Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant
Tags: #business #strategy #competition #innovation #marketing #growth #value creation
Authors: W. Chan Kim, Renée Mauborgne
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Overview
My book, Blue Ocean Strategy, provides a practical framework for any organization, large or small, to break out of the bloody “red ocean” of cutthroat competition and create uncontested “blue oceans” of new market space. In these blue oceans, companies can achieve high growth and profits because demand is created rather than fought over.
I will show you how to systematically shift your strategic focus from the competition to creating new value. Instead of looking within the red ocean of your industry, I will teach you how to look across six alternative paths to create blue oceans: 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.
Through the use of several analytical tools and frameworks, such as the strategy canvas, the four actions framework, and the eliminate-reduce-raise-create grid, I will provide you with a step-by-step process for formulating and executing blue ocean strategy. You’ll learn how to:
- Reconstruct market boundaries
- Focus on the big picture, not the numbers
- Reach beyond existing demand
- Get the strategic sequence right
- Overcome key organizational hurdles
- Build execution into strategy
- Align value, profit, and people propositions
- Renew blue oceans over time
Blue Ocean Strategy is not just for businesses. It is for anyone who wants to achieve high impact and create new opportunities—be it in the arts, nonprofits, government, or even countries.
Book Outline
1. Help! My Ocean Is Turning Red
Today’s businesses face cutthroat competition in shrinking markets, a reality captured by the metaphor of bloody “red oceans.” Our goal is to help you move out of the red ocean and into a “blue ocean” of uncontested market space characterized by new demand and high profitable growth.
Key concept: “Help! My Ocean Is Turning Red” captures the sentiment echoed so frequently by managers around the world… It shows how you can get out of a red ocean of bloody competition and into a blue ocean of uncontested market space characterized by new demand and strong profitable growth.
1. Creating Blue Oceans
I introduce the concepts of red and blue oceans. Red oceans are all the industries in existence today, with defined boundaries and known rules. Blue oceans, in contrast, are all the industries not in existence today–the unknown market space. Instead of fighting over a shrinking profit pool, blue ocean strategy is about creating new demand.
Key concept: In blue oceans, competition is irrelevant because the rules of the game are waiting to be set.
2. Analytical Tools and Frameworks
I introduce two analytical tools to create blue oceans: the strategy canvas and the four actions framework. The strategy canvas captures the current state of play, showing factors the industry competes on and what customers receive. The four actions framework helps you reconstruct buyer value elements by asking four questions: Which factors should be eliminated? Reduced? Raised? And which factors should be created?
Key concept: The strategy canvas is both a diagnostic and an action framework for building a compelling blue ocean strategy.
1. What Are the Main Points of Distinction?
Blue ocean strategy diverges from traditional thinking in several key areas. First, instead of focusing on beating the competition, the goal is to make the competition irrelevant by creating a leap in value for both buyers and your company. This allows you to create uncontested market space.
Key concept: Competition should not occupy the center of strategic thinking.
3. Reconstruct Market Boundaries
There are six paths you can use to reconstruct market boundaries to create blue oceans: 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. These paths are based on looking at familiar data from a new perspective.
Key concept: The six paths framework. These paths have general applicability across industry sectors, and they lead companies into the corridor of commercially viable blue ocean ideas.
1. Value Innovation: The Cornerstone of Blue Ocean Strategy
Value innovation is the cornerstone of blue ocean strategy, and it has equal emphasis on value and innovation. Instead of focusing on beating the competition, companies should focus on making the competition irrelevant by providing a leap in value.
Key concept: Instead of focusing on beating the competition, you focus on making the competition irrelevant by creating a leap in value for buyers and your company, thereby opening up new and uncontested market space.
4. Focus on the Big Picture, Not the Numbers
Most companies’ strategic planning processes are number-heavy and focus on incremental improvements within red oceans. Instead, you should focus on the big picture: visualize your strategy by drawing and discussing your company’s strategy canvas, which captures the current state of play and charts the company’s future.
