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BLUE OCEANS STRATEGY Ainhoa Castillo Barranco

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BLUE OCEANS

INTRODUCTION

In the last thirty years, business schools have taught a course focused on

competition.

The result strategic objective of this proposal is that the less successful

companies have followed that path, what we would consider a conventional

approach.

On the other hand, shows that the fastest growing companies have paid little

attention to the comparison or battle with rivals, have sought to make their

competitors irrelevant through a strategic logic called value innovation. The

proposal itself this book is provocative, calls to abandon destructive competition

between companies if you will be a winner in the future, thus expanding the

horizons is achieved by generating market value through innovation.

It focuses on the untapped market by offering a product or service that is unique

in a market space where there is no competitor, making the competition

irrelevant. Try to create and develop a new demand for their products and

services. The authors use a simile of oceans and colors to differentiate the two

most common competitive situations in any industry: red oceans and blue

oceans. Red oceans represent all the industries that exist today, while blues

symbolize business ideas currently unknown. In red oceans industries limits are

well defined and are accepted as they are. Moreover, the rules of the

competitive game are known to all. In this world, companies try to overwhelm

opponents gradually clawing market share.

As more competitors appear, the potential for profit and growth decrease,

products are standardized to the maximum and competition becomes bloody.

(hence the red color of the oceans).

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WHAT IS THE BLUE OCEAN STRATEGY?

This strategy has been formulated by W. Chan Kim and Renée Mauborgne in

their book "Blue Ocean Strategy". The thesis behind this book is the need to put

aside destructive competition between companies if you will be a winner in the

future, expanding the horizons of the market and create value through

innovation, aligning all activities organization with the goal of providing cost

reduction while increasing the value of the products.

For authors then is to create blue oceans, generating powerful leaps in value

that constitute in itself a barrier to competition, at least for a sufficiently long

period of time. That is, the blue oceans are characterized by the creation of

markets in areas not currently exploited, and that create opportunities for

profitable and sustainable growth in the long term. There are blue oceans that

have nothing to do with today's industries, but most comes from red oceans by

expanding the boundaries of existing businesses. The fundamental fact is that

they appear blue oceans, competition becomes irrelevant because the rules of

the game are waiting to be fixed.

Red Ocean Strategy Blue Ocean Strategy

Compete in existing market

space

Create a space without market

competition

Challenge competition Make the competition becomes

irrelevant

Exploit existing demand in the

market

Create and capture new

demand

Choose between the choice of

the value or cost

Break the dilemma of value or

cost

Align all the activity system of a

company with the strategic

decision of differentiation or low

cost

Align all the activity system of a

company in order to achieve

differentiation and low cost

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While the term may seem new, its existence is not. Looking back at the past

100 years is easy to see that there are a myriad of industries that were

unknown then (petrochemical, automotive, aviation, etc.) as well as to observe

the last thirty years we will see the emergence of new industries previously

unimagined (cell phone, videos, private emails etc.). This speaks of the

emergence of new ways of doing business over the history of the industrial age.

The reality is that industries are never stops, and continually evolve.

Despite this emphasis has been placed on strategies to sustain competitiveness

in scenarios such as "red ocean", guiding them to compete for a given territory

(which appears as a constant and limited, it own military conception)

However, the history of industry shows that the market universe has never been

constant, creating endless blue oceans. Focus on red oceans, is accepting the

limiting factors of the war (limited territory and the need to defeat the enemy),

deny the distinctive strength of the business world, the ability to create new

market spaces that are still virgins.

VALUE INNOVATION

This strategy places equal emphasis on both value and innovation. Innovation

without value tends to be technology-driven, often going beyond what the

customer is willing to accept and pay. Value innovation occurs when companies

align innovation with utility, price and cost. This is a new way of thinking and

executing strategy that results in the creation of a blue ocean and a "rupture"

with the competition.

As challenges one of the most commonly accepted dogmas in the red ocean

strategies of the type: the trade-off between cost-value. It is commonly accepted

that a company can create more value for customers at a higher cost, or you

can create a reasonable value at a low cost. Here the strategy is understood as

the choice between differentiation and low cost. Who created blue oceans,

while seeking to differentiate low cost.

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How do we find the Ocean Blue?

An effective blue ocean strategy should focus on minimizing the risk (and not

risk taking). Based on the study of different companies throughout the world, the

authors develop a methodology oriented to the development of blue oceans.

A) The strategic canvas

This is both a diagnostic and action framework that enables the

construction of a blue ocean convincing.

