BLUE OCEAN STRATEGY is the simultaneous pursuit of differentiation and low cost to open up a new market space and create new demand. It is about creating and capturing uncontested market space, thereby making the competition irrelevant. It is based on the view that market boundaries and industry structure are not a given and can be reconstructed by the actions and beliefs of industry players.
The Business Model: How to Develop New Products, Create Market Value and Make the Competition Irrele
The Key Resources Building Block describes the most important assets required to make a business model work Every business model requires Key Resources. These resources allow an enterprise to create and offer a Value Proposition, reach markets, maintain relationships with Customer Segments, and earn revenues.
The Key Activities Building Block describes the most important things a company must do to make its business model work. Every model calls for a number of Key Activities. These are the most important actions a company must take to operate successfully. Like Key Resources, they are required to create and offer a Value Proposition, reach markets, maintain Customer Relationships, and earn revenues. And like Key Resources, Key Activities differ depending on business model type. For software maker Microsoft, Key Activities include software development. For PC manufacturer Dell, Key Activities include supply chain management. For consultancy McKinsey, Key Activities include problem solving.
At the same time, Blue Oceans are the complete opposite. The market spaces are new and untouched, and the competition is meaningless because the rules and boundaries are not specific. You can say the Red oceans were once Blue as not all industries have been available since the Big Bang. Even now the blue oceans are being created continually. 20 years ago who could have imagined something as abstract as cryptocurrencies could be traded and companies could start making wallets to make a profit.
The key to exceptional business success, Kim and Mauborgne say, is to redefine the terms of competition and move into the blue ocean, where you have the water to yourself. The goal of these strategies is not to beat the competition, but to make the competition irrelevant.
Solving relevant customer jobs and finding product-market fit is just one of many important factors that make up a business. Great technologies, products and services must also have the right business models to support and sustain them. You will fail even with value propositions that customers want or technologies that customers crave if your business model is flawed (e.g. few people know that Kodak, which filed for bankruptcy in 2012, helped invent the digital camera that crushed its business model).
That's exactly why we invested so much time, energy and money in writing Value Proposition Design. To make the necessary balance between the components of a company's value proposition, the business model that supports it, and the environment that influences it more explicit. We believe the book and its online companion tools will help you learn the process of true value creation, so that you can create and deliver what customers want and stay at the forefront of business evolution.
Traditionally, managers break down their business systems in production terms. "Step one: create the product. Step two: make the product. Step three: sell the product." This may be useful for production-side projects such as cost cutting. But if you are trying to deliver a compelling value proposition, it makes more sense to divide up the business system into customer-oriented stages: choosing the value, providing the value, and communicating the value to the customer. A business system thus broken down is called a value delivery system, and in preparing it you should be able to describe the role that each department and employee plays in one or more of these three value-related tasks (Exhibit 5). Only then can you be sure that your chosen value proposition pervades every layer of your organization.
The competitive environment in which modern enterprises operate compels them to scrutinize where they are allocating budget and resources and whether this allocation is paying off. It should motivate them to seek, develop and protect new, uncontested markets that will render the competition irrelevant, hence creating a new competitive advantage. Where is your Blue Ocean?
Because the purpose of innovation is to create competitive advantage, you should focus on creating value that either saves your customers money and time or makes them willing to pay more for your offering, provides larger societal benefit, makes your product perform better or more convenient to use, or becomes more durable and affordable compared to the previous product and the ones in the market.
Innovation is very important when it comes to strategy. It can create superior business growth, reduce costs, eliminate competition and even create entirely new markets, but the term innovation has been so overused that it has lost its meaning.
A blue ocean beverage strategy identifies, targets, and captures untapped opportunities in the market, leveraging everything from product development to marketing, sales, and operations. Energy shot maker, 5-hour Energy, created a blue ocean of untapped market potential by placing their products in the countertop display at checkout instead of in the cooler doors and grocery aisles where they would be in direct competition with giants like Monster and Rock Star.
And while innovation may sometimes seem risky, ignoring it could prove fatal. Competitors are pursuing new ways to create and capture market value and make your business irrelevant. They are differentiating themselves and trying to disrupt the market through new business models, new products, or new services.
The first principle of the blue ocean strategy is the redesign of market boundaries to break out of the competition and create blue oceans. This principle considers the risk potential of the search, with which many enterprises have to deal. The challenge is to successfully identify commercially compelling blue ocean opportunities from the stack of existing opportunities. Companies must develop a strategic view of alternative industries, strategic groups, buyer groups, complementary product and service offerings, the functional and emotional positioning of industry and, in particular, the (short-term) time horizon. This gives organizations a deep insight into the redefinition of market realities and the development of blue oceans [11].
Manufacturing, until recently, was a daunting space with relatively few players. Barriers to entry were high and initial capital investments hefty; products had to navigate multiple intermediaries before reaching the consumer. Today, however, huge shifts in technology and public policy have eroded barriers that once impeded the flow of information, resources, and products. In a world where computing costs are plummeting, connectivity is becoming ubiquitous, and information flows freely, previously cost-prohibitive tasks and business models are becoming more available to more players. Barriers to entry, commercialization, and learning are eroding, as is the value proposition for traditional intermediaries in the supply chain. Meanwhile, rapid advances and convergences in technology, including additive manufacturing, robotics, and materials science, further expand what can be manufactured and how. All of these developments are combining with changing demand patterns to increase market fragmentation, supporting a proliferation of product makers further down the value chain with more direct consumer contact. Upstream, larger manufacturers will likely consolidate, taking advantage of scale to provide components and platforms used by smaller players.
These disconnects can have multiple implications for how value is created and captured. As the distance between manufacturer and consumer narrows, intermediaries whose sole value is to hold inventory are likely to be squeezed out. The most likely survivors will be those that create more value for consumers, perhaps by providing useful information, helping people make choices, or allowing buyers to experience products in new ways. For the same reasons, successful manufacturers will be those that can engage directly with consumers, narrow the gap between prototype and product, and move their business models from build-to-stock to build-to-order.
As product innovation, design, and assembly fragment, other parts of the business landscape will consolidate where scale and scope make it easier to support the niche operators. Areas of concentration will be marked by players, tightly focused on a single business type or role, that can muster the significant level of investment required to enter or sustain marketplace position in that role, and that generate value by leveraging resources such as large-scale technology infrastructure or big data to provide information, resources, and platforms to more fragmented businesses. Because these areas of concentration are driven by significant economies of scale and scope, early entrants that can quickly achieve critical mass are likely to gain a significant competitive advantage. Businesses that choose to focus on one of these roles are advised to be early movers rather than fast followers.
So how do influence points emerge and evolve? They attract participants through the value they provide, and inspire action with positive incentives. Influence points are most likely to emerge where they can provide significant and sustainable functionality to the broader platform or ecosystem, where their functionality can evolve rapidly, where network effects drive consolidation and concentration of participants, and where they can encourage fragmentation of the rest of the platform or ecosystem. For example, in the early days of the personal computer industry, development of de facto standards for microprocessors and operating systems encouraged significant fragmentation in other aspects of the technology. These standards also created concentrations in knowledge flows as companies sought to connect with makers of the standard technologies to understand how they were likely to evolve. 2ff7e9595c
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