This document introduces the Blue Ocean Compass which is a universal tool for illustrating and designing the performance of any system including business models. As an example, the Blue Ocean Compass is applied to show how Southwest Airlines radically improved the shape of the business model for Red Ocean Airlines.

1.
EXPONENTIAL PERFORMANCE IMPROVEMENT & BUSINESS GROWTH
How Southwest Airlines Improved the Business Model of Red Ocean Airlines …
And Became the Largest Airline in America
Dr. Rod King
Consultant & Trainer on Business Model Analysis, Design, and Innovation
rodkuhnking@sbcglobal.net & http://businessmodels.ning.com

2. Blue Ocean Compass: Visually Documenting, Analyzing, and Improving the Performance of Business Models in the Airline Industry
Southwest Airlines
Blue Ocean Compass for
4 ELEMENTS OF BUSINESS MODEL:
the Average Airline and Southwest Airlines
Competitive Advantage Strategies
• Increase quality (speed) to level 9
• Reduce cost (ticket price) to level 1.3
Quality (Speed) • Increase differentiation (novelty/simplicity)
10 to level 7.6
8 • Increase on‐demand; 24x7/(adaptability;
customization) services to level 3
6
4 Value Propositions (Innovative Processes)
2 • Higher quality (speed) at lower cost
On‐demand; 24x7
Cost (Price) • Higher differentiation (novelty/simplicity) at
0
(Customization) lower cost
Targeted Customer Segment(s)
• Frequent/Low‐cost traveler
• Early adopter/innovator; Non‐customers
Value Quotient (VQ)
Differentiation
(Novelty/Simplicity) • Benefit = Quality + Differentiation +
Customization = (9 + 7.6 + 3)/3 = 19.6/3 =
6.53
• Cost = 1.3
Ideal Business Model Southwest Airlines Average Airline • Value Quotient (VQ) = 6.53/1.3 = 5.03
BOBM. Blue Ocean‐Business Models. Copyright 2009. Dr. Rod King. rodkuhnking@sbcglobal.net & http://businessmodels.ning.com

3. Blue Ocean Map for THE VALUE QUOTIENT OF THE AVERAGE AIRLINE AND SOUTHWEST AIRLINES
IDEAL BLUE OCEAN (FINAL RESULT) Fractal Market Segmentation of Short‐haul Airlines/Car Transportation
∞
BLUE OCEAN
Southwest Airlines
Benefit
Highly differentiated and
premium-priced/free value chain
Blue Ocean Plan
(+): DELIGHT
RED OCEAN
* Average Short‐haul Airlines
* Car Transportation/Taxis
Strategic Commoditized and
Choice Red Ocean Plan low-cost value chain
(Uncontested Experience, Market Space, or New Category) (‐): PAIN Cost
BOBM1.1. Blue Ocean‐Business Models. Copyright 2009. Dr. Rod King. rodkuhnking@sbcglobal.net & http://businessmodels.ning.com

4. Company Overview of SOUTHWEST AIRLINES Date: April 28, 2009
Author(s): Dr. Rod King (rodkuhnking@sbcglobal.net) Ref.: …………………………………..…………………….
COMPANY BACKGROUND INDUSTRY/BUSINESS PRODUCTS/SERVICES
• Location: Dallas, Texas (USA) • Industry: Airline/Transportation • Airline
•
Founder(s): Herb Kelleher; Rollin King • Niche: Short‐haul, low‐cost air travel • Aircrafts
(1967 inc.; first flight in 1971) • Model: Point‐to‐point air travel with • Air travel/transportation
• Revenue: $11 Billion (2008) ‘no frills’ to secondary city‐airports
• No. of Direct Competitors: (cf. hub‐and‐spokes model with meal)
CUSTOMER VALUE PROPOSITION COMPANY OVERVIEW OF: CUSTOMER BENEFITS/EXPERIENCE
“The speed of a plane at the price of a SOUTHWEST AIRLINES • Faster travel at lower cost
car …” • Simple fare structure
Targeted Customer Segment:
Frequent/low‐cost travelers
MAIN GOAL/OBJECTIVE/STRATEGY VISION (“Future Headline”) MISSION
• To quickly reach the destination at “Do the right thing.” “Dedication to the highest quality of
the lowest price Customer Service delivered with a sense of
warmth, friendliness, individual pride, and
Company Spirit.”
BOBM8A. Blue Ocean‐Business Models. Copyright 2009. Dr. Rod King. rodkuhnking@sbcglobal.net & http://businessmodels.ning.com

5.
• 60,000ft Level: Blue Ocean Map
• 30,000ft Level: Blue Ocean Compass
• Global Level: Company Overview

