FACULTY OF LETTERS AND HUMAN SCIENCE
CENTER OF TRANSLATION AND LANGUAGES
MASTERS IN INTERNATIONAL COMMERCIAL NEGOTIATIONS
CIRQUE DU SOLEIL AND THE CREATION OF THE BLUE OCEAN STRATEGY
Under the direction of
Dr. Marwan AzouriNew RawdaMay 2018
For many years, competition has been the main focus of corporate strategy. Today when formulating a strategy, it is hard not to include the competition and the terminologies that comes with it: competitive advantage, beating the competition, benchmarking, etc. This huge focus on competition creates a situation of limitations when searching for new solutions to success.
With time and experience, companies have realized somehow that targeting only the competition in overcrowded industries is not a solution to maintain a high performance. The perfect solution could be finding unexplored markets where competition is irrelevant – creating Blue Oceans.
W. Chan Kim & Renée Mauborgne’s Blue Ocean Strategy (2005) provides a possible solution to escape from the intense competition and creating new market spaces. This paper will provide a brief initial literature review on strategies used by most companies nowadays and a deeper review on the Red and Blue ocean strategies. The main objective is to identify how companies can be innovative in order to shift themselves from Red to Blue Oceans. To understand more on this topic, the second part will discuss Cirque du Soleil’s business growth that mainly included Blue Ocean aspects.
The content of this paper is based mainly on Kim and Mauborgne’s book “Blue Ocean Strategy, how to create uncontested market space and make the competition irrelevant, 2005” and on Harvard business Review articles as well as other credible sources.
TABLE OF CONTENT
PART 1: Literature Review, Red ; Blue ocean strategies
CHAPTER 1: RED OCEAN STRATEGY
What is red?
Red Ocean traps
CHAPTER 2: BLUE OCEAN STRATEGY
What is blue?
Blue Ocean tools ; action frameworks
The four forces frame
PART 2: Empirical Study
CHAPTER 1: CIRQUE DU SOLEIL
History of Cirque du Soleil
Cirque du Soleil’s core values
CHAPTER 2: SHIFTING CIRQUE DU SOLEIL FROM RED TO BLUE OCEAN
Cirque du Soleil’s value innovation
Cirque du Soleil’s strategic canvas
Strategy, a term used in almost everything and in different fields. Strategy was the main focus in management literature & the business world for the past years. It is defined as a serial of high management decisions that shows stability and order over time (Mintzberg ,1978). One of the newest literature of strategy developed by Kim & Mauborgne (2005) is the “Blue & Red Ocean Strategies” that inspired a lot of debates & researches in this field and resulted some serious empirical & theoretical studies in academic conferences and papers.
We live in a fast moving time, especially for businesses. Growing demand, market expansion, attractive industry, etc. these are the wishes of most companies nowadays, but the reality is that many of them are ending their businesses. More than 8,000 retail store closures were announced in 2017 in the US including big names like: RadioShack (1,430 stores), Payless (808 stores) and Crocs (160 stores), (Coresight Research, weekly stores opening and closures). On the other hand, not only retail stores are shutting down, many other companies from other industries may not survive the couple coming years. The reason behind all these closures are many, such as bankruptcy, economy status, focusing on international market, bad management, underperformance & mainly competition.
While many companies are closing, others were finding or creating ways to survive. Some companies decided to fight competitors in the current market by either lowering prices, investing in technology or even starting a dual strategy while others decided to try something with much more innovation: “The Blue Ocean Strategy” & Cirque du Soleil is the best example.
The blue ocean strategy is a strategy that give guidance to companies on how to go to a new market, which increase demand and prevent competition from the existing market. In order to expand the efficiency of the strategy and to ensure profits and success, it is best for companies to implement this strategy when initially starting the business. But also, it’s never too late to make improvements.
Blue Ocean strategy is a way to guide companies to find new market in which they can increase demand while reconstructing cost structure, (Gorrell, 2005).
Kim and Mauborgne’s strategy, introduced a new perspective of how markets look like today. The Red Oceans are almost all the industries existing today and the Blue Oceans is creating the unexplored market space and reaching non-customers.
The research made in the Blue Ocean strategy confirms that there are no permanently great companies, just as there are no permanently great industries. To increase the quality of companies’ performances, they really need to study what are the factors that affected them positively, and identify how to implement them consistently. Doing so, companies will be on the right path of choosing smart strategic moves, and the great strategic move to accomplish the goal of success, would be creating blue oceans.
Cirque du Soleil was able to create a new market space in the circus shrinking sector. They created a new demand that resulted generating high profitable growth. The circus reinvention that Cirque du Soleil made was the example that lots of studies used ; the most of them was the book of W. Chan Kim ; Renée Mauborgne (2005) that studied step by step the growth of Cirque du Soleil along with the tools and frameworks used.
Seeing the success of the strategy Cirque du Soleil used made this subject an interesting material for this paper knowing the difficulties companies are facing nowadays due to the many reasons we mentioned earlier. Innovation nowadays is a key to survive, competition is rising ; almost every company is having the dream to explore new markets by going international. A lot of big and small companies are doing so, but what if they can create their own market? How can they make competition irrelevant ; what will be the strategic changes that companies need to implement to shift from their current red ocean strategy to the blue ocean strategy?
This paper will include in the first part a literature review of some strategies (mainly the Blue Ocean strategy) by explaining the difference of the current market spaces (Red Oceans) and the future market spaces that a Blue Ocean strategy can create. It will also identify the cornerstone of the strategy, which is the value innovation, along with the most important tools to be used. The second part of this paper will demonstrate the success of Cirque du Soleil’s company and how they were able to shift their business from Red to Blue Oceans. Cirque du Soleil’s growth was the main example used in Kim ; Maurborgne’s book, and also an example of a business success in different articles & case studies.
