L 10 red, blue and purple ocean strategies

Red,Blue and Purple Ocean strategies

1. RED, BLUE AND PURPLE OCEAN STRATEGIES

2. Creating Blue Oceans B LU E O C EA N S TR A T EG Y

3. The Book and the Authors Prof Renee M a u bor g ne © JOHN ABBOTT Prof Chan Kim © JOHN ABBOTT

4. Accolades Over 2 million copies sold Translated into over 41 foreign languages – a world record Taught as the major theory of strategy at leading business schools Gives insights to CEOs, Executives, Heads of State and Prime Ministers

5. New Market Space Red oceans and blue oceans make up market universe Red oceans: all industries in existence = known market space Blue oceans: all industries not in existence = unknown market space

6. Red Oceans Red oceans refers to – Industry boundaries defined and accepted – Competitive rules of game known – Companies try to outperform rivals; cutthroat competition – As market space gets crowded, prospects for profit and growth reduced – Products become commodities – Red ocean strategy is a market-competing strategy

7. Blue Oceans Blue oceans refers to Undefined market space, demand creation, opportunity for highly profitable growth Most are created from within red oceans by expanding existing industry boundaries Rules of game waiting to be set Competition irrelevant Blue ocean strategy is a market-creating strategy

8. The Rising Imperative of Creating Blue Oceans Supply is exceeding demand in most industries G lobal competition is intensifying Problems: Accelerated commodization of products and services Increasing price wars Shrinking profit margins Red oceans becoming bloodier, need to be concerned with creating blue oceans

9. T w o w or l d s … Red Ocean Compete in crowded markets Blue Ocean Create and capture new market space

10. The Continuing Creation of Blue Oceans Blue oceans have been around for some time; a feature of business life Industries never stand still, constantly evolving Significant expansion of blue oceans over years So why the focus on red ocean strategy? Corporate strategy influenced by military strategy Need to create new market space that is uncontested

11. The Impact of Creating Blue Oceans

12. From Company andIndustry to Strategic Move Are there lasting visionary companies that continuously outperform the market and create blue oceans? Found success of these model companies was a result of industry sector performance, not companies themselves Strategic move used as unit of analysis (rather than company or industry) Strategic move : the set of managerial actions and decisions involved in making a major market- creating business offering

13. Value Innovation: The Cornerstone of Blue Ocean Strategy Creators of blue oceans follow value innovation Value Innovation Equal emphasis on value and innovation Defies value-cost trade-off of competition-based strategy Successful value innovation: • • • Drives down costs while driving up buyers’ value Uses a whole-system approach Follows reconstructionist view

14. Red Ocean Vs. Blue Ocean Compete in existing market space 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 • • • • Create uncontested market space Make the competition irrelevant Create and capture new demand Break the value-cost trade-off Align the whole system of a firm’s activities in pursuit of differentiation and low cost

15. Formulating and Executing Blue Ocean Strategy Six Principles of Blue Ocean Strategy Reconstruct market boundaries Focus on the big picture, not the numbers Reach beyond existing demand Get the strategic sequence right Overcome key organizational hur d les Build execution into strategy

16. Take Aways Red ocean strategy is a market-competing strategy, while blue ocean strategy is a market-creating strategy As red oceans are becoming bloodier, we need to create more blue oceans “The only way to beat the competition is to stop trying to beat the competition!”

17. Points of view Business often look at the industry from a structuralist (supply) point of view What if we looked at the industry from a reconstructionist (demand) point of view? – Market boundaries are not viewed as given, but could be reconstructed to unlock new demand

18. Generic Strategies vs. Value Innovation H ig h L o w V 1 C 1 C o st Q u a l i ty H ig h Hig h H ig h L o w L o w L ow Qu a l i t y C o s t • • D L C V 1 C 1 Structuralist Reconstructionist

19. Four Steps of Visualizing 1. Visual A w a k e n i ng 2. Visual E xp l o ration 3. Visual Strategy Fair 4. Visual C ommu n ic a t i on Compare your business with your competitors’ by drawing your “as is” canvas See where your strategy needs to change Go into the field to explore the six paths to creating blue oceans Observe the distinctive advantages of alternative products and services See which factors you should eliminate, create or change Draw your “to be” canvas based on insights from field observations Get feedback on alternative strategy canvases from customers, competitors’ customers, and non- customers Use feedback to build the best “to be” future strategy Distribute your before-and-after strategic profiles on one page for easy comparison Support only those projects and operational moves that allow your company to close gaps and actualize the new strategy

20. Eliminate What factors should be eliminated that the industry has taken for granted? What factors should be reduced well below the industry standard? Red u c e Create What factors should be created that the industry has never offered? Raise What factors should be raised well beyond the industry standard? Four Actions to create a Blue Ocean

21. Four Actions Framework + Eliminate/Reduce/Raise/Create Grid Eliminate Enological terminology and distinctions Aging qualities Above-the-line marketing Raise Price versus budget wines Retail Store involvement Reduce Wine complexity Wine range Create Easy drinking Ease of selection The four actions framework offers an technique that breaks the trade-off between differentiation and low cost and to create a new value curve. It answers the four key questions of what industry takes for granted and needs to be eliminated; what factors need to be reduced below industry standards; what factors need to be raised above industry standards; and what should be created that the industry has never offered. The eliminate-reduce-raise-create grid pushes companies not only to ask all four questions in the four actions framework but also to act on all four to create a new value curve. By driving companies to fill in the grid with the actions of eliminating, reducing, raising, and creating, the grid provides four immediate benefits: it pushes them to simultaneously pursue differentiation and low costs; identifies companies who are only raising and creating thereby raising costs; makes it easier for managers to understand and comply; and it drives companies to scrutinize every factor the industry competes on. A New Va l ue Curve Reduce Which factors should be reduced well below industry standards? Create Which factors should be created that the industry has never offered? Raise Which factors should be raised well above the industry’s standard? Eliminate Which of the factors that the industry takes for granted should be eliminated ?

