Chapter 12 Appendix A Overview of Blue Ocean Strategy Cases

Although it may be oversimplified, here we only briefly review the development of innovative products and innovative services in the three industries of automobiles, computers and movie theaters in the US market.This review is neither comprehensive nor detailed, but aims to identify the key elements that make up blue ocean strategy.The US market was chosen because it was the largest and freest market at the time of our research. Although the review is brief, the ups and downs of these three industries still show some common characteristics. * There is no industry that thrives forever.During the study period, each of these industries experienced ups and downs.

*There is no great company forever.Just as there are no permanently prosperous industries, our research proves that there are no permanently great companies. *The key factor that determines the prosperity and decline of enterprises and industries is whether they can create a powerful blue ocean strategy.The blue ocean strategy is the catalyst that pushes the industry into an upward trajectory, and it is also a key factor that determines the development of a company, or whether a company will be replaced by another blue ocean strategy company. *Although it is generally believed that new industry entrants have more advantages in creating blue ocean strategies, in fact, the original industry enterprises can be the creators of blue ocean strategies just like new industry entrants.Moreover, original industry companies usually create blue oceans in their core business. In other words, blue ocean areas are often opened up within the boundaries of red ocean areas. Blue ocean strategies can bring high growth to both types of companies.

*Creating a blue ocean strategy is fundamentally different from technological innovation.Advanced technology is not a decisive factor for blue ocean strategy, even for technology-sensitive industries such as IT.In fact, the decisive factor of the blue ocean strategy lies in value innovation, that is, to provide customers with innovative value. *The significance of the blue ocean strategy is not only to win rapid profit growth for the enterprise, but more importantly, the blue ocean strategy can help customers build brand loyalty in the minds of consumers. Now let us examine these three industries one by one, starting with the core of transportation in modern society - the automobile industry.

The American automobile industry can be traced back to 1893, when the Duryea brothers produced the first single-cylinder engine automobile in the United States.At that time, horses and two-wheeled carriages were the main means of transportation.Before long, hundreds of automobile factories were born in the United States, custom-made cars for customers. Cars were considered a fashionable luxury item at the time.One car even had electric irons installed in the back so passengers could groom on the way.At $1,500 each, or twice the average household's annual income, the erratic vehicles aren't widely available.All kinds of protests against the use of the car raged, vandalizing roads, fencing off parked cars with barbed wire, organizing protests against businessmen and politicians who drove.Even Woodrow Wilson (Woodrow Wilson), who later became president, joined them, claiming: "Nothing can spread socialist ideas more than cars... Cars are a show of wealth." "Digest" magazine said: "Ordinary The 'horseless carriage' is now a luxury for the wealthy, and although it may become less expensive in the future, it will never be as common as the bicycle."

In short, the industry is small and unattractive.However, Henry Ford believed that this was not the case. In 1908, when more than 500 automobile factories in the United States were customizing cars for customers, Henry Ford launched his Model T car.He said the car was "built for the many people, using the best materials".Although there was only one color (black) and one model, the Model T was reliable, durable, easy to repair, and affordable for most families. In 1908, the price of the Model T was $850, only half the price of other models of cars, and it dropped to $609 the following year.By 1924, the price of the Model T had dropped to $290, while the horse-drawn carriage, the best means of transportation besides the car at the time, cost $400 apiece. In 1909, a brochure for the Model T said: "Ford, a low-priced car with the quality of a high-priced car."

Ford's business model underpinned his success.By setting standards for automobiles and only providing a limited number of models, the parts of Ford vehicles can be used with each other, and ordinary untrained workers can assemble them on the assembly line, unlike other automobile factories that must use experienced skilled workers .A more efficient manufacturing model cut the time to build a Model T from 21 days to four, a 60% reduction in the number of hours spent.Due to the cost reduction, Ford was able to enter the market at a low price. The sales of Model T cars exploded, and Ford's market share increased from 9% in 1908 to 60% in 1921. By 1923, almost every American family owned a Model T car.The Ford Model T car expanded the space of the American auto industry and created a vast blue ocean, making the T Model car replace the horse-drawn carriage as the main transportation work in the United States.

