Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices Blue Ocean Strategy: The Four Actions Framework Jason C. H. Chen, Ph.D. Professor of MIS School of Business Administration Gonzaga University Spokane, WA USA

Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices Red Ocean vs. Blue Ocean RED OCEAN  It represents all the industries in existence today – the known market  Industry boundaries are defined and accepted, and the competitive rules of the game are known.  Competition-based BLUE OCEAN  It represents all the industries not in existence today – the unknown market  Is defined by untapped market space, demand creation, and the opportunity for highly profitable growth.  Innovation-based  It is with unlimited business opportunities.

Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices # OF FIRMS PRODUCT Characteristics PRICE CONTROL ENTRY To Industry MANY, SMALL SIMIAR SUPPLY & DEMAND EASY MANY, LARGE &SMALL DIFFERENTSOME FAIRLY EASY FEW SIMILAR OR DIFF. A LOTHARD ONE NO SUBS- TITUTE REGU- LATED NO WAY! TYPES of COMPETITION 1. PURE COMPETITION 2. MONOPOLISTIC COMP. 3. OLIGOPOLY 4. MONOPOLY

Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 39% 62% 86% 61% 38% 14% Business launch Revenue Impact Profit Impact Launches within red oceansLaunches for creating blue oceans The Profit and Growth Consequences of Creating Blue Oceans

Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices Red Ocean StrategyBlue Ocean Strategy Compete in existing marketing Beat the competition Exploit existing demand Make the value-cost trade-off Align the whole system of a firm’s activities with its strategic Choice of differentiation or low Cost. Red Ocean Versus Blue Ocean Strategy Create uncontested market space Align the whole system of a firm’s activities in pursuit of differentiation and low cost. Make the competition irrelevant Create and capture new demand Break the value-cost trade-off Figure 1-3 (p. 18)

Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices Grid Eliminate Reduce Raise Create Eliminate-Reduce-Raise-Create

Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices The Four Actions Framework A New Value Curve Which of the factors that the industry takes for granted should be _________? Which factors should be ________ well below the industry’s standard? Which factors should be ________ that the industry has never offered? Which factors should be ______ well above the industry’s standard? IS/IT Role? Eliminate eliminated Reduce reduced Create created Raise raised

Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices Eliminate-Reduce-Raise-Create Grid: The Case of Southwest Airlines Eliminate Reduce Raise Create Meals Lounges Seating class choices Hub connectivity Friendly service Speed Price versus average airlines Frequent point-to- point departures

Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices Winners vs. Losers What separates winners from losers in creating (ultimate) strategic competitive advantage is neither bleeding-edge technology nor “timing for market entry.” It is from “value innovation” Firm price utility cost Innovation Value Innovation Value Innovation align

Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices Value Innovation Customer Value Costs Value Innovation The Simultaneous Pursuit of and DifferentiationLow Cost.

Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices Innovation Business Week compiled a list of the ten worst mistakes made by companies that are trying to cope during a slowing or turbulent economy. The list reminds management that unless you really want to compete on price (i.e., cost leadership and remember, India launched its $2,500 Nano car), the ability to do sustained innovation is one of the few ways left to maintain a competitive edge and to separate yourself from your competitors. Innovation drives performance, growth, and stock market valuation.

Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices To-Ten Innovation Mistakes a Company Can Make During a Turbulent Economy 1.Fire talent. 2.Cut back on technology. 3.Reduce risk. 4.Stop product development. 5.Allow boards to replace growth-oriented CEOs with cost- cutting CEOs. 6.Retreat from globalization. 7.Allow CEOs to replace innovation as key strategy. 8.Change performance metrics. 9.Reinforce hierarchy over collaboration. 10.Retreat into walled castle.

Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices Characteristics of a Good Strategy Three characteristics of a good strategy Focus  a firm does not diffuse its efforts across all key factors of competition Diverge  diverge from the other players’ Compelling Tagline  strategic profile is clear; a fun and simple to follow (enjoy)