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TECH TALK: Blue Ocean Strategy: Dos and Donts

May 3rd, 2006 · No Comments

Here is an excerpt from one of the online customer reviews on Amazon.com by Peter Leerskov about the book:

What is a BLUE OCEAN STRATEGY? The authors explain it by comparing it to a red ocean strategy (traditional strategic thinking):

1. DO NOT compete in existing market space. INSTEAD you should create uncontested market space.
2. DO NOT beat the competition. INSTEAD you should make the competition irrelevant.
3. DO NOT exploit existing demand. INSTEAD you should create and capture new demand.
4. DO NOT make the value/cost trade-off. INSTEAD you should break the value/cost trade-off.
5. DO NOT align the whole system of a company’s activities with its strategic choice of differentiation or low cost. INSTEAD you should align the whole system of a company’s activities in pursuit of both differentiation and low cost.

A red ocean strategy is based on traditional strategic thinking – e.g. Harvard’s strategy guru Michael Porter.

A blue ocean is created in the region where a company’s actions favourably affect both its cost structure and it value proposition to buyers. Cost savings are made from eliminating and reducing the factors an industry competes on. Buyer value is lifted by raising and creating elements the industry has never offered. Over time, costs are reduced further as scale economies kick in, due to the high sales volumes that superior value generates.

Examples of strategic moves that created blue oceans of new, untapped demand:
– NetJets (fractional Jet ownership)
– Cirque du Soleil (the circus reinvented for the entertainment market)
– Starbucks (coffee as low-cost luxury for high-end consumers)
– Ebay (online auctioning)
– Sony (the Walkman – personal portable stereos)
– Cars: Japanese fuel-efficient autos (mid-70s) and Chrysler minivan (1984)
– Computers: Apple personal computer (1978) and Dell’s built-to-order computers (mid-1990s).

Blue Ocean Strategy provides a framework to start thinking about new opportunities. strategy+business writes:

Blue Ocean Strategy offers both a process and a set of supporting tools that practitioners can use to navigate. It begins with a strategy canvas that visually maps the current industry environment in two dimensions. The horizontal dimension includes the range of factors on which an industry currently competes and those factors in which it invests. The vertical dimension shows levels of performance against each factor, measured qualitatively. A strategy canvas is a conceptual tool remarkable in both its simplicity and its usefulness. It can be used to understand the current strategy of a company and its competitors, to communicate the strategy, and to imagine business directions. To do the latter, Professors Kim and Mauborgne recommend that a company create several alternative, radically different strategies, each aimed at delivering superior value to potential not existing customers by:

  • Reducing cost by eliminating some factors that the industry takes for granted and reducing other factors below the industry standard.
  • Enhancing differentiation by raising some factors well above the industry standard and creating additional factors that the industry has never offered.

  • Tomorrow: Thinking Shift


    TECH TALK Blue Ocean Strategy+T

    Tags: Tech Talk

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