By 1924, the automobile had become an essential means of transportation for American families, and the income level of the average American family had increased.This year, General Motors (GM) launched a series of new cars, thus creating a new blue ocean field.Unlike Ford, which had only one color and one model, GM chairman Alfred Sloan proposed a strategy of "cars for every purse and every purpose" to suit "every tier" of the market different feelings and needs. If Ford brought the functional concept of "car without a horse" to the car, then GM made the car more fun, exciting, comfortable and stylish.Every year, General Motors introduces a series of new models, new colors, new styles, and conducts "car of the year" selections, thereby stimulating consumers' demand for fashion and comfort.The used car market is also starting to take shape as people switch cars frequently.

GM's sleekness and sensibility made it a big hit in sales. From 1926 to 1950, the annual sales volume of the American automobile market increased from 2 million to 7 million, and the market share of General Motors increased from 20% to 50%, while that of Ford fell from 50% to 20%. %. However, the rapid growth brought about by GM's blue ocean strategy cannot last forever.Ford and Chrysler also followed into the blue ocean field created by GM and became the Big Three of the US auto industry.They follow suit in terms of strategy, and are comparable in selling points. Every year, various new models are launched to cater to the different needs and lifestyles of consumers.The market share occupied by the Big Three accounts for more than 90% of the US auto market, and the US auto industry has entered a period of "self-satisfaction".

The automotive industry never stands still.In the 1970s, the Japanese opened up new blue ocean territory, challenging the American market with their fuel-efficient small cars.Different from the American car's inherent concept of "bigger is better" and the pursuit of luxury, Japanese cars adhere to the principle of high quality and small models, and have launched a new selling point of special fuel economy. At the time of the energy crisis, Honda, Toyota, and Nissan (then called the Tucson) introduced lean Japanese cars that American consumers flocked to.Almost overnight, Japanese cars became the heroes of consumers.Compact, fuel-efficient cars have opened up new blue oceans, fueling yet another surge in demand.

When the Big Three of American autos competed against each other in the market, none of them wanted to develop a compact, fuel-efficient new model, even if they saw the market demand for it.As a result, the Big Three not only failed to open up a blue ocean, but were dragged into a new round of competition, but this time the rules of the game were formulated by the Japanese.At this time, the Big Three began to invest heavily in the development of fuel-efficient small cars. Even so, the sales of the Big Three still plunged. In the 1980s, the sales of the three companies decreased by a total of 4 billion US dollars.Chrysler, the younger brother of the Big Three, was the hardest hit at the time. If the government hadn't rescued it, it would have been almost impossible to escape bankruptcy.The high efficiency shown by the Japanese in capturing and opening up opportunities in the blue ocean field has almost brought American automakers to a standstill. Industry experts all over the world have put a big question mark on the competitiveness and long-term viability of American manufacturers.