Part 1: Literature review
Kim & Mauborgne’s strategy divided the market in two parts: Red and Blue Oceans. Red Oceans are currently existing markets, known market spaces. Whereas, Blue Oceans are none existing markets with unknown market spaces. This part will present the literature review of possible strategies that could be used in any business and it is divide into two chapters. Chapter one includes the Red Ocean strategy and the traps that sometimes hold companies from not shifting to better opportunities, on the other hand, chapter two includes the major idea of this paper which is the Blue Ocean strategy, the value innovation and the tools and frameworks to implement this strategy.
CHAPTER 1: RED OCEAN STRATEGY
1.1 What is red?
We are currently living in time of market globalization, multinational companies and high levels of demand. Companies are operating in very competitive markets and doing whatever it takes to exceed or reach their competitors.
Companies nowadays are mostly competing in mature market segments which means operating in a market where there’s absence of significant growth, for that reason they are only focusing on gaining their competitors market share. In order to do that, companies are being forced to reduce prices and entering promotion wars. The most tool used in this war is currently advertisement, by the use of this tool, companies are hardly trying to persuade customers that the product they are offering is the best between the available products in the same industry. This tool and all other tools used by companies are demanding a big amount of company’s resources that could be used in a much creative way.
This exact situation described is called Red Ocean, which describes the bloody competition that companies are living today. In red oceans, market boundaries are limited and companies’ actions are highly predicted. With the saturated market and the low profits and demands companies are facing, the goal would be to get larger market share. Due to this market status, companies aren’t having options rather than reducing their costs and increase marketing expenses.
The central focus the strategic thinking for the past years has been based on competitive strategies and competition issues faced by most companies, for that reason it took most of the attention on how to develop strategy patterns to solve it. As a result, organizations learned how to compete with each other by using different strategies, such as: differentiation, cost reduction or focus. Under the same topic some tools were also developed such as Porter’s competitive model that aims to analyze competition.
The term red is associated with the blood color that expresses the market competitiveness that can sometimes result a red bloodbath ocean and ocean is the comparison for the large & potential market space.
Red oceans are always important and will always be a reality of business life. But when supply exceed demand, competing to gain the market will not be sufficient to maintain a high performance. That’s why companies need to go outside of the box to gain new profits and growth opportunities knowing that they will be monopolistic for a while.
The competition that red oceans faces are mostly based on low price ; quality, every player knows his position and shares in the market and the possibility of new rivals to enter these markets is very low due this strong competition. But, when using the blue ocean strategy, the main feature is that competition is no available due to the creation of the new market with no boundaries or rules (Kim and Mauborgne, 2005).
Many factors are forcing companies to choose another strategy to survive. Some of these factors are:
Supply exceeding demand;
Laws ; regulations;
Innovation in companies is related with the price and cost. In red ocean markets, companies have to choose between differentiation and cost domination. In blue ocean markets, the target is using both differentiation and cost domination (Kim and Mauborgne, 2005).
The strategies that companies choose are in relation with the environment where they run their business. However, a variety of options is available to help companies in order to face the competition. Conventional logic and the traditional methods such Porter’s five forces are considered red ocean strategies.
The red ocean strategy is where companies compete roughly against the competition. Companies study their market and analyze their positioning in order to identify the strategies and actions of their competitors, while some companies adapt their actions on the competitors moves. Feedback to their actions comes usually from the end users and this feedback is used to adjust and apply a to their strategies or to their products/services. Success is usually attained by either providing customers more value or lowering prices. Products are also expanded by imitating competitors’ characteristics and by this customer from other companies can be stolen (Porter M.E, 1996).
1.2 Red Ocean traps
With the shift of market power from companies to customers, and the increased global competition, companies in almost all industries are now facing serious performance challenges. To overcome these challenges, companies need to be more creative in developing their strategies and present more value to customers. Competitiveness alone will not grant them success but they will need to find a way to create new demand to capture new markets. What’s happening is not that companies aren’t identifying the value of new market spaces but, somehow their past learnings are trapping them and not leaving an opportunity for them to develop models they use. They were trapped with mental models, gained knowledge from classrooms and years of business experience. These models, surely helped these companies and managers through years to respond better to competitive challenges, but also narrowed their ability to create new markets.
Six main assumptions were encountered into company’s mental models, and were supposed as red ocean traps, because they effectively were leaving companies in red oceans and prevent them from shifting to blue oceans. The first two traps came from assumptions about marketing, specifically in relation with customer orientation and niches; the next two traps are results from economic lessons on technology, creativity & innovations; and the final two are in relation with competitive strategy and main two strategies, differentiation & low cost.
Trap one: Associating market- creating strategies as customer-oriented approaches
Creating new demand is the core of market-creating strategies. It focuses on transforming non-customers into customers. Companies have been working under the assumption that the customer is king. That’s why the whole focus is being on the current customers and not on converting noncustomers into customers. This approach, is unlikely to create new markets. Focusing on customers, will definitely drive companies to come up with better solutions for them and overcoming what the competition is offering, but it keeps companies anchored in red oceans. Whereas, trying to gain the non-customers will create new markets for the company and expand the industry boundaries.
Trap two: Treating market-creating strategies as niche strategies
Marketing practices has placed an important mean on using market segmentation and capturing niche market. Niche markets can be very effective by revealing a niche in an existing market space but does not help in discovering a new market space. Successful market-creating strategies don’t focus on the right segmentation but instead the try to find the common factor between a group of buyers that could help them create larger demand.
Trap three: Confusing technology innovation with market-creating strategies
R&D and technology are well known as key factors that have big impact on the performance of a company, the market development and industry growth. For that reason, some companies suppose that they are also key factors in creating new markets. But, actually, these factors are not unavoidable in the market creation. What is unavoidable during market creation, is not technology innovation but, value innovation that will be discussed later.
Trap Four: Equating creative destruction with market creation
Creative destruction is when the economic structure is restructured, constantly destroying the old one, constantly creating a new one, (Joseph Schumpeter, 1942). This theory is the base of innovation economics. The perfect example for this theory is what happened with the photography business and how the digital photography replaced photographic film and kept on destroying them. But, market creation doesn’t always require destruction. It might also include nondestructive creation, at which point can create demand. Opposing market creation with creative destruction limits a company’s set of opportunities and capture them from market-creating strategies. In some cases, the idea of creative destruction can have the effect on people that they might lose their current status and jobs and they will be replaced by the new creations. For that reason, it is important for companies to explain for its members that their creation is nondestructive, but yet a growth to both them and the company.
