Blue Ocean Strategy:
The Four Actions Framework
Jason C. H. Chen, Ph.D.
Professor of MIS
School of Business Administration
Gonzaga University
Spokane, WA 99258 USA
chen@[Link]
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Red Ocean vs. Blue Ocean
• RED OCEAN
It represents all the industries in existence today – the
known market
Industry boundaries are defined and accepted, and the
competitive rules of the game are known.
Competition-based
• BLUE OCEAN
It represents all the industries not in existence today –
the unknown market
Is defined by untapped market space, demand creation,
and the opportunity for highly profitable growth.
Innovation-based
It is with unlimited business opportunities.
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
1
TYPES of
# OF PRODUCT PRICE ENTRY
COMPETITION FIRMS Characteristics CONTROL To Industry
PURE COMPETITION
1. ___________________ SUPPLY
MANY,
SIMIAR & EASY
SMALL
DEMAND
MONOPOLISTIC COMP.
2. ___________________
MANY,
FAIRLY
LARGE DIFFERENT SOME
EASY
&SMALL
3. ___________________
OLIGOPOLY
SIMILAR
FEW A LOT HARD
OR DIFF.
4. ___________________
MONOPOLY
NO
REGU- NO
ONE SUBS-
LATED WAY!
TITUTE
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
The Profit and Growth Consequences of
Creating Blue Oceans
Business launch 86% 14%
Revenue Impact 62% 38%
Profit Impact 39% 61%
Launches within red oceans Launches for creating blue oceans
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
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Red Ocean Versus Blue Ocean Strategy
Red Ocean Strategy Blue Ocean Strategy
Compete in existing marketing
Create uncontested market space
Beat the competition
Make the competition irrelevant
Exploit existing demand Create and capture new demand
Make the value-cost trade-off Break the value-cost trade-off
Align the whole system of a firm’s
Align the whole system of a firm’s
activities with its strategic
activities in pursuit of
Choice of differentiation or low differentiation and low cost.
Cost.
Figure 1-3 (p. 18)
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Eliminate-Reduce-Raise-Create
Grid
Eliminate Raise
Reduce Create
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
3
IS/IT Role?
The Four Actions Framework
determine whether products or
force us to consider Reduce service have been overdesigned in
those factors no Which factors should the race to match and beat the
longer have value or reduced well
be ________ competition. Here, companies
may even detract below the industry’s
overserve customers, increasing
standard?
from value their cost structure for no gain.
Eliminate Create
Which of the factors Which factors should
A New
that the industry takes created that the
be ________
for granted should be
Value industry has never
eliminated
_________? Curve offered?
push us to uncover help us to discover
and eliminate the
Raise entirely new source of
Which factors should value for buyers and to
compromises your raised well above
be ______
industry forces create new demand and
the industry’s
customers to make standard? shift the strategic
pricing of the industry
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Eliminate-Reduce-Raise-Create Grid:
The Case of Southwest Airlines
Eliminate Raise
• Meals
• Lounges • Friendly service
• Seating class choices • Speed
• Hub connectivity
Reduce Create
• Price versus • Frequent point-to-
average airlines point departures
• Ticketless
• Culture & Fun
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
4
Eliminate-Reduce-Raise-Create Grid
Eliminate Raise
Reduce Create
In relation to Porter’s Five-Force Model:
Eliminate and ________:
__________ Reduce Low Cost
Raise
__________ Create customer value and new
and ________:
demand [differentiation] (i.e., value innovation)
eliminating and
Of particular importance are the actions of __________
creating
________, which push company to go beyond value
maximization exercise with existing factors of competition.
Eliminating and creating prompt companies to change the factors
themselves hence making the existing rules of competition
irrelevant
___________
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Winners vs. Losers
• What separates winners from losers in creating
(ultimate) strategic competitive advantage is
neither bleeding-edge technology nor “timing for
market entry.”
• It is from “value innovation”
utility
Innovation Value
Firm Innovation
price
cost
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
5
Value Innovation
Costs
Value
Innovation
Customer Value
Differentiation and ___________
The Simultaneous Pursuit of ______________
Low Cost.
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Characteristics of a Good Strategy
Three characteristics of a good strategy
• Focus
a firm does not diffuse its efforts across all key factors
of competition
• Diverge
diverge from the other players’
• Compelling Tagline
strategic profile is clear; a fun and simple to follow
(enjoy)
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6
Why Information Systems?
“Chaotics”
“Globalization and technology are the two main forces
that helped to create a new level of interlocking
fragility in the world economy. While global
interdependence works in everyone’s favor in good
times, it rapidly spreads much pain and damage in
bad times.”
by Philip Kolter and John Caslione (AMACOM 2009)
N
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Top-Ten Innovation Mistakes a Company
Can Make During a Turbulent Economy
• Fire talent.
• Cut back on technology.
• Reduce risk.
• Stop product development.
• Allow boards to replace growth-oriented CEOs with cost-
cutting CEOs.
• Retreat from globalization.
• Allow CEOs to replace innovation as key strategy.
• Change performance metrics.
• Reinforce hierarchy over collaboration.
• Retreat into walled castle.
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
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Homework
• Describe (find) a business example and
employ “The Actions Framework” to
create/improve value innovation (i.e.,
strategic competitive advantage).
• Both example description and model are
due next class (using Word).
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