Fast-forward to 1984, and a beleaguered, near-bankrupt Chrysler introduced the minivan, opening up a new blue ocean in the auto industry.Mini cars break through the boundaries of traditional vans and pickup trucks. The interior space is between the two. It is suitable for small families. It can fit a lot of things, including bicycles and pet dogs, and is easier to drive. The mini car uses the chassis of the Chrysler K series car, and the interior space is larger, and all kinds of household sundries can be put in it.However, Chrysler is not the first company to devote itself to the concept of vans. Ford and General Motors started designing this kind of car a few years ago, but they did not push this car to the market because they were worried that they would encroach on the market share of their own minivans. market.This undoubtedly gave Chrysler a golden opportunity.In its first year of introduction, the "Mini" became Chrysler's best-selling model, bringing Chrysler back into the ranks of the Big Three.In three years, the "Mini" brought Chrysler $1.5 billion in revenue. The success of "Mini" ignited the inspiration of SUV (Sports Function Vehicle) in the 1990s, and further expanded the blue ocean field. The SUV uses the chassis of a truck and continues to evolve from a sedan to a functional car. The initial design of the SUV is to consider that it can be off-road, and it can also tow a sailboat when going to the beach.But its sedan-like handling, higher load capacity, comfortable interior, four-wheel drive, towing capabilities, and safety features make it popular with young families.By 1998, the total sales volume of various light vehicles including vans and SUVs reached 7.5 million units, almost equivalent to the sales volume of 8.2 million sedans. As history shows, when GM and Chrysler created their own blue ocean territory, they became the strong players in the market.Most of the time, the blue ocean field is not due to technological innovation. Even Ford's pioneering assembly line production has long been used in the meat packaging industry.The fascinating thing about the auto industry is that it ebbs and flows under the influence of changes in blue ocean strategy.The same is true for manufacturers in the automotive industry. Their profits and growth are also largely related to the creation of blue ocean areas. These manufacturers are all remembered by the market because of their blue ocean strategy.For example, although Ford has experienced ups and downs, his brand is still associated with his Model T car more than a hundred years ago. The computer industry is today a core component of the global industrial environment.Its predecessor can be traced back to the punching machine invented by Herman Hollerith in 1890.The machines can speed up the time for data recording and analysis, and when used in the U.S. Census, saved five years from the original census method. Shortly after, Hololuzhi left the census office to found the Hole Punch Company (TMC), which sold products to government agencies in various countries.At that time, there was no market for punching machines in the commercial field, and it was easier, more accurate, and cheaper to use pencils and ledgers to do accounting.Although the Holo-Ruizhi punch machine is fast, it is expensive, cumbersome to use, and requires constant maintenance.So when the patent expired and the U.S. government abandoned it because it was too expensive, Holorich sold his company. TMC merged with two other companies to form CTR in 1911. By 1914, the hole punch business was still not good.Looking for a turnaround, CTR recruited Thomas Watson, a former executive of the National Cash Registry Corporation.Watson realized that the hole punch had great market potential in inventory and account management, but he also admitted that this troublesome new technology was too expensive and too inconvenient to use paper and pen. The next step became the beginning of the computer industry, as Watson combined the advantages of a hole punch with the convenience and cheapness of using pen and paper.He first simplified and modularized the punching machine, and provided maintenance, training and other services to customers.The customer not only enjoys the efficiency of the punching machine, but also does not need to hire technicians and train staff. Then Watson announced that the punch machine can be rented instead of bought.This innovative move established a new pricing model for the hole punch business.On the one hand, customers do not need to invest huge costs, and can upgrade equipment when needed; on the other hand, CTR has also obtained stable cash flow returns. In six years, CTR's profits tripled.By the mid-1920s, the company captured 85 percent of the U.S. hole punch market. In 1924, Watson changed the company's name to International Business Machines Corporation (IBM) in order to reflect that CTR's business had reached the world.From then on, the blue ocean field opened. Thirty years later, in 1952, Remington Rand built the UNIVAC, the world's first commercial electronic computer, for the Census Bureau.At that time, only three UNIVACs were sold, and the blue ocean of electronic computers was not yet in sight.This time, it was Thomas Watson II of IBM who discovered that there was a huge potential demand in this seemingly small market. Watson II realized that electronic computers had unlimited prospects, but IBM had to face the challenge. In 1953, IBM introduced the Model 650 computer, the world's first mid-sized computer.Considering the requirements of commercial customers for