Trap five: Equating market-creating strategies with differentiation
In red competitive oceans, companies are more likely to choose their position on the “productivity frontier”, which is the extent of value-cost trade-offs that are available in a specific structure and norms of the industry. Differentiation at this point is what separates the company from its competitors by offering premium value; the trade-off is usually elevated costs to the company and higher prices for customers. Many companies assume market creation is the same thing.
In fact, the market creation is about combining simultaneously low cost with differentiation, offering customers high value products/services with fair low prices.
Trap six: Equating market-creating strategies with low-cost strategies
This trap comes from the company’s assumption that lowering prices is what will create them new markets. This trap is somehow related to trap five, where companies think that while creating new markets they can’t combine differentiation with low costs, it’s either low-cost strategy alone, or offering customers higher or improved value.
The assumptions mentioned in the red ocean traps are not wrong or bad. They all came through years of experiences and business knowledge and they all serve important purposes. But, they will not lead companies into creating new markets. And when they drive companies into spending a lot to create new markets, they may result in new businesses that don’t secure back those investments. That’s why, while creating new markets, the current used strategies should be all revised in order not to fall into the red ocean traps.
CHAPTER 2: BLUE OCEAN STRATEGY
With all the work and the intense competition that is still available attacking almost all companies the main question arises, what other practices a company can do to prevent failure? The appropriate answer could be the Blue Ocean Strategy.
As an alternative to red oceans, blue oceans is considered all industries that do not exist today, as mentioned before it is the unknown and unexplored market space, with big potential of high profit and growth. The main focus would be creating this new market and making competition unavailable. Companies have two options, either creating new products or services that will result creating new demand and a completely new market or they can higher the borderline of the current industry.
What is Blue?
Companies that only focus on competition will eventually close but the ones that will focus on value creation will shine (Edward de Bono). With the current crowded market space, the possibility of profits and growth is being minimized. Competition is overcoming this possibility and turning the market space into red oceans. Blue ocean represents businesses/products/services/ideas that do not exist today; the unexplored markets. In blue ocean, demand is created rather than fought over where there is a much higher chance for growth and profitability ; the most important feature of this strategy is that competition is irrelevant. Creating a new industry creates a new set of rules depending on its type.
Today, when using the word strategy, it is always followed by the language of competition or the term competitive advantage. Most companies work on a strategy that helps them to take over more shares in their existing market space. For sure, competition mater (Rosenberg,2006) but, by only focusing on the competition, strategy thinkers missed two important cases: one is developing and creating market where there’s no competition & two to protect these new markets. When the term blue ocean is used with the term innovation, it’s not only about technology innovation, it’s true that nowadays the use of technology can be a competitive advantage to a lot of industries but the concept created has the main focus.
This strategy came with fundamental principles to create values for both customers and the company. By using these principles and tools, companies will be able to transform innovation into a repeated, continued process that everyone will be a part of it. When innovation is introduced to the working lives of employees in a company, it develops a culture that creates capacity and responsibility for all employees (Golpayegani and Pirouz far, 2009).
The Blue Ocean strategy was developed by Chan Kim & Renée Mauborgne (2005) of INSEAD University in France. Their study covered more than 150 strategic actions from almost 30 different fields using data aged more than 100 years. They created the Blue Ocean Strategy from analyzing all winning actions and combining them and the less successful actions were left in the red ocean of intense competition.
When companies are facing declining life cycle products inside a red ocean market, then a Blue Ocean strategy is their best solution. The products at this level would have the status of decreasing growth rate market, low profits, low demand & decreasing competitiveness due to low interest of the market. At this point, customers avoid this products thinking that it does not fully satisfy their needs. Contrary to Red Oceans, Blue Oceans can be described as an untouched market space offering a special product with an opportunity of high profit & growth. Blue oceans can be created by going outside the current market limits and by reconstructing market boundaries. The blue ocean strategy gives companies a theoretical and practical ways to stop competitions in their operation field and instead create their own market space of gainful growth (Mi, 2015).
Reconstructing the market boundaries is the main focus when shifting the company from a red to a blue ocean strategy. In order to create blue oceans, six basic approaches were found to help reconstruct the market boundaries (Kim & Mauborgne, 2005). These approaches don’t require special analysis for the company or deep researches but instead they can be identified through the familiar company’s data but seeing it from another perspective.
These 6 assumptions are somehow capturing companies in the red oceans to struggle while competing and tend to do the following:
See themselves as being the best in their industry;
Position themselves based on the accepted strategic groups available in their market and try to find the similarities between them and these groups;
Target the same buyer group and chain of buyers;
Determine similarly the scope of products and services offered by their industry;
Acknowledge the fact of offering either functional or emotional appeals;
Neglect the timing factor of the products when formulating strategy.
The more that companies share this traditional knowledge on how to compete, the greater the competition strive among them. To shift from red to blue oceans, companies should look outside their regular perspective and try to reconstruct their boundaries. To do that they will need to look across alternative industries, across strategic groups, across buyer groups, across complementary product and service offerings, across the functional-emotional orientation of an industry, and even across time (Kim & Mauborgne,2005).
Companies operating in the red ocean have to search in its own market to identify the closest competition, then the company will try to beat this competition basing her actions on similar factors. The blue ocean strategy requires a different process that will result make the competition irrelevant and this process is applied by identifying the six conventional boundaries of competition to start operating in the blue oceans.
One of the ways to move the company to a blue ocean strategy is looking across alternative industries, in other meaning looking in the same market for products or services that have different structure, but the same general use, purpose or utility. For example, restaurants offer their customers food and a social environment, and cinemas offer their customers visual entertainment, however, these both businesses have the same objective: providing an enjoyable environment for customers outside their homes. When companies try to create a new market with irrelevant competition, they need to check alternative industries instead of competing in the same industry. By focusing on the things in common & the objectives between alternative industries, and at the same time excluding everything else, companies can create a blue ocean of uncharted market space (Kim & Mauborgne, 2005).
