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Blue Ocean Strategy challenges the common belief that you have to outcompete your business rivals to achieve sustained profitability. Plus, it offers an alternative. The alternative is to make your competitors irrelevant through innovation and creating your own market. This new market is called your blue ocean. Being able to innovate is becoming increasingly important, with markets becoming saturated and profit margins being squeezed due to competition. Kim and Mauborgne argue that tomorrow’s leading companies need to change and adapt. This is based on a study of 150 strategic moves spanning more than a hundred years and thirty industries.
About W. Chan Kim
W. Chan Kim is The Boston Consulting Group Bruce D. Henderson Chair Professor of Strategy and International Management at INSEAD business school and Co-Director of the INSEAD Blue Ocean Strategy Institute. Before joining INSEAD, he was a professor at the University of Michigan Business School, USA. Kim has served as a board member and an advisor for several multinational corporations in Europe, the U.S., and Asia. He is an advisory member for the European Union and serves as an advisor to several countries. Along with his colleague Renée Mauborgne, he was named the #1 Management Thinker in the World by Thinkers50. He was also named among the world’s top 5 best business school professors by MBA Rankings.
About Renée Mauborgne
Renée Mauborgne is The INSEAD Distinguished Fellow and a professor of strategy at INSEAD, one of the world’s top business schools. She is also Co-Director of the INSEAD Blue Ocean Strategy Institute. Renée Mauborgne and her colleague Chan Kim were named the #1 Management Thinkers in the World by Thinkers50. She is the first woman ever to secure the top spot on the Thinkers list of global thought leaders. Renée Mauborgne was also named among the world’s top 5 best business school professors by MBA Rankings.
The Eight Principles of the Blue Ocean Strategy
- Reconstruct Market Boundaries
- Focus on the Big Picture
- Reach Beyond Existing Demands
- Get the Strategies Sequence Right
- Overcoming Key Organizational Hurdles
- Build Execution Into Your Strategies
- Align the Value, Profit, and People Propositions
- Renew Blue Oceans
Why the Blue Ocean Strategy is Required
The authors explain that the current economic markets are flooded with competition. There are more companies today than there has ever been. Hence, companies are having to compete for smaller and smaller profit margins. Blue Ocean Strategy describes this increasingly tough competition as a cut-throat battle. This battle produces blood and leaves the waters bloody. Hence, the authors describe our current business climate as the Red Ocean.
Red Oceans include every single industry in existence. This is the known market space. In contrast, the Blue Oceans are unknown market spaces filled with non-existent industries.
The industry boundaries are known and accepted by all within Red Oceans. Essentially, every company understands that they have to outperform their competitors to obtain a more significant share of the market’s existing demand. Crucially, due to the distribution of demand between several companies, crowded markets will lead to profit and growth reductions.
Within red oceans, there is limited potential for growth and the development of substantial profits. Navigating as a company within red oceans will always be nerve-wracking. Although you might learn how to outcompete one of your competitors, you still have to remain wary. There is always the chance that another company could be sneaking up behind you, ready to slit your throat and take your customers. Subsequently, the authors explain that you should never solely focus on red oceans. In doing so, you would be accepting the constraining factors of war rather than the growth potential of economics.
“Blue oceans are right next to you in every industry.” – W. Chan Kim and Renée Mauborgne
Blue Oceans are considerably different from red oceans. Specifically, blue oceans are defined by untapped market space and demand creation. Subsequently, blue oceans have more significant potential and opportunity for highly profitable growth. The authors do not identify blue oceans as being incredibly difficult to find. Instead, blue oceans can be easily hidden in plain sight. For example, your blue ocean could be immediately adjacent to the red ocean your current company is residing in.
When you are in the midst of competition within a red ocean, it can be difficult to look elsewhere. However, it is crucial that you take time away from fighting and competing. Look around you and decide if there is a blue ocean opportunity. While others are busy fighting over limited industry space, you could be creating your own prosperous market. Occasionally you will find a blue ocean by sailing somewhere completely new. However, more often than not, your blue ocean is just beyond the boundaries of your current industry.
The modern-day business has become increasingly obsessed with learning how to battle within red oceans. Business strategies are based on how you can get better at combating your competition. However, the authors of this book argue that it is more sustainable to avoid competing altogether. Instead, spend your time and energy on innovating. Importantly, the authors are not suggesting that you never focus on combating competition. The skills associated with red oceans will always be useful. There are certain circumstances where others will try to make your blue ocean red. For example, being successful through making your own blue ocean will often lead to copycats attempting to outcompete you. Red oceans will always be a fact of business life. However, try to focus on innovating through creating blue oceans. If you can maintain this focus, then you will be successful despite the copycats.
“While good strategy content is based on a compelling value proposition for buyers with a robust profit proposition for the organization, sustainable strategy execution is based largely on a motivating-people proposition.” – W. Chan Kim and Renée Mauborgne
The Four Actions Framework
The authors provide a framework that they call their strategy canvas. This canvas should be used to evaluate the different competitors in your industry. After understanding your competitors and the market within which your company resides, you need to ask yourself four vital questions. Each of these questions will help you identify what you need to do to get the upper hand over your competitors. The outcome of this approach will be a prosperous blue ocean.
Which of the factors that the industry takes for granted should be eliminated?