6. Blue Ocean Compass: Visually Documenting, Analyzing, and Improving the Performance of Business Models (in a Given Industry)
Worst Business IMAGE
Blue Ocean Compass for 4 ELEMENTS OF THE BUSINESS MODEL:
Worst Business Model Competitive Disadvantage Strategies
(quot;Why Businesses and Value Chains Failquot;) • Reduce Quality: Level 1
• Increase Cost (Price): Level 10
• Reduce Differentiation (Novelty): Level 1
Quality
10 • Reduce On‐demand; 24x7/(Customization)
services: Level 1
8
6 Worst Value Propositions (Innovative Processes)
4 • Lowest quality at highest cost (price)
• Lowest differentiation at the highest cost
2
On‐demand; 24x7 • Lowest differentiation without adaptability,
0 Cost (Price) convenience, or customization
(Customization)
• Lowest quality without adaptability,
convenience, or customization
Targeted Customer Segment(s)
• Dissatisfied customers
Worst Value Quotient (VQ)
Differentiation
(Novelty/Simplicity)
• Worst Benefit = Quality + Differentiation +
Customization = (1 + 1 + 1)/3 = 1
• Worst Cost = 10
• Worst Value Quotient (VQ) = Benefit/Cost =
1/10= 0.1
BOBM. Blue Ocean‐Business Models. Copyright 2009. Dr. Rod King. rodkuhnking@sbcglobal.net & http://businessmodels.ning.com

7. Template of Blue Ocean Compass: Visually Documenting, Analyzing, and Improving the Performance of Business Models (in a Given Industry)
Ideal Business IMAGE
Blue Ocean Compass for 4 ELEMENTS OF THE BUSINESS MODEL:
Ideal Business Model Competitive Advantage Strategies
(quot;Perfect, Free, Different, and 24x7 Value Chainquot;)
• Maximize Quality: Level 10
• Minimize Cost (Price): Level 1
• Maximize Differentiation (Novelty/
Quality
10 Simplicity): Level 10
• Maximize On‐demand; 24x7/ (Adaptability;
8
Customization) services: Level 10
6
Ideal Value Propositions (Innovative Processes)
4
• Highest quality at lowest cost (premium)
2
• Highest differentiation at the lowest cost
On‐demand; 24x7
(Customization)
0 Cost (Price) • Highest differentiation on demand
(adaptability; mass customization)
• Highest quality on demand (adaptability)
Targeted Customer Segment(s)
• Every niche: customers; non‐customers
Ideal Value Quotient (VQ)
Differentiation
(Novelty/Simplicity)
• Ideal Benefit = Quality + Differentiation +
Customization = (10 + 10 + 10)/3 = 10
• Ideal Cost = 1
• Ideal Value Quotient (VQ) = Benefit/Cost =
10/1 = 10 (‘Perfect 10’)
BOBM. Blue Ocean‐Business Models. Copyright 2009. Dr. Rod King. rodkuhnking@sbcglobal.net & http://businessmodels.ning.com

8. Blue Ocean Map for Simply Mapping, Designing, Executing, and Monitoring a Value Proposition as well as Business Performance
IDEAL BLUE OCEAN (FINAL RESULT) Fractal Market Segmentation of ……………………………………………………………………….
∞
BLUE OCEAN‐
Benefit
Value Proposition
Highly differentiated and
premium-priced/free value chain
Blue Ocean Plan
(+): DELIGHT
RED OCEAN‐
Value Proposition
Strategic Commoditized and
Choice Red Ocean Plan low-cost value chain
(Uncontested Experience, Market Space, or New Category) (‐): PAIN Cost
BOBM1.1. Blue Ocean‐Business Models. Copyright 2009. Dr. Rod King. rodkuhnking@sbcglobal.net & http://businessmodels.ning.com

9. Company Overview of ………………………………………………………………….. Date: …………………………………….………..………..
Author(s): …………………………………………………………………………………….. Ref.: …………………………………..…………………….
COMPANY BACKGROUND INDUSTRY/BUSINESS PRODUCTS/SERVICES
• Location: • Industry:
• Founder(s):
• Revenue: • Niche:
• No. of Direct Competitors:
• Model:
CUSTOMER VALUE PROPOSITION COMPANY OVERVIEW OF: CUSTOMER BENEFITS/EXPERIENCE
• Value Proposition:
• Targeted Customer Segment:
MAIN GOAL/OBJECTIVE/STRATEGY VISION (“Future Headline”) MISSION
BOBM8A. Blue Ocean‐Business Models. Copyright 2009. Dr. Rod King. rodkuhnking@sbcglobal.net & http://businessmodels.ning.com

