Blue Ocean Strategy free essay sample

Blue ocean strategy is a book of business strategy by W. Chan Kim and Renà ©e Mauborgne. The blue ocean strategy explains how to move your business into new markets with less competition and greater profitability. The book is basically divided into three main parts. The first part covers some important concepts of blue ocean strategy such as value innovation, differentiation and low cost and key analytical tools and frameworks used in this strategy. The second part explains the four steps of blue ocean strategy formulation. The main idea behind this book is to present an organized framework for identifying and implementing out of the box and never been thought before blue ocean strategies. If one is capable of thinking out of the box, something other than a traditional strategy then it will enable us in formulating a blue ocean. The basic idea of blue ocean strategy is to reconstruct market boundaries to break from the competition and create blue oceans. We will write a custom essay sample on Blue Ocean Strategy or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page The main idea behind consisted of two parts: first was to discover whether systematic patterns existed in reconstructing market boundaries and secondly whether r not these applied to all kinds of businesses and industry sectors. The researchers found six basic approaches also called six paths framework for reconstructing market boundaries. These six approaches challenge the traditional six assumptions involved in formulating strategies which lead to creating red oceans. They proceed by emphasizing on the fact that the companies should break out of these boundaries which they define by themselves on how to compete. Path One: Look across alternative industries The first path for a company is not only to compete with firms in its own industry but it should also consider the firms in alternative industries offering such products and services which have different functions and forms but serve the same purpose. One such example is that of Net Jets which came up with the idea of fractional jet ownership. Net Jets created a multi billion dollar Blue Ocean of private jets and commercial travel which offered low variable and fixed costs as compared to commercial airline travelling and thus it created a entirely new market and was the only  survivor and market leader of all the 57 new entrants. Similar example is that of NTT DoCoMo which broke out of Red Ocean of intense competition by breaking the tradeoff between the alternatives. Path Two: Look across different strategic groups within industries The second path given by Blue Ocean is to get out of the competition by looking across different strategic groups. In this context the different companies in an industry working on a similar strategy fall under one strategic group and others in different strategic groups. And in this highly intense and competitive market the key to creating a Blue Ocean across different strategic groups is to break out of these by creating a better understanding of the factors that determine customers’ decision to trade up or down from one group to another. A very good example given here is that of Curves which is a women fitness company, broke out of the completion by building on the advantages of both the traditional health clubs and the home exercise programs. Other examples are that of Ralph Lauren, Toyota Lexus, Sony Walkman and Champion Enterprises which created Blue Oceans by breaking out of their strategic groups by offering the advantages of both the strategic groups of their industries that resulted in their success. Path Three: Look across Chain of Buyers In most of the industries it has been a trend to target only a single type of buyer. However there is a chain of buyers which includes the purchasers, the actual users and some times also the influencers. Each of these three groups of buyers may seem similar to the seller but actually they are different as they provide different value. Conventionally different industries focus only on a single customer segment and think that they are the only possible target customers, however it is a wrong approach and they need to think out of the box which can lead to creating new Blue Oceans. Novo Nordisk a Danish insulin producing company created a Blue Ocean in the insulin industry. Previously Nordisk like all other pharmaceuticals focused only on doctors which are the influencers. But Novo Nordisk came up with the idea of Novo Pen which was easy to use and was targeted directly at the end users that is the diabetes patients. This helped them in creating a blue ocean and continuous improvement and advancement in their offering resulted in  maintaining their Blue Ocean success. Path Four: Look across complementary product and service offerings This path explains that the importance of complementary products and services should never be overlooked as the untapped value is often hidden in them. Providing the facilities of baby sitting and car parking are