Blue Ocean Strategy: The Four Actions Framework

1. Blue Ocean Strategy:The Four Actions Framework Jason C. H. Chen, Ph.D. Professor of MIS School of Business Administration Gonzaga University Spokane, WA 99258 USA chen@jepson.gonzaga.edu

2. Red Ocean vs. Blue Ocean • RED OCEAN • It represents all the industries in existence today – the known market • Industry boundaries are defined and accepted, and the competitive rules of the game are known. • Competition-based • BLUE OCEAN • It represents all the industries not in existence today – the unknown market • Is defined by untapped market space, demand creation, and the opportunity for highly profitable growth. • Innovation-based • It is with unlimited business opportunities.

3. TYPES of COMPETITION 1. PURE COMPETITION 2. MONOPOLISTIC COMP. 3. OLIGOPOLY 4. MONOPOLY

4. Launches within red oceans Launches for creating blue oceans The Profit and Growth Consequences of Creating Blue Oceans 86% 14% Business launch 62% 38% Revenue Impact 39% 61% Profit Impact

5. Red Ocean Versus Blue Ocean Strategy 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. Figure 1-3 (p. 18)

6. Grid Eliminate-Reduce-Raise-Create Eliminate Raise Reduce Create

7. The Four Actions Framework Reduce reduced Eliminate Create created eliminated Raise raised IS/IT Role? Which factors should be ________ well below the industry’s standard? Which of the factors that the industry takes for granted should be _________? Which factors should be ________that the industry has never offered? A New Value Curve Which factors should be______ well above the industry’s standard?

8. Eliminate-Reduce-Raise-Create Grid:The Case of Southwest Airlines Eliminate Raise Meals Lounges Seating class choices Hub connectivity Friendly service Speed Reduce Create Frequent point-to-point departures Price versus average airlines

9. align Innovation Winners vs. Losers • What separates winners from losers in creating (ultimate) strategic competitive advantage is neither bleeding-edge technology nor “timing for market entry.” • It is from “value innovation” utility Value Innovation Firm price cost

10. Costs Value Innovation Customer Value Value Innovation Differentiation Low Cost. The Simultaneous Pursuit of and

11. Innovation • Business Week compiled a list of the ten worst mistakes made by companies that are trying to cope during a slowing or turbulent economy. • The list reminds management that unless you really want to compete on price (i.e., cost leadership and remember, India launched its $2,500 Nano car), the ability to do sustained innovation is one of the few ways left to maintain a competitive edge and to separate yourself from your competitors. • Innovation drives performance, growth, and stock market valuation.

12. To-Ten Innovation Mistakes a Company Can Make During a Turbulent Economy • Fire talent. • Cut back on technology. • Reduce risk. • Stop product development. • Allow boards to replace growth-oriented CEOs with cost-cutting CEOs. • Retreat from globalization. • Allow CEOs to replace innovation as key strategy. • Change performance metrics. • Reinforce hierarchy over collaboration. • Retreat into walled castle.

13. Characteristics of a Good Strategy Three characteristics of a good strategy • Focus • a firm does not diffuse its efforts across all key factors of competition • Diverge • diverge from the other players’ • Compelling Tagline • strategic profile is clear; a fun and simple to follow (enjoy)