Blue Ocean StrategyChapter 9

Conclusion: The Sustainability and Renewal of Blue Ocean

Strategy

Team 1Taylor SkidmoreTara Ferguson

Sunny ToJT Lehotsky

Team 1 will discuss:How soon or late will imitators

appear on your blue ocean horizon?

How easy or difficult is blue ocean strategy to imitate?

When should you reach out to create another blue ocean?

Barriers to ImitationOperational and cognitive barriers

to imitationUsually, a blue ocean strategy will

go without credible challenges for 10-15 years◦Cirque du Soleil◦Southwest Airlines◦Federal Express◦The Home Depot◦CNN

Imitation Barriers Rooted in BOS

Barriers to ImitationBarriers are highWhy we have seldom observed

rapid imitation of blue ocean strategy

BOS is a systems approach◦Requires getting each strategic

element right◦Requires aligning each strategic

element in an integral system to deliver value innovation

When to Value-Innovate AgainDon’t let the competition become

the center of your strategic thought and actions◦Stay focused on the buyer

Need to monitor value curves on the strategy canvas◦Converging curves

Resist to value-innovate again if you still have focus, divergence, and a compelling tagline

Value InnovationTwo views on how industry

structure is related to strategic actions of industrial players.◦Structuralist View◦Reconstructionist View

Structuralist ViewHas its roots in industrial organization

economics. The model of industrial organization analysis proposes a structure-conduct-performance paradigm, which suggests a causal flow from market structure to conduct and performance.

Market structure, given by supply and demand conditions, shapes sellers’ and buyers’ conduct, which, in turn, determines end performance.

Structuralist View Cont.Competition-based strategic thinking

drives companies to try to carve out a defensible position against the competition in the existing market space.

Building advantages over the competition, usually by assessing what competitors do and striving to do it better.

Grabbing a bigger share of the market is seen as a zero-sum game in which one company’s gain is achieved at another company’s loss.

Reconstructionist ViewRecognizes that market

boundaries and industry structures are not set and can be cognitively reconstructed in a fundamentally new way. As industry structure and market boundaries exist only in managers' minds, the reconstructionist view asserts that existing market structures should not limit one's thinking.

Reconstructionist View Cont.Recognizes that structure and market

boundaries exist only in managers’ minds, practitioners who hold this view do not let existing market structures limit their thinking. To them, extra demand is out there, largely untapped.

Requires a shift of attention from supply to demand, from a focus on competing to a focus on the creation of innovative value to unlock new demand.

Cirque du SoleilFocuses on the demand

side rather then the supply side.

Not about offering a better circus by recombining existing knowledge or technologies about acts and performances. Rather, it is about reconstructing existing buyer value elements to create a new form of entertainment.

APPENDIX C

THE MARKET DYNAMICS OF VALUE INNOVATION

The market dynamics of value innovation stand in stark contrast with the conventional practice of technology innovation

Technology innovation• Set high prices, limits access, and

initially engages in price skimming to earn a premium on the innovation lowering prices and costs to retain market share and discourage imitators

Value innovation• Versus: capture the mass of target

buyers from the outset and expand the size of the market by offering radically superior value at price points accessible to them

Potential of economies of scale, learning, and increasing returns importance of valume, price, and cost

Rapid brand recognition built by the company as a result of the unprecedented value offered in the marketplace

Simultaneous drive to lower costs competition nearly irrelevant

and hard to catch up

Monopolistic firmsMonopolistic firms 2 social

welfare loss activities◦High prices limit customers◦Lacking viable competition, not

focusing on efficiency and cost reduction, consuming more scarce resources

Blue Ocean Strategy ApproachBlue ocean strategy against price

skimmingNot focusing on restricting output at

a high price but on creating new aggregate demand through a leap in buyer value at an accessible price

reduce costs to the lowest possible level at start and keep it over time, discouraging potential competitors

buyers win, society benefits