LONDON SCHOOL OF COMMERCE

ID No.: L0609WTWT0212 NAME: AZAMAT ANVAROV COURSE: BABMS4 EMAIL: L0609WTWT0212@student.lsclondon.co.uk SUJECT: STRATEGIC INFORMATION MANAGEMENT TEACHER: DAVID ACQUAYE

LONDON 2012

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Table of Contents 1.0 Introduction PART A ...................................................................................... 3 2.0 Difference between Blue Ocean and Red Ocean ............................................ 3 2.1 Market Space ............................................................................................... 4 2.2 Competition.................................................................................................. 4 2.3 Demand ........................................................................................................ 4 2.4 The value-cost trade-off ............................................................................... 5 2.5 Value Innovation.......................................................................................... 5 3.0 The four-actions model ................................................................................... 5 3.1 Reduce and Eliminate .................................................................................. 6 3.2 Create and Raise .......................................................................................... 7 4.0 The application of the four actions model PART B ....................................... 7 4.1 Air Asia Industry analyses ....................................................................... 8 4.2 Air Asia Four Action Framework ............................................................ 9 4.3 Pet Smart Industry analyses ................................................................... 11 4.4 Pet Smart Four Actions Model ............................................................... 12 5.0 Conclusion .................................................................................................... 13 5.1 Critical analyses of Blue Ocean Strategy (BOS) ....................................... 13 Bibliography........................................................................................................ 14

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1.0 Introduction PART A

At the end of the day time has changed often people dont realise how to do it and what to do it when there is a strong competition. The most important thing is in the business one is not successful being strongest and smartest but, who is most adaptive. It is all about redefining, renovating and reimagining success as cartoon shows if things go bad we have to redefine what actually success is (Andi Simon, 2012). Here is comes Blue Ocean Strategy tells managers to change their attitude of fighting competitors for market share. However they have to see themselves as explorers, looking to discover new market demand which brings to earn higher profit.

Blue Ocean Strategy is 15 years research done by W. Chan Kim and Renee Mauborgne who are studied 150 companies in 30 industries over 100 years horizon. It is about how do companies actually open a new market space create demand and sustain in the market. Blue ocean strategy challenges companies to break out of the bloody competition by creating uncontested market space which leads the competition irrelevant. Instead of dividing up existing and often shrinking demand and benchmarking competitors, blue ocean strategy is about increasing demand and running away from the competition (Chan Kim, 2005).

2.0 Difference between Blue Ocean and Red Ocean

AZAMAT ANVAROV Source: (Mauborgne, 2010)

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2.1 Market Space

All industries existed today are represented by Red Ocean which is known as market space. In contrast, Blue Ocean indicates all the industries not in existence today which is unknown market space. As we know in the Red Ocean all rules of the game are known and boundaries Source: (Anvarov, 2012)

are accepted and here companies fight with each other to gain greater share in the market. And chance of getting high profit is very low whereas Blue Oceans are denoted by unexploited market space demand creation and chance of highly profitable growth (Tomoshunas, 2004). Moreover, there is a focus in the Blue Ocean on trying to increase the size of the industry by attracting people who have never purchased in that business

2.2 Competition
The main focus of Red Ocean strategy is competition-based strategies which is fairly good understands of how to compete skilfully in red waters by from analyzing the basic economic structure of an existing industry. In contrast, in Blue Ocean competition becomes irrelevant because the rules of the market have not set yet. The whole idea of Blue Ocean Strategy is to have high value at low cost. Companies need to go beyond competing to seize new profit and growth chances to create blue oceans.

2.3 Demand
You want to attract new customers to the industry, instead of focusing on only the current customers. This may be difficult and costly; so many businesses don't even try because they rely on their current customers, which mean Red Ocean concept. However, with the Blue Ocean concept, concentrating on new customers you will be creating value so high that you will be attracting customers that never before would have considered entering the market. For instance Southwest Airlines appealed to auto travellers (Dr. Sarah Layton, 2009).

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2.4 The value-cost trade-off

In the red ocean, the competitions are immaterial because there is no one can easily copy the ideas which will allow for commercial success. In contrast, in Blue Ocean strategy there is high value for a lower cost and developed the tools to do it (Glenn Buckman, 2010). In fact, if you dont break the value cost trade-off, competitors will easily copy what you are doing and the ocean will once again become red. Blue Ocean strategy founded on importance of innovation which give chance to break out from the value cost trade off.

2.5 Value Innovation

If we focus on value, afterwards risk may get wedged by building incremental developments the length of existing vital value size. It may be a bit painful for the company to get away from competition but later on performance of the company will be superior. For making customers willing to pay company have to concentrate on innovation with the little intention by following the bleeding frame of technology changes and revolutionising new markets (Paul Simister, 2011). For example, Apple Company created Blue Ocean by innovating high sensitive touch screen mobile Iphone in 2007.