Companies should also look across strategic groups within industries, we mean by strategic group a group of companies already operating under the same strategy. These groups can be known using vertical integration, product platform, R&D investments, and other theoretical concepts (McGee, 1986). These strategic groups are usually rated by their price and work and these two factors being dependent to one another. Usually companies focus on developing their competitive position within these strategic groups. For example, Mercedes, BMW and Jaguar, three companies that compete with each other with almost the same strategy under the luxury car segment, in such a way that they allow other segments like economic car companies to compete within their own segment (Kim & Mauborgne, 2005). When creating a new market, companies should look across strategic groups in their same industry in order to identify what the different beneficence between these groups are.
Another field companies should look across to, is the chain of buyers that is defined by the different parties concerned during a buying decision. The chain of buyers is usually divided into three groups, which are: purchasers, users and influencers (John Pruitt, 2006). For example, if taking the buying decision of a video game, the end user would be a child, the gaming shop would be the influencer and the purchase is most probably the parents of the child. In this example of video gaming, the gaming industry focuses massively on children. If companies can sometimes shift their attention to another buyer group, they can then unlock a new value and by that shift their market boundaries to finally maximize their end users.
Looking across complementary product and service offerings can also help in shifting from a red to a blue ocean strategy. Complementary products and services are the ones sold separately but used together and by that creating value and demand for the end users. Complementary products or services do not have necessarily to complement each other based on requirements, but they have to complement each other based on the buyer experience. Books and coffee can be an example of two complementary products inside a shop. By making the benefit of having these two products at the same place for the buyer and the whole experience, companies can create a blue ocean of market space.
Adding to the tools companies can use, they can also look across the functional or emotional appeal to buyers. Functional appeal can be defined by the functional value a buyer can receive from a product or service based on the relation between the price and the functionalities of the product or service bought.
As for the emotional appeal it is defined by the emotional value that a customer gets by using this product or service. Companies tend to either offer the functional or the emotional appeal and not merging them. Products having high emotional appeal are usually more priced and less functional, while companies can be removing these utilities and presenting to customers a simpler and cheaper product. And as for the companies offering only functionalities they can add the emotional appeal and offer more value to customers and by that stimulates more demand.
Companies should also look across time & by being able to identify external trends affecting their industry. Being able to spot a trend at the right time can massively help companies to create blue ocean opportunities. One of the trends can be technology and the best example is smart phones. Mobile phones companies that were able to the smart phones trend and project the trend itself where able to shift themselves to another level among their competitors. What’s important is the value delivered today to the value that might be delivered tomorrow (Kim ; Mauborgne, 2005). They key of looking across time is always finding insights in trends that can be identified today.
2.3 Value innovation
Until today all the scientific efforts have been centralized on the Red Oceans especially on overcoming the competition. Blue Oceans are not today’s creation, they existed in the past and they will remain in the future. Some market sectors died and others are being created based on the demands. Market sectors cannot be immovable, on the contrary they evolve continuously with the production developments and the market expansion. History shows that people have the potential of recreating old market sectors or creating new ones. This particular ability is the base of Blue Ocean creation.
Many factors lead companies to focus on creating a Blue Ocean. One of those factors is the constantly improved technology, which empowered the producers to present the market with higher quantity and diversity of products and services. By constantly doing that, the market reaches its limits and in some point the supply will exceed the need in that market. Globalization & open markets intensified this situation by helping the increase in suppliers with no sign of increase in demand in this globalized economy. This lead to a price war between competitors and by that lower profits and growth for their products. Similar products were found in the same market and differentiation is hard to be found.
Strategies used in Red Oceans were no longer helping companies to win the competition, as a result some were forced to create Blue Oceans, they needed to make a change. Today, future is based on the creation of these Blue Oceans markets.
What differentiate “winners” from “losers” in the creation of Blue Oceans is mainly the choice of the right strategy. Red Ocean companies use traditional known strategies and their main issue reside with the competition, whereas Blue Oceans companies do not consider competition as an issue but instead they use another perspective strategy called “Value Innovation”.
The Blue ocean strategy is a motivation for companies to adapt a new way of thinking, different than its competitors. By adapting this way, companies can save themselves from a highly competitive market (a Red Ocean), and create a new unexplored are of demand (a Blue Ocean). By using the Blue Ocean strategy, companies will no longer have to overcome their competitors, but to making the competition irrelevant by creating a higher value to its customers in a new market. This particular way of thinking is defined by “value innovation” that means like it sounds, focusing on innovation and creation of value.
Conventional competitive theories, such as the one developed by Porter, highlights the importance of a company to choose one strategy to focus on instead of joining multiple strategies (Porter M.E., 1985).
In his theory, Porter mentioned three main competitive strategies. One is cost leadership, which is selling high quantity of products at the lowest price with maintaining profitability. This competitive strategy can be achieved when the company can operate at a lower cost than its competitors. The second competitive strategy is the differentiation strategy that has a goal to sell a high value exclusive product to a wide range of customers that are willing to pay higher price to this added value product in order to satisfy their needs. Focus strategy is also another type of differentiation strategy, it is usually employed when segments are known and the company is competitively able to satisfy its needs. This is usually not done by performing more efficiently, but instead by product innovation and/or brand marketing (Porter M. E., 1980). The blue ocean strategy contrast Porter’s theory by using both at the same time differentiation and low cost and this is defined by “The Value Innovation”, lowering price while at the same time setting up the buyer value (Figure 1).
Figure 1: The Simultaneous Pursuit of Differentiation and Low Cost
Source: Kim ; Mauborgne, 2005
Innovation by itself is no definitely a way to Blue Ocean. For example, a company can implement a production innovation without having an influence on the general business strategy. This type of innovation can result a lower productivity costs and by that improving the company’s cost leadership strategy, but it will have no effect on the product’s value. That kind of innovation can upgrade the company’s status in the current market, but it is highly unlikely to create a Blue Ocean.
