“Blue Ocean Strategy,” written by W. Chan Kim and Renée Mauborgne, is a groundbreaking book that challenges traditional approaches to business strategy. It introduces the concept of “blue oceans,” which are untapped market spaces ripe with opportunity, as opposed to “red oceans,” which are saturated with competition. The book provides a systematic approach to creating and capturing new markets, making competition irrelevant. This summary explores the key concepts, tools, and frameworks presented in the book.
Context
Kim and Mauborgne begin by contrasting red oceans and blue oceans. In red oceans, brands fiercely compete within established industries, leading to diminished profit margins and commoditized products. The waters turn “red” from the metaphorical blood of cutthroat competition. In contrast, blue oceans represent uncontested market spaces where brands can innovate and grow without direct competition. Here, the goal is not to outperform rivals but to make them irrelevant by creating value in a new space.
The Value Innovation Concept
At the heart of the blue ocean strategy is the idea of “value innovation.” This concept focuses on breaking the traditional trade-off between value and cost. In red oceans, companies usually have to choose between offering higher value at a higher cost or lower value at a lower cost. Value innovation, however, enables a company to pursue both differentiation and low cost simultaneously. This is achieved by identifying and eliminating factors that the industry takes for granted, reducing costs while simultaneously raising buyer value through new features or services.
Analytical Tools & Frameworks
Kim and Mauborgne introduce several tools and frameworks to help companies and brands to systematically create blue oceans. Some of the key tools include:
1. The Strategy Canvas
– The Strategy Canvas is a diagnostic tool and an action framework that visually captures the current state of play in the market and outlines the factors the industry competes on and invests in. It helps brands identify the factors that should be eliminated, reduced, raised, or created to break away from the competition.
2. The Four Actions Framework
– This framework helps brands reconstruct buyer value elements in crafting a new value curve. It asks four key questions:
– Eliminate: Which factors that the industry takes for granted should be eliminated?
– Reduce: Which factors should be reduced well below the industry’s standard?
– Raise: Which factors should be raised well above the industry’s standard?
– Create: Which factors should be created that the industry has never offered?
3. The ERRC Grid
– The Eliminate-Reduce-Raise-Create (ERRC) Grid complements the Four Actions Framework. It provides a simple way to track actions against the factors identified and ensures a clear focus on value innovation.
4. The Six Paths Framework
– This framework encourages brands to systematically explore new market spaces by looking across the boundaries of existing industries, strategic groups, buyer groups, complementary product and service offerings, the functional-emotional orientation of an industry, and even across time.
Formulating Blue Ocean Strategy
Formulating a blue ocean strategy involves several steps, each designed to help brands identify opportunities for creating new market spaces.
1. Reconstruct Market Boundaries
– The Six Paths Framework is crucial in this step, guiding brand to look beyond conventional boundaries and uncover blue oceans. For example, by looking across alternative industries or strategic groups, a brand can redefine the market and create a unique value proposition.
2. Focus on the Big Picture, Not the Numbers
– The authors emphasize the importance of visualizing strategy rather than getting lost in numbers. The Strategy Canvas helps teams focus on the big picture, enabling them to see where they are investing their efforts and whether it aligns with the goal of creating a blue ocean.
3. Reach Beyond Existing Demand
– Instead of fighting for a share of the existing market, brands should focus on creating new demand by tapping into noncustomers. Kim and Mauborgne identify three tiers of noncustomers:
– First Tier: Soon-to-be noncustomers who are on the edge of your market.
– Second Tier: Refusing noncustomers who consciously choose against your market.
– Third Tier: Unexplored noncustomers who are in markets distant from yours.
– By addressing the needs of these noncustomers, brands can unlock new demand and expand their market.
4. Get the Strategic Sequence Right
– The authors outline a strategic sequence for ensuring that a blue ocean idea is commercially viable:
– Buyer Utility: Does the offering unlock exceptional utility?
– Price: Is the price easily accessible to the mass of buyers?
– Cost: Can you achieve your cost target to profit at the strategic price?
– Adoption: What are the adoption hurdles in actualizing your business idea?
Executing Blue Ocean Strategy
Execution is as critical as the formulation of the strategy. Kim and Mauborgne offer guidance on how to effectively implement a blue ocean strategy.
1. Overcome Key Organizational Hurdles
– Companies may face several hurdles, such as cognitive, resource, motivational, and political hurdles. The book suggests strategies to overcome these, like leveraging the power of tipping point leadership to focus resources and efforts where they will have the greatest impact.
2. Build Execution into Strategy
– The book emphasizes fair process in strategy execution, where engagement, explanation, and expectation clarity play a crucial role. When employees understand why strategic decisions are made and feel their opinions are valued, they are more likely to commit to executing the strategy.
3. Sustain Blue Ocean Strategy
– Once a blue ocean has been created, the challenge is to sustain it. This involves continuous monitoring and adaptation to changing market conditions. The book suggests regularly revisiting the strategy to ensure it remains aligned with the value innovation principles.
Case Studies & Examples
Throughout the book, Kim and Mauborgne provide numerous case studies and examples from various industries to illustrate how companies have successfully applied blue ocean strategies. These examples range from Cirque du Soleil, which redefined the circus industry by combining it with elements of theater, to Yellow Tail, which simplified the wine-buying process by focusing on easy-to-drink wines and appealing packaging.
Conclusion
“Blue Ocean Strategy” aims to help brands break free from intense competition and create new market space. By focusing on value innovation and systematically exploring uncharted territory, businesses can achieve sustainable growth and long-term success. The book’s frameworks and tools provide a practical roadmap for identifying and capitalizing on blue oceans, which is why it has become required reading for strategists, marketers, entrepreneurs, and business leaders.