By capturing the current state of the market known, allows competition

know where it invests, the factors considered by the industry to compete

(product, service, delivery), and finally establish what customers receive

in this market environment. On the horizontal axis should be placed on

which factors the industry competes and invests in this connection (for

example in the U.S. wine industry considered key factors for the

promotion of a wine are: the price per bottle, communication product,

product aging, prestige of a winemaker and his legacy, the complexity

and sophistication of wine tasting, wine range aimed at covering the

different types of strains and consumer preferences).

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The vertical axis captures the offering level that buyers receive across all

these key factors considered. A high score means that a company offers

more to a buyer, and like spending more on that factor.

By joining the different points forming the curve called value, central to

this canvas, which is a graphic description of a company's performance

on each of these factors of competition in a given industry. (in the case of

the example presented could analyze that there is a great convergence

between different companies in this market, ie between their value

curves, so we could also analyze which are showing the same strategic

profile in both premium products and the products economic). For

authors, in this context-generating profitable growth for a company can

not go through the comparison with the competitor looking surpass

offering more for less. While this strategy can increase sales, will not

lead to the opening of an uncontested market. In this regard suggests

that reorganization strategy, going to focus on alternatives rather than

non-competitors and industry customers rather than customers.

B) The four actions framework

This framework allows you to build a new value curve considering the

buyer value elements. In order to break the traditional trade-off between

differentiation and low cost and to create a new value curve, the authors

propose four questions designed to challenge an industry's strategic logic

and business model They are:

1- What factors of those who conceived and established industry should

be eliminated?.

Answering this question forces us to consider what factors taken into

account now worthless now or even us from those considered of value

by the customer.

2 - What factors should be reduced to lower the standards accepted by

the industry?

Answering this requires us to think that oversized factors have been

following the career undertaken to "beat" a competitor.

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3 - What factors should be increased above the levels considered by the

industry?

His response is directed to remove all types of conditions that the

industry makes the buyers of their products.

4 - What factors-never-considered by the industry to be created?

His answer is oriented to discover new sources of value for buyers,

generating new demand and new pricing strategy.

Applying these strategic responses canvas discover a new reality.

C) The Grid "Eliminate-Reduce, Enhance, Create '

Supplementary to the four actions framework, the authors propose to

complete this grid whose usefulness lies in the establishment of steps to

create a new value curve.

Reading the value curve

The first question to answer value curve is referred to the viability of a business.

When the stock value of a company meets the three criteria that define a good

blue ocean strategy - focus, divergence, and to communicate a strong message

to the market-signal being on the right track.

If the curve lacks focus, this will indicate a high cost structure, and a complex

business model in its implementation and enforcement. The lack of divergence

tells of a difficulty to differentiate in a market, and finally the lack of a strong

message speaks of a potential free trade innovation and unlikely to take off.

When the value curve converges with a company from its competitors, it speaks

of a company caught in the middle of a red ocean (explicit or implicit strategy is

to try to outperform their competition based on cost or quality).

If the curve shows high levels across all factors that constitute the strategic

canvas, this is pointing us a high level of investment and thus we must ask the

question if profit levels reflect the extent of this investment.

A zigzag-shaped curve, we should raise questions about the consistency of the

strategy, or the existence of contradictions (offering high levels in certain factors

while ignoring others).

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As is interesting to consider the terms on which a company called competitive

factors, since the development of concepts in terms understandable to the

buyer not would indicate a more inward than to market by the company.

Principles and risks.

They are divided in 4 and 2 formulation early implementation principles. Each of

these principles mitigates any risk factors.

1. Reconstructing market boundaries

This is the first principle oriented competition to break through

reconstructing market boundaries .. The challenge is to successfully

identify among the infinity of possibilities, a compelling business

opportunity. The authors suggest their research based on six basic

approaches that can enable companies to achieve viable business ideas.

They are based on known data look from a new perspective.

These approaches also challenge a number of assumptions underlying

the strategic definition of many companies such as:

- Define the industry just as they do the competitors strategy focusing

on being the best in the industry.

- Look at their industries through the lens of generally accepted

strategies (such as luxury automobiles) striving to excel within the

group of belonging.

- Focus on the same buyer group.

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- Defining the scope of products and services similar to the rest of the

industry.

- Accept functional or emotional orientation of the industry in which it is.