The conclusion would be that Value Innovation is something that exceeds innovation itself. It has relation with the strategy adapted by the whole company’s operational system. It is the merger between the company’s hole system’s effort to reach a value growth for itself and also for its customers. If this effort was not followed by the hole company’s system, then innovation will not be a part of the core company’s strategy.
The blue ocean strategy focused methodically identifying “blue oceans” that are characterized by:
Ability of creating market demands
Highly profitable growth of the company
The major differences between the Red ; Blue Oceans strategies can be seen in Table 1.
*Focus on current customers Blue Ocean
*Focus on noncustomers
*Compete in existing market space *Create uncontested market space
*Beat the competition *Make the competition irrelevant
*Exploit demand *Create and capture new demand
*Make the value/cost trade-off *Break the value/cost trade off
*Align the whole system of a company’s activities with its strategic choice of differentiation or low cost *Align the whole system of a company’s activities in pursuit of differentiation and low cost
Table 1: Differences between Red ; Blue Oceans.
Source: Kim ; Mauborgne, 2005
The main focus of traditional strategies is how to compete in the industry, and by that profiting from existing demands. When the goal is to move from red to blue ocean, companies need to make sure that they will be creating plenty of new demands. To accomplish this shift, companies must make at first focus their attention on noncustomers instead of current customers, and secondly they should focus on taking into consideration building on the commonalities of what these noncustomers value (Kim ; Mauborgne, 2005).
2.4 Blue Ocean tools ; action frameworks
2.4.1 Strategic Canvas
A lot of studies have been made over the years to help companies compete in Red Oceans. One of the tools to help Red Ocean companies were as mentioned before Porter’s five forces frame & to add to that are also the three basic strategies of competition. But between all these studies, non-explained to companies on how they can shift from Red to Blue Oceans.
The answer on how to move to a market where competition is irrelevant would be an analytical reference called strategic canvas which is highly important for creating Value Innovation and Blue Oceans.
The strategic canvas is not only a demonstrative tool, but it is also an action frame to create a Blue Ocean. This tool has double action, firstly it uncovers current stratus of the existing market share that will help companies to know where their competitors are spending their resources and efforts on their customers.
Strategic canvas use two measurements which are counted in two axes’. Horizontally are all factors that the market used to compete and spend resources on, and vertically is the level of supply that the buyers accept for every of the mentioned factors (Figure 2). When having a high score on one of the mentioned factors, it means that the company is supplying more than the customers need and by that throwing more resources on that particular factor. The Value curve of a company represent its strategic profile. It is an important part of the strategic canvas because it shows graphically the percentage of the company’s performance compared with the competition.
For companies to be more profitable strategic canvas is a great tool to outline the competitiveness field of the Red Ocean and to not copy competitors and continuously compete with them. The absolute change of the industry’s strategic canvas in a company should start by reanalyze its strategy focus from the competitive to the alternative products, and from the customers to the non-customers of an industry.
Figure 2: Strategic canvas template
Source: Kim ; Mauborgne, 2005
2.4.2 The four forces frame
The second basic analysis tool to a create a Blue Ocean, is the four actions framework and also called four forces frame.
This frame is used to reexamine the elements that adds value to customers by creating a new value curve, (figure 3). To help companies use other than the two traditional strategies that are differentiation ; cost leadership, and create a new value curve, four main questions have to be answered:
1. Which of the factors that the industry takes for granted, have to be excluded?
2. Which of the factors have to scaled down based on the industry’s model?
3. Which of the factors have to be expanded based on the industry’s model?
4. Which factors that the industry has never presented, will have to be created?
Figure 3: The four actions framework
Source: Kim ; Mauborgne, 2005
The first question, proposes that companies should determine how to exclude factors that they are competing for, in the industry. Usually, those factors are taken for granted without questioning if they are really adding value. In some cases, this value given to customers is being extremely changed and companies are missing that change being occupied competing with each other.
The second question, encourage companies to find out whether its products and services have exceeded the development needed while being occupied overcoming competition. In some cases, companies are offering numerous services to their customers, increasing their costs without providing a real value to them.
As for the third question, it drives the company to notice and remove those compromises that the industry makes the customers to do.
And the fourth last question, helps companies to discover new value for its customers, creating new demand and modifying the pricing strategy of the industry.
By following the first two questions, that suggest to excluding and decreasing some factors, it can ensure on lowering its costs comparing with its competitors. In addition, the next two questions, propose that the creation and increase of some factors, will increase the market value of the company’s products and by that creating new demand. These questions empower companies to reconstruct the elements of market value on alternative industries, presenting its customers a brand new experience and by the same keeping low costs.
Creating and eliminating factors are very important for companies to expand their value and exceed whatever the competition is offering. Applying these changes will result by creating new market conditions and most importantly make the existing rules irrelevant. By combining to four actions framework to the strategic canvas, companies can seize new consideration about the value the old market offered.
For most companies, it is usual to compete in Red Oceans with high competition, low profit margins, and almost absent opportunities. But, introducing the Blue Oceans strategy can switch this traditional business thinking. Blue Ocean is a mix of theories, tools and perspectives for companies to think outside the box. Implementing the Blue Ocean strategy will provide companies time to focus on the value offered to customers rather on the value offered by the competitors. As seen previously, value innovation is key aspect in creating Blue Oceans. This strategy will also come with many advantages to the company, firstly, the company will be found in a strong position with new set of rules and then expanded market boundaries, different prices and higher value. It will be difficult for competitors to imitate at first, and it will take them a lot of time to pursue the same path. Until then, the company will have developed knowledge, techniques and strong competitive advantages to stay ahead.
Many companies could be mentioned as an example of succeeding by using the Blue Ocean strategy, like the home video game “Nintendo Wii”, the wine company “Yellow Tail” and the famous circus “Cirque du Soleil” that was the main example that Kim & Mauborgne’s strategy used in their book and that will also be a main example in this paper.
