INSEAD Professors W.
Chan Kim and Renée Mauborgne Creators of Blue Ocean Strategy. A blue ocean, as described in the book “Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant”,
it is the creation by a company of a new, uncontested market space that makes
competitors irrelevant and that creates new consumer value often while
decreasing costs.
Red oceans vs blue oceans:
Red oceans are all the
industries in existence today – the known market space, where industry
boundaries are defined and companies try to outperform their rivals to grab a
greater share of the existing market. Cutthroat competition turns the ocean
bloody red. Hence, the term ‘red’ oceans. Blue oceans denote all the industries
not in existence today – the unknown market space, unexplored and untainted by
competition. Like the ‘blue’ ocean, it is vast, deep and powerful –in terms of
opportunity and profitable growth.
Action Framework:
"Four Actions Framework" to reconstruct buyer
value elements in crafting a new value curve. The framework poses four key
questions. The Eliminate-Reduce-Raise-Create (ERRC) Grid pushes companies to
specify the actions that they can eliminate and reduce, so they can communicate
their strategy internally and take concrete action.
·
Raise: What factors
should be raised well above the industry's standard?
·
Eliminate: Which
factors that the industry has long competed on should be eliminated?
·
Reduce: Which
factors should be reduced well below the industry's standard?
·
Create: Which
factors should be created that the industry has never offered?
Principles of the Blue Ocean
Strategy:
Six Principles
of the Blue Ocean Strategy: first 4 formulating principles and rest 2 are
executing principles
1. Reconstruct Market Boundaries: Re-evaluate the premises that form your industry’s assumptions and
shape your company’s business model.
2. Focus on the Big Picture, Not
the Numbers: Keep your eye on the overall view and don’t get lost in
the statistics.
3. Reach Beyond Existing Demand: Businesses naturally focus on current customers, a process that
invariably leads to greater market segmentation analysis.
4. Get the Strategic Sequence
Right: Execute your strategy sequentially to achieve your
“value innovation.” Just having a fancy new technology does not mean that you
have a blue ocean product.
5. Overcome Key Organizational
Hurdles: Successful execution demands that your company must
resolve internal departmental differences.
6. Build Execution into Strategy: Reduce your management risk by incorporating blue ocean implementation
into your company’s ongoing processes.
Great Examples:
Example of blue ocean
strategy is Cirque du Soleil. By completely reinventing the circus, Cirque du
Soleil achieved revenues that it took Ringling Bros. Southwest
Airlines is another example of successful blue ocean strategy execution. Southwest
tapped into a customer base who preferred driving to air travel due to the
lower cost. Instead of competing with other airlines, Southwest positioned
itself as an alternative to cars and offered reduced prices, improved check-in
times and increased flight frequency.
Key Insights:
1. Don’t try to outperform competitors.
2. Create a new market space to make competitors irrelevant.
3. Value innovation is the key to creating a blue ocean strategy
4. Value innovation simultaneously pursues low cost, and differentiation.
Note: I've written this based on my take out after reading
the book Blue Ocean Strategy of Professors W. Chan Kim and Renée Mauborgne .
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