1Blue Ocean Strategy Innovation Strategy: Blue Ocean Strategy Jonathan Weaver UDM Mechanical Engineering Department

2Blue Ocean Strategy References Blue Ocean Strategy, W. Chan Kim & Renee Mauborgne, Harvard Business School Press, 2005 (all embedded figures are from this reference)

3Blue Ocean Strategy Fundamental Premise “Don’t Compete with Rivals – Make Them Irrelevant”

4Blue Ocean Strategy Red Oceans Represent all industries in existence today Industry boundaries are defined and accepted Companies try to outperform each other to gain market share The market space becomes crowded and the products become commoditized Prospects for profit and growth are reduced Competition turns the red ocean bloody

5Blue Ocean Strategy Blue Oceans Defined by untapped market space, demand creation, and high-profit growth potential Some are new industries, but most are created from within red oceans by expanding existing industry boundaries or competing with a fundamentally different strategy

6Blue Ocean Strategy Impact of Blue Oceans

7Blue Ocean Strategy Examples CNN in 1980 with 24/7 news coverage Starbucks with upscale coffee/beverages in a pleasant environment Southwest airlines with a “better than driving” sort of strategy Cirque du Soleil creating a new circus/theatre market

8Blue Ocean Strategy How to Create Blue Oceans Most business research and education (and I’d argue most practice) focuses on competing in the bloody red oceans The book provides frameworks and analytics for systematic creation and capture of blue oceans The cornerstone is value innovation –Creating a leap in value for your buyers thereby opening up new and uncontested market space –Pursue differentiation and low cost simultaneously –Involves driving costs down while increasing buyer value It is really STRATEGY that is key

9Blue Ocean Strategy

10Blue Ocean Strategy Strategy Canvas The Strategy Canvas is one way to understand the competition and clearly show how a Blue Ocean can be created Consider the strategy canvas for the U.S. Wine Industry in the Late 1990s

11Blue Ocean Strategy

12Blue Ocean Strategy Casella Wines Australia’s Casella Wines studied what turned people off from wine and created a Blue Ocean Strategy shown on the canvas on the next slide

13Blue Ocean Strategy

14Blue Ocean Strategy Four Guiding Principles 1.Reconstruct Market Boundaries 2.Focus on the Big Picture, Not the Numbers 3.Reach Beyond Existing Demand 4.Get the Strategic Sequence Right Let’s look briefly at each principle.

15Blue Ocean Strategy Principle 1: Reconstruct Market Boundaries Path 1: Look across alternative industries –NetJets as alternative to private jet or commercial airlines –Home Depot with expertise of contractors and lower prices than hardware stores Path 2: Look Across Strategic Groups Within Industries –Curves, the Texas based Fitness center for women Path 3: Look Across the Chain of Buyers –Novo Nordisk’s prefilled disposable insulin injectors

16Blue Ocean Strategy Principle 1: Reconstruct Market Boundaries (Cont.) Path 4: Look Across Complementary Product and Service Offerings –Nabi fiberglass buses (competing on lifecycle cost, not purchase price) Path 5: Look Across Functional or Emotional Appeal to Buyers –Swatch transformed functionally driven budget watch industry into an emotionally driven fashion statement Path 6: Look Across Time (finding actionable insights on observable trends) –iTunes leaping past pirated downloads

17Blue Ocean Strategy Principle 2: Focus on the Big Picture, Not the Numbers

18Blue Ocean Strategy Principle 3: Reach Beyond Existing Demand JCDecaux with it’s outdoor furniture advertisements

19Blue Ocean Strategy Principle 4: Get the Strategic Sequence Right

20Blue Ocean Strategy Wrap Up on Blue Ocean Strategy See Chapters 7-9 for guidelines on implementing a Blue Ocean Strategy Don’t bleed – stay out of Red Oceans and Create Yourself a Blue One! There are MANY other examples (not in the book), such as: –Jiffy Lube –Jim Poss’s solar powered trash compactors