PART 2: Empirical Study
Until today, Cirque du Soleil’s show has been seen by over 180 million people worldwide, they won numerous prizes and distinctions to their performances over the years. Cirque du Soleil is an exceptional organization which has recreated and had a big transformational impact on the circus arts. Since its beginnings in 1984, Cirque had been offering the public a new concept of entertainment show, an original and non-traditional blend of circus arts and theatre. Cirque’s shows contain no animals, the central focus is on human energy and talents along with other factors.
This part will be divided in two chapters. Chapter one will discuss in first section the startup of Cirque du Soleil and the second section will include the company’s core values that had a lot of impact on their success and. Chapter two will include the central focus of this paper which is how Cirque distinguished themselves in the circus industry and shifted their business from Red to Blue Oceans,
CHAPTER 1: CIRQUE DU SOLEIL
At first, they started as “Le Club des Talons Hauts” (The High-Heels Club) and then in 1984, Cirque du Soleil “Cirque” was formed. They were a troupe of street performers, some members of the first group stayed active at Cirque du Soleil, including Guy Laliberté, he was a musician and fire breather back then, and later CEO of Cirque du Soleil until the year 1998. When they first started in 1984, Cirque du Soleil had 73 employees. In 2001, they had more than 2,100 employees from all over the world, including more than 500 artists. Between the years of 1984 to 1989, Cirque performed to almost 270,000 people a year. In 2001, approximately 6 million people saw a Cirque du Soleil show between four continents.
Cirque du Soleil was owned and managed equally by Laliberté and Daniel Gautier. Laliberté was responsible of the creative production of the company & Gautier was managing most of the business until 1998, when Laliberté bought out Gautier’s half. Cirque was estimated by the Canadian Business Magazine for a value of $800 million.
Cirque was principally a circus without animals, they avoided animal acts to focus exclusively on human spectacles. Cirque mixed different artists, from street performers, clowns, jugglers, fire eaters, acrobats, and gymnasts to perform and create a show mixed by theater and dance dramas. The music and ideas used during Cirque performances, were always designed in a way to overstep cultural boundaries and reach globalization. As a result, Cirque left Canada for the first time in 1987. They guaranteed a loan of 1.5 million Canadian dollars from the Canadian government to equip themselves with the necessary materials to be a part of the Los Angeles Festival and perform “We Reinvent the Circus”. The deal was to pay all billings without taking any fees, but instead, a share of the box office. Tickets were sold out, and Cirque continued their tour from Los Angeles to other American cities. Three years later, Cirque was able to afford their first European production. In 1992, they had their first show in Asia. In 1993, their show Mystère became a permanent interest at the Treasure Island Hotel in Las Vegas, along with other productions performed all over the world including, Alegria, Quidam, Saltimbanco, Dralion, and La Nouba. To proceed with their growth, Cirque released their first feature film in 1999, the film was titled “Alegria”, based on the show of the same name. In 2000, Cirque du Soleil produced an IMAX large-format film, “Journey of Man”, distributed by Sony Pictures Classics.
Cirque became the contemporary circus “nouveau cirque”, replacing the classic circus animals with a mix of acrobatics, descriptive framework, and a well-chosen music to engage its audience.
Cirque du Soleil core values
Cirque objective was to always stay ahead; they were considered as the only circus offering to their audience a blend of circus arts and street entertainment. They included in their shows magical, exhilarating moments that spread the concept of time.
The biggest fear of the current President and CEO of Cirque du Soleil, Daniel Lamarre, was always ensuring that Cirque doesn’t feel satisfied with the current accomplishments but instead keep to develop and grow strong emotional connections with its audience.
In order to stay ahead, and to also stay focused ok what was actually important at Cirque, they followed four core company values:
Creativity: at the heart of all company’s activities
People: focusing on human talents
These four core values, centered all company’s strategic decisions, deciding on a new project, a new show and on how to grow. Adopting these values at Cirque had a strong influence on the company’s success.
“We reinvent the circus” wasn’t only the startup idea of their first show, but also a starting idea in every show they created. They constantly worked on reinventing the circus and the world around it, finding new ideas that no audience have ever seen. They used a different business model than the once used in Broadway that used to repeat the same show in different locations. As for Cirque, they never reduplicated a show or repeated acts, and to do that they heavily counted on the research and talent in their R&D department.
Cirque had more than 20 talent scouts searching worldwide for top talents in different fields. They were targeting gymnasts, jugglers, ballet dancers, clowns, mime artists, musician, cliff drivers, etc. and also they were receiving thousands of applications to join their team. Those scouts travel everywhere searching for talents, they also use different platforms to identify potential artists, they search social media platforms, attend live shows, followed YouTube videos. After finding a potential artist, scouts invite them to auditioning, and if they pass tests they would add them to a 58,000-line database that Cirque had in order to pair its talent supply to its talent demands for future shows.
Finding talented people wasn’t only a scout mission, but to complement them, Cirque created a program called “Open Eyes” where all employees were motivated to capture creative ideas. By new ideas, they meant everything new happening worldwide, from new food to interesting art and even odd conversations. Cirque headquarters in Montreal had multicultural employees from 49 different nationalities which helped to provide variety and diversity of ideas.
To go event beyond, The National Circus School, one of the most reputable circus training facilities in the world, was located facing Cirque’s headquarters, it was the perfect way for Cirque to stay notified on the latest talent.
To grow this circus reinvention, Cirque tried to implement their creative ideas with engineers and researchers at top universities to find out what was and what was not possible. People working in the Cirque R&D were given a lot of autonomy and were motivated and empowered to surprise Cirque. The creative development at Cirque is very open-minded. The outstanding idea should win, no matter whose idea it is. Whatever is advantageous for the show, (Daniel Lamarre, President and CEO of Cirque du Soleil).
Cirque did put a strong belief on the company’s values, and for that, they also wanted to work with people who adhered similar values. Talent was very important in recruiting, but through this process, Cirque also sought to know the person behind the talent. Mutual respect is an important quality and people only driven by money weren’t the target. It was that mentality that allowed Cirque to work with some of the splendid, most creative minds in music and entertainment, such as Director James Cameron and The Beatles.