complementary to movie theatres. NABI made use of the fiberglass instead of steel body buses and had a huge impact on lowering the maintenance and other costs and created a Blue Ocean in the bus industry. Philips created the kettle with a mouth filter and Barns and Noble came up with knowledgeable staff in their lounging were such complementary products and service which were revolutionary. Path Five: Look across functional or emotional appeal to buyers There are different types of appealing strategies that are adopted by companies to appeal the customers. Some of these are functional while others are emotional. The different examples discussed in this case are the Cemex (Mexican Cement Company) and QB house (Japanese Barber shop) which created Blue Oceans by appealing their customers through different functional and emotional offerings. Path Six: Look across time This path illustrates that how important it is to have foresight and keep in mind the changes that are to take place with passage of time. This can be done by looking across the time in terms of the value a market delivers today to the value it may deliver tomorrow. Apple capitalized on the changing trend in the music industry and came up with ITunes music store for its IPod which also helped it in stopping illegal selling of music and creating a Blue Ocean. Cisco Systems also looked ahead of time and accounted for the growing demand of high speed data exchange with its routers, switches and other networking devices. 2. Focus on the Big Picture, Not the Numbers Traditionally what most of the strategies lack is that they don’t think out of the box and thus lack the view of the big picture and thus they key is to create a strategy canvas to arrive at a Blue Ocean. Drawing Your Strategy Canvas Drawing a strategy canvas has never been an easy to do job. It involves  identifying the key factors of competition which can be done by assessing that to what extent your company and its competitors offer the most competing factors and what are the actions that are being taken by you and your competitors. This process after the implementation of six step model involves steps in visualizing strategy which are as follows: Step One: Visual Awakening The process of visual awakening is very important to change the mind set of such people especially the executives who are resistant to change and like the status quo. However this problem can be overcome by asking such people to draw the value curve of their company’s strategy which will trigger the need for change in their minds and thus they will be inclined towards change and will come up with new and different strategies. Step Two: Visual Exploration The wakeup call was just the first step. The next step is to send team it to field, putting managers face to face with customers and experiencing by themselves what problems they have with their products and services and what are their perceptions. This task should not be outsourced as it is very important to see these things by your self rather than letting others do the work of your eyes. They should observe their customers (existing, lost and new ones) as well the customers of their competitors and then come back and analyze their strategies. Step Three: Visual Strategy fair In the third step of visualizing strategy the teams are asked to draw six new curves of strategy and create a compelling tagline which can emphasize the strategy in a better way. After that the teams are asked to present them and on the basis of feedback and discussion the new curves for strategy are formulated. Step Four: Visual Communication The last step is to communicate the newly formulated future strategy to employees in an easy and understandable manner. This can be done by distributing one pager showing old and the new strategies to the employees and then can be discussed with every one. 3. Reach beyond Existing Demand The third principle for creating Blue Ocean is to reach beyond the existing demand. This to increase the demand for a new offering and two strategies are followed by companies to achieve this goal. One is to focus on existing markets and customers and the other is to target finer markets or customer segments to accommodate buyer differences. Another important concept explained here is to maximize the size of Blue Ocean, which says that once the Blue Ocean has been created the next step is to maximize its size. For this purpose companies instead of focusing on their customers try to focus on the non-customers by taking the reverse approach which allows the companies to unlock mass of customers and demand which did not exist before. Callaway Golf is one such company which created demand for its offering by focusing on its non-customers. The Three Tiers of Non-Customers According to Blue Ocean strategy there are three different tiers of non-customers that can be converted in to customers which are as follows: i. The first tier of non-customers is closest to market sitting on its edge waiting to jump ship and shift to another industry as soon as the opportunity knocks. ii. The second tier is of customers who refuse to use you offerings. These are buyers who have used your industry offerings just as an option to fulfill their needs but have often voted against them. iii. The third tier is of non-customers who are farthest from your market and have never thought or considered of using you industry offerings as an option and can only be attracted by focusing on commonalities. 