Blue Ocean Strategy Chapter 9 Conclusion: The Sustainability and Renewal of Blue Ocean Strategy

1. Blue Ocean StrategyChapter 9Conclusion: The Sustainability and Renewal of Blue Ocean Strategy Team 1 Taylor Skidmore Tara Ferguson Sunny To JT Lehotsky

2. Team 1 will discuss: • How soon or late will imitators appear on your blue ocean horizon? • How easy or difficult is blue ocean strategy to imitate? • When should you reach out to create another blue ocean?

3. Barriers to Imitation • Operational and cognitive barriers to imitation • Usually, a blue ocean strategy will go without credible challenges for 10-15 years • Cirque du Soleil • Southwest Airlines • Federal Express • The Home Depot • CNN

4. Imitation Barriers Rooted in BOS

5. Barriers to Imitation • Barriers are high • Why we have seldom observed rapid imitation of blue ocean strategy • BOS is a systems approach • Requires getting each strategic element right • Requires aligning each strategic element in an integral system to deliver value innovation

6. When to Value-Innovate Again • Don’t let the competition become the center of your strategic thought and actions • Stay focused on the buyer • Need to monitor value curves on the strategy canvas • Converging curves • Resist to value-innovate again if you still have focus, divergence, and a compelling tagline

7. Value Innovation • Two views on how industry structure is related to strategic actions of industrial players. • Structuralist View • Reconstructionist View

8. Structuralist View • Has its roots in industrial organization economics. The model of industrial organization analysis proposes a structure-conduct-performance paradigm, which suggests a causal flow from market structure to conduct and performance. • Market structure, given by supply and demand conditions, shapes sellers’ and buyers’ conduct, which, in turn, determines end performance.

9. Structuralist View Cont. • Competition-based strategic thinking drives companies to try to carve out a defensible position against the competition in the existing market space. • Building advantages over the competition, usually by assessing what competitors do and striving to do it better. • 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.

10. Reconstructionist View • Recognizes that market boundaries and industry structures are not set and can be cognitively reconstructed in a fundamentally new way. As industry structure and market boundaries exist only in managers' minds, the reconstructionist view asserts that existing market structures should not limit one's thinking.

11. Reconstructionist View Cont. • Recognizes that structure and market boundaries exist only in managers’ minds, practitioners who hold this view do not let existing market structures limit their thinking. To them, extra demand is out there, largely untapped. • Requires a shift of attention from supply to demand, from a focus on competing to a focus on the creation of innovative value to unlock new demand.

12. Cirque du Soleil • Focuses on the demand side rather then the supply side. • Not about offering a better circus by recombining existing knowledge or technologies about acts and performances. Rather, it is about reconstructing existing buyer value elements to create a new form of entertainment.

13. APPENDIX C THE MARKET DYNAMICS OF VALUE INNOVATION

14. The market dynamics of value innovation stand in stark contrast with the conventional practice of technology innovation

15. Technology innovation • Set high prices, limits access, and initially engages in price skimming to earn a premium on the innovation  lowering prices and costs to retain market share and discourage imitators

16. Value innovation • Versus: capture the mass of target buyers from the outset and expand the size of the market by offering radically superior value at price points accessible to them • Potential of economies of scale, learning, and increasing returns  importance of valume, price, and cost

18. Rapid brand recognition built by the company as a result of the unprecedented value offered in the marketplace • Simultaneous drive to lower costs •  competition nearly irrelevant and hard to catch up

19. Monopolistic firms • Monopolistic firms  2 social welfare loss activities • High prices  limit customers • Lacking viable competition, not focusing on efficiency and cost reduction, consuming more scarce resources

20. Blue Ocean Strategy Approach • Blue ocean strategy against price skimming • Not focusing on restricting output at a high price but on creating new aggregate demand through a leap in buyer value at an accessible price •  reduce costs to the lowest possible level at start and keep it over time, discouraging potential competitors •  buyers win, society benefits