Eclectic Curiosity

Blue Ocean Strategy

Posted on June 15th, 2008, by Steve Hardy in Archives, Miscellany. No Comments

Few business books have had the widespread and sustained resonance that Blue Ocean Strategy by INSEAD professors W. Chan Kim and Renee Mauborgne has. Published just a few years ago, it’s already a classic. If you haven’t yet read it, you should.

Blue Ocean Strategy challenges companies to break out of the red ocean of bloody competition by creating uncontested market space that makes the competition irrelevant. Instead of dividing up existing–and often shrinking–demand and benchmarking competitors, blue ocean strategy is about growing demand and breaking away from the competition.

Using as examples Cirque du Soleil, Starbucks, Southwest Airlines, CNN, FedEx, and Bloomberg, Kim and Mauborgne illustrate the value of redefining problems in new and different ways; ways not typical in traditional and entrenched marketing and management strategy. Here is how they distinguish between blue and red oceans:

Red oceans represent all the industries in existence today. This is the known market space. Blue oceans denote all the industries not in existence today. This is the unknown market space.

In red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Here, companies try to outperform their rivals to grab a greater share of existing demand. As the market space gets crowded, prospects for profits and growth are reduced. Products become commodities, and cutthroat competition turns the red ocean bloody.

Blue oceans, in contrast, are defined by untapped market space, demand creation, and the opportunity for highly profitable growth. Although some blue oceans are created well beyond existing industry boundaries, most are created from within red oceans by expanding existing industry boundaries. … In blue oceans, competition is irrelevant because the rules of the game are waiting to be set.[4-5]

The dominant focus of strategy work over the past twenty-five years has been on competition based red-ocean strategies. [5]

Described this way [corporate strategy being heavily influenced by its roots in military strategy], strategy is about confronting an opponent and fighting over a given piece of land that is both limited and constant. Unlike war, however, the industry shows us that the market universe has never been constant; rather, blue oceans have continuously been created over time. To focus on the red ocean is therefore to accept the key constraining factors of war – limited terrain and the need to beat an enemy to succeed – and to deny the distinctive strength of the business world: the capacity to create new market space that is uncontested. [7]

This is a very important business book for generalists. So much of its core argument not only supports many of the skill sets and strengths of generalists but basically insists that these qualities and approaches to strategy are in fact crucial keys to future success. In particular, the authors place divergence on par with focus (and a compelling tagline) as a main characteristic of good strategy; they stress the value of considering alternatives and identifying commonalities; and, most significantly as the major section within the book, they note the tremendous opportunity that results from looking across boundaries.

Here are some especially relevant/interesting excerpts:

…[T]he business environment in which most strategy and management approaches of the twentieth century evolved is increasingly disappearing. As red oceans become increasingly bloody, management will need to be more concerned with blue oceans than the current cohort of managers is accustomed to. [8]

The creators of blue oceans, surprisingly, didn’t use the competition as their benchmark. Instead, they followed a different strategic logic that we call value innovation. Value innovation is the cornerstone of blue ocean strategy. We call it value innovation because 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. [12] …those that seek to create blue oceans pursue differentiation and low cost simultaneously. [13]

Make the competition irrelevant by looking across the six conventional boundaries of competition to open up commercially important blue oceans. The six paths focus on looking across alternative industries, across strategic groups, across buyer groups, across complementary product and service offerings, across functional-emotional orientation of an industry, and even across time. [20]

[A]n alternative to the existing strategic planning process, which is often criticized as a number-crunching exercise that keeps companies locked into making incremental improvements. [20] … The result is mounting cost structures and complex business models. [30] … Focus on the big picture, not the numbers. [82]

To fundamentally shift the strategy canvas of an industry, you must begin by reorienting your strategic focus from competitors to alternatives, and from customers to noncustomers of the industry. [102]

When a company’s strategy is formed reactively as it tries to keep up with the competition, it loses its uniqueness. [39]

Over time, functionally oriented industries become more functionally oriented; emotionally oriented industries become more emotionally oriented. No wonder market research rarely reveals new insights into what attracts customers. Industries have trained customers in what to expect. When surveyed, they echo back: more of the same for less. [70]

[T]he more an industry is populated by settlers [versus pioneers], the greater is the opportunity to value-innovate and create a blue ocean of new market space. [97]

Instead of focusing on customer differences, [companies] need to build on powerful commonalities in what buyers value. That allows companies to reach beyond existing demand to unlock a new mass of customers that did not exist before. [102] …To reach beyond existing demand, think noncustomers before customers; commonalities before differences; and desegmentation before pursuing finer segmentation. [103]

Barriers to imitation are high. This is why we have seldom observed rapid imitation of blue ocean strategy. In addition, blue ocean strategy is a systems approach that requires not only getting each strategic element right but also aligning them in an integral system to deliver value innovation. Imitating such a system is not an easy feat. [187]

Highly recommended reading (Amazon link).

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