This question will encourage you to consider the factors that companies in your industry have long been competing over. Aim to eliminate the factors that you believe the consumers do not care about. Specifically, remove them from your strategy. By eliminating these unnecessary factors, you can reallocate your focus and efforts to improving the more valuable things. Crucially, it is likely that your competitors will be wasting their time and energy on the unnecessary factors you have eliminated. Subsequently, you will obtain an organic advantage. The authors provide an example of this strategy by talking about airports. Some airports asked themselves this question and decided that airport lounges were surplus to requirements despite several airlines competing on this matter. Lower-cost airlines decided to remove this factor and were able to make their margins bigger and their flights even more frequent. These airlines created a blue ocean for the consumers who were more sensitive to the price than to the lounge experience.
Which Factors Should Be Reduced Well Below Industry Standard?
Your company can’t be perfect on every criterion that characterizes a top quality company. Therefore, you need to decide which areas you want to compromise to dominate the other criteria. The criteria you want to dominate in are the things that can’t be eliminated. Instead, you can reduce them to the bare minimum level required to pass.
Which Factors Should You Raise Above Industry Standard?
Certain criteria are generally valued more by the customers within your industry. Hence, by eliminating some of your input for certain criteria and significantly reducing others, you can have spare resources left over. These resources can then be utilized to make specific areas exceptional.
Which Factors Should Be Created That Have Never Been Offered?
This factor is all about innovation. Try to consider what no one else in your market is doing. Finding the right answer to this question will help your company develop substantially in its own blue ocean.
“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. Value innovation places equal emphasis on value.” – W. Chan Kim and Renée Mauborgne
Value innovation is the cornerstone of creating a blue ocean strategy. As aforementioned, you should avoid falling prey to the error of focussing all your attention on beating your competitors. Instead, you should be aiming to make your competition irrelevant by creating a leap in value. This value should be value for your buyers and for those working within your company. By introducing value innovation in your company, you can open up a new and uncontested market space.
The authors explain that value innovation can be broken down into its two constituents. For example, some companies may place significant effort into creating value without focusing on innovation. In essence, these companies focus on value creation on an incremental scale. This approach will improve their company’s value, but it will not stand out among its competitors in the marketplace. In contrast, some companies will primarily focus on innovation without focussing enough on value. These companies are generally technology-driven and will be obsessed with the future. However, as they are looking too far ahead into the future, they are likely to overshoot where the buyers currently are in their expectations. Both of these approaches will lead to ineffective growth within your company. True economic growth relies on your company focusing equally on both value and innovation.
The example provided in this book of a company that effectively utilized value innovation was the Cirque du Soleil. They created a blue ocean by avoiding the highly saturated market of standard circuses.
Where to Look For Your Blue Ocean
Identifying the best blue ocean for your company will require the reconstruction of market boundaries. The authors provide six paths you can take to start reconstructing your company’s market boundaries.
Path 1: Look Across Alternative Industries
One way a company can start reconstructing market boundaries is to start considering the trade-offs that its customers are likely making across alternative industries. The authors provide an example of NetJets. This company started considering these trade-offs and identified that their customers were most influenced by the price of flying. Instead of opting for a traditional approach to cutting their prices, they chose to innovate. Specifically, they offered their customers one-sixteenth ownership of an aircraft. Essentially, they were sharing the aircraft with 15 other people. Each of the owners would then be entitled to fifty hours of flight time per year. By adopting this innovative pricing strategy, NetJets offered private flights for the price of a commercial airline ticket.
Path 2: Look Across Strategic Groups Within Industries
There are examples of companies that do not adopt this path and are successful. Still, it is becoming increasingly difficult for these companies to succeed. For example, Mercedes, BMW, and Jaguar focus on out-competing one another in the same luxury care segment. However, there are exceptions to this who have achieved significant success over a short period. For example, Curves is a fitness company in America. Initially, Curves seemed set to join an oversaturated fitness market where they stood no chance of competing. However, they took a different approach. They looked across the strategic fitness group and identified an untapped market of women struggling to keep in shape. They moved into two saturated markets, health clubs and home exercise programs, but still made their own blue ocean.
Path 3: Look Across the Chain of Buyers
“As companies compete to embrace customer preferences through finer segmentation, they often risk creating too-small target markets.” – W. Chan Kim and Renée Mauborgne
Most industries will identify a common definition of who their target buyer is. However, this book’s authors argue that there should never be a common definition of one buyer. Instead, there is a chain of buyers who are directly or indirectly involved in the buying decision. Focusing on an individual target is not accurate and neglects the system behind somebody purchasing within a market. Hence, the authors suggest you consider the purchasers, users, and influencers when deciding what product to introduce and how to market it.
Path 4: Look Across Complementary Product and Service Offerings
Untapped value is often hidden in complementary products and services. The key is to define the total solution buyers seek when they choose a product or service. A simple way to do so is to think about what happens before, during, and after your product is used.
Path 5: Look Across Functional or Emotional Appeal to Buyers
Your business should be functional but also be appealing to the emotional side of buyers. Some industries compete over function, while others compete over emotion. If you are currently competing over functional features, then you should see how you can strip function back and dominate based on emotion. Equally, suppose your industry involves competing over emotional features. In that case, you should see how you can strip emotion back and dominate based on function.
Path 6: Look Across Time
iTunes broke a key customer annoyance factor: the need to purchase an entire CD when they wanted only one or two songs on it. What trends have a high probability of impacting your industry, are irreversible, and are evolving in a clear trajectory? How will these trends impact your industry? Given this, how can you open up unprecedented customer utility?
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