Managing Innovation: Blue Ocean Strategy and its Application in Companies

This document discusses the concept of Blue Ocean Strategy, which involves creating uncontested market space and making competition irrelevant. It explores the elements and uses of this strategy, along with examples of successful implementation. The second part focuses on the application of Blue Ocean Strategy in the company AirBnB, highlighting its impact on market opportunities and customer satisfaction. The document also discusses the purpose and impact of using the Blue Ocean Strategy canvas as a tool for innovation and differentiation.

MANAGING INNOVATION

Table of Contents
PART 1.............................................................................................................................................3
1 Blue ocean strategy..................................................................................................................3
PART 2.............................................................................................................................................6
2 Application and implementation of blue ocean strategy in the company................................6
REFERENCES..............................................................................................................................13

PART 1
1 Blue ocean strategy
Definition: Blue ocean strategy refers to move in the direction where there is a less
chances of competition and little to no competition. It shows and refers solutions of problems of
customers in a way that none other does. It creates uncontested market space which makes the
competition irrelevant.
There are some elements of this strategy which can be used by many companies in order
to future innovation. Elements of this strategies are: to pursue low cost, empower through tools
and framework and minimize risks and maximize opportunities.
Meaning: Blue ocean strategy is a method and process of creating business strategy of
the company. This strategy is generally is based on the idea by which every type of company can
achieve the higher profits by expanding and creating its new demand for its products on non-
competitive and less competitive market (Biemans, 2018). The main aim of choosing this
strategy is to create new and potential customers value by decreasing costs and providing
satisfactory products and services.
Background details: This strategy was published in 2005 in a book by W. Chan Kim and
Renee Mauborgne. This strategy and method include the methodology of creating of value
innovation by using new market space for the demand. This strategy is depending and rely on the
innovation and creative approaches.
Uses of strategy: Nowadays most of the companies are operating under intense
competition and try to do every possible thing in order to gain market shares. This type of
situations happens when an organisation operates in a saturated market which is also called a red
ocean. In order to ensure this type of situations many companies use blue ocean strategy. This
strategy exists and can be used when there is a potential for the higher profits and where is less
competition or may be irrelevant competition (Van Lancker, Wauters and Van Huylenbroeck,
2016).
Examples of successfulness of this strategy
Most of the companies can take advantage of this strategy by introducing its products
with superior characteristics and features in order to create new demand and also for making

competition irrelevant. For example, Apple company launched its new product iTunes by which
users can easily download high quality music at affordable and reasonable price. It has launched
its new products at affordable prices that helps the company in creating the potential demand.
Another company which uses blue ocean strategy is Ford motor co. as it introduced its T
model as the car for the masses. This was in only single colour and 1 model but it was durable,
affordable and reliable. At the same time this auto mobile industry was in its infancy with almost
500 auto makers that produce custom made cars which were very expensive and less durable and
reliable (Talukder, 2016). This company then created a new process of manufacturing its mass-
producing cars. The T model got success and gain market share from 9% to 61% from 1908 to
1921.
Blue ocean creates uncontested market space and also makes the competition irrelevant.
It also creates and capture the new demands for companies. It also helps in innovating products
and value.
There are some key points and elements which support blue ocean strategy which are as follows:
Pursue differentiation and low cost: The main important feature and supporting
element of this strategy is it creates differentiation. The main aim of that type of business is to
provide value to their customers at affordable prices.
Empowers through framework and tools: This strategy also helps to link
systematically with value and focuses on reconstructing boundaries. It also provides different
data driven tools and framework which provide visual guidance to companies which is beneficial
for them for pursuing its value innovation. With the help of this tools of blue ocean strategy
companies can guide and helps their customers. The tools and frame work which this strategy
provides are 4 actions framework, 6 path form and strategy canvas that help the company in
creating and innovating uncontested market space. Six path frameworks are a tool that are used
in this strategy in order to break from competition. The importance of 4 action framework is it
reduces the risk in the path of developing the business.
Step-by-step process: The main feature of using this strategy is it provides each details
and guidance or step by step process. By following this step, the company can make incremental
improvement. This strategy provides mainly 4 steps process to the company in order to break
away from the competition and for creating a profitable growth (Mi, 2015). Step1 overseeing