computer computing power and price tolerance, the functions of the 650 model are much simpler than that of UNIVAC, and the price is much cheaper than UNIVAC's 1 million US dollars, only 200,000 US dollars.As a result, by the end of the 1950s, IBM once again occupied 85% of the market share of commercial electronic computers, and its profits tripled again, from $412 million in 1952 to $1.16 billion in 1959. IBM's blue ocean field was further expanded in 1964 with the launch of the IBM360 mainframe. For the first time, the 360 ​​series mainframe adopts replaceable software, peripheral equipment and service packs. Compared with the original mainstream structure of single-chip circuit and unified specification, it seems deviant.In 1969, IBM changed the way computers were sold. Instead of bundling hardware, software, and services together, they separated them and sold them separately.The result of this was the birth of a software industry, a service industry, a multi-million dollar market.Today, IBM remains not only the world's largest computer manufacturer, but also the largest provider of computer services. In the 1960s and 1970s, the computer industry continued to develop. Companies such as IBM, Digital Equipment Corporation (DEC), and Sperry expanded their computer business to the world, with a wide range of peripheral devices and services.But in 1978, when the major computer makers were still focused on building bigger, faster computers, Apple Computer, Inc broke new ground with its Apple II home computer. However, contrary to popular belief, Apple was not the first company to launch a personal computer.As early as two years ago, MITS (Micro Instrumentation and Telemetry Systems) launched the Altair8800 computer, which was highly praised in the small circle of computer enthusiasts. "Business Weekly" also called MITS the "home computer". IBM". But MITS did not create blue ocean domains.why?Because this machine has no display, no permanent memory, no software, and no keyboard, only 256 bytes of temporary memory.Users need to use a row of switches to input data, and the calculation results are displayed by a row of flashing lights in front.No wonder Ken Olsen, the president of DEC, famously said: "No one has a reason to have a computer in their home." Two years later, the home computer market brought by the Apple II computer made Olson go back on his word.The Apple computer uses mostly off-the-shelf technology, but it packs all the equipment in a plastic case with a keyboard and power supply, which is very convenient to use.Apple also launched the software used on Apple computers at the same time, ranging from commercial software to games, which made the computer have a wider customer base. Apple changed the way people think about computers.Computers are no longer a tool for tech "geeks" but, like Ford's Model T, entered American homes.Apple II computer sold more than 200,000 units in just two years after its birth, and Apple became one of the Fortune 500 companies in just three years, which is unprecedented. In 1980, more than 20 computer companies sold a total of 724,000 personal computers, with sales exceeding $1.8 billion. In 1981, more than 20 companies entered the computer market, and computer sales doubled to 1.4 million units, with sales of nearly 3 billion US dollars. The besieged IBM company spent several years researching the market, technology and planning solutions. In 1982, it finally launched its own personal computer, opening up a new blue ocean field.This kind of computer with an open structure has a standardized operating system, so other companies can also develop software and peripherals for this kind of computer, so that customers can greatly enhance the function of the computer while enjoying low prices. IBM's scale advantage allows him to still be accepted by consumers in terms of price.This kind of computer sold 200,000 units in the first year of its appearance, and almost immediately completed its original five-year goal. By 1983, IBM had sold a total of 1.3 million personal computers. As more and more U.S. companies buy and install home computers, there is a need for these computers to perform simple but important tasks such as file sharing and printer sharing.Under the incubation of the IBM650 mainframe, various high-end computer equipment manufactured by Hewlett-Packard, DEC and other manufacturers have been accepted by major enterprises and used to complete various complex tasks.But for simple tasks like file sharing and printing, these high-end devices are too expensive and complicated.This is especially true for SMEs. In 1992, the ProSignia server launched by Compaq Corporation opened up a new blue ocean field for the industry.This simplified and optimized server can be connected to various operating systems from UNIX to DOS, and the speed of completing most common functions such as file sharing and printing sharing is twice as fast as that of the original computer, but the price is only one-third of the original one.For Compaq, the simplification of functions has reduced the cost of manufacturing; for the personal computer industry, a series of products such as Compaq's ProSignia have expanded the scale of the server industry, turning personal computer servers into A large industry with an annual sales volume of 3.8 billion US dollars. In the mid-1990s, Dell Computer brought a new blue ocean field.Traditional computer manufacturers compete in computer speed, functions, software, etc., but Dell challenges the original industry logic by changing the purchase and distribution process.By