1. Blue Ocean Strategy: Chapter 9, Appendix A, B, & C Mikey, Michael, Meredithe, Jake, Charly, Virginie, and Natalie

2. Blue Ocean strategy analysis  Blue Ocean Strategy  Dynamic situation not static  What does this mean  Revaluation of strategy; determine possible external threats, i.e. imitators  Blue Ocean strategy, on average not challenged for 10 to 15 yrs.  There are reasons for this situation

3. Reasons for decreased imitation  Patents or legal permits  Ex. Google and copyright and trademarks  Revolutionary ideas that are against industry standards in terms such as brand image conflict  Ex. Body shop shunning models, promises of eternal youth, and expensive packaging  Quite difficult to imitate due to other companies current business models placing stock in model industry

4. Reasons for decreased imitation cont.  Imitation requires companies to make substantial business model changes  Ex. SWA’s extreme flexibility; cost of imitation is unrealistically high  Brand Buzz and company loyalty held by consumers in marketplace  High volume generated by a value innovation leads to rapid cost advantages  In effect giving competitors at a huge disadvantage  Ex. Competing with Walmart in retail or competing with Google’s search capabilities

5. Reasons for decreased imitation cont.  Network externalities  value of a product or service is dependent on the number of others using it.  Goggles search engine, i.e. Google search  Natural monopoly  Industry cannot support second player  Sometimes does not make sense to a company's conventional logic

6. When to Value-Innovate Again Be careful not to loose focus:  When competitors arise, companies usually launch offense to defend their customer base  Companies can be obsessed with hanging on to their market share  Finally, competitors and not customers may come to occupy the center of the company’s attention

7. When to Value-Innovate Again How to avoid the trap of competing?  By monitoring the value curves on the strategy canvas. How does it help you?  Alerts you to reach out for another ocean when you curves converge with your competitors ones  Keeps you from pursuing another ocean when yours is still profitable

8. When to Value-Innovate Again When your Blue ocean turns Red  Rivalry intensifies and supply exceeds demand  Your competitors’ value curves converge toward yours.  Should begin to reach out for another value- innovation to create a new blue ocean  By applying the six principles of blue oceans strategy, companies should go beyond competing for share to creating blue oceans and understand how to make the competition irrelevant

9. A Sketch of the Historical Pattern of Blue Ocean Creation  Overview of the history of three American industries…  Automobiles, Computers and Movie Theaters.  this review intends to be neither comprehensive in its coverage nor exhaustive in its content. Its aim is limited to identifying the common strategic elements across key blue ocean offerings.  U.S. industries are chosen here because they represent the largest and least regulated free market during our study period.  Appendix A is only a sketch of the historical pattern of blue ocean creation, several patterns stand out across these three representative industries.

10. The Automobile Industry  Auto industry goes back to 1893, When the Duryea brothers launched the first one- cylinder auto in the United States.  At this time the primary transportation was the horse and buggy.  The autos of the time were a luxurious novelty.  They were twice the average family's annual income costing $1,500

11. The Model T  In 1908, while America’s five hundred automakers built custom made novelty automobiles, Henry Ford introduced the Model T.  “The car for the great multitude, constructed of the best materials”  Model T was affordable  1908: $850  1909: $609  1924: $290

12. Small, Fuel Efficient Japanese Cars  In 1970’s Japanese created a new blue ocean. Instead of “ the bigger the better” Japanese altered the conventional logic, pursuing ruthless quality, small size, and highly gas efficient cars.  1970’s an oil crisis occurred, the U.S. consumers needed fuel- efficient, robust Japanese cars, which were cars made by Honda, Toyota, and Nissan.  Big Three were still hit b a drive in car sales with losses mounting to $4 billion in 1980. Chrysler the smallest out of the big three suffered the most.

13. Chryslers Minivan  In 1984 Chrysler on the edge of becoming bankrupt they unveiled the minivan. The boundary between a car and a van.  Within the 1 st year the Chryslers minivan became the best selling vehicle.  With in three years, Chrysler gained $1.5 billion from the minivan’s introduction alone.