This mixture of friendship and business Cirque had, positioned them apart from other companies. In their first meeting with Ringo, star of The Beatles, Lamarre told him that they are a creative force and that Cirque is too, they are here to see if they can work together. Ringo replied that that’s a change! And that attitude facilitated the two parties to continue the conversation that successfully led to amazing show Cirque du Soleil: The Beatles LOVE, it was one of the most successful love shows performed for over five years in Las Vegas.
Cirque was in charge for delivering strong financial performance, it purposely optimized for its creative ideas and people ahead of its financials. Even though Cirque was big multinational company, but they hardly tried to act like a small company to secure its creative roots. As an example, Cirque included a clown in every business meeting to ensure that people that work at Cirque were not taking themselves too seriously. If Cirque start to think like a traditional corporation, they are dead. Their working environment needs to excite their people, (Daniel Lamarre, President and CEO of Cirque du Soleil).
As mentioned in chapter 1, Cirque’s first tour was funded by the Canadian Government. Although the event was a great success, but Cirque kept on having financial difficulties for the following years, and received government help on and off until the year 1992. Years later, Cirque was able to grow financially and did not forget to share this growth with social groups that needed help. They supported artistic organizations and donated one percent of its gross revenues to founder Guy Laliberté’s foundation, One Drop, to help resolve accessible water issues.
Creating a new market space
The major factor that helped Cirque du Soleil to succeed, is that they actualized that to stay ahead in the future, companies must stop competing with each other. The only way to overcome the competition is to stop trying to overcome the competition.
Cirque du Soleil made an exceptional growth through the years in a declining circus industry and to do so, they decided that instead of competing with the existing market they created a new market that made the competition irrelevant. This growth made them even pass the revenues that the champions of the circus industry Ringling Bros. and Barnum ; Bailey made after more than 100 years knowing that Cirque du Soleil never competed with them but instead created an entrainment circus show that no one ever offered in the market. By this creation Cirque du Soleil was targeting all population, from kids to adults. People think that Cirque du Soleil decided to recreate the circus and they just did it. But the reality is much different, we were a group of crazy people that wanted to do more and slowly we moved the circus to a modern vision and where it should be (René Dupéré, music composer for 10 Cirque du Soleil shows)
Cirque’s innovative blue ocean strategy targeted the expansion of boundaries of what a “circus” was traditionally considered of and combining the company’s functional and operational activities. Primarily, Cirque was offering their audience the pleasure and thrill of a circus while also blending it with theatrical scenes by including intellectual actions and artistic richness into their shows. They started at first with identifying and reworking the components of the traditional circus offerings. This allowed Cirque to minimize unnecessary cost by concentrating on the actual demand of audiences and to assign the spending of what was driving revenue. As an example of what Cirque did, is the exclusion of animals in their shows because of the high expenses they added such as maintenance fee, and the decreasing numbers of attendance to these types of shows. As a trade-off, Cirque directed this spending on clowns, tents and acrobats, and worked hard to improve these three components to result successful shows.
Another important aspect that resulted to a creation of a new market for Cirque du Soleil was its unique identity as “none of them and a little of all of them” (Kim and Mauborgne,2005). It wasn’t that easy to position Cirque as a circus or theater show, but instead it modified, decreased, and created diverse aspects of both circus and theater in order to create a new type of entertainment that started from the traditional circus framework. To ensure the growth of this identity, Cirque had to also maintain the creative performances of its employees, that means to make sure that both staff and cast are happy being a part of the team. As a blue ocean strategy company, Cirque was not able to motivate its team financially. Most of the money was used to build a steady brand and quality for all performances and having on board the right people for company’s environment. There are times where artists were unemployed by Cirque because they were getting paid by show, they were not able to grow their position by being promoted and to add on all that, each time they were on tour, they were apart from their families. With all these things happening, Cirque was able to keep the best talents and crew among its team. In order to do that, Cirque was able to create non-financial values for everyone in many other ways. They gave opportunities to work with highly ranked persons in the field, offered serious roles to increase passion, helped their team to accomplish non-artistic desires, made tours and exciting experience and gave the team to try risk-taking activities that were reflective of Cirque’s culture.
To manage the company in an efficient and effective way, there was definitely a line between being generously kind and keep acting as an employer. Being a benevolent parent to the team, had a big influence on the creation of better productions. Creativity was the center focus of every employee and this idea helped them to express themselves. The success if this creativity, the unusual marvelous shows delivered to the audience, is all the payoff of hard work of the management to grow innovation, security and firmness in the brand.
CHAPTER 2: SHIFTING CIRQUE DU SOLEIL FROM RED TO BLUE OCEAN
Amazing acrobatics, awesome costumes and colors, superb scene composition, creative lighting & beautiful live music. This is how thousands of people describes their experience after watching Cirque du Soleil’s shows. Cirque du Soleil created a circus theater and recreated the idea on how people view the circus. This chapter will focus on the main aspects that Cirque du Soleil was based on and that made her at the top of the circus industry. The first section contains the value innovation that Cirque adapted and the second section will cover the strategic canvas for Cirque, showing how they were able to stay ahead and be differentiated between all market players.
2.2 Cirque du Soleil’s value innovation
As mentioned in the first part of this paper, the value innovation is how companies pursue simultaneously differentiation and low cost. Pursuing this strategy was the main focus of the entertainment experience Cirque du Soleil delivered to its audience. When Cirque started, the market players were working on increasing their shares and benchmarking one another while the circus industry was already declining. They were including in their shows famous clowns and wild trained animals to attract more audience. This strategy costed a lot the circus companies without maintaining the real experience wished from their audiences. The increased costs without increased revenues resulted low demands.
These efforts were unimportant when Cirque du Soleil entered the industry. They weren’t a traditional circus, nor a classic theater production, that’s why the competition seemed irrelevant. The created a new concept of entertainment. They didn’t offer a solution to the problem that other circus companies were facing, they didn’t create a circus that offered more fun and adventure only but adding to it the intellectual sophistication and the art diversity of the theatre all at the same time. By the reinvention, they expanded their circle of customers and attracted non-customers.
