Blue Ocean Strategy Lecture Notes

Preface

• This book is about friendship, loyalty, and belief in one another.
• Authors met 20 years ago in a classroom and have worked together since.
• It's not just about business ideas but the meaningful impact of their friendship.
• Book aims to create a future where customers, employees, shareholders, and society all benefit.

Introduction to Blue Ocean Strategy

• Concept: Create uncontested market space, making competition irrelevant.
• Red Ocean vs. Blue Ocean:
  • Red Ocean: Existing industries, intense competition, and shrinking profits.
  • Blue Ocean: Uncontested market space, demand creation, and opportunities for profitable growth.
• Key: Systematically create and capture Blue Oceans using analytical tools and frameworks.

Part One: Blue Ocean Strategy

Chapter 1: Creating Blue Oceans

• Case Study: Cirque du Soleil
  • Revolutionized the circus by combining elements of circus and theater.
  • Focused on adults and corporate clients willing to pay more for a unique experience.
• Market Universe: Red Oceans (existing industries) vs. Blue Oceans (new, untapped markets).
• Creation: Often by expanding existing industry boundaries or creating new ones.
• Strategy: Instead of competing in Red Oceans, innovate to make competition irrelevant.

Chapter 2: Analytical Tools and Frameworks

• Strategy Canvas: Visual tool to understand current market conditions and competition.
  • Horizontal axis: Factors of competition.
  • Vertical axis: Level of offering to customers.
• Value Curve: Graphical depiction of a company’s performance across key factors.
• Four Actions Framework: Eliminate, Reduce, Raise, Create.
• Eliminate-Reduce-Raise-Create (ERRC) Grid: Helps systematically apply the Four Actions.
• Example: U.S. wine industry and Casella Wines' Yellowtail brand.
  • Simplified wine selection, targeted non-wine drinkers, and created a fun, easy-to-drink wine.

Chapter 3: Reconstruct Market Boundaries

• Six Paths Framework: Look across alternative industries, strategic groups, buyer groups, complementary products and services, functional/emotional appeal, and time.
• Examples:
  • NetJets: Fractional jet ownership appealing to corporate travelers.
  • NTT DoCoMo's iMode: Combined key advantages of mobile phones and internet.
  • Curves: Women’s fitness chain targeting non-gym-goers.

Chapter 4: Focus on the Big Picture, Not the Numbers

• Visual Strategy: Use strategy canvases to visualize the current and future strategy.
  • Steps: Visual Awakening, Visual Exploration, Visual Strategy Fair, Visual Communication.
• Example: EFS case study.
  • Identified weaknesses, created new strategy canvases, and held strategy fairs to garner buy-in.

Chapter 5: Reach Beyond Existing Demand

• Focus on Non-Customers: Identify and convert non-customers into new demand.
  • Three Tiers of Non-Customers: Soon-to-be non-customers, refusing non-customers, unexplored non-customers.
• Examples:
  • Pret A Manger: Targeted professionals needing quick, fresh, healthy meals.
  • JCDecaux: Created street furniture advertising targeting municipalities and advertisers.

Chapter 6: Get the Strategic Sequence Right

• Sequence: Buyer utility, price, cost, adoption.
• Testing Utility: Use the Buyer Utility Map to assess where your product/service removes the greatest blocks to utility.
• Strategic Pricing: Price to attract the mass of target buyers.
  • Price Corridor of the Mass: Identify the acceptable price range considering substitutes and alternatives.
• Target Costing: Deduct desired profit margin from strategic price to arrive at target cost.
• Adoption Hurdles: Address potential resistance from employees, partners, and the general public.

Part Two: Executing Blue Ocean Strategy

Chapter 7: Overcome Key Organizational Hurdles

• Cognitive Hurdle: Make people aware of the need for a strategic shift using experiential methods (e.g., 'ride the electric sewer').
• Resource Hurdle: Focus on reallocating existing resources to hotspots, cold spots, and horse trading.
• Motivational Hurdle: Place key influencers in a fishbowl to shine a light on their actions.
• Political Hurdle: Leverage angels, silence devils, and get a conciliary to navigate internal politics.

Chapter 8: Build Execution into Strategy

• Fair Process: Engage people in decisions, explain why decisions are made, and clarify expectations.
• Example: Elko’s two plants
  • Chester plant failed due to lack of fair process, while High Park plant succeeded by involving employees.

Conclusion: Sustainability and Renewal

• Barriers to Imitation: Blue Ocean strategies often have barriers such as brand image conflict, patents, and natural monopolies.
• Monitoring Value Curves: Regularly check if your strategy is converging with competitors and decide when to innovate again.
• Equilibrium: Balance between creating new Blue Oceans and maintaining dominance in the existing one.

Appendices

Appendix A: Historical Pattern of Blue Ocean Creation

• Industries: Automobiles, Computers, Movie Theaters.
• Findings: No permanently excellent industry or company, blue oceans created by incumbents and new entrants, not driven solely by technology.

Appendix B: Value Innovation - A Reconstructionist View of Strategy

• Structuralist vs. Reconstructionist:
  • Structuralist: Market structure defines strategy.
  • Reconstructionist: Strategy can reshape market structure (value innovation).