4. Get the Strategic Sequence Right The fourth principle of formulating the Blue Ocean strategy is to get the strategic sequence right. This principle focuses on building robust business models to ensure healthy profits based on Blue Ocean strategy. Blue ocean strategy free essay sample I find this book, Blue Ocean Strategy: How to Create Uncontested market Space and Make the Competition Irrelevant, is very informative. The only thing that I am not very fond of the book is that there’s too much repetition in the book until I got bored going through the 230 or so pages. W. Chan Kim and Renee Mauborgne focus and elaborate most of the content of the book with what they passionately believe as the best organizational strategy for companies to create growth and profits. Even though the book was first published in 2005, the contents are still relevant and can still be applied in the marketing world. We will write a custom essay sample on Blue ocean strategy or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page For the contents of this book, W. Chan Kim and Renee Mauborgne had researched more than fifteen (15) years, spanned from more than a hundred (100) years of data and reviewed a series of Harvard Business Review articles. The authors came up with the idea of â€Å"blue oceans† and â€Å"red oceans† in the marketing world. Their research reveals that when the market space is crowded and becomes very competitive, the potential for one to grow and make profit is very much reduced and this area is defined as the â€Å"red oceans†. â€Å"Blue oceans†, on the other hand, are created new market space where success is achieved through innovation, and defined by identifying new demands with significant opportunity for highly profitable growth. The companies that focus on ‘value innovation’, implement the blue ocean approach, and offer the customers with new reasons to purchase, are able to enjoy the increase in their sales. W. Chan Kim and Renee Mauborgne agree that to find a blue ocean is not an easy task. But in this book, the authors explain how to systematically create and capture blue oceans. One of their case studies focusses on the success story of Cirque du Soleil, an entertainment company in the circus industry which was established in 1984. For hundreds of years, circuses offer the tents, lions, tigers, bears, clowns, and acrobatic acts. Ringling Bros. and Barnum Bailey, the global champion of circus industry, was in the red ocean and in a declining circus industry and struggled to survive. Cirque du Soleil developed a blue ocean by offering the audience with fun of the circus and sophistication of the theater, artistic music and dance. Cirque du Soleil created a new market space, by blending opera and ballet with the circus format while eliminating star performers and animals. It earned billions and created a blue ocean. Kim and Mauborgne argue that companies that remain in the area where many industries are competing with each other and always make improvements on the products and services to gain greater share from the customers, will be unable to sustain in the market for long unless they opt to plunge into blue oceans. In the book the authors present six (6) principles of creating the blue ocean strategy. The explanation of the six principles and description of the adoption of these principles by companies, build the main content of this book. Kim and Mauborgne identified six (6) principles to be adopted in order for industries to generate growth and profit. The first four (4) principles are the steps required to formulate the blue ocean strategy. They are: i. Reconstruct market boundaries ii. Focus on the big picture, not the numbers iii. Reach beyond existing demand iv. Get the strategic sequence right The last two (2) principles provide the tools to implement the new strategies. They are: v. Overcome key organizational hurdles vi. Build execution into strategy In the book the authors describe each of the six principles in detail and draw the attention of the readers to the relationship between the success stories and the strategy that is being formulated and executed which Kim and Mauborgne termed as â€Å"Blue Ocean Strategy†. In this review I extract some of the concepts narrated by Kim and Mauborgne. Reconstruct Market Boundaries is the first principle. This principle requires a reevaluation of the industry’s surroundings, and creation of uncontested market space for the company’s business. This is to open up a blue ocean. Kim and Mauborgne elaborate the six paths to remaking market boundaries i. e. looking across alternative industries, looking