In contrast, iTunes achieved sustainable success and both dominated and grew the blue ocean of digital music. Before companies go public with an idea and set out to implement it, making a concerted effort to communicate to employees is crucial. It is important that employees are aware of the threats posed by the execution of the idea. For example, for a very long time, tooth whitening was a service provided exclusively by dentists and not by oral care consumer-product companies.
For a new strategy to become a pan organization movement, people must not only recognize what needs to be done, but they must also act on that insight in a sustained and meaningful manner. Here the challenge is to motivate the mass of employees fast and at low cost. Although all companies face different degrees of these hurdles, and some firms face only the subset of the four, knowing how to triumph over them is key to attenuating organizational risk. This brings us to the fifth principle of blue ocean strategy – Overcome key organizational hurdles to make blue ocean strategy happen in action. To achieve this effectively, however, companies must discard perceived wisdom on managing change.
- Apple won over millions of music listeners who had been pirating music by offering higher-quality sound along with search and navigation functions.
- Chan Kim and Renée Mauborgne, professors at INSEAD, and the name of the marketing theory detailed on the book.
- To make matters worse, rather than testing the changes on a small group of experimental stores, Johnson implemented them in all 1800 JCPenney stores.
- It was able to create a new market space for itself by going beyond the conventional DVD rental market (red ocean).
- By expanding the demand side of the economy new wealth is created.
A hotly contested market is what Chan and Renée call a red ocean. A red ocean can put the future of your business at risk if you fail to compete. Profits and growth can atrophy as companies try to outperform their rivals by grabbing a larger share of an existing market. In contrast to a blue ocean, a red ocean describes an environment of cutthroat competition among many industry players. Because the marketplace is crowded with rivals, new companies must fight fiercely for a share of any profits.
Doing so entails redefining the industry or creating a new market. When there is limited room to grow, businesses should try to look for verticals to find new sectors where they can enjoy uncontested market share. The aim is to capture new demand with a superior product that makes competition irrelevant. The blue ocean strategy represents the simultaneous pursuit of high product differentiation and low cost, making the competition irrelevant. This is precisely what the blue ocean strategy suggests, though household-name brands used this approach long before a 2004 book gave it a name.
As competitive markets become increasingly cut throat, management will need to be more concerned with blue oceans than the current group of managers is habitual to. Blue ocean strategy is a strategy that challenges the firms to foresee beyond competition by creating new uncontested market space i.e. It is about growing demand and breaking away from the competition.
This type of industry describes a red ocean, representing a saturated market bloodied by competition. To answer this question, we need to look at some examples from a range of industries and identify the specific strategic actions blue ocean companies took to achieve profitable growth. As an integrated approach, blue ocean strategy shows how to align the three strategy propositions – value, profit, and people – to create a win-win outcome. Blue ocean shift builds humanness into the process to build people’s confidence to own and drive the process. If you stay on this path, the basic shape of firm’s value curve will begin to converge with those of the competition.
What Are the Steps to Implement a Blue Ocean Strategy?
These paths challenge the six fundamental assumptions underlying many companies’ strategies. These six assumptions, on which most companies build their strategies, keep companies cornered in red oceans. It is this whole system approach that makes the creation of blue oceans a sustainable strategy. On the contrary, innovations such as production innovations can be achieved at the subsystem level without impacting the company’s overall strategy.
At the same time smaller regional circus used to follow cost focus strategy i.e. investing lesser in all these factors so that their prices are even lesser than likes of Ringling Brothers, Barnum & Bailey. To build people’s trust and commitment across the organization and inspire their voluntary cooperation, firms need to build execution into strategy from the start. This principle allows companies to minimize the management risk of distrust, non-cooperation, https://1investing.in/ and even sabotage. Poor strategic Process Can Ruin Strategy Execution as it creates indignation, distrust, resentment and finally non-cooperation / refusal. A company needs to invoke the most fundamental base of action- the attitudes and behavior of its people deep in the organization. Executing blue ocean strategy requires a culture of trust and commitment that motivates people to execute the agreed strategy— not to the letter, but to the spirit.
