By W Chan Kim and Renee Mauborgne Competing in overcrowded industries is no way to sustain high performance. The real opportunity is to create blue oceans of uncontested market space. Blue and Red oceans Blue ocean characteristics Profit and growth consequences Why blue ocean is so important for future companies Examples Check cirque du Soleil. Two types of oceans: - Red ocean. - Blue ocean. Ways to create blue ocean: 1- explore completely new industries, as eBay did with the online auction industry. 2- from within a red ocean when a company alters the boundaries of an existing industrythe example of Cirque du. Blue and Red Oceans Blue ocean is the engine of growth. What is The problem with red ocean? 1- commoditization of products 2- price wars 3- declining profit margins 4- differentiating your brands becomes harder both in economic upturns and in downturns. The paradox of strategy -Line extensions 86%- product development - Creating new markets only 14%. - The 86% account for 62% of total revenues – 39% of total profit. - The 14% in new markets delivered 38% of the total revenues and 61% of total profits. Red ocean is about finding an enemy and make a fight and win the war against your enemy. Blue ocean is about doing business where there is no competitor. The rhetoric about competitive advantage is gone. Blue ocean is not about technology innovation. Incumbents often create blue oceans. Company and industry are the wrong unit of analysis So what is the most appropriate unit of analysis for explaining the creation of blue oceans? Its the strategic move. What is strategic move means? It is the set of managerial actions and decisions involved in making a major market creating business offering- PC servers by Compaq. Google Earth. Facebook. Creating blue oceans builds brands- brand equity that lasts. Ford, IBM, Apple, Al Marai, STC. So strategy is the secret. Never use competition as a benchmark No trade-off between price and value. Fun and art of circus – fun of the circus and art of the theatre. The case study here is Cirque Du Soliel and Ford and may be other examples. Their strategic move, cost, value and blue ocean. The reconstructionist view versus structuralist or the environmental determinism Aljazeera Vs Al-Arabia southwest airlines. Fatafeet. The whole system approach is difficult. What makes an innovation fails and what makes an innovation succeeds? 2% succeeds Where do you think the word strategy is coming from? It is from militaryFixed piece of land- enemy- Fixed demand- fighting for a piece of the demandAnd you try to fight for a bigger piece and that is why you find yourself swimming in a blue ocean. Zero sum game- one is winning and the other is losing. Your mind will start from the total demand, competitors, market share, fighting. No creativity and no innovation. You get bigger piece and someone else will get less- what colour is this. For Strategic growth you need to look for blue ocean. Because there is fighting over the growth in red ocean. http://www.youtube.com/watch?v=zrGOBdV m-KE Strategic logic Challenge the industry assumptions Counter trend Outside the box Outside the market That is not the way to do it- inside the market Options to think of their value to the buyer or their cost to the seller –so it is about thinking and innovating in the process of reducing cost structure simultaneously with value maximization for the customer. It is a process of evaluation and deep thinking about it Eliminate Reduce Raise Create Nintendo has gone outside the market to appeal to mothers, elderly and adult- based on why????? Think of service station? Suppose you want to maintain your car. Value proposition-for the buyer Profit propositionPeople structure- what motivates people to make it a success. Increase the size of the market Focus on non-customers- who are they Different and low cost De-segment the market – shared needs.