leadership in reality, 2nd step include to develop leadership profiles, 3Rd step include selection of
leadership profiles and last step is institutionalize new leadership practices.
Minimize risks and maximize opportunities: When companies use blue ocean strategy
then it tries to find out its ideas and innovation. For getting success it develops its new ideas and
this strategy helps them and tell the ways of refining their ideas in order to maximise
opportunities and minimizing risks.
Builds execution into strategy: This strategy builds execution into strategy from the
beginning through the practices of appropriate process in making of strategy. There are some
factors that are important in developing business such as: trust, cooperation and commitment.
These helps and allows the company to become different in speed, quality and consistency of
their execution.
Win-win outcomes: The win-win situation in this strategy has been created by aligning 3
strategy profits, proposition value and people. The success is depending upon compelling value
proposition for customers and improving profit proposition for the company. On the other hand,
strategy execution is largely depending on a motivating people proposition. With aligning and
using these three propositions of this strategy, organisations can create their own winning
strategy that will be good and beneficial for customers because this provides a holistic approach
to execution and formulation.
It grounded in data: By reducing and eliminating factors that affect the company growth
and functioning like competition, companies can create its own value innovation. Value
innovation helps the company in identifying that what customers commonly value across the
conventional boundaries of another same companies and then reconstruct their key factors across
market boundaries (Mebert and Lowe, 2017.).
Creates uncontested market space: The purpose of blue ocean strategy is not to
outperform the competition but to make and create the competition irrelevant by reconstructing
its own market boundaries. With the help of this strategy, managers need to look and focus on
systematically created boundaries across them in order to high profitable growth.
There are some disadvantages also of using this strategy such as:
 It has to suffer from many survivor’s bias.
 It focuses on creating immediate customers which may create problems.

 Sometimes it becomes difficult for the companies to enter in new market because various
factors like political, economic and environmental factors affect them in negative manner.
PART 2
2 Application and implementation of blue ocean strategy in the company
Most of the companies do the same things and activities over and over again but want and
expect different results. For being in a competition and stand out in the market, AirBnB requires
to think outside the box. For that they need to put their customers first and then create their
services that can provide all the benefits and can satisfy all the needs of their customers.
Blue ocean strategy is the best way of creating market opportunities. For that AirBnB
also requires to figure out the ways and cultural shift in its company. Higher growth and
historical development are a key goal and objective of AirBnB company. AirBnB provides
hospitality services so for that it is important to focus on health and safety of their guests.
AirBnB is a private company whose headquartered is in San Francisco that provides
hospitality services that can be accessible via its mobile Apps and Websites. It provides all
facilities like guests can search for lodging by using its filters like its type, location and price
which become easy for them to easily search and affordable price. Tools and elements of blue
ocean strategy also provides travel guidance to their customers.
AirBnB is a famous Website and social networking market that allows host to list their
apartment, spare rooms, tree house and private island. It is a business model of collaborative
consumption and share economy where people become producers and consumers. There is a
historical development of this company (Alam and Islam, 2017). It created new source of supply
for hotel industry and hospitality sectors. At that time, it started to compete with its established
competitors. It had to face many problems like local laws, causing damage to properties and
denial issues etc. this business model is becoming a unique model that is now creating an
innovative new market space with the help and use of blue ocean strategy. Most of the travellers
are preferring and depending on lodging facilities like hostels, hotels, breakfast and bed. It is the
best website that are now satisfying all the needs and demands of people.
It had launched a new model in order to develop and create a new market scope.
Collaborative consumption is its economic model that focuses on sharing. In this type the
resources were consumed collectively rather than individually that saves its extra cost. This

website generally connects travellers and renters around the world at affordable price. It has now
more than 500,000 listings in 192 countries and 34,000 cities. Till now it has provided lodging
over its 11 million guests. Blue ocean strategy is based on only process innovation rather than
product innovation because this company does not possess and own a particular property but
provides a platform to its customers and sellers by which they can service and interact with one
another.
AirBnB is a popular website for those people who want to rent out lodging. In this model
users have to register and create a personal online profile before using this website. This website
consists of reviews and feedbacks of previous guests that helps the new guests and users to
identify its effectiveness. It also has private messaging system and response rating that is
beneficial for users. AirBnB blue ocean strategy has not only created a new market scope and
place but also created a new source of supply that focus on developing quality. This model was
based on volume as it focused on getting new people on their platform as possible. The company
focuses on providing the best quality services to its customers and also makes money as
intermediary between the locals and the travellers by taking a % from both sides. The traveller
pays to AirBnB when the local and the owner of the room accept and agrees on booking request
(Li, 2018).
Use of this strategy: Determinants of blue ocean strategy that AirBnB use can be
analysed by using some model. In this type business model reduced the quality of services,
hassles of booking rooms and the excessive costs. With the help of blue ocean strategy now it is
providing the best suitable place or location at affordable prices. These facilities are helping and
supporting this company in raising customer satisfaction and increasing revenues for hosts and
Listers (Umar, Sasongko, and Aguzman, 2018). It has eventually created a new uncontested
market space and using the social networking sites. Customers are also taking advantage and
getting beneficial from this strategy and its new model in terms of costs and suitable place.
AirBnB user also can choose preferred location where they want to stay. AirBnB also
representing the new innovation in this hospitality sector in order tom attract families and young
travellers and alternative to hotels for events.
There is some action framework of this canvas which AirBnB uses in order to
development of its services.

