Thursday, February 28, 2008

Blue Ocean Strategy

Blue ocean strategy was found by professors Kim and Moborgne. This strategy gives a new approach to the formation of new business strategies for all businesses.

Blue ocean strategy is to defined, in red oceans, existing industries and businesses, an unknown market space that has never been tapped by any player in the current industry. In red oceans, competition is severe; existing players try to outperform their rivals by using a “zero-sum game”; the market place is defined and exploited by all players; industry boundaries are defined and accepted by all players. Blue oceans are markets that have never been created. Therefore, competition is irrelevant; market potential is vast and has never been exploited by existing players.

The most recent company that has applied blue ocean strategy is Nintendo. Nintendo has found a new console game that Microsoft and Sony, its two main competitors, in the console game market. Going beyond the boundary of the industry, Nintendo has created a game, Nintendo Wii, that players can play every where in the room by using the remote controller. The player can make movements like he or she plays in an actual game. This invention has helped Nintendo surpass Microsoft and Sony to occupy more than 80% of console game market.

How to create a blue ocean strategy?

The objective of blue ocean strategy is to make competition irrelevant by creating a new value curve for both customers and the company itself.

Four steps:

- What to reduce: Which factors should be reduced well below the industry’s standard?

- What to eliminate: Which factors that the industry takes for granted should be eliminated?

- What to raise: Which factors should be raised well above the industry’s standard?

- What to create: Which factors should be created that the industry has never offered?

How to do?

- Look across strategic groups within the industry

- Redefine the buyer group

- Look at the complementary products and service offerings in the industry

- Rethink functional-emotional orientation of the industry

- Try to shape external trends overtime

The creation of blue oceans is to drive cost down while driving value up for buyers. This will create a leap value for buyers and the company. After creating a blue ocean, companies should create compelling execution strategy to align prices and costs to create true value to buyers.

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