Innovation Strategy: Blue Ocean Strategy

1. Innovation Strategy:Blue Ocean Strategy Jonathan Weaver UDM Mechanical Engineering Department weaverjm@udmercy.edu

2. References • Blue Ocean Strategy, W. Chan Kim & Renee Mauborgne, Harvard Business School Press, 2005 (all embedded figures are from this reference)

3. Fundamental Premise “Don’t Compete with Rivals – Make Them Irrelevant”

4. Red Oceans • Represent all industries in existence today • Industry boundaries are defined and accepted • Companies try to outperform each other to gain market share • The market space becomes crowded and the products become commoditized • Prospects for profit and growth are reduced • Competition turns the red ocean bloody

5. Blue Oceans • Defined by untapped market space, demand creation, and high-profit growth potential • Some are new industries, but most are created from within red oceans by expanding existing industry boundaries or competing with a fundamentally different strategy

6. Impact of Blue Oceans

7. Examples • CNN in 1980 with 24/7 news coverage • Starbucks with upscale coffee/beverages in a pleasant environment • Southwest airlines with a “better than driving” sort of strategy • Cirque du Soleil creating a new circus/theatre market

8. How to Create Blue Oceans • Most business research and education (and I’d argue most practice) focuses on competing in the bloody red oceans • The book provides frameworks and analytics for systematic creation and capture of blue oceans • The cornerstone is value innovation • Creating a leap in value for your buyers thereby opening up new and uncontested market space • Pursue differentiation and low cost simultaneously • Involves driving costs down while increasing buyer value • It is really STRATEGY that is key

10. Strategy Canvas • The Strategy Canvas is one way to understand the competition and clearly show how a Blue Ocean can be created • Consider the strategy canvas for the U.S. Wine Industry in the Late 1990s

12. Casella Wines • Australia’s Casella Wines studied what turned people off from wine and created a Blue Ocean Strategy shown on the canvas on the next slide

14. Four Guiding Principles • Reconstruct Market Boundaries • Focus on the Big Picture, Not the Numbers • Reach Beyond Existing Demand • Get the Strategic Sequence Right Let’s look briefly at each principle.

15. Principle 1: Reconstruct Market Boundaries • Path 1: Look across alternative industries • NetJets as alternative to private jet or commercial airlines • Home Depot with expertise of contractors and lower prices than hardware stores • Path 2: Look Across Strategic Groups Within Industries • Curves, the Texas based Fitness center for women • Path 3: Look Across the Chain of Buyers • Novo Nordisk’s prefilled disposable insulin injectors

16. Principle 1: Reconstruct Market Boundaries (Cont.) • Path 4: Look Across Complementary Product and Service Offerings • Nabi fiberglass buses (competing on lifecycle cost, not purchase price) • Path 5: Look Across Functional or Emotional Appeal to Buyers • Swatch transformed functionally driven budget watch industry into an emotionally driven fashion statement • Path 6: Look Across Time (finding actionable insights on observable trends) • iTunes leaping past pirated downloads

17. Principle 2: Focus on the Big Picture, Not the Numbers

18. Principle 3: Reach Beyond Existing Demand • JCDecaux with it’s outdoor furniture advertisements

19. Principle 4: Get the Strategic Sequence Right

20. Wrap Up on Blue Ocean Strategy • See Chapters 7-9 for guidelines on implementing a Blue Ocean Strategy • Don’t bleed – stay out of Red Oceans and Create Yourself a Blue One! • There are MANY other examples (not in the book), such as: • Jiffy Lube • Jim Poss’s solar powered trash compactors