selling direct to customers, Dell computers were 40 percent cheaper than IBM and still made money. Direct sales have also greatly improved the delivery speed of Dell computers, allowing customers to take only 4 days from ordering to receiving computers, while other manufacturers need two and a half months from accepting orders to completing delivery.Not only that, online and telephone ordering methods can also allow customers to order personalized computers according to their preferences, and the production model based on orders has significantly reduced the inventory cost of Dell computers. Today's Dell has become the undisputed leader in the industry. Its annual profit is like a rocket, rising from 5.3 billion US dollars in 1995 to 35.5 billion US dollars in 2003, and its market share in the US market has also increased from 2% to 30% in the same period. %. Like the automobile industry, the blue ocean field of the computer industry is not driven by technological innovation in essence, but a blue ocean field is created by combining technology and other factors to create value for consumers. The examples of the IBM 650 and Compaq servers illustrate that the creation of consumer value often depends on the simplification of technology.We can also see that the original industry companies, such as CTR, IBM, Compaq, etc., and the new industry companies such as Apple and Dell, can be the creators of the blue ocean field.Every blue ocean strategy has consolidated the brand of the company, created huge profits for the company, and also driven the profitability of the entire industry. The movie theater is a good place for us to relax after work and on weekends.The movie theater industry in the United States began in 1893 when Thomas Edison invented the moving film projector. A lamp was lit in a wooden box, and the projection of the film was watched through the small holes in the box. This performance was called "peep show" at the time. Two years later, Edison and his team invented a projection projector that could project images on a screen, but it was not very useful, just a few minutes of short films between song and dance performances.The purpose of such screenings is not so much to provide a new form of entertainment as to elevate the value of live action and draw attention to the theater.The technical conditions for cinemas are in place, but the concept of creating a blue ocean has not yet taken shape.It wasn't until 1905 that Harry Davis' Nickelback Casino in Pittsburgh, Pennsylvania changed all that. The popularity of 5 cent casinos in the United States has promoted the great development of movie theaters and created a vast blue ocean field. What is the difference between the five-cent casino and the original theater?At the beginning of the twentieth century, most Americans were working-class, but the entertainment provided by the theater at that time, such as plays, operas, and vaudeville, was aimed at the elite. At that time, the average family’s weekly income was US$12, and a US$2 ticket for an opera and 50 cents for a vaudeville ticket were obviously too expensive.For most people with limited education, theater is too formal to be attractive.And the theater is inconvenient, there are only a few performances a week, and the theater is mainly released in the noble parts of the city.So the entertainment industry is almost blank for most Americans. Davis's casino is different, tickets are 5 cents (as the name of the casino says).The reason why tickets are so cheap is that it has only the most modest form of theater - screen and benches, and the location is in a neighborhood where rent is cheap.In addition, the casino also relies on scale to reduce costs. It is broadcast non-stop from morning to midnight. The content of the program is some interesting farce. The casino is full of people, receiving about 7,000 spectators every day. In 1907, The Saturday Evening Post reported that Nickelbacks was entertaining more than 2 million people a day.Before long, five cent casinos were popular all over the United States.By 1914, there were 18,000 five-cent casinos across the United States, with 7 million visitors a day.This blue ocean has become an industry worth 500 million yuan. Just as nickels were in full swing, in 1914, Samuel Roschapevel, nicknamed "Rosie," opened a luxury theater in New York to cater to the needs of the upper-middle class.At the time, Rossi owned a number of five-cent casinos himself, and they were doing well.But unlike the crudeness of the casino, the well-built luxury theater has gorgeous chandeliers, corridors with mirrors, luxurious entrances, cloakrooms and velvet lovers seats, and the length of the movie is about the same as a play. People who used to watch theaters and operas also feel that it is worth going to the cinema, and the price is also affordable. The deluxe cinema has been a huge commercial success. From 1914 to 1922, more than 4,000 movie theaters opened in the United States, and watching movies became an important entertainment activity for people from all walks of life in the United States.As Rossi said: "It is an absolutely disastrous mistake to meet people's needs. People don't know what they want... Give them better." The content of the casino is effectively combined to create a blue ocean field in the movie theater industry, attracting a large number of new audiences from the middle and upper classes. With the growth of American wealth, the common dream of Americans is to live in a house with fences in the suburbs, to eat chicken for every meal, and to have a car in