22. ERRC Grid Y ellow T ail The Case of yellow tail Eliminate Enological terminology & distractions Aging qualities Above-the-line marketing Raise Price versus budget wines Retain store involvement Reduce Wine complexity Wine Range Vineyard prestige Create Easy drinking Ease of selection Fun & adventure

23. Example of yellowtail Eli m in ate Reduce Raise Create

24. Yellow Tail • • • • • • • Only 2 types initially – Chardonnay and Shiraz Fruity, soft on palette, sweet-ish – great for those who had not drunk wine before Same bottle for red and white – low logistics costs Simple vibrant packaging – lower case letters/kangaroo Un-intimidating They were selling “The essence of a great land … Australia” – ie they were not selling the wine Australian clothing for the retail staff – they enthusiastically promoted a wine they could understand.

25. Value Innovation of [yellow tail] Utility proposition (cust o mers, d i s t r i b u t o rs a n d retailers) Creating of a social drink that is accessible to anyone Easy drinking, ease of selection, sense of fun and adventure Limit number of SKUs Price to move at volume Price proposition Targeted at the mass of customers Priced against the alternative (6-pack) Cost structure Elimination of working capital tied up in aging wines Fast product turnover

26. E x a m p les

27. Results No 1 imported wine (outsells France and Italy) • • Fastest growing imported wine in the history of the USA industry New consumers of wine Jug drinkers trade up Premium wine drinkers trade down Industry criticizes them mercilessly at first Now wine press blurb gives it a “best buy” for value; winning wine awards.

28. The Case of Cirque du Soleil Cirque du Soleil achieved rapid growth in a declining industry with low profit potential Cirque du Soleil created uncontested new market space that made the competition irrelevant If you don’t know them you can see some at http://www.youtube.com/watch?v=M4lAPI5BAuk

29. Example: Cirque du Soleil Instead of simply trying to outpace the competition, Cirque du Soleil offered people both the fun and thrill of the circus and the intellectual sophistication of the theater Because of this, Cirque du Soleil appealed to both circus customers and noncustomers

30. Example: Cirque du Soleil Each show, like a theater production, had its own unique theme and storyline This allowed customers to return to the show more frequently They also did away with the traditional high- priced concessions and vendors thereby cutting costs

31. Example: Cirque du Soleil Cirque du Soleil effectively combined the best of both the circus and the theater while eliminating everything else This allowed them to achieve both differentiation and low cost

32. Eliminate-Reduce-Raise-Create Ra i se Unique venues E li m i n a t e Star Performers Animal shows Aisle concession sales Multiple show arenas Reduce Fun and humor Thrill and danger Create Theme Refined environment Multiple productions Artistic music and dance

33. The Strategy Canvas of Cirque du Soleil hi offering level lo Price Fun & Humor Unique Venue Aisle Concessions Multiple Show Arenas Thrills & Danger Animal Shows Star Performers T h e m e Refined Viewing Environment Multiple P r o d u ct i o n s Cirque du Soleil El i mi n at e Re d uc e Ra i se Create Artistic Music & Dance © Kim & Mauborgne 2006 Ringling Brothers Smaller Regional Circus

34. Key Takeaways • • Three tiers of non-customers : 1: buyers who purchase your industry offerings out of necessity; will jump ship if given an opportunity. 2: buyers who purchase alternative offerings that serve the same function 3: people who don’t consume even the alternatives to your offerings Non-customer demand is unlocked by providing new buyer utilities , at a price that attracts a mass of buyers, given target costs. Buyers could be not only end-users, but also other participants in a value chain (e.g. distributors)

35. Purple Ocean Strategy Purple Ocean Strategy Just as Blue Ocean Strategy states that a Red ocean Strategy (Competitive Strategy) does not guarantee success for the firm Purple Ocean strategy also claims that Blue Ocean Strategy cannot guarantee the business success in the long run since the Blue Ocean strategy will finally turn Red.

36. Purple Ocean strategy The Purple Ocean strategy believes that in today’s business world organizations require both innovative ideas as well as a series of strategies to compete with rivalry and remain functional in the long term . Consequently, the name Purple Ocean strategy was initially adopted following the secondary colour generated by combining red and blue colours.

37. Green Ocean Strategy Green Ocean Strategy is not about greening or saving the environment. Discipline of strategy that concentrates on how to maximize both fixed, internal and human resources. Instead of copying or benchmarking against the competition, the focus is to be more realistic in relation to what the business can actually commit or deliver.

38. Green Ocean Strategy Using the analogy of beach and ocean , before one reaches the blue part of the ocean, there is the green. So it makes more sense that if a business can stay within the Green Ocean, where the water is clearer and nearer the shore, then this would be less risky, more practical, and eminently more desirable.

39. Conclusion While traditional competition-based strategies (red ocean strategies) are necessary, they are not sufficient to sustain high performance. Companies need to go beyond competing to seize new profit and growth opportunities.