Key concept: Focus on the big picture, not the numbers.
5. Reach Beyond Existing Demand
To maximize the size of the blue ocean you create, you should reach beyond existing customers to noncustomers. There are three tiers of noncustomers: soon-to-be noncustomers, refusing noncustomers, and unexplored noncustomers. By understanding the needs of noncustomers, you can find insight into how to unlock and aggregate new demand.
Key concept: Reach beyond existing demand.
6. Get the Strategic Sequence Right
To build a commercially viable blue ocean idea, you need to get the strategic sequence right. There are four steps you should follow: buyer utility, price, cost, and adoption. First, make sure your offering has exceptional utility. Second, set the right strategic price, so that the mass of buyers find it accessible. Third, focus on hitting your target cost. Finally, address adoption hurdles up front to ensure your idea’s successful actualization.
Key concept: Get the strategic sequence right.
7. Overcome Key Organizational Hurdles
To overcome key organizational hurdles, you need to use tipping point leadership. Tipping point leadership allows you to overcome four key organizational hurdles–cognitive, resource, motivational, and political–fast and at low cost while winning employees’ backing.
Key concept: Tipping point leadership.
8. Build Execution into Strategy
Blue ocean strategy execution is more demanding than traditional strategy execution as it often requires significant change. To build people’s trust and commitment in the ranks, and to inspire their voluntary cooperation, you need to build execution into strategy from the start by using fair process.
Key concept: Build execution into strategy.
9. Align Value, Profit, and People Propositions
To achieve high performance and sustainability, companies must align their value proposition, profit proposition, and people proposition. The value proposition focuses on the value for the buyer. The profit proposition focuses on the profit for your company. And the people proposition focuses on motivating the people working for and with your company.
Key concept: Align value, profit, and people propositions.
10. Renew Blue Oceans
Eventually, blue oceans will turn red as imitators enter the market. Therefore, companies need to understand when and how to renew their blue oceans over time. Monitoring your value curves and those of your competitors on the strategy canvas will alert you to when your blue ocean is turning red. For multibusiness companies, a dynamic pioneer-migrator-settler (PMS) map can be used to depict the movement of a corporate portfolio in one picture, highlighting when renewal is necessary.
Key concept: The process of renewal is key to ensure that the creation of blue oceans is not a one-off occurrence but is institutionalized as a repeatable process in an organization.
11. Avoid Red Ocean Traps
There are ten common red ocean traps that prevent companies from creating blue oceans. These traps center around common misconceptions about blue ocean strategy and its tools and frameworks. For example, some companies mistakenly assume that blue ocean strategy is customer-led or that it is about finding new technologies. Other companies fail to desegment and focus on noncustomers or they equate blue ocean strategy with differentiation. It is critical to understand these traps and how to avoid them in order to successfully implement blue ocean strategy.
Key concept: Perspective is critical to success. Your mind-set is more ingrained than you realize.
1. A Sketch of the Historical Pattern of Blue Ocean Creation
This appendix presents a snapshot of the historical pattern of blue ocean creation in three US industries: automobiles, personal computers, and movie theaters. The case studies show that there are no perpetually excellent companies or industries, and that a key determinant of success is the ability to create blue oceans.
Key concept: A key determinant of whether an industry or a company was on a rising trajectory of strong, profitable growth was the strategic move of blue ocean creation.
1. Value Innovation: A Reconstructionist View of Strategy
This appendix explains that two distinct views exist on how industry structure is related to a company’s strategic actions. The structuralist view, grounded in economics, sees market structure as given and encourages companies to carve out a defensible position against the competition. The reconstructionist view emphasizes that structure and market boundaries are not fixed, and that companies can reconstruct them in their favor. Blue ocean strategy is based on a reconstructionist view.
