Blue Ocean Strategy Chapter 1 JB Berkley Stell, Eric Baker, Joshua Benjamin, and Tiffany Jesko

Purpose of Blue Ocean Strategy “To allow any organization-- large or small, new or incumbent-- to step up to the challenge of creating blue oceans in an opportunity-maximizing, risk-minimizing way.” JB

What is a Red Ocean? Red Oceans represent all the industries in existence today. Red Oceans are also known as the Marketplace. Red Oceans strategies are based off of using: Boundaries Strategies Competitive rules Red Ocean businesses can fall into many traps related to systematic technology, production capability, and globalization. These downsides can prevent growth within the company and disable the ability to achieve greater levels of success. B (read page 8)

The Red Ocean Strategy - Disadvantages Industries never stand still, if a business operates solely off the Red Ocean Strategy, the business won’t be able to adapt and adjust to the new market and new industry changes. This strategy causes: Limited terrain The need to beat competitors to succeed The denial of distinctive strength of the business world. The inability to create new market space that is uncontested

What is a Blue Ocean? Also known as the unknown market, The blue ocean represents all the industries not in existence today. Blue oceans are flexible, uncharted, unmarked and are based off wishful thinking, as opposed to strategic guidance. The cornerstone of blue ocean strategy: Value Innovation The only way to beat the competition: Stop trying to beat the competition. E

Misconceptions of the Blue Ocean They’re too risky Due to the relatively uncharted domain of Blue Ocean strategies, management considers them to be too risky to pursue as a viable option Their is existence new While the term “Blue Ocean strategies” is indeed new, their existence in business is not JB Unfortunately, Blue ocean strategies are considered by management to be too risky to pursued as a viable option. As a result, the dominant focus of major businesses for the past 30 years has been competition-based red ocean strategies

Red vs Blue Oceans Red Ocean Strategy Blue Ocean Strategy Compete in existing market space Create uncontested market space Beat the competition Make the competition irrelevant Exploit existing demand Create and capture new demand Make the value-cost trade-off Break the value-cost trade-off Align the whole system of a firm’s activities with its strategic choice of differentiation or low cost Align the whole system of a firm’s activities in pursuit of differentiation and low cost T: Compete in existing market space, so these are the companies that are selling one product or one service and not expanding their market.. While with the blue ocean strategy creates uncontested market space, which expands it! An example of this is nintendo when it came out with wii: created a new market of young children, the typical young adults that played video games before, and elderly. In red ocean people focus extremely on the competition, looking at their competitors and seeing what they’re doing, while in blue ocean they’re so focused on being innovative and coming up new ideas that it allows them to make leaps leaving their competition completely behind, so it’s nothing they think of ever. In red ocean they are seeking to meet the demands of the customers they already have, which can cause them to be stuck and unchanging, which is actually a super dangerous place for any business to ever be in because of how fast paced everything is, and can cause them to eventually shut down completely. Where blue ocean strategies are always looking at how they can add new products or services in to capture a new demand group. Something that is a newer struggle for the red ocean strategy is the value-cost trade-off concept, because so many products are reaching an equal value now days. An example of this would be toothpaste most people prefer the crest brands but if colgate is on sale they will easily switch without thinking twice because it’s essentially the same thing. In blue ocean they take that

Red vs Blue Oceans Continued Red ocean extension launches are far more prevalent Red ocean launches account for higher revenues, however Blue ocean launches have a higher contribution margin (per % launch) on revenue Blue ocean launches receive greater profits JB

Why Blue Oceans are Important In the past people only focused on red ocean strategies in a war like way that always remained limited and constant -- yet market/companies are unlimited and evolving In today’s market there is: A rising call for creative new solutions Influence and use of public megaphones Locational shift in future demand and growth Ease of being a global business E

How Blue Oceans are Applied Changing your mindset Communication within upper management to align goals Create a new market which will make competition irrelevant Implementing new tools / business plan Human drive / desire for success as well as change B

How did Cirque du Soleil change to Blue Ocean? Originally were in the circus industry (a red ocean trap) Suffered steadily decreasing audiences in turn declining revenues/profits Increasing pressure from animal rights All in turn saw declining revenues/profits Stuck in a red market, which was just costing them money Limited terrain and high competition Need to beat the competition to succeed Competition was geared towards bigger acts Evolved the market by combining a circus and a theater aspect This created uncontested new market space Competition became irrelevant Margins became greater E

Where does Home Depot stand? Home Depot would most likely be categorized as a red ocean Home Depot has been established since 1978 Opened as a DIY store 41 years ago and still remains a DIY store Has not made any big leaps to make competitors irrelevant Have only improved on what they already have, based on what customers are doing -- making themselves more accessible through online shopping They mainly compete with prices DIY is really big now due to the rising popularity of tv shows and pinterest In the red ocean trap of advances in technology T

How has Home Depot Evolved over the Years? 2013: Net sales +5.4%. They recognize that online shopping is becoming a thing and have plans of making website easier for customers 2014: Net sales +5.5%. Got a new CEO, digit channels account for over $1 billion of the total growth, also struggle with cyber attacking but worked hard to protect customers 2015: Net sales +6.4%. Online sales grew profitably by $1, working on how to make deliveries more effective for online orders 2016: Net sales +6.9%. Redesigned homedepot.com site and upgraded the mobile app 2017: Net sales +6.7%. With the new way people are beginning to shop, Home Depot has decided to invest $11 billion in order to accommodate the new ways. JB

+6.7% +6.9% +6.4% +5.5% +5.4% Million Dollars 120000 Million Dollars JB as you can see, from 2007-2008 Home depot experienced a major dip in net sales due to the recession, and has been on a gradual incline since, consistently hitting 6% growth for the reasons we discussed

Recap Competition should not occupy the center of strategic thinking Rather focus on value innovation Make a quantum leap in value and make competition irrelevant Industry structure is not given; it can be shaped There’s no box you have to stay in Focus on opportunity maximizing, risk minimizing Execution can be built into strategy formulations The rising influence and use of public megaphones Social network sites, blogs, micro-blogs, video-sharing services, user-driven content, and internet ratings B

Sources https://www.slideshare.net/kzamandarus/blue-ocean-strategy-982744 http://www.corporatestrategy.com/value-innovation-the-key-to-blue-ocean-strategy/ https://www.valuespectrum.com/news/113531-analysts-more-sales-home-depot “Blue Ocean Strategy”