14. Chryslers SUV  The success of the Minivan ignited the Sports Utility Vehicle (SUV) in the 1990s  Built on a truck chassis  First designed for off-road driving and towing boat trailers  Had carlike handling  By 1998,total sales of new light trucks (minivans, SUVs, and pickups) reached 7.5 million, nearly matching the 8.2 million new car sales.

15. The Computer Industry  The United States computer industry traces back to 1890  Herman Hollerith invented the punch card tabulating machine

16. IBM  Hollerith sold his company which was later merger to form the CTR in 1911  CTR than became IBM  In 1953, IBM introduced the IBM 650 which was the first computer for business purposes  It cost $200,000

17. The Electronic Computer  At the end of the 1950s, IBM controlled 85 percent of the electronic computer market  In 1964, the system 360 was introduced which included service packages  In 1978, Apple designed the Apple II home computer which was more advanced  Build a blue ocean for home computing  Came with software ranging from games to business programs

18. The Electronic Computer  In 1980, Apple sold 724,000 home computers  Fortune 500 company  Shortly after twenty new companies were started  Caused Apple to make $3 Billion because of high demand  IBM survey the market first before taking any other action  1982 IBM expanded the blue ocean

19. Compaq PC Servers and Dell Computers  In 1992, IBM Compaq created another blue ocean by launching the ProSignia  It change the way file sharing was done  Dell change the computer industry by allowing the consumer to order and customized online  Built-to-order reduced inventory cost  Leader in PC sales with revenues of $35.5 billion in 2003  Each blue ocean that was created in the computer industry is increasing the profit of overall growth for all computer companies

20. The Movie Theater Industry  1893 Thomas Edison developed the “peep show”  1895 Edison’s staff made a projecting Kinetoscope, which showed motion pictures on a screen.  1905 First Nickelodeon Theater in Pittsburg.Only 5 cents so that lower class could enjoy the entertainment.  1914 the U.S had 1,800 Nickelodeon’s with seven million in daily admissions  1914-1922 four thousand Palace theaters opened. Samuel “Roxy” Rothapfel made the theaters elaborate affairs.  1963 Stan Durwood started a family theater in a Kansas City shopping center.  1980’s Cassette tapes, satellite, and cable television hurt the theater industry.  1995 AMC created the 24 screen Megaplex  By 2000 many had closed due to the slowing economy. The theater industry is ready for a new blue ocean.  1893 Thomas Edison developed the “peep show”  1895 Edison’s staff made a projecting Kinetoscope, which showed motion pictures on a screen.  1905 First Nickelodeon Theater in Pittsburg.Only 5 cents so that lower class could enjoy the entertainment.  1914 the U.S had 1,800 Nickelodeon’s with seven million in daily admissions  1914-1922 four thousand Palace theaters opened. Samuel “Roxy” Rothapfel made the theaters elaborate affairs.  1963 Stan Durwood started a family theater in a Kansas City shopping center.  1980’s Cassette tapes, satellite, and cable television hurt the theater industry.  1995 AMC created the 24 screen Megaplex  By 2000 many had closed due to the slowing economy. The theater industry is ready for a new blue ocean.

21. Appendix B – Value Innovation  Strategies need to be related to specific industry structure  Two basic strategic views here:  Structuralist view deals with strategy changes based on external factors to the company’s structure, buyer and seller conduct, and end performance  Reconstructionist view theorizes that economic structure can be changed by forces internal to the organization

22. Reconstructionist View  If your strategy is molded from within your organization, you need to replicate not others ideas, but their innovative techniques.  New Growth Strategy  This internal mind-set is essential for firms that want to enter Blue Oceans and have new, different customer demands

23. Optimal Strategy View?  Structuralist vs. Reconstructionist views  Blue Ocean seekers use Reconstructionist view  tend to focus on buyer value elements in products, not strategies based on operations, cost or technology advancement.  This view ignores that there are boundaries of the structure of an industry which creates a blue ocean of new market space