across strategic groups, looking across buyer groups, looking across complementary product and service offerings, looking across the functional-emotional orientation of an industry, and looking across time. Focus On The Big Picture, Not the Numbers is the second principle. According to Kim and Mauborgne, many existing companies focus on the numbers (i. e. the cost of marketing and the projected profit margins) and too involve into making changes that keep them competing in the red oceans. Kim and Mauborgne suggest that to create blue oceans, the managers have to think what the customers really want from the organization and how the organization processes can provide the customers with successful outcomes. Kim and Mauborgne believe that the managers should focus on the big picture, using an approach which they termed as visualizing approach. This principle proposes a four-step strategy planning to create blue ocean. The visual approach involves visual awakening, visual exploration, visual strategy fair, and visual communication. Reach Beyond Existing Demand is the third principle which addresses scale risk. The conventional strategy practice is more focus on segmenting the existing customers into smaller groups so as to better meet their needs. To maximize the size of the blue ocean, Kim and Mauborgne suggest to focus on the commonalities across noncustomers and not to dwell into customers’ differences. Get The Strategic Sequence Right is the fourth principle. This principle addresses business model risk. Kim and Mauborgne describe in detail the strategic sequence of validating the blue ocean ideas. This is to ensure that the business model that is planned will be profitable. The strategic sequence mentioned is as follows: buyer utility, price, cost, and lastly adoption hurdles. Overcome Key Organizational Hurdles is the fifth principle. This principle addresses the organizational risk. Kim and Mauborgne point out that to execute the blue ocean strategy successfully, the managers need to overcome the four (4) organizational hurdles that are very challenging. The first hurdle is cognitive hurdle of the company’s staff readiness to accept the need for change, the shift into blue ocean strategy, the second is limited resources hurdle, the third hurdle is motivation hurdle on how to handle the unmotivated staff especially the company key personnel to move fast and determinedly, and the final hurdle is politics. Successful execution of the blue ocean can only be achieved when all internal departmental differences is resolved. Build Execution Into Strategy is the sixth principle. This principle addresses the management risk. The organization needs to create a culture of trust and commitment that can motivate the people to implement and accept the blue oceans strategy whole heartedly. Kim and Mauborgne research shows that fair process is vital to the success of blue oceans implementation. Everyone in the organization, at all levels, have important role to play in the success execution of the blue oceans strategy. After reading the book, I can summarize the idea behind the Blue Ocean Strategy in two main statements which are: ( a) instead of competing in a crowded and competitive market (red oceans), companies should turn to explore new uncontested market space (blue oceans), (b) Value Innovation is a process that can create value to the customers and the company. These ideas are fine to me, and I like it. As I’ve mentioned earlier in the 1st paragraph, the only thing that I’m not fond of the book is that there’s too many repetitive statements, whereas the whole idea in the book is just as I’ve summarized in the earlier statement of this paragraph. It is too tiresome to complete the book. One thing I like about the book is that Kim and Mauborgne use many examples and cases of successful companies executing excellent strategies that are exemplary. The stories of the success of the industries are very inspiring as compared to the theories of the Blue Oceans. Kim and Mauborgne strongly believe that the success of the industries that are studied demonstrate how to get out of the red oceans and dive into the blue oceans strategic thinking. In the book Kim and Mauborgne only elaborate on the blue ocean strategic thinking based on many successful industries. I begin to wonder how many companies that formulate and execute blue ocean strategy fail to grow their companies’ demands and profits, in other words the blue ocean strategy FAILS!!! If it does, then the theory is not fully grounded. The book does not make case studies or make any deduction on companies that execute blue ocean strategy but fail. Nevertheless the successful stories of the companies are very inspiring to me. Anyway, I wish to include in this review of my country, Malaysia, using the principles suggested by Kim and Mauborgne to formulate and execute blue ocean strategy , customized to the Government’s mission and vision, in the Government’s Transformation Program (GTP). In order to achieve the goal of Malaysia becoming a