BLUE OCEAN EXAMPLES
The most used lever is that of customer productivity, in which an offering helps a customer do things faster or better. Companies must check whether their offering has removed the greatest blocks to utility across the entire buyer experience cycle for customers and noncustomers. The greatest blocks to utility often represent the greatest and most pressing opportunities to unlock exceptional value. A buyer’s experience can usually be broken into a cycle of six stages, running sequentially from purchase to disposal.
Finding blue oceans
The cost side of a company’s business model ensures that it creates a leap in value for itself in the form of profit that is, the price of the offering minus the cost of production. It is the combination of exceptional utility, strategic pricing, and target costing that allows companies to achieve value innovation i.e. a rise in value for both buyers and companies. An innovation in the production process, for example, may lower a company’s cost structure to support its existing cost leadership strategy without changing the utility proposition of its offering. Although innovations of this nature may help to secure and even lift a company’s position in the existing market space, but such a subsystem approach will rarely create a blue ocean of new market space. Developed by Chan Kim and Renee Mauborgne, the Strategy Canvas is a diagnostic and action framework for building a compelling blue ocean strategy.
How to implement a blue ocean shift
Venture strategies are specifically about the technological innovation of companies towards a dynamic market. Blue Ocean Strategy is about value innovation in general, in which no emphasis is put on reducing the speed to market. When conducting a competitive analysis to improve your business and better serve your customers, be honest about your competitors’ strengths and success. Advocates of Kim and Mauborgne’s strategy would say this tactic promotes merciless competition, remaining in the red ocean. CTR’s tabulating machine In 1914, CTR created the business machine industry by simplifying, modularizing, and leasing tabulating machines. After you’ve created your Blue Ocean Strategy and product, it’s time to promote your new offerings and attract a new audience segment.
Apple brought music online with iTunes and changed how people listen to music forever. They launched iTunes in 2003 to capitalize on the then-growing trend of people trading music online and mp3 players that could play online music. Uber revolutionized how people travel by inventing an online taxi service. Although it’s not a completely new product, Uber eliminated the inconvenience of waiting for taxis on the street. It also introduced ride tracking, solved payment problems, and implemented instant customer service.
Since blue ocean strategies are focused on innovation of value in untapped market spaces, and balanced scorecards are used to implement blue ocean strategies by using buyer utility, price, cost, and adoption. A high score means that a company offers buyers more, and hence invests more, in that factor. We can now plot the current offering of circus companies across all these factors to understand their strategic profiles, or value curves. As per the value curve, the basic component of the strategy canvas, is a graphic depiction of a company’s relative performance across its industry’s factors of competition. To move away of red oceans, companies must go beyond the accepted boundaries that define how they compete.
Why Is a Blue Ocean Strategy Difficult to Implement?
Even Ford’s revolutionary assembly line can be traced to the meatpacking industry in America. Like those within the auto industry, the blue oceans within the computer industry did not come about through technology innovations alone but by linking technology to what buyers valued. As with the IBM 650 and the Compaq PC server, this often involved simplifying the technology. Answering these questions helps businesses grasp existing industry strategies and create a business model based on the Blue Ocean Strategy, where there is no trade-off between value and cost.
Moreover, it includes untapped market spaces that offer prospects for higher profitability. The rules of the game have yet to be drawn up, there are no large market share holders, and there is sufficient potential. A blue ocean is an analogy, to describe the deeper potential that can be found in environments where no company has ever been present.
As competition mounted in the global marketplace, a slew of red ocean strategies emerged, all arguing that competition was at the core of corporate success and failure. Today, one hardly talks about strategy without using the language of competition. The term that best symbolizes this is “competitive advantage.” In the competitive-advantage worldview, companies are often driven to outperform rivals and capture greater shares of existing market space.
Very few people alive today were around when the first Model T rolled off Henry Ford’s assembly line in 1908, but the company’s brand still benefits from that blue ocean move. IBM, too, is often regarded as an “American institution” largely for the blue oceans it created in computing; the 360 series was its equivalent of the Model T. Part of the explanation is that corporate strategy is heavily influenced by its roots in military strategy. It is about confronting an opponent and driving him off a battlefield of limited territory.