Blue Ocean Strategy Chapter 1

1. Blue Ocean StrategyChapter 1 Group 3; Mason Mitchell Sarah Yelverton Randy Greinert Alec Cooper

2. Cirque du Soleil’s and the market place • Offered the circus experience with the feel of theatre. • “We Reinvent the Circus.”

3. “Competition” • The only way to beat the competition is to stop trying to beat the competition. • Cirque du Soleil created uncontested new market space that made the competition irrelevant. • Ringling Bros. and Barnum & Bailey.

4. Blue Ocean Concept Red OceanCut-Throat Business Blue Ocean Where we ultimately want to be as a company

5. The Impact of creating blue oceans • -Wanted to quantify the impact of creating blue oceans on a company’s growth in both revenues and profits • -Used a study of business launches of 108 companies

6. Profit & Growth Consequences of Creating Blue Oceans

7. What the graphs say • 86% of launches were line extensions (incremental improvements within the red ocean of existing market space) • Yet they only accounted for 62% of total revenues and 39% of profits • Remaining blue ocean 14% generated 38% of total revenue and 61% of total profits

8. Rising imperative of creating blue oceans • Several driving forces • Accelerated technological advances have improved industrial productivity and have allowed suppliers to produce an unprecedented array of products and services • This results in increasing numbers of industries where supply exceeds demand. • Trend towards globalization compounds situation

9. Cont’d • Niche markets and havens for monopoly continue to disappear • Supply is on the rise but no evidence of rise of demand

10. Results of supply > demand • Accelerated commoditization of products and services • Increasing price wars • Shrinking Profit Margins

11. Recent Study on major American brands • Reveal that brands are becoming generally more similar, and as this happens people increasingly select based on price • For example Crest and Colgate. People will pick which one is cheapest because of overcrowded industry • As red oceans become increasingly bloody, mgmt will need to become more concerned with blue oceans

12. From company and industry to strategic move • Are there companies that consistently outperform the market and repeatedly create blue oceans? • Book In Search of Excellence pointed firms that identified models. 2/3 of the companies within 5 years had fallen from perches as industry leaders • Using wrong criteria to identify model companies

13. Lesson learned • Companies don’t need to compete head-on in one space • Cirque du Soleil created new market space in the entertainment sector (generated strong profitable growth as result) • Study shows that strategic move, not the company or the industry, is the right unit of analysis for explaining the creation of blue oceans and sustained high performance

14. Strategic Move • Set of managerial actions and decisions involved in making a major market-created business offering

15. “A Sketch of the Historical Pattern of Ocean Creation” • Provides a snapshot overview of the history of three representative U.S. industries • Auto Industry • Computer Industry • Cinema Industry

16. Blue Ocean Companies The study consisted of more than one hundred fifty strategic moves in more than thirty different industries from year 1880 to 2000 The study searched for common factors leading to the creation of blue oceans and the key differences separating companies that succeed and the companies that failed to create blue oceans

17. Auto Industry Blue Oceans • Ford: 1980 Model T was affordable • GM: 1924 cars styled to appeal to the emotions, the “annual car” helped create the used car market • Small, Fuel-Efficient Japanese Cars: became popular due to the 1970’s oil crisis • Chrysler’s Minivan: 1984 broke the boundary between car and van

18. Computer Industry Blue Oceans • The Tabulating Machine: Thomas Watson combined the strengths of the tabulator with the ease and lower costs of pencils and ledgers • IBM: The IBM 650 first intermediate sized computer for business use • The Personal Computer: Apple II, home computing • Compaq PC Servers: Prosignia, simplified server and optimized functions of file and printer sharing. Simplified machines resulted in lower manufacturing costs • Dell Computer: Direct sales, Shorter delivery time, and built-to-order all helped reduce inventory costs

19. Cinema Blue Oceans • Nickelodeon: affordable theater tickets at only 5 cents, theaters placed in low rent areas, Maximized volume and convenience by opening theater from 8 a.m. to midnight • The Palace Theaters: its elaborate affairs made attending the theater a special event at an affordable price • The Multiplex: gave viewers a greater choice of films while allowing theater owners to adjust theater sizes based on varying demands for movies • The Megaplex: offered stadium seating, comfortable chairs, more films, superior sight and sound all at a lower operating cost than multiplexes because placed outside city centers

20. Approach to Strategy Red Oceans – Conventional Approach • Focus on beating the competition • Build a defendable position within the existing industry • Use competition as a benchmark • Choice between differentiation and low cost - Greater value for customers at a higher cost or a reasonable value at a lower cost Blue Oceans – Value Innovation • Make competition irrelevant • Create a leap in value for buyers and the company • Create new a market space • Pursue both differentiation and low cost

21. Value Innovation • Value and Innovation are both equally emphasized when creating a blue ocean • Innovation without value tends to be technology-driven and typically won’t set a company apart from existing competition • Value innovation occurs only when companies align innovation with utility, price, and positions • Value innovation is a new strategy that results in creating blue oceans and a break from the competition

22. Cirque du Soleil • Pursed differentiation and low cost • Created neither an ordinary circus nor classical theater production which helped capture a whole new audience - circus customers - circus noncustomers: adult theater • Offered multiple productions giving people a reason to continue attending circus shows • Invented a whole new circus that broke market boundaries and created a blue ocean

23. Value Innovation“The Cornerstone of Blue Ocean Strategy” • Cirque du Soleil invented a new form of live entertainment • Reduced cost structure: by eliminating • Three-ring venues reducing the number of performers needed • Aisle concession sales • Star performers • Animal shows • Strategically priced tickets to capture adult consumers, who were used to theater prices

24. Value Innovation • Created when a company lowers costs while increasing the companies value proposition to its buyers • Value innovation is achieved by: • Reducing factors the industry competes on • Increasing buyer value by creating elements the industry has not yet offered • Over time, scale economies occurs - In the Cirque du Soleil example costs are reduced as a result of high sales volumes that are generated by the superior value the company has created

26. What is Cirque du Soleil? • Opera? • Theater • Circus? • Broadway? • Ballet?

27. Other chapters 2 framework and analytic tools for creating and capturing blue oceans 3 making competition irrelevant 4 looking at the big picture instead of numbers 5 maximize the size of blue oceans 6 Utility, cost and adoption you and the customer win 7 and 8 principles that drive effective execution 9 sustainability and renewal