3.0 The four-actions model

Source: (Renee Marborgne, Kim W Chan, 2005)

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A company has to have an exact vision and mission in the shape of a strategy which defines its direction to the great achievement. Sometimes costumers get confuse because right from the start this strategy may gets unclear as a result its customers cannot distinguish from other competitors. Firms game plan is asked to realign and focus by the 4 actions model. The 4 actions model suggests to the company to use to reconstruct consumers value in the industry clarifying a space or look for new value. The picture as you see in above identifies the 4 action model factors that raise, eliminate, reduce and value creation.

3.1 Reduce and Eliminate

By using four action model companies save it costs by eliminating and reducing the factors an industry competes on. Things cant be like itself and you cannot just say that I am going to create low cost and differentiation. Company have to look for every corner and gap of its processes to delay unnecessary cost. The whole company have to be united by this method and anything that does not contribute to value which gets reduced and it can be the most well-organized method to run a firm whether it is in a blue ocean or traditional ocean (Peter Ducker, 1986). For example Nintendo reduced its price policy, graphics and console

specification and eliminate complexity to cut its cost and attract more customers.

Source: (Kim & Marborgne, 2009).

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3.2 Create and Raise

These factors are extremely important in the four action model. Even the company do not reduce its cost but it must create and raise some sort of thing in the company innovation company or to have to make the

change

towards

profitable

statistics. Buyer values are lifted by rising & creating elements in the industry has never offered. For instance, Southwest Airline raises its Speed and friendly service and creates frequent point to point departures (Source: (Chen, 2010)) to create uncontested market by using four actions model.

4.0 The application of the four actions model PART B

As we see below in the graph from the Kim and Renee, who are studied 108 companies revenue and profit, shows that companies which in Blue Ocean invested less than companies in Red Ocean, and earned more profit. Now I am going to analyse Air Asia and PetSmart Companies which has experienced Blue Ocean Strategy successfully by using four action models. Source: (W. Chan Kim, Renee Mauborgne, 2005)

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4.1 Air Asia Industry analyses

Air Asia is one of the largest low price airlines in the Asia growing rapidly since 2001. With fleet of 72 aircrafts Air Asia flies to over 61 domestic and international destinations with 108 routes, and operates over 400 flights daily from hubs located in Malaysia, Thailand, and Indonesia and today Air Asia has flown over 55 million guests across the region.. AirAsia have changed the definition of airlines that air travel is a luxury and it is only for the upper segment of the population. The key point of low cost carriers is to increase their reach and provide the services to a large segment and it says Now everyone can fly

Source: (Tony Fernandes, 2009) Air Asia did record revenue of 1.1 billion pounds, up 13% from revenue of around 800 million pounds reported in 2010. Operating profit was reported at 300 million pounds, up 12% from an operating profit of 210 million pounds reported in the previous year. Core net income for the same period was 220 million pounds, up 18% from a core net income of 201.12 million in 2010 (Aziz Laikar, Benyamin Ismail, 2012). Malaysia is one of the main hubs of economic ties in Asia. For this reason the chart shows below the Malaysia capacity sets per week by carrier August 2011 by several companies in Airlines industry in Asia. Source: (CAPA , 2011)

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4.2 Air Asia Four Action Framework

Value innovation is created in the area where the Air Asias performance positively affects both its cost structure and its value proposition to buyers. Admittedly, cutting cost of luxurious airplane service rules are made by eliminating and reducing the factors an Air Asia competes on. Air Asia lifted buyer value by raising and creating elements the industry has never opened. Eventually, costs have been reduced further as scale economies kick in due to the high ticket sales volumes that superior value generates. Source: (W. Chan Kim, Renee Mauborgne, 2005)

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Raise- By differentiating its terms and conditions from other competitors Air Asia raised its luggage kilos to 5 kg for its customers. Because, most of users are middle class people who are used to carry more luggage for travel. Moreover it is required highly to communicate with customers extremely friendly which plays main role to attract customers consequently. Additionally, the number of flight within local area and international flight increased as people liked to get cheaper and easier flights. The speed of the planes are increased by using a good quality of engine.

Create- Promotions and new deals are being created continuously which means a customer, who books the ticket before 1 month or more than this period earlier than its flight day, can buy it for half price. Frequent point departures have been created in Malaysia which gives tourist to get to the different islands faster for cheap price. One of the main things which is created by Air Asia is ticket counters. It is like ATM machine which can customer manage it by touching screen and cash in the money to it and buys ticket to any destination by using easiest way which have been created ever.