Key concept: The structuralist view of strategy has its roots in industrial organization (IO) economics. The model of industrial organization analysis proposes a structure-conduct-performance paradigm.
1. The Market Dynamics of Value Innovation
In this appendix, I contrast the market dynamics of value innovation with that of technology innovation. Technology innovation focuses on capturing a premium on the innovation, while value innovation focuses on capturing the mass of target buyers and expanding the size of the market.
Key concept: As shown in figure C-1, value innovation radically increases the appeal of a good, shifting the demand curve from D1 to D2.
Essential Questions
1. What is the central theme of Blue Ocean Strategy and how does it challenge traditional strategic thinking?
The core of Blue Ocean Strategy lies in creating uncontested market space, or “blue oceans,” where competition becomes irrelevant. Instead of fighting over existing demand in crowded “red oceans,” the book argues for creating new demand by offering a leap in value for both buyers and the company. This is achieved through value innovation - aligning innovation with utility, price, and cost positions.
2. What are the six paths to create blue oceans and how do they challenge conventional wisdom?
The book outlines six paths to create blue oceans: 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. Each path involves breaking free from conventional industry assumptions and looking at familiar data from a new perspective.
3. How do the three strategy propositions - value, profit, and people - contribute to successful blue ocean strategy?
The authors emphasize a holistic approach to strategy formulation, encompassing value, profit, and people propositions. The value proposition focuses on creating a compelling offering for buyers, while the profit proposition ensures profitability for the company. The people proposition is crucial for motivating employees, partners, and other stakeholders to execute the strategy. Alignment of these propositions is key for sustained success and minimizing imitation.
4. How can companies use the four-step visual strategy process to break free from traditional strategic planning approaches and encourage blue ocean thinking?
The book provides a practical four-step process to visualize strategy: visual awakening, visual exploration, visual strategy fair, and visual communication. This approach, centered around the strategy canvas, encourages a focus on the big picture rather than getting bogged down in numbers and jargon, thereby facilitating creative thinking and effective communication.
5. How can leaders effectively overcome organizational hurdles and drive the execution of blue ocean strategy using ‘tipping point leadership’?
The authors introduce the concept of ‘tipping point leadership’ to overcome organizational hurdles during execution. This involves focusing on ‘disproportionate influence factors’ like kingpins, fishbowl management, and atomization. By targeting key influencers, increasing transparency, and breaking down the challenge into achievable parts, leaders can drive rapid change within their organizations.
Key Takeaways
1. Look Across Alternative Industries
The authors provide numerous examples, including Cirque du Soleil’s reimagining of the circus experience and Casella Wines’ creation of [yellow tail]. By considering the distinctive strengths of alternative industries, companies can unlock new value and create uncontested market space.
Practical Application:
An AI company could leverage the “look across alternative industries” path by analyzing the pain points users experience with traditional data analysis tools. By incorporating features from alternative industries like visualization or natural language processing, they could create a blue ocean of AI-powered data analysis that is both powerful and user-friendly.
2. Focus on the Big Picture
Traditional strategic planning often focuses on number-crunching and incremental improvements, which keeps companies stuck in red oceans. The authors advocate for a more visual and holistic approach using the strategy canvas. This allows companies to see the big picture, identify key differentiating factors, and create strategies that unlock new demand.
Practical Application:
An AI startup focused on developing advanced algorithms could apply “focus on the big picture” by visualizing their strategy on a strategy canvas. This exercise would help them identify key factors that differentiate their offerings and ensure they don’t get lost in the technical details of algorithm development. By prioritizing the big picture, they can better communicate their value proposition to potential investors and customers.
3. Reach Beyond Existing Demand
The book challenges the conventional focus on existing customers and finer segmentation. Instead, it encourages companies to look to noncustomers - those who don’t currently use their products or services. By understanding the needs and motivations of noncustomers, companies can identify opportunities to create new markets and aggregate untapped demand.
