies align innovation with utility, price, and cost positions. Value Innovation

20. Red Oceans- Conventional Approach Compete in existing market space Beat the competition Exploit existing demand Make the value-cost trade-off Align the whole system of a firm’s activities with its strategic choice of differentiation or low cost Blue Oceans- value innovation Create uncontested market space Make the competition irrelevant Create and capture new demand Break the value-cost trade-off Align the whole system of a firm’s activities in pursuit of differentiation and low cost Red Oceans vs. Blue Oceans

21. Cirque du Soleil • Moved away from the traditional circus and created all new attractions, while adding the intellectual sophistication and artistic richness of the theater at the same time. • Cirque Du Soleil gained a new understanding of circus acts which led to a whole new concept that broke the value-cost trade-off, and created a blue ocean of new market space.

22. Value Innovation • Created by placing an equal emphasis on value and innovation • Those that seek to create blue oceans must pursue differentiation and low cost simultaneously • Value innovation is achieved by favorably affecting both the companies cost structure and its value proposition to buyers. • Cost savings- 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 volume of sales that superior value generates.

23. Formulating and Executing Blue Ocean Strategy • How to succeed in Blue Oceans? • Maximize opportunities • Minimize risks • Strategy will always involve both opportunities and risk • Balanced in Blue Oceans • Unbalanced in Red Oceans

24. Principles relating to the imbalance of opportunity and risk in forming and executing Blue Ocean strategies Formulating Principles 1.Reconstruct market boundaries • Search risk- paths that create market space across: -Across alternate industries -strategic groups -buyer groups -complement products/services -functional orientation -time 2.Focus on the big picture, not the numbers • Planning risk- planning process to create and capture opportunities to create value innovations

25. Formulating Principles Cont • Reach beyond existing demand • Scale risk- combining demand to maximize size of blue oceans • Build in size through the similarities of noncustomers • Get strategic sequence right • Business model risk- designing a strategy to build a business model to produce and maintain profitable growth • Strategy with which both you and the customer win through utility, price, cost, and adoption.

26. Executing Principles 5. Overcome Key Organizational hurdles • Organizational risk • Tipping point leadership- mobilizing organization to overcome hurdles that block implementation of new strategies 6. Build execution into strategy • Management risk • Fair process- motivating people to act on and execute new strategy with an emphasis on their attitudes and behaviors

27. Main Ideas • Red oceans represent the known market space with defined boundaries, while Blue oceans represent the unknown market space and demand creation. • To focus on the red ocean is accepting factors of war and focusing on the need to beat the enemy to succeed which denies the strength to create new market space • With increasing numbers of industries, supply is exceeding demand leading to accelerated commoditization of products. This pushes more customers to select products based on price rather than value. • Strategic move is the right unit of analysis to explain the creation of blue oceans and high performance • Value innovation is focusing on making the competition irrelevant to create a jump in value for you and your customers by aligning utility price and cost position. Thus, drive cost down while at the same time drive value up for buyers. • Maximize opportunities and minimize risks to succeed in blue oceans

28. Works Cited • Barringer, Bruce R., & Ireland, R. Duane. (2008). Entrpreneurship successfully launching new ventures. Upper Saddle River, NJ: Pearson Prentice Hall.