Business School 101: Blue Ocean Strategy

Introduction

• Developed by Dr. W. Chan Kim and Dr. Renée Mauborgne.
• Provides a framework for sustainable growth, innovation, and competitive advantage.

Section 1: Blue Ocean vs. Red Ocean

Key Differences

1. Market Space

   • Red Ocean: Compete in existing markets, saturated, limited growth.
   • Blue Ocean: Create new, uncontested markets, cater to untapped needs, avoid direct competition.

2. Competition

   • Red Ocean: Focus on outperforming, leads to price wars.
   • Blue Ocean: Create new demand, reduce competition by targeting non-customers.

3. Value Creation

   • Red Ocean: Trade-off between cost leadership and differentiation.
   • Blue Ocean: Combine differentiation with cost leadership for unique value.

4. Customer Base

   • Red Ocean: Target existing customers.
   • Blue Ocean: Reach beyond existing demand, attract new customers.

5. Growth Potential

   • Red Ocean: Limited growth, intense competition.
   • Blue Ocean: Sustainable growth, innovation leads to higher profit margins.

Section 2: Principles of Blue Ocean Strategy

1. Value Innovation

   • Create new value by pursuing differentiation and low-cost.
   • Example: Southwest Airlines - low-cost travel with quality service.

2. Eliminate-Reduce-Raise-Create (ERRC) Grid

   • Tool to identify factors to eliminate, reduce, raise, create.
   • Example: IKEA - eliminated salespeople, raised self-service.

3. Reconstruct Market Boundaries

   • Identify opportunities beyond existing boundaries.
   • Example: Apple iPhone - combined communication and entertainment.

4. Reach Beyond Existing Demand

   • Focus on non-customers, expand market.
   • Example: Nintendo Wii - targeted casual gamers.

5. Overcome Key Organizational Hurdles

   • Foster a culture of innovation and change.
   • Example: Tata Motors - overcame challenges to create affordable cars.

6. Build Execution into Strategy

   • Align resources and processes with strategic goals.
   • Example: Starbucks - consistent customer experience.

Section 3: Real World Examples

1. Netflix

   • Transitioned from DVD rental to streaming, created new market space.
   • Value innovation: user-friendly, personalized recommendations.

2. Tesla

   • High-performance luxury electric cars, environmental alternative.
   • Focus on battery technology, design, and sustainability.

Section 4: Summary

• Blue Ocean Strategy: Create new markets (blue oceans) rather than competing in existing ones (red oceans).
• Built on six key principles:
  1. Value Innovation
  2. Eliminate-Reduce-Raise-Create Grid
  3. Reconstruct Market Boundaries
  4. Reach Beyond Existing Demand
  5. Overcome Key Organizational Hurdles
  6. Build Execution into Strategy