- Focus on the same point that competitors when formulating strategy

The basic approaches aimed at defining market boundaries are:

Look across alternative industries

In the broadest sense, a company competes not only with companies of the

same industry but to all those who produce services or alternative products to

own. Referring to alternatives is not limited to products / services but also

substitutes all those products or services that have different shape and function

but the same purpose. (An example of this can be cinemas and restaurants.

While there are substitutes, an alternative in itself as it serve the same purpose,

the output-enjoy). The authors note that although we tend to react to the action

of a competitor in our industry, we do not take into account what happens in

industries alternatives to our products.

Look across strategic groups within industries

Strategic Group refers to any set of companies within an industry that has a

similar strategy. In most industries, the fundamental differences between the

"actors" are captured by a small number of strategic groups. In general,

strategic groups can be sorted based on two dimensions: price and

performance. Most companies tend to try to improve their competitive position

within their strategic group. The key to creating a blue ocean through the

existing strategic groups is to break the narrow vision of these groups,

understanding what are the reasons that determine a consumer group decides

to move from one strategic group to another.

Looking through the chain of buyers

In most industries, competitors converge around the definition of what target

buyer. The authors suggest that in fact should be considered a "chain" of

buyers who are directly or indirectly related to the purchase decision. Who pays

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for the product may not be the user, and in some cases it is necessary to

consider the existence of influential groups. While these three groups may

overlap, often differ, keeping different definitions of what they consider value.

Prioritize a corporate purchaser costs, while the user evaluate the ease of use

of a product. A retailer, assess the deliverability of a vendor, or innovative

financing. The final user, no. Look through buying groups, can enable company

redesign their value curves focusing on the full spectrum of buyers.

Looking through the supply of complementary products and services

It is often possible to find untapped value propositions, watching through

complementary products and services. The key is to think about the total

solution you could want when you buy our product or service. A simple way to

do this is to think about what happens before, during and after the product /

service is used (for example, a baby sitting service is necessary for an adult to

go to the movies).

Look through the functional or emotional appeal to buyers

Competition in converging industries not only in the scope of the product /

service offered, but also in the way in which the buyer is "called" to acquire.

Overall the call to buy is made from the functional and from the emotional.

While the appeal of a product is hardly his only emotional or functionality, the

accent is placed on one aspect or another drift over the behavior of the

company that features the product itself.

Over time those who are more oriented to the functional, emphasizing the

functional aspects, while more oriented to the emotional stress this aspect.

When companies defy functional or emotional orientation, usually find a new

market space.

Looking through time

All industries are subject to the effect of external trends that affect their

business over time (see for example the emergence of the internet, or the

global movement for environmental protection).

Afford to look through those wondering how the same trends will change the

concept of customer value, and how they will impact the business model of the

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industry can facilitate the creation of a new market (an example of this is the

market music and the emergence of the internet).

2. Focus on the big picture, not the numbers

The authors propose as an alternative to traditional strategic planning process,

building the strategic canvas. In his view, this process may allow release the

creative potential of people, opening the possibility of finding business

opportunities such blue ocean.

For authors, drawing the strategic canvas not only to set the current strategic

position of the company on the market, but also outline the future strategy. As

seen above strategic design canvas:

It clearly shows the strategic profile of an industry clearly representing current

and future factors that affect competition in the industry.

Displays the strategic profile of current and potential competitors, identifying

factors that invest strategically.

Displays the strategic profile of the company (the value curve) clearly represent

competitive factors that currently invests and which must invest in the future.

Also the canvas should show the degree of focus, divergence and forcefulness

of the message to be sent to market.

But draw the strategic canvas is not a simple task. In this regard the authors

propose a four-step methodology oriented display strategy.

Step 1: The Awakening visual

Compare your own business with competitors. Establish agreements about the

changes required to the current strategy.

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Step 2: Visual Exploration

Browse in the field using the six approaches to creating blue oceans. Observe

the distinctive advantages of alternative products and services. Assess which

factors can delete, create or modify.

Step 3: Visual Strategy

Draw the strategic canvas based on field observations. Receive feedback on

the strategic canvas by own customers, competition and customers. Use this

feedback to build the best strategy.

Step 4: Visual Communication

Distribute the strategic profile of previous and current way that permits easy

comparison. Support only those projects and operational moves that will allow

your company close the gap with the new strategy.

3. Look beyond existing demand

This is the third principle of Blue Ocean Strategy, and is a key element in the

innovation of value. Try to generate as possible to demand a new offer,

minimizes the risk of scale associated with the creation of a new market. To do

companies should challenge two conventional strategy practices: a focus on

existing customers, and the tendency to finely segment to supply to

accommodate differences among buyers.

