Archive for the ‘Blue Ocean Strategy Success Stories’ Category

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In today’s overcrowded industries, competing head-on results in nothing but a bloody red ocean of rivals fighting over a shrinking pool. Companies have long engaged in head-to-head competition in search of sustained profitable growth, they have fought for competitive advantage, battled for market share and struggled for differentiation. Blue Ocean Strategy argues that tomorrows leading companies will succeed not by battling competitors, but by creating “blue oceans” of uncontested market space, where competition is rendered irrelevant of companies that made competition irrelevant in their industries to elicit the strategic logic behind Blue Ocean Strategy.

Tata Nano – Tata Motors’ wildly successful four-passenger city vehicle has revolutionized the Indian car market while proving that cheap does not always mean bad quality.

As the leading automobile company in India Tata Motors achieved what is known as the cornerstone of Blue Ocean Strategy – value innovation. Value innovation is the simultaneous pursuit of differentiation and low cost.

The Nano is the least expensive production car in the world priced just around USD 2,200. But how does the Nano differ from the many failed Indian Brands that have focused on low price?

Simple. Tata Motors was able to reconstruct buyer value elements by generating a new value curve.

Cheap does not mean bad quality. They were able to produce a quality product and value innovate by focusing on creating a leap of value for buyers and for the company and in this case, opened up new and uncontested market space. Blue Ocean Strategy states that value to buyers comes from the offering’s utility minus its price, and because value to the company is generated from the offering’s price minus its cost, value innovation is achieved only when the whole system of utility, price and cost is aligned.

In Blue Ocean Strategy to break the trade-off between differentiation and low cost to create a new value curve as they did, there are four questions (Four Actions Framework) that challenge an industry’s strategic logic and business model: Which factors does the industry take for granted and should be eliminated, which factors should be reduced below industry standard, which factors should be raised well above and created that the industry has never been offered?

Most families in India have two-wheeled vehicles and predominately drive in the city under 300 km. Recognizing the potential of the industry and asking these four questions Tata designed the Nano primarily for the Indian market. In the efforts to make an affordable car Tata Motor’s eliminated many of the non-essential features by not including airbags, air-conditioning, designing a rear-engine that only has two cylinders, no power steering which is not necessary because the car is so light, only using three lug nuts on the wheels instead of four, using only one windshield wiper instead of two, reducing the amount of steel used in the design and depending on lower priced Indian labor.  

As a result the reliable vehicle serves the functional purpose of transportation at an affordable price – the world’s cheapest car.

In today’s overcrowded industries, competing head-on results in nothing but a bloody red ocean of rivals fighting over a shrinking pool. Companies have long engaged in head-to-head competition in search of sustained profitable growth, they have fought for competitive advantage, battled for market share and struggled for differentiation. Blue Ocean Strategy argues that tomorrows leading companies will succeed not by battling competitors, but by creating “blue oceans” of uncontested market space, where competition is rendered irrelevant of companies that made competition irrelevant in their industries to elicit the strategic logic behind Blue Ocean Strategy.

How do you maximize the size of the blue ocean you are creating?

Research In Motion (RIM) is a Canadian business most popularly known for its launch of the BlackBerry smart phone in 2001. The company has grown to achieve FY2007 sales of US $3.04 billion and net income of $631.6 million.

Success creating a Blue Ocean…

The Blue Ocean that RIM created through its BlackBerry keeps growing every year despite the intense wireless handheld market competition. RIM continues to penetrate existing markets and grow internationally. The company’s sales grew 47% in FY2007 compared to 2006 and its earnings grew 65%. Subscribers quadrupled from 2 million in 2004 to 8 million by April 2007.

Blue Ocean strategic move…

RIM’s blackberry launch not only created technology innovation, but it created superior buyer value innovation as well. This is an example of the third principle of Blue Ocean Strategy: Reaching beyond existing demand. This is a key component of achieving value innovation. RIM broke away from traditional cell phone and pager competition because the BlackBerry offered a new type of wireless handheld solution for companies.

By aggregating the greatest demand for the BlackBerry, RIM’s approach attenuated the scale risk associated with creating a new market. As a result, companies adopted BlackBerries because it saved time and money because staff members could now get and send email almost any place at any time without having to go back to the office.

How do you reach beyond existing demand?

According to the authors of Blue Ocean Strategy, professors Chan W. Kim and Renee Mauborgne, companies should challenge two conventional strategy practices. “One of this is focusing on existing customers. The other is the drive for finer segmentation to accommodate buyer differences.”

Typically, to grow their share of a market, companies strive to retain and expand existing customers. This often leads to customer preferences. The more intense the competition is, the greater, on average, is the resulting customization of offerings. There are now over 100,000 installations of BlackBerry Enterprise Servers worldwide. Rim is aggressively partnering with wireless carriers to expand availability. The BlackBerry’s success in the corporate market has quickly spread over to the consumer market where RIM plans significant future growth.

In Blue Ocean Strategy, “To maximize the size of their blue oceans, companies needs to take a reverse course.” Companies, as many of BlackBerry’s competitors are, compete to embrace customer preferences through finer segmentation. Often times this may result in creating too-small of target markets.

“Instead of concentrating on customers, they need to look to non customers. And instead of focusing on customer differences, they need to build on powerful commonalities in what buyers value.”