high-income, low-tax and happy country, the government adopted a unique Malaysian model of national development which is based on the reconstruction approach of Blue Ocean Strategy (BOS). The National Blue Ocean Strategy (NBOS) was developed with the intention to motivate the economic growth and happiness simultaneously through the multiplication of resources and the reconstruction of borders, while lowering taxes for people. About fifty five (55) initiatives involving more than eighty (80) government agencies have been implemented using the National Blue Ocean Strategy (NBOS) concept to date, which have benefited the people and touched their lives at a more personal level. The Finance Ministry, in its 2013/2014 Economic Report, said that the NBOS was boldly introduced into the civil service by Prime Minister Datuk Seri Najib Razak in 2009 to advocate thinking out of the box to implement projects and programs, as well as address issues confronting the economy. Among the ongoing NBOS initiatives were urban transformation centres (UTC), rural transformation centres (RTC), collaboration between military and police to fight crime, 1Malaysia for Youth (1M4U), 1Malaysia Family Care (1MFC) and My Beautiful Neighbourhood (MyBN) (Times, 2013). Initiative using NBOS was also introduced in the collaboration between the police and armed forces in combating crime while at the same time reducing government expenditure and maximizing resources The joint military-police program saw policemen undergoing training in military camps. The Home Minister Datuk Seri Dr Ahmad Zahid Hamidi said that more measures would be in place to strengthen the police and armed forces collaboration as part of the National Blue Ocean Strategy. There are currently seventeen (17) National Blue Ocean strategies in place and several new measures to further strengthen collaboration between the Home and Defence ministries are also the initiatives using. Blue Ocean Strategy free essay sample Competing in overcrowded industries is no way to sustain high performance. The real opportunity is to create blue oceans of uncontested market space. Blue Ocean Strategy by W. Chan Kim and Renee Mauborgne Included with this full-text Harvard Business Review article: 70 Article Summary The Idea in Brief—the core idea The Idea in Practice—putting the idea to work 71 Blue Ocean Strategy 80 Further Reading A list of related materials, with annotations to guide further exploration of the article’s ideas and applications Reprint R0410D Blue Ocean Strategy The Idea in Brief The best way to drive profitable growth? Stop competing in overcrowded industries. In those red oceans, companies try to outperform rivals to grab bigger slices of existing demand. As the space gets increasingly crowded, profit and growth prospects shrink. Products become commoditized. Ever-more-intense competition turns the water bloody. How to avoid the fray? Kim and Mauborgne recommend creating blue oceans— uncontested market spaces where the competition is irrelevant. We will write a custom essay sample on Blue Ocean Strategy or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page In blue oceans, you invent and capture new demand, and you offer customers a leap in value while also streamlining your costs. Results? We chose to show American industries because they represented the largest and leastregulated market during our study period. The pattern of blue ocean creations exempli? ed by these three industries is consistent with what we observed in the other industries in our study. harvard business review †¢ october 2004 page 73 Blue Ocean Strategy Key blue ocean creations Was the blue ocean created by a new Was it driven by entrant or an technology pioneering incumbent? or value pioneering? New entrant Value pioneering* (mostly existing technologies) Value pioneering (some new technologies) Value pioneering (some new technologies) At the time of the blue ocean creation, was the industry attractive or unattractive? Unattractive Automobiles Ford Model T Unveiled in 1908, the Model T was the ? rst mass-produced car, priced so that many Americans could afford it. GM’s â€Å"car for every purse and purpose† GM created a blue ocean in 1924 by injecting fun and fashion into the car. Incumbent Attractive Japanese fuel-ef? cient autos Japanese automakers created a blue ocean in the mid-1970s with small, reliable lines of cars. Incumbent Unattractive Chrysler minivan With its 1984 minivan, Chrysler created a new class of automobile that was as easy to use as a car but had the passenger space of a van. Incumbent Value pioneering (mostly existing technologies) Unattractive Computers CTR’s tabulating machine In 1914, CTR created the business machine industry by simplifying, modularizing, and leasing tabulating machines. CTR later changed its name to IBM. Incumbent Value pioneering (some new technologies) Unattractive IBM 650 electronic computer and System/360 In 1952, IBM created the business computer industry by simplifying and reducing the power and price of existing technology.