All these additions and recreations created a new concept that broke the value-cost trade-off and shifted Cirque to blue oceans by creating a new market space. The traditional circus that once offered animal shows, stars performers and repeated show arenas kept taking for granted what at first showed a great demand but they did not question their ongoing impact.
The attractions that Cirque left from the traditional circus came down to only three factors: The tent, the classic acrobatic acts and the clowns. Cirque kept the clowns, but modified their humor from comical to a more captivating, sophisticated style. They redesigned the tents to be more convenient with a higher level of attractiveness and comfort. As for the acrobats, Cirque kept them but also modified and reduced their role to be more chic by the addition of artistic style and intellectual fascination to their acts.
In addition to the previous added factors, Cirque also included in their shows non-circus factors taken from theaters and developed later by Cirque themselves. Their shows had story lines, themes, artistic music, dances and artistic music. Parts of their shows featured theatre performances, they took ideas from Broadway shows and refined them. Each Cirque show has different theme, along with selected music, lighting and decoration. The shows displayed conceptual and spiritual dance, and idea borrowed from both theater and ballet.
Adding the concept of multiple style of performances at the same show, gave people a reason to visit the circus again and again, by that Cirque du Soleil increased demand.
Briefly, Cirque du Soleil presented a great combination of both circus and theater. They offered exceptional value that created for them blue oceans with a creative new form of live entertainment. They maintained fair costs and increased the value for their customers achieving both differentiation and low cost. Cirque maintained a strategy of lifting their price tickets in between traditional circus and theater shows and by that they captured a huge number of people, from children that used to watch circus shows to adults that were used to theater prices.
2.3 Cirque du Soleil’s strategic canvas
As previously mentioned in part 1, strategic canvas is an analytical framework that is central to value innovation. This tool helps companies to identify the competitiveness field of the Red Ocean in order not to imitate competitors and constantly compete with them. As shown in figure 4, Cirque du Soleil’s strategic canvas’ provides a graphical comparison between its strategic profile with those of its main competitors. The give us a clear view of Cirque’s startup in the industry. It shows how Cirque started from the traditional circus aspects and which factors set them apart from Barnum & Bailey circus (previous circus champions) and other smaller regional circuses. The distinction seen in this canvas is related to the competing factors used by Cirque du Soleil that others didn’t use because of their limited resources.
Cirque’s value curve varies from other’s curves by reason of using new and non-circus factors such as theme, refined watching environment, multiple productions, and artistic music and dance. Briefly, the strategic canvas clearly illustrates the common factors that competitors use in the industry, as well as new factors that shifted Cirque du Soleil apart by creating a new market space.
Figure 4: The strategy canvas of Cirque du Soleil
Source: Kim ; Mauborgne, 2005
The blue ocean strategy took a lot of attention in business management literature for presenting innovational solutions for companies. In other terms it is a creative thinking. Sometimes it is difficult to think of a great idea but you should first know your market place, and identify whether you are in the red or blue ocean (Rau, 2012). When you find yourself in the blue ocean followers will not wait long to copy your actions and then in short term moving you to the red ocean and then you’ll have to find again a great idea to move you back to the blue zone. Since change is unavoidable, market leaders have to always be value innovative to always gain competitive advantages over their competitors. Blue ocean strategy might reveal ways to strengthen small business sectors to help them survive (Todd, 2016)
The book “The Blue Ocean Strategy” by W. Chan Kim and Renee Mauborgne became a huge best seller in 2005. But many ideas discussed under this strategy were not new. The Blue/Red Ocean analogy is a strong and easy way to remember metaphor which many believe that is successful.
Some ideas used by The Blue Ocean strategy, have already been mentioned in previous studies, such as the competition factors, the non-customers etc. and even some of many are used in the six sigma model or have been used by other researches such like Kjell Nordström & Jonas Ridderstråle. What the Blue Ocean strategy presented, is a differentiation perspective to be used by companies by using value innovation tools to overcome the competition battles happening today.
As for Cirque du Soleil, they successfully created a new form art. They were able to increase their profits by using the right strategy. Almost 85 percent of Cirque’s revenues were generated from the sale of show tickets and the rest was from the sale of products like t-shirts, shoes, hats, audios, videos, books, etc. They also were able to produce number of movies and television shows. Today, Cirque has permanent shows in Las Vegas, Orlando and Walt Disney World.
The business world is getting busier every day. The competition is becoming more present and it will forever be an integral factor of the market reality. The suggestion to this problem, that was discussed in this paper, is to increase the company’s performance just like Cirque du Soleil and other companies did. Companies should go beyond competing and gaining others shares, but instead look forward to create blue oceans. Blue ocean opportunities have been always available. Each time they have been achieved, the market universe had been expanding. This expansion, is the heart of growth, (Kim and Mauborgne,2005).
As a summary, despite the fact that The Blue Ocean strategy book has been a best seller in 2005, and was followed by another book called the Blue Ocean Shift in 2015, it seems that a lot of companies, don’t know the theory or at least, they don’t know how to implement other strategy that could reveal them from the strong competition and the limitations they are facing.
This strategy, and Kim and Mauborgne’s book have been criticized for many factors. The Blue Ocean strategy demands a considerable dose of business experience in order to be implemented. By that, the model presented in this strategy limits its validity. In Cirque du Soleil’s example, their success was not only related to the use of the blue ocean strategy. When they first started, the term blue ocean never existed. But, it is obvious that they used the cornerstone of what the Blue Ocean strategy is based on now, the Value Innovation.
To conclude, the Blue Ocean strategy is not a completely new idea, not yet perfect but, it brings together useful ideas and tools or companies to succeed nowadays. Implementing the Blue Ocean strategy, will not be an easy move, and the book doesn’t explain how in reality companies can start realizing it. But, it is crucial not say that when comparing the Blue Ocean strategy with those previous traditional theories, the Blue Ocean present a huge way to identify opportunities, since it includes market reconstructions. And lastly, considering the use of differentiation and low cost strategies simultaneously is fundamental for capturing opportunities when developing a new product or service.
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Kjell Nordström ; Jonas Ridderstråle, (1999), “Funky Business” ft com; 1 edition.