To maximize the size of their blue oceans, companies must focus on their

customers do not, and instead of focusing on the differences between

customers, should usually try to build on what the customer values. The

customers can not be divided into three categories: the first is composed of

those customers who are not on the edge of the market. These are customers

who eventually buy the offer but feel as mentally industry clients. Just having

the opportunity leave this market, but to receive an offer of value which can

satisfy them, could stay, also multiplying their frequency of purchase. The

second category consists of non-customers by those who refuse to offers from

your industry. They are people who have seen what you offer but refuse to

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adopt it. Finally, the third category is composed of people who have never

thought of their market offerings as an option.

Focusing on the commonalities between these non-customers and existing

customers, companies can understand how to approach these people a new

market.

4. Establish strategic sequence right

The proper development of the strategic sequence significantly reduces the risk

inherent in the adoption of a particular business model. According to the

authors, it must be built following the logic of the buyer is, considering the utility,

price, cost and product adoption.

Overcome key organizational barriers (weaknesses)

Four are the obstacles to the implementation of blue ocean strategy.

The first is cognitive, and relates to the need to make employees aware of the

need for this strategic shift.

The second obstacle is related to the scarcity of resources. It is assumed

(although not for the organizations analyzed by the authors) that the greater

strategic change, the greater the need for resources to implement it. In this

regard and in order to carry this process of change, so that resources are not an

obstacle the authors suggest: Acting on those people and activities that have a

"disproportionate influence on performance" which can greatly facilitate the

break the status quo. Confronting the worst employees of your organization

operational difficulties. Redistribute resources, alocándolos the most critical

points. Redirecting resources, of the most "cold" the flashpoints.

The third obstacle is related to motivation. How do to bring employees to move

with the speed and tenacity needed to break the status quo?. In this regard the

authors suggest Focus on all those who are able to influence others in the

organization or have the ability to lock or release resources. Make visible the

actions or inactions of these organizational referents. "Atomize" leading him to

change dimensions that can be considered achievable by people.

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And finally the fourth obstacle is related to the political aspects of an

organization, so it suggests evaluate who can be considered allies in this

process of change.

Build execution into strategy

Only when all members of an organization are aligned with the strategy and

support it, an organization can become consistent in executing it. While

overcoming organizational barriers is important, an organization can only

support their actions in the attitudes and behavior of its members, who, in line

with the strategy, can go beyond the compulsory execution of the strategy going

to take voluntary cooperation out. To achieve this trust, commitment and

cooperation from individuals, organizations should consider implementing within

the strategy from the beginning.

A key principle is to establish a fair process of strategy formulation. It must

respond to the early involvement of people, explaining why strategic decisions,

and finally the clear establishment of new rules.

The "justice" end process impacting on attitudes (trust and commitment),

behaviors (voluntary cooperation) and strategy execution (exceeding

expectations).

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EXAMPLE: The Cirque du Soleil

The same is brought as an example of what it means to create a blue ocean.

His analysis is important, mainly because its success is achieved in a declining

industry, competing in a market (entertainment) where news emerged (eg game

consoles), and also where rights associations of animals increased their

campaigns against the use of animals in entertainment. As we see from the

point of view of a strategy based on competition, the circus industry seem

unattractive.

Created in 1984, Cirque du Soleil productions have been seen by some forty

million viewers throughout the world. Your income level reached in only twenty

years to those achieved by the Ringling Bros. and Barnum & Bailey for more

than

100. Mounting a show totally differentiated from its competitors, the Cirque du

Soleil reaches a sustained success in creating a new market that made the

competition to become irrelevant.

This circus is not growing at the expense of ordinary consumers of circuses

competitors but instead his show goes to a new group of adult consumers

willing to pay substantially more expensive ticket to see a show that is

unprecedented.

Using this example we can see the grid "eliminate-reduce-raise-create"

DELETE INCREASE

- interpreters stars

- animal shows

- sales concessions in the

hallways

- multiple shows in the sand

- single location

REDUCE CREATE

- jokes, humor

- excitement, danger

- topic

- refined environment

- multiple productions

- art music and dance

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BIBLIOGRAPHY

http://new.blueoceanstrategy.com/

http://www.neuronilla.com/documentate/articulos/17-innovacion-

aspectos-generales/600-la-estrategia-del-oceano-azul-concepto

http://www.slideshare.net/arturocorreabriones/la-estrategia-del-ocano-

azul