How to Create Uncontested Market Space and Make Competition Irrelevant
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We’re scratching the surface in this Blue Ocean Strategy summary. If you don’t already have W. Chan Kim and Renee Mauborgne’s popular book on business, entrepreneurship and management, order it here or get the audiobook for free on Amazon to learn the juicy details.
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 and Renée Mauborgne
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.
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.
StoryShot #1: Creating Blue Oceans
Cirque du Soleil is one of Canada’s largest cultural exports. A group of street performers created it in 1984, and since then, achieved rapid growth in less than twenty years. Cirque du Soleil’s success is remarkable because it did not achieve its growth by taking customers from the already shrinking circus industry. Instead, it created a new market space that made the competition irrelevant, appealing to a whole new group of customers: adults and corporate clients.
Cirque du Soleil’s success shows that it is possible to achieve rapid growth in an unattractive industry through innovation and creating new market spaces that cater to different customer segments. To win in the future, companies must stop competing. Instead, they must focus on creating new market spaces, called blue oceans. Blue Ocean Strategy describes this increasingly tough competition as a cut-throat battle. Growth opportunities in existing industries are highly profitable and can be expanded.
The Impact of Blue Oceans
Red and blue ocean initiatives perform differently, showing the significant effect of creating blue oceans on revenue and profit growth.
In a study of 108 company launches, they found that 86 percent of the launches were incremental improvements within the existing market space, or red oceans, but they only accounted for 62 percent of total revenues and 39 percent of total profits. The remaining 14 percent of launches aimed at creating new market space, or blue oceans, generated 38 percent of total revenues and 61 percent of total profits.
StoryShot #2: The Rising Imperative of Creating Blue Oceans
Accelerated technological advances and globalization have led to supply exceeding demand in many industries, resulting in:
- Price wars
- Shrinking profit margins.
Industry studies show that brands are becoming more similar, and consumers increasingly choose based on price. The business environment in which most strategy and management approaches evolved is disappearing, and management needs to be more concerned with creating blue oceans, or new market space.
Faced with increasing competition and declining demand, differentiation becomes harder, and the need for companies to create uncontested new market space becomes even more critical for sustained high performance.
From Company to Strategic Move
History shows that neither the company nor the industry is the best unit of analysis for studying profitable growth. For creating blue oceans, the strategic move is the right unit of analysis. Strategic moves have a consistent and common pattern over time, regardless of industry.
As an example, Southwest Airlines created a blue ocean by breaking the trade-off between speed and economy and flexibility of transportation. They offered high-speed transport with frequent and flexible departures at attractive prices. Southwest Airlines achieved this by eliminating and reducing certain factors of competition, raising others, and creating new factors from the alternative industry of car transport. They provided unprecedented utility for air travelers with a low-cost business model.
StoryShot #3: 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. Value innovation places equal emphasis on value.” – W. Chan Kim and Renée Mauborgne
Focus on value innovation rather than beating the competition. Value innovation means creating a leap in value for buyers and your company, which opens up new and uncontested market space. Value innovation places equal emphasis on value and innovation.
An example of value innovation is Cirque du Soleil, which redefined the circus experience by offering unprecedented utility, reducing costly elements, and introducing non-circus factors from theater.
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. 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 focusing 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 approaches will lead to ineffective growth within your company. True economic growth relies on your company, focusing equally on both value and innovation.
We rate Blue Ocean Strategy 4/5.
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