10. INNOVATIVE PROCESSES FOR VALUE CHAIN AND BUSINESS MODEL (for fulfilling challenging value propositions)
GENERAL PROCESSES EMPLOYEE PROCESSES MACHINERY/FACILITY PROCESSES
• Vertical/Horizontal Integration • Specialization/IP Creation‐Protection • Franchise/Leasing/Rental
• Outsourcing/Sub‐contracting/Agents • Localization/Substitution/Reversal
• Extension/Compression/Removal
• Open Innovation/Collaboration • ‘Star’ Performers/Top grading/Fun • Modularization/Standardization
• Unbundling/De‐integration/Bundling • Wisdom of the Crowd/Co‐creation • Asymmetry/’Poka Yoke’/Nesting
• Convergence/Standardization/Self‐X • Cross‐functional Teams/Downsizing • Attributes Interdependency
ENVIRONMENT/SUPPLIER PROCESSES DOMAIN‐PROCESSES/FUNCTIONALITY
• Partnering/Complementing/Feedback • Digitalization/Idealization/Downsizing
INNOVATIVE PROCESSES FOR
• Merging/(De)Centralizing/Integration • Virtualization/Customization/DIY
• Networking/Volunteering/Recycling VALUE CHAIN AND • Zero Defect/Lean/Six Sigma/JIT
• Convergence/(De)Regulation BUSINESS MODEL • Automatic/Outsourcing/Low Cost
• Distributorship/Affiliates/Network • Restructuring/Inventive Principles
CUSTOMER PROCESSES CHANNEL/WHOLESALERS PROCESSES PRODUCT/SERVICE PROCESSES
• Segmentation/Direct Selling/Branding • Multiple Channels/Syndication/Chain • Product/Service‐Platform
• Cross‐subsidy/Hybridized Markets • Pyramid/Multi‐level Markets/Wheel • Solution‐focus/Total Package
• Subscription/Leasing/After Sale • Digitalization/Online/Word‐of‐mouth • Service‐focus/Servicing/Upgrading
• Auction/Co‐creation/Collaboration • Distributorship/Affiliates/Network • Fixed product (shell) and recurring/
• Advertising/Freemium/Licensing • Advertising/Auction Platform replaceable/upgradeable component
BOBM. Blue Ocean‐Business Models. Copyright 2009. Dr. Rod King. rodkuhnking@sbcglobal.net & http://businessmodels.ning.com

11. 8 QUESTIONS FOR UNCOVERING OPPORTUNITIES FOR EXPONENTIAL PERFORMANCE IMPROVEMENT & BUSINESS GROWTH
1. TRADITIONAL CUSTOMERS 2. JOBS TO BE COMPLETED 3. CUSTOMER OBSTACLES
Who are traditional customers/ What jobs or tasks are traditional What are obstacles, inconveniences, or
consumers/buyers of the products and customers trying to get completed while interruptions to traditional customers
services? What are other (task‐based) using the products and services? Why, while trying to get jobs completed?
ways of describing traditional customers/ why, why? How, how, how? Where do the obstacles, inconveniences,
consumers/buyers? or interruptions occur? When?
4. ALTERNATIVE PROCESSES & TOOLS 5. SUCCESS CRITERIA
In how many and different ways can 8 QUESTIONS FOR UNCOVERING How do customers and other
traditional and non‐traditional customers OPPORTUNITIES FOR stakeholders know that the jobs are
get the jobs completed? What comple‐ EXPONENTIAL PERFORMANCE successfully completed?
mentary jobs can traditional and non‐ IMPROVEMENT &
traditional customers get completed?
BUSINESS GROWTH
6. IDEAL PROCESSES & TOOLS 7. BEST BUSINESS MODEL FOR JOB 8. VALUE CHAIN OF CUSTOMERS
How can existing/future processes and What are business model and value chain What jobs are the value chains of
tools help traditional and non‐traditional resources for most efficiently and traditional and non‐traditional customers
customers to better get the jobs effectively getting complete the most deeply trying to complete? What jobs
completed without obstacles, inconve‐ critical or profitable jobs for customers? precede and succeed the jobs that
nience, interruptions, or other pains? customers are trying to complete?
BOBM. Blue Ocean‐Business Models. Copyright 2009. Dr. Rod King. rodkuhnking@sbcglobal.net & http://businessmodels.ning.com

12. REFERENCES
1. Chesbrough, H. (2006) Open Business Models. Boston: Harvard Business School (HBS)
Press.
2. Christensen, C.; Raynor, M.E. (2003) The Innovator’s Solution. Boston: Harvard Business
School (HBS) Press.
3. Kaplan, R.S.; Norton, D.P. (1996) The Balanced Scorecard. Boston: Harvard Business
School (HBS) Press.
4. Kaplan, R.S.; Norton, D.P. (2008) The Execution Premium. Boston: Harvard Business
School (HBS) Press.
5. Kim, W.C.; Mauborgne, R. (2005) Blue Ocean Strategy. Boston: Harvard Business School
(HBS) Press.
6. King, R. (2009) The Infinitely Zoomable Page: The Ideal Tool for Business Model
Thinking, Design, and Innovation. Fresno: Ideal‐Solution Management.
Dr. Rod King
Consultant & Trainer on Business Model Analysis, Design, and Innovation
rodkuhnking@sbcglobal.net & http://businessmodels.ning.com