Reduce- One of the key competitive advantages of Air Asia is escaping from luxurious service. This strategy caused to reduce cost by approximately 30%. For example within the local flights meals are cancelled which it doesnt required for shorter flights. Air Asia doesnt use International Airports and pay them taxes. It has its small but own aerodrome. Because, the physiology of Air Asia group is that they think when it comes to customers choosing airlines for their journeys they doesnt border with airport location in the city, it is more important for them to get to the destination city. In a nutshell when the cost is reduced automatically the ticket prices become cheaper in the Blue Ocean

Eliminate- Seating choices are eliminated because of taking away of luxurious service physiology and it has only two choices at the moment in most country where Air Asia runs in them. For giving more flexibility to customers the company discharge travel insurance fees and warranties customers that their luggage will be safe and reach to destinations undamaged. Moreover, lounges and hub connectivity have been eliminated to get into Blue Ocean.

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4.3 Pet Smart Industry analyses

Pet Smart and Pet Co are competing in the Pet Care business which are includes pet clothing, pet healthcare, pet food and verity of pet services and this is very attractive industry with reaching $41 billion a year which has been doubled comparing to last year. In USA people spend most of their money to their pets, take care of them and it is more than what they pay out on entertainments.

Source: (Shazeeye Kirmani, 2011) Pet Smarts strategy was to emotionally unite services with pet owners by giving them such kind of services such as training, pet hotels, grooming, day care and adoption. Thirty percent of the pet care industry was commanded by the luxurious pet services which make owners of the pets to feel that pets they are owned are catered as like as family members. However, In terms of selling a large number of pet in premium price its main competitor Pet Co held 20 percent of the market share which is Pet Smarts share is 9 percent less than Pet Co. Pet Smarts stores is located in power centres where Pet Cos outlets in neighbourhood which are much smaller in shape and size. For fulfilling its hospital requirement Pet Smart management made a joint venture with Benfield alliances.

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4.4 Pet Smart Four Actions Model

Raise- By adding services based on trends Pet Smart continue to focus to health care of the pets more sharply. Pet obesity becoming more tendencies day by day and for this reason firm provided and raised pet diet plans and pet diet food for supporting grows of the pet diet as well as customer support services which make customers feeling free while the use Pet Smart services. But the disadvantages of this strategy another companies which is specialised in the diet foods may enter to this business and become one of the main competitor of Pet Smart Create- The Company was provided pet fantastic stores such as grooming and hospital all in one and in these state owners are like to come and for cutting additional cost for their pets in that shops. The advantage of all in one concept is it takes away pet owner from pop and mom shops and it will be one stop for all pet owner which attracts them in a wide range. The strategy based on total income and rooted in location super stores. Moreover getting vets become a one part of this stores and revenue will be also increased for other ways. As an example, when the dog is treated owner of the pet may pamper it at the vet and then buy some packages such as one month food supply at the pet store. But, for these projects PetSmart have to invest a lot of capital to create this Blue Ocean

Reduce- Pet smart reduced customers spending time for the queue. By making it interesting for customers Pet Smart constructed windows in the rooms which give opportunity to customers to save their waiting progress for their pets treating. Pet grooming rituals are may be emotional for some customers who want to take part of the procedure and it gives free watching through rooms where owners can observe their pets training.

Eliminate- From selling another type of pets like birds, parrots, fish and etc. Pet Smart makes 2% of its revenue. Pet Smart improved the focus on the lucrative services and supplies and it utilized the revenue to remain business evaluated. In contrast, it may leads to the change of limitation scope to only catering cats and dogs. The opinion is in this business customer relationship management is extremely important because when you cater pets carefully with the love is like you respecting the owner of the pet and one you create a loyalty between you and customers it result profitable relationship for the company. The testing of market research will define the point which in USA few bay be want to see that their pets are being groomed.

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5.0 Conclusion
In the present age businesses are very competitive and it has a lot of theories which teaches skills of competing in the traditional ocean. But being strong and clever may not lead to the success but the one who are adaptive may gain the market share. But Blue Ocean theory break this niche and says we have to look the market not much dominated. And it may much easier to build market positions where demand is high enough to earn greater profits. Unfortunately the problem is even that markets may be dominated into small niches which positioned into specialities. Blue Ocean Strategy offers a dramatic change which rejects the traditional rules of business and ideas with Blue Ocean Six Paths Framework to innovate something bigger by making all in one of all small niche segments to the new constructed marketplace

For example it looks like taking a number of jigsaw piece puzzles and choosing right pieces among them and making them in one to organise a whole new image which has never done before.