Impact of creating blue ocean strategy
Blue ocean strategy creates new possibilities for the company that are not available in
company's operations within its existing cost value structure. Those companies who have used
blue ocean strategy they have achieved a significant growth. This strategy impact on the business
in positive manner. It helps in creating value innovation in those regions where a firm's actions
are favourably effect on its value proportion and on its cost structure. By using this strategy,
AirBnB can save its profits or cut its cost by reducing and eliminating factors that affects
the company's growth like competition.
This strategy also provides 4 action framework such as: reduce, create, eliminate and
raise. By these frameworks, the company focuses on eliminating those factors that the company
has long competed on. It concentrates on raising those factors that increase and improve the
company's standard. By reducing factors which decrease the standard and value of the company
it can achieve its goals and create irrelevant competition. It also focuses on creating factors that
the company has never offered to their customers for attracting potential customers towards their
services (Kim and Mauborgne, 2015).
It also helps in achieving the higher value with low cost. For innovation performance
AirBnB needs to create and capture new demands and achieve differentiation. Innovation process
supports and have positive impact on its business performance. For that it needs to find out the
factors and market conditions that impact on its activities in negative manner and this strategy
provides guidance and help them in analysing factors. So with the help of this framework it can
be said that this strategy impact on the company in positive manner, If the company really focus
and follow its steps.
For improving its efficiency, it uses the blue ocean strategy canvas. Th main aim of using
this canvas and strategy is to break the trade-off between low cost and differentiation in order to
create a new value curve.
There is some purpose of using this canvas as a tool are:
It creates and captures the current state of play in the market space which is known for
the company. It also allows the company and users to see and analyse the factors on which the
company competes and invest in. It also helps them in understanding about buyers that which
they purchase and the major strategic profiles the player have (Orlov and Chubarkina, 2017).

It increases users to actions by reorienting their focus from competitors of the company
and from customers to non-customers of the industry.
Ways in which services of AirBnB can develop in future:
For importing its services in future, it can allow their customers AirBnB car facilities
which will be helpful for its customers as it will reduce their time.
It can also take uniform checklists by level of noise and pollution in the area, hot water,
TY works, cleanliness etc. instead of straight reviews. It helps them in knowing and analysing
the particular area in which they will need to improve. By making use of innovation and using of
new technologies it can improve their services.
Illustration 1: Canvas strategy
Sources: (Canvas strategy of AirBnB, 2017.)

It requires a realistic assessment of products and services which AirBnB provides and
offers to their customers. It also captures the current state and situations of play in the existing
market. It helps AirBnB in analysing all the factors that impact on their competitors and the
industry on which it competes on. With the help of canvas strategy AirBnB is able to design a
customer centric services and products guidance and map and also can make and effective
position their services for customers in their new market scope (Kulkarni, Verma and Mukundan,
2016).
There are some advantages and disadvantages of this strategy such as:
Advantages
• The main advantage of using this strategy is it is very easy to change and adapt.
• It is also easy to understand as every members of staff can easily understand this strategy.
Disadvantages
• This model does not focus on competitors and liquidity.
• It is not an appropriate model as it is only a rough sketch of a business model.
In the beginning this website was a simple directory of apartments and rooms but they
fell that there is an importance of providing security and developing trust between guests and
hosts in order to become successful. The main aim of this website was to make the reservation
process easier for customers so it created its new website where users need to click three times in
order to find a room.
With the use of innovation framework, it makes its historical development. For
innovation AirBnB use 4 main framework that includes: technology framework, blue ocean
strategy framework, porter's 5 forces framework and encroachment framework. The main aim of
AirBnB of using blue ocean framework is to identify the market space. AirBnB blue ocean
strategy can be analysed using some models in which customers do not have to face hassles as it
focus on reducing hassles of booking hotel rooms. This strategy also helps AirBnB in their
historical development by reducing the costs of customers and it’s also provides many locations
with innovation experiences.
Another main aspect which AirBnB created fro its historical development is new source
of supply for hotel industry that never existed before. It composed houses of people living in the
cities. This source of supply was less sophisticated as compared to the established hotel in terms
of quality and price. It had to face many problems like damages to properties, illegal drug, sex