RIM currently has service agreements with over 270 wireless networks in about 110 countries. As a result RIM has been able to reach beyond existing demand to unlock a new mass of customers that did not exist before.

Steadily increasing buyer value…

BlackBerry offers high reliability, long battery life, multiple mailboxes at once, and web browsing capability. More so, BlackBerry created a highly secure offering for companies because all emails and their contents could be protected behind their corporate firewalls.

So, when your company is trying to reach beyond existing demand and maximize the size of your blue ocean – Blue Ocean Strategy asks these questions:

“Where is your locus of attention – on capturing a greater share of existing customers, or on converting non customers of the industry into new demand? Do you seek out key commonalities in what buyers value, or do you strive to embrace customer differences through finer customization and segmentation? To reach beyond existing demand, thinking non customers before customers; commonalities before differences; and desegmentation before pursuing finer segmentation.”

In today’s overcrowded industries, competing head-on results in nothing but a bloody red ocean of rivals fighting over a shrinking pool. Companies have long engaged in head-to-head competition in search of sustained profitable growth, they have fought for competitive advantage, battled for market share and struggled for differentiation. Blue Ocean Strategy argues that tomorrows leading companies will succeed not by battling competitors, but by creating “blue oceans” of uncontested market space, where competition is rendered irrelevant of companies that made competition irrelevant in their industries to elicit the strategic logic behind Blue Ocean Strategy.

Do you remember when the terms “Social Media” and “Web 2.0″ did not exist?

Social networking has always been a fundamental aspect of our business and personal relationships. But, now, ubiquitous internet and web-based technologies have revolutionized networking opportunities.

Let’s consider social media giant Facebook and its success creating a Blue Ocean of uncontested market space.

Founded in February 2004 by CEO Mark Zuckerberg, Facebook is a social utility that helps people communicate more efficiently with their friends, family and coworkers. The company develops technologies that facilitate the sharing of information through the social graph, the digital mapping of people’s real-world social connections. Anyone can sign up for Facebook and interact with the people they know in a trusted environment. It allows content consumers to become content producers.

Facebook’s Blue Ocean…

The term Blue Ocean refers to Blue Ocean Strategy. Blue Ocean Strategy is a proven system for making competition irrelevant by creating new market spaces through simultaneous achievement of differentiation and low cost. Instead of being locked in red oceans of fierce, bloody competition, you can apply Blue Ocean Strategy to move to clear, uncontested waters of highly profitable growth.

Making the competition irrelevant is exactly what Facebook has done. Since becoming the first Web 2.0 social media networking site in 2004, here are the statistics:

Facebook now has more than 350 million active users - 50% of active users log on to Facebook in any given day, more than 35 million users update their status each day, more than 55 million status updates posted each day, more than 2.5 billion photos uploaded to the site each month, more than 3.5 billion pieces of content (web links, news stories, blog posts, notes, photo albums, etc.) shared each week, more than 3.5 million events created each month, More than 1.6 million active Pages on Facebook, more than 700,000 local businesses have active Pages on Facebook, more than 70 translations available on the site, about 70% of Facebook users are outside the United States, over 300,000 users helped translate the site through the translations application, more than one million developers and entrepreneurs from more than 180 countries, every month, more than 70% of Facebook users engage with Platform applications, more than 500,000 active applications currently on Facebook Platform, More than 250 applications have more than one million monthly active users, more than 80,000 websites have implemented Facebook Connect since its general availability in December 2008, more than 60 million Facebook users engage with Facebook Connect on external websites every month, two-thirds of comScore’s U.S. Top 100 websites and half of comScore’s Global Top 100 websites have implemented Facebook Connect. There are more than 65 million active users currently accessing Facebook through their mobile devices. People that use Facebook on their mobile devices are almost 50% more active on Facebook than non-mobile users. There are more than 180 mobile operators in 60 countries working to deploy and promote Facebook mobile products.In just six years Facebook has been able to create its own Blue Ocean of uncontested market space.

Let’s consider the reason Facebook might be an example of Blue Ocean Strategy…

The metaphor of red and blue oceans describes the market universe. Red oceans are all the industries in existence today-the known market space. In the red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Here companies try to outperform their rivals to grab a greater share of product or service demand. As the market space gets crowded, prospects for profits and growth are reduced. Products become commodities or niche, and cutthroat competition turns the ocean bloody. Hence, the term red oceans.

Blue oceans, in contrast, denote all the industries not in existence today-the unknown market space, untainted by competition. In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set. Blue Ocean is an analogy to describe the wider, deeper potential of market space that is not yet explored.

Facebook has experienced such growth because of its value innovation. The corner-stone of Blue Ocean Strategy is ‘Value Innovation’. A blue ocean is created when a company achieves value innovation that creates value simultaneously for both the buyer and the company. The innovation (in product, service, or delivery) must raise and create value for the market, while simultaneously reducing or eliminating features or services that are less valued by the current or future market.

Facebook is now the second most-trafficked PHP site in the world, and one of the largest MySQL installations anywhere, running thousands of databases.

Is Facebook an example of Blue Ocean Strategy? It certainly has become ubiquitous, just six years young, making “social media” and “Web 2.0″ part of our every day language.