5.1 Critical analyses of Blue Ocean Strategy (BOS)

The coin has two sides if we look to the BOS in a critical way we find that its procedure is like more descriptive than prescriptive. The people who wrote the BOS used look at industries success through BOS perspective by looking mainly successful stories where the cases are fully connected with positive ideas. Thus it does not mean that by following a BOS you can achieve to success. The survey procedure by Renee Mauborgne and W. Chan Kim

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have been criticised for not enough control grouping so we cannot measure how many BOS are failed. . Even the majority of ideas in the BOS are not new they have been beautifully branded

with the strong metaphors. The competition is not made immaterial in the BOS however it just created a new type of strategy by renaming it. For this reason businesses are still competing for the market share and consumers pocket by offering variety of goods. It just gives consumers a lot of choices of how can they try to resolve particular issues by differentiating another aspect . Just like BOS may not be fresh all the time the time change that slowly it may turn to

Red marketplace, the new market will be dominated by imitators very quickly by following the innovator. BOS is not as consumer centric as we can imagine since it smacks of building a better mousetrap disease. BOS does not go to the details about understanding the customers core issues and frustrations with active goods which innovates the chance for the value creation. .

Bibliography
Andi Simon, 2012. Introduction to Blue Ocean Strategy. [Text with cartoon picture] SAMC Available at: http://www.youtube.com/watch?v=XcJC2jzNq7g&feature=relmfu [Accessed 1 April 2012]. Anvarov, A., 2012. Blue Ocean Strategy concept diagram for all. [Online] Handmade Production Available at: http://odnoklassniki.ru/profile/323073478815/album/417862312351 [Accessed 7 April 2012]. Aziz Laikar, Benyamin Ismail, 2012. Fourth Quarter & Full Year 2011 Results. Financial report. Kuala-Lumpur: Air Asia Air Asia Finance Department. CAPA , 2011. Turning the industry on its head: AirAsia joins Malaysia Airlines. [Online] CAPA Profiles Available at: http://www.centreforaviation.com/analysis/turning-the-industryon-its-head-airasia-joins-malaysia-airlines-56902 [Accessed 16 April 2012]. Chan Kim, R.M., 2005. Blue Ocean Strategy. United States of America: Harvard Business School Publishing Cormporation. Chen, J.C.H., 2010. Blue Ocean Strategy: The Four Action Framework. PhD Thesis. USA: Gonzaga University School of Business Administration. Dr. Sarah Layton, 2009. Blue Ocean Strategy Planning. [Online] Available at: http://blueoceanstrategicplanning.blogspot.co.uk/2009/04/red-ocean-vs-blue-ocean.html [Accessed 8 April 2012].

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Glenn Buckman, 2010. Blue Ocean VS. Red Ocean Marketing Strategy - Which Is Better? [Online] Available at: http://articles.submityourarticle.com/Glenn-Buckman-4921/blueocean-red-ocean-marketing-strategy-81779.php [Accessed 5 April 2012]. Kim & Marborgne, 2009. Blue Ocean Strategy Tools: The Four Actions Framework and ERRC Grid. [Online] Posted by Dr. Sarah Layton Available at: http://blueoceanstrategicplanning.blogspot.co.uk/2009/07/after-you-define-three-tiers-ofnon.html [Accessed 9 April 2012]. Mauborgne, R., 2010. Blue Ocean Strategy. [Online] Harward Business School Productions Available at: http://visipramudia.wordpress.com/ [Accessed 03 April 2012]. Paul Simister, 2011. Differentiate Your Business. [Online] Available at: http://www.differentiateyourbusiness.co.uk/blue-ocean-strategy-by-w-chan-kim-and-reneemauborgne [Accessed 8 April 2012]. Peter Ducker, 1986. How To Create Low Budget Busniess. A+ Magazine, II(7), pp.34-37. Renee Marborgne, Kim W Chan, 2005. Blue Ocean Strategy. USA: Harward Business Shcool Publishing Corporation. Shazeeye Kirmani, 2011. Using a Four Action Framework to Craft the Firms Strategy. [Online] Shazeeye's BLOG Available at: http://shazeeye.com/the-four-actions-framework [Accessed 15 April 2012]. Tomoshunas, F., 2004. Blue Ocean Strategy. Harward Business Review, 13 October. pp.5-6. Tony Fernandes, 2009. Air Asia. [Online] CAPA Profiles Available at: http://www.centreforaviation.com/analysis/airasia-swot-analysis-tough-second-quarterahead-but-fundamentals-solid-7559 [Accessed 16 April 2012]. W. Chan Kim, Renee Mauborgne, 2005. Blue Ocean Strategy. Boston, Massachusetts: Harward Business Shcool Press.

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