parties etc. With the help and creation of new apps it makes easy and beneficial for its customers
to choose their locations. AirBnB blue ocean framework helps it in reducing these problems by
offering to reimburse $1 million of property damage. It is a unique business model that created
an innovative new market space with blue ocean strategy which is very advantageous to
travellers.
Canvas strategy provides the manager of AirBnB an effective toolbox for creating and
identify uncontested market space instead competing in existing market with existing
competitors (Farren, Kinney and Crotty, 2017).
Future development: For future development and making its image it will start own
building homes for more communal living as soon as possible. It has already changed the way of
people travel with blue ocean strategy as innovation and creating new apps which provides more
facilities to their travellers. The main of AirBnB is to bring the sharing economy to housing. It
will use the new ideas and innovations in order to design new homes and built to accommodate
flexible living arrangements.
Recommendation for future development
For better future development AirBnB host requires to do extra research about target
audience, competition and analytics. To know about the potential audience is very important for
the company. For that it should need to research to better understand of their persona which
make able and prepare and their property search a lot easier.
For being in a competition, it is also requiring to compete through pricing and locations. It
requires to set low price and give an attractive location. Guests also might prefer a supportive
host in unknown and strange city over a great location so it should also focus on providing a
supporting host and guidance. If the location will not be good then guests will not attract and will
not prefer rooms (Kim, W.C. and Mauborgne, R., 2015).
Nowadays home sharing is becoming very popular because many travellers choose and
prefer to live like a local for a day and more than 1 day. They have to face many problems in
choosing the location and neighbours complain. Most of the neighbour have problems from
disruptive short-term renters so for eliminating these problems it can be recommend that it
should focus on ensuring that only primary residences are rented out.
It should also focus on its types of property like unique space, vacation home, business to
business and boutique. This will provide a various and greater choice to their guests and also

provide the greater transparency over these types of accommodation available. The main aim of
AirBnB website is to make their travellers and locals able in getting their room and homes
booked anywhere. Many of the customer facing the travelling facilities they have to wait an hour
in order to get a cab. So, the company should provide them cab facilities also from their websites
(Ghemawat, 2016).
For attracting more guests, it should take use of social media like it can uploads high
quality photos and it should also provide the facility of cancelling their booking as soon as
possible. It should be active on social media as it can respond to their guests in a timely manner.
It should also focus on setting a smart pricing strategy which can be worthful for its location. For
making profit it should add their extra nominal charge as the company contribute in the growth
of economy. Extra charge involves cleaning charge that is costly and time consuming. Their fee
should depend upon the size of their place. Charging a fee for their extra guests is the best and
wise way of increasing the profitability of their property.

REFERENCES
Books and journals
Alam, S. and Islam, M.T., 2017. Impact of Blue Ocean Strategy on Organizational Performance:
A literature review toward implementation logic. IOSR Journal of Business and
Management. 19(1).
Biemans, W., 2018. Managing innovation within networks. Routledge.
Farren, M., Kinney, T. and Crotty, Y., 2017. Using the Business Model Canvas strategy tool to
support the Play4Guidance online entrepreneurial game.
Ghemawat, P., 2016. Evolving ideas about business strategy. Business History Review. 90(4).
pp.727-749.
Kim, W.C. and Mauborgne, R., 2015. Blue ocean strategy: How to create uncontested market
space and make the competition irrelevant Harvard Business School Press Boston USA
ISBN 978-1591396192. expanded edition. pp.1-240.
Kulkarni, S., Verma, P. and Mukundan, R., 2016. Extending canvas of manufacturing strategy:
8Ps model. International Journal of Global Business and Competitiveness. 11(1). pp.7-
21.
Li, X., 2018, August. Implementation of the Blue Ocean Strategy on Tourism Companies in
Zhoushan Archipelago. In 2018 International Conference on Management, Economics,
Education and Social Sciences (MEESS 2018). Atlantis Press.
Mebert, A. and Lowe, S., 2017. Blue Ocean Strategy: How to Create Uncontested Market Space.
Macat Library.
Mi, J., 2015. Blue ocean strategy. Wiley Encyclopedia of Management, pp.1-1.
Orlov, A.K. and Chubarkina, I.Y., 2017. Blue ocean strategy application in the course of planning
and implementation of construction projects in the area of SMART housing and social
infrastructure. In MATEC Web of Conferences (Vol. 106, p. 08015). EDP Sciences.
Talukder, M., 2016. Managing innovation adoption: from innovation to implementation.
Routledge.
Umar, A., Sasongko, A.H. and Aguzman, G., 2018. Business model canvas as a solution for
competing strategy of small business in Indonesia. International Journal of
Entrepreneurship.

Van Lancker, J., Wauters, E. and Van Huylenbroeck, G., 2016. Managing innovation in the
bioeconomy: An open innovation perspective. Biomass and Bioenergy. 90. pp.60-69.
ONLINE:
Canvas strategy of AirBnB. 2017. [Online]. Available
through :<https://www.innovationtactics.com/business-model-canvas-airbnb/>.