Practical Application:
An AI-powered customer service platform could utilize “reach beyond existing demand” by looking at noncustomers who avoid traditional customer service channels. By understanding the reasons for their avoidance - long wait times, impersonal interactions, etc. - they can design a solution that addresses these pain points and create a blue ocean of AI-driven customer service that attracts a new mass of users.
Suggested Deep Dive
Chapter: Chapter 3: Reconstruct Market Boundaries
This chapter dives deep into the six paths for creating blue oceans, providing detailed examples and illustrating how companies can unlock new value by challenging conventional industry boundaries. It’s particularly relevant for AI product engineers who are looking to identify and create new market opportunities.
Memorable Quotes
Help! My Ocean is Turning Red. 8
“HELP! MY OCEAN IS TURNING RED” captures the sentiment echoed so frequently by managers around the world.
Creating Blue Oceans. 29
In blue oceans, competition is irrelevant because the rules of the game are waiting to be set.
Value Innovation: The Cornerstone of Blue Ocean Strategy. 40
Value innovation is the cornerstone of blue ocean strategy.
Focus on the Big Picture, Not the Numbers. 127
Focus on the big picture, not the numbers.
Reach Beyond Existing Demand. 157
To reach beyond existing demand, think noncustomers before customers; commonalities before differences; and desegmentation before pursuing finer segmentation.
Comparative Analysis
Blue Ocean Strategy stands out for its actionable framework and practical tools, setting it apart from other strategy books that often focus on theoretical concepts or case studies. Unlike Porter’s Five Forces, which analyzes existing competitive landscapes, Blue Ocean Strategy encourages creating new, uncontested markets. While Clayton Christensen’s Innovator’s Dilemma focuses on disruption driven by technological advancements, Blue Ocean Strategy emphasizes value innovation that transcends technology and can be achieved with existing technologies. It complements books on design thinking like Tim Brown’s Change by Design by providing a strategic roadmap to translate innovative ideas into profitable businesses. Blue Ocean Strategy’s focus on noncustomers and desegmentation also contrasts with traditional marketing approaches that prioritize customer segmentation and existing markets.
Reflection
Blue Ocean Strategy offers a compelling and actionable framework for creating new market space. The book’s emphasis on value innovation, strategic sequencing, and overcoming organizational hurdles provides a practical roadmap for companies seeking to escape the trap of bloody red oceans. However, it’s crucial to recognize that creating blue oceans is not a guaranteed formula for success. While the authors cite numerous successful examples, they also acknowledge that execution challenges and unforeseen external factors can impact outcomes. Furthermore, the sustainability of a blue ocean is not indefinite, requiring ongoing monitoring and renewal as competition inevitably emerges.
Despite these caveats, Blue Ocean Strategy’s enduring popularity and its impact on strategic thinking highlight its significance. The book’s central message of moving beyond competition to create new value resonates with businesses and organizations across industries. By challenging conventional strategic assumptions and providing practical tools, Blue Ocean Strategy empowers individuals and organizations to unlock their creative potential and chart a course toward uncontested market space.
Flashcards
What is a red ocean?
Red oceans represent all the industries in existence today – the known market space.
What is a blue ocean?
Blue oceans denote all the industries not in existence today – the unknown market space.
What is value innovation?
The simultaneous pursuit of differentiation and low cost, made possible by reconstructing market boundaries.
What is the strategy canvas?
A diagnostic and an action framework for building a compelling blue ocean strategy. It captures the current state of play in the known market space, and allows you to understand where the competition is currently investing, the factors the industry currently competes on in products, service, and delivery, and what customers receive from the existing competitive offerings on the market.
What are the four actions of the four actions framework?
Eliminate, reduce, raise, create
What is a value curve?
A graphic depiction of a company’s relative performance across its industry’s factors of competition.
What is the correct strategic sequence?
Buyer utility, price, cost, adoption
What are the three tiers of noncustomers?
Soon-to-be, refusing, unexplored