every family.By the 1940s, some began to feel that the luxury theater might be over.It is impossible for the suburbs to need a large and luxurious theater like the city center. As a result of the competition, there are only small theaters in the suburbs, and only one movie is shown every week.Although the cost is lower than that of a luxury theater, the small theater makes the audience lose the enthusiasm and no longer have the serious feeling of going out at night.The success of a small theater depends only on the quality of the movies it shows. If the movie is not good, it will not attract audiences at all, and the theater will lose money.The film and theater industry has gradually ceased to be popular, and it has gradually become a thing of the past. In 1963, the blue ocean strategy once again pushed the theater industry onto an upward trajectory.Stan Durwood's father once built the family's first movie theater in Kansas in the 1920s, and he himself founded the first multiplex theater (Multiplex) in a shopping mall in Kansas, driving the entire The renaissance of the cinema industry. The multi-purpose theater has been a great success, on the one hand, because the multi-purpose theater has multiple projection halls, which allows the audience to have more viewing options for movies; on the other hand, because the projection halls are of different sizes, they can be adjusted according to the needs of the audience , thus reducing risk and cost.As a result, Turwood's American Multiplex Theater Company (AMC) has grown from a small-town theater to the second-largest theater chain in the United States, and its blue ocean territory has expanded nationwide. The rise of multiplex theaters created a new blue ocean for the cinema industry, but by the 1980s, with the popularity of videotape, satellite TV, and cable TV, fewer audiences went to movie theaters.To make matters worse, in order to compete for audiences, movie theaters are getting smaller and smaller in order to show more movies at the same time.But that inadvertently undermines one of cinema's most unique attractions: the big screen.There's little point in paying more to see a movie theater's small screen when you just have to wait an extra week for a new movie to be available on cable or videotape.The theater industry once again fell into a trough. In 1995, AMC built a movie theater (Megaplex) with 24 large screens, which revived the American theater industry.Different from the small, dark, and inconspicuous projection halls of multi-purpose theaters, cinemas have an open space like a stadium, with comfortable seats and excellent audio-visual effects.At the same time, the cost of movie theaters is still kept at a very low level, because the main cost of movie theaters is land prices, and movie theaters are opened outside the city center.The scale of the studio also gives it an advantage in purchasing films and sharing with producers.Since the 24 large screens in the cinema can show all the films of the same schedule at the same time, the theater itself, rather than the movie, has become the scenery that attracts the audience. In the late 1990s, the audience of AMC Studios brought 8.8 cents more revenue per person than the audience of the general multiplex theater, and the audience radius covered by the studio expanded to a radius of 5 miles. In the mid-90s, the general movie theater Only attracts residents within a 2 mile radius.From 1995 to 2001, the number of viewers watching action movies in movie theaters increased from 1.26 billion to 1.49 billion. The number of screens in movie theaters only accounted for 15% of the total number of movie theater screens in the United States, but their contribution to the total box office reached 38%. %. The success of AMC brought many imitators, and there were too many studios for a time, so that by 2000, due to the economic downturn, many studios closed down.The cinema industry is ripe for creating the next blue ocean. Although the above is only a glimpse of the movie theater industry in the United States, it still has something in common with the laws in other cases.First of all, the theater industry has never been a long-lasting industry, and there is no long-lasting enterprise.Blue ocean strategy is a key driver for industries and industry companies to enter the growth trajectory.The pioneers in the blue ocean field are mainly companies that were already in the industry, such as AMC and luxury theaters.History shows that AMC has promoted the development of the industry twice, and also raised its profit growth to a new level, once in multiplex theaters and the other time in movie theaters.The essence of blue ocean strategy is not technological innovation, but value-driven innovation, or we can call it value innovation. From the cases of the above three industries, we can find that whether a company can maintain profit growth depends to a large extent on whether it can take the lead in creating rounds of blue ocean fields.Sustaining excellence is difficult for any company, and so far, no company has been able to stay in the blue ocean for a long time.However, those well-known companies are often those that can constantly discover themselves and create new market spaces.In this sense, although there is no permanent excellent enterprise so far, it is indeed our expectation to maintain excellence through excellent strategies.Although there are differences in details, the pattern characteristics of blue ocean strategy in the above three industries are consistent with the performance in other industries we have studied.