Blue ocean strategy for project management

Blue Ocean Strategy

The Blue Ocean Strategy is a strategy to gain a competitive advantage. It is used to create uncontested market space and to make the competition irrelevant. New demands are made instead of fighting over existing demand, where fighting for shear of the demand will always be limited. This strategy has the possibility to open up an opportunity for rapid and profitable growth. The strategy is meant to be used for companies that builds future where the customers, employees, shareholders, and society wins. The people behind the Blue Ocean Strategy are W.Chan Kim & Renée Mauborgne. They met in a classroom where Mr. W.Chan was a professor, and Miss Reneé was a student, twenty years ago (1995). The Blue Ocean Strategy is relevant for Innovation Management departments, or entrepreneurs wanting to create something for unknown markets.

Red ocean vs. Blue ocean

The 8 Principles of Blue Ocean Strategy

The 8 principles of blue ocean strategy are placed in two different categories, formulation principles and execution principles. Formulation Principles

• Reconstruct Market Boundaries

The first principle of the blue ocean strategy is to reconstruct the market boundaries. It includes risks that some companies are not willing to take, and therefore end up being a riverboat gamblers. Subsequently the six path framework was developed for companies to use to create a blue ocean, no matter the industry.

The first path in the six path framework is: Look across alternative industries Competitors do not only exist in the same industry, there are also companies that produce alternative products or services that are in other industries. Those products or services may have different forms or functions but offer the same functionality, and have the same purpose. Looking across alternative industries, there might be a gap to develop a blue ocean. For example, Cinemas versus restaurants. They are different, cinemas offers a visual entertainment, while restaurant offers more of a social gathering. Even though they are different, they both have the same purpose, and that is for people to enjoy.

Second path is: Look across strategic groups within industries There are companies within the same industry that pursue similar strategies, and therefore are classified into strategic groups. These groups can be ranked in a hierarchical order built on price and performance. Where most companies focus on outperforming other firms within the strategy group. For example, Global gyms versus Crossfit gyms. In a global gym people are more to them selfs rather than in Crossfit gyms people socialize. Some people don't like to socialize while working out and therefore choose the global gym over the other. Both options are competing in the same market but with different focus points.

Third path is: Look across the chain of buyers There are three groups of buyers. The purchasers, the users, and the influencers. These three groups may overlap, but the purchasers may differ from the actual users and sometimes influencers are important as well. Companies can target different buyer segment to discover a new blue ocean. For example, Novo Nordisk the Danish insulin producers created a blue ocean within the pharmaceutical industry. Where most pharmaceutical companies focus on the influencers, the doctors, to focusing on the user with new innovations. Before, insulin had to be injected via needles, which only doctors could prescribe to the patients. After the innovation, Novo Nordisk invented the NovoPen which was user-friendly and eliminated the hassle of needles.

Fourth path is: Look across complementary product and service offerings Companies need to think about what happens before, during and after the product or service is used. Sometimes extra service is needed for the customers to be interested to use the service or buy the products. For example, Movie theaters. Parking may be a problem, and if the customer doesn't feel like looking for a place to park they will eventually not go to the cinemas. Therefore the cinemas need to think about how to provide the service for easier parking.

Fifth path is: Look across functional or emotional appeal to buyers

Sixth and the last path is: Look across time

• Focus On the Big Picture

Strategy Canvas

• Reach Beyond Existing Demands
• Get the Strategy Sequence Right

Execution Principles

• Overcome Key Organizational Hurdles
• Build Execution Into Strategy
• Align the Value Profit and People Proposition
• Renew Blue Oceans

Analytical Tools & Frameworks The analytical tools and frameworks are used to identify and diagnose where in the ocean each project is located. When the location has been found, the process of turning the focus from red oceans to blue oceans begin. The focus points are shifted with the tools and frameworks to create new markets, and new demand.

Three Characteristics

Three Steps

1. Strategy Canvas

The strategy canvas is the first tool, used to diagnose where in the current market competitors are focused on when delivering their product or service to the customers. To understand each market, the principal factors in those markets are identified. A graph is drawn where the principles are located on the x-asis, no matter the order of the principles, and y-asis goes from low to high. Then each principle is rated independently on the graph according to how the market is. When the ratings have been made clear, the graph can then be used as an action framework. As in where to place the focus points to identify blue ocean.

Example - Picture

1. Four Action Framework

The four action framework is the second tool, and is used to reconstruct the buyers value to create new values.

There are four key questions used, to create new value curve for new markets. Those are:

1. Which of the factors that the industry takes for granted should be eliminated?

This forces the management team to ask themselves what factors could or can be eliminated that the current market has been competing on for a long time and eventually takes for granted. This can be factors that the customers doesn't value anymore and can even detract the value of the product or service provided.

2. Which factors should be reduced well below the industry's standard?

This forces the management team to clearly identify if the current products or services have been over-designed to match or beat the competitor, therefore the companies are loosing money on something that is unnecessary to their business, and can be reduced to reduce unecessary costs.

3. Which factors should be raised well above the industry's standard?

This pushes the management team to raise the standard of something that the industry has forced on to the customers to accept.

4. Which factors should be created that the industry has never offered?

This question is the key to blue oceans, and is for the management team to discover new values for the customers. Values that will create new demand in new markets.

Example - Picture

1. Eliminate-Reduce-Raise-Create Grid

The third and final tool is the eliminate-reduce-raise-create grid, and is used as a supplementary to the four actions framework. This tool forces the management team to act on the four previously asked question in the four actions framework tool. This grid gives companies four instant benefits:

- It pushes them to simultaneously pursue differentation and low costs to break the value-cost trade-off. (Resource: Blue ocean strategy)

- It immediately flags companies that are focused only on raising and creating and thereby lifting their cost structure and often over engineering products and services. (Resource: Blue ocean strategy)

- It is easily understood by managers at any level, creating a high level of engagement in its application. (Resource: Blue ocean strategy)

- Completing the grid drives companies to robustly scrutinize every factor the industry competes on, making them discover the range of implicit assumptions they make unconsciously in competing. (Resource: Blue ocean strategy)

Three Characteristics

Thera are three characteristics of a great strategy to develop in a blue ocean, those are focus, divergence and compelling tagline.

1. Focus

While developing the strategy canvas, companies have made clear in advance where they want to differ from the current markets. Those points are where they place their focus on.

1. Divergence

When two or more companies are competing in a market, they focus on the same values. In that case there is no divergence. Therefore creating a product or service in the same field but with different focus factors, divergence is being created. When the divergence is present, new markets are being created.

1. Compelling Tagline

The compelling tagline is the final of the three characteristics. The tagline needs to include a clear message and advertise where companies has their focus on.

Resources