Blue Ocean Strategy, Value Innovation of Blue Ocean Strategy, Marketing Management

1. Strategic Management
Assignment No: 4 Assigned by
Madam Ayesha Zahid
Prepared by
Syed Muhammad Numan
Azal MSBA

2. Blue Ocean Strategy
Introduction:
The Blue Ocean Strategy was developed in 2004 by W. Chan Kim who was professor
of
Strategy and International Management at INSEAD in Fontainebleau, France whereas Renee
Mauborgne was the distinguished Fellow and professor of strategy & management at
INSEAD. The term “Blue Ocean” describes a new market with little or no competition
or a market which only have a few barriers.
In their book they emphasizes that in spite of competing in the same and overcrowded industry,
the companies should focus on creating uncontested market space by making the
competition irrelevant. Both the authors, Kim and Renee indirectly criticized the famous “Porters
Five Forces Model” but they didn’t mention the name of Michael Porter.
Kim and Renee presented four actions framework that businesses should consider which creating
Blue Ocean. They also presented examples of recent businesses that created the Blue Oceans.
This strategy states that the market boundaries and industry structure are not predefined and can
be reconstructed through the actions and beliefs of the industry players.
Talking about the Red Ocean, Kim and Renee stated that it the representation of all the
industries existing today. The boundaries of the industries are defined and the rivals try
to outperform one another in order to get greater market share.

3. Profit & Growth consequences created by
Blue Ocean
Business Launch
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4. Value Innovation
The cornerstone of Blue Ocean Strategy
It is the key of Blue Ocean Strategy; value innovation was first outlined by Kim and Renee in
1997, described that in spite of focusing on beating the competition the firms should create a leap
in value for the customer and for themselves by making the competition irrelevant. Create new
demand and change the market space instead of fight for the existing market share.
Through valuation innovation firms introduce new technologies that are helpful in achieving
both product differentiation and low costs.
The objective of value innovation is not to produce an entirely new product, service or
technology rather than its goal is to improve the current product or eliminate the cost of
that product or service.
W.Chan Kim and Renee Mauborgne suggested following four questions to break the Value cost
trade off. 1
 Which of the factors that the industry takes for granted should be eliminated?
 Which factors should be reduced well below the industry standard?
 What factors should be raised well above the standard of the industry?
 What factors should be created that the industry has never offered?
1
The value/cost trade-off is the view that a company has the choice between creating more value for customers but at a
higher cost, or reasonable value for customers at a lower cost.

5. Red Ocean versus Blue Ocean Strategy
To describe the market universe Kim and Renee introduced the term Blue Ocean and Red Ocean.
In Red Ocean they include all the known market spaces and the industry existing today. In which
all the players are aware of the industry’s boundaries where companies try to beat their
competitors by performing better than their rivals. While in Blue Ocean they include all
the unknown industries that don’t exist today, unknown market spaces, where rivals don’t
try to outperform their rival rather they focus on making the competition irrelevant by
creating new demand. The opportunity for profit and growth is huge and vast in the Blue Oceans.

6. Examples of Blue Oceans
Cirque du Soleil:
The writers presented the example of Cirque du Soleil that invented a new industry;
Cirque
combined the features of both traditional circus and the theater. Cirque made the
competition
irrelevant by creating a new and uncontested market space which wasn’t explored before as a
result of it Cirque achieved rapid growth in a declining industry and earned a profit in just 20
years which took Ringling Bros. and Barnum & Bailey—the World’s leading circus a century.
Instead of beating their rivals, Cirque attracted its customers by offering both fun and thrill of the
circus and sophisticated environment of the theater.
Ford Model T:
Kim and Renee emphasized on making the competition irrelevant and never use it as
a
benchmark. Here they presented the example of Ford Model T car which was introduced in
1908 in America, the car was not only durable & affordable, but was also made for
everyday use. Before Ford Model T car, wealthy people used to buy customized cars for
their weekend trips. The Model T car was only available in Black color and it was a easy to
use and easy to fix car. For price setting, the Ford went outside the industry and offered the
Model T car at the price of horse drawn carriage, in this way they converted the customers
of horse drawn carriage into Ford Model T car buyers.

7. Two Types of Views
In this theory, we have also gone through two different types of views, known as
sturcturalist view or environmental determinism, and re-constructionist view.
Sturcturalist view:
It is the assumption of the Red Ocean Strategy. According to this view, structural conditions of
the industry are given within these limits the firms are forced to compete. Moreover, companies
are mostly dependent on the economic forces.
Re-constructionist view:
This view is the opposite of the Sturcturalist view, this view states that the boundaries of
the
market and industry can be redefined through the actions and beliefs of the
industry players.

8. Overcome Key Organizational Hurdles
According to Kim and Mauborgne, a company may face the following four barriers while
developing and implementing the Blue Ocean strategy.
Cognitive hurdles:
It can be described as the “mental blocks” that holds back the employees of an organization to
realize that change in strategy is necessary. This hurdle can be overcome by putting employees
face to face to the operational problems.
Limited Resources:
It is the second biggest hurdle that managers of an organization face while changing the strategy.
It is believed that greater resources will be required if there is a major change in strategy.
Political hurdles:
Political hurdles represent all the strong political forces that may arise and stop the initiation and
execution of a new strategy. Managers should not only consider political hurdles but they also try
to overcome these hurdles.
Motivational hurdles:
The hurdle might be faced while implementing a new Blue Ocean Strategy. It is suggested that
once the top management has realized that a change in strategy is essential, the managers should
motivate and ensure that the employees of the organization show commitment and act
into a
meaningful manner.

9. Conclusion
To conclude, we can say that the Red Ocean and Blue Ocean strategies are the fact of the market
environment and both the strategies will co-exist. Firms are forced to compete in Red Ocean
with
high competition and low growth, minimal opportunities and low profit margins. Blue
Ocean Strategy on the other hand is mixture of several elements such as theories,
assumptions, frameworks and concepts or assumptions. Blue Ocean Strategy emphasizes that the
organizations should create new market space by thinking out of the box, redefine the
industry boundaries, rules through their actions and beliefs and make the competition
irrelevant. If the firms successfully implement the Blue Ocean Strategy they will be in a
strong position and their competitors will find it hard to compete or imitate.
After going through different and several aspects of Blue Ocean Strategy we can conclude that
the opportunities and advantages are great in following this strategy. Kim and Mauborgne
present their point of views in the form a strong theory which is not yet tested enough. However
in business world, a theory which is based on assumptions, observations and only a few
successful case studies is not enough to be successful or beat the rivals in the industry or achieve
long term organizational success. We cannot ignore, market forces, industry’s
environment, limited resources of the firms, top to down commitments within the organization
etc. although the authors have explained that the theory will eliminate risks but unable to present
in detail how this will be achieved and to what extent?

10. Four Actions Framework
Cirque du Soleil:
Eliminate
 Stars performances
 Animal’s shows
 Aisle Concession
 Multiple shows arena
Raise
 Unique Venues
Reduce Create
 Fun and humor
 Thrill and danger
 Multiple productions
 Music and dance
 Theme
 Refined environment
Ford Model T:
Eliminate Raise
Ford replaced
craftsmen with unskilled
laborers, each of whom
worked quickly and
efficiently on one small
Reduce
Price
 Ford offered the mass of
buyers a Leap in value, the
company also achieved the
lowest cost structure in the
industry,
Create
Customize car offered for everyday
use
that was far more affordable, durable,
and easy to use and fix than rivals’
offerings.