Business Case Studies, Executive Interviews, W Chan Kim & Renee Mauborgne on Blue Ocean Strategy

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Executive Interviews: Interview with W Chan Kim & Renee Mauborgne on Blue Ocean Strategy
December 2008 - By Dr. Nagendra V Chowdary

W Chan Kim & Renee Mauborgne
Co-Founders and Co-Directors of the INSEAD Blue Ocean Strategy Institute.

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  • One of BOSs fresh perspectives is regarding simultaneous pursuit of differentiation and low-cost strategies. How do you think companies can simultaneously harness their resources to be good in both differentiation and low cost value propositions?
    We partially answered this question when we talked about blue ocean strategys defining characteristics. As we said before, it is only possible to achieve both differentiation and low cost by aligning your companys value proposition (utility minus price) by creating an offer that dramatically raises buyer utility at the right price for the mass of the market; profit proposition

    (price minus cost) by creating a leap in value for the company itself by making a tidy profit; and people proposition by practicing fair process and overcoming key organizational hurdles. Allow me to give you an example.Cirque du Soleil broke the differentiation/low cost trade off to grow from a rag-tag group of street performers to a company pulling in nearly $1 bn in revenues staging dozens of productions seen by over 40 million people in 90 cities around the world. Instead of following the conventional logic of outpacing the competition by offering a better solution to the given problem creating a circuswith even greater fun and thrills it redefined the problem. Instead of trying to capture a larger segment of the existing circus customers (children and their parents) Cirque looked to noncustomers adults. And instead of looking at competitors (other circuses), it looked to alternatives theater.

    Cirque de Soleil dramatically raised the utility customers received by offering the fun and thrill of the circus and the intellectual sophistication and artistic richness of the theater. Unlike traditional circuses featuring a series of unrelated acts, each Cirque production resembles a theater performance in that it has a theme and story line. As with Broadway productions, too, each Cirque show has an original musical score, which drives the performance, lighting, and timing of the acts. Next Cirque focused on reducing its cost structure. What they found was that many of the elements considered essential to the fun and thrill of the circus were unnecessary and inmany cases costly. For example, Cirque eliminated animals, star performers, three rings of continuous acts and aisle concessions. Cirque found that the lasting allure of the traditional circus came down to just three factors the clowns, the tent, and the classic acrobatic acts. Therefore, these elements of the traditional circuswere maintained. All of the remaining competitive elements were eliminated.

    Cirque offers the best of both circus and theater. And by eliminatingmany of the most expensive elements of the circus, it has been able to dramatically reduce its cost structure, achieving both differentiation and low cost. By breaking the differentiation/low cost trade-off, companies will create blue oceans either by expanding the existing markets or creating entirely new ones.

  • Your findings are encouraging for executives of large, established corporations because they show that large research and development budgets are not crucial for creating new market space. What about executives of Small and Medium scale Enterprises (SMEs), given every country's focus is on SMEs.
    Our findings should be encouraging for managers of both SMEs and established corporations since what they reveal is that large R&D budgets are not the key to creating newmarket space. The key is making the right strategic moves. Whats more, companies that understand what drives good strategic moves startups or incumbents will be well placed to create multiple blue oceans over time, thereby continuing to deliver high growth and profits over a sustained period. The creation of blue oceans, in other words, is a product of strategy and managerial action and not of the size or age of the firm.

  • What do you suggest are the prerequisites for embracing upon creating a BOS in (a) a company operating in a matured industry, (b) a company operating in a growing industry, and (c) a company operating in a sunrise industry?
    Please note our answer regarding our contention that the strategic move (the set of managerial actions and decisions involved in making a major market creating business offering) is the correct unit of analysis for explaining the creation of blue oceans and the root of profitable growth.

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