Blue Ocean Strategy Makes the Competition Irrelevant

Blue Ocean Strategy in One Sentence

“Blue Ocean Strategy, Expanded Edition” by W. Chan Kim and Renée Mauborgne advocates creating uncontested market spaces by simultaneously differentiating products and reducing costs, thereby making competition irrelevant and fostering innovation and growth.

Book Summary

The book is a groundbreaking in that it has had a significant impact on the field of business strategy since its initial publication in 2005. This expanded edition builds upon the original ideas and concepts presented in the first edition, offering readers new insights, updated case studies, and practical guidance for implementing the blue ocean strategy.

Key Concepts:

1. Blue Ocean vs. Red Ocean: The central concept of this book is the differentiation between “red oceans” and “blue oceans.” Red oceans represent crowded, competitive markets where companies engage in cutthroat competition, often leading to stagnant growth and declining profits. In contrast, blue oceans symbolize untapped market spaces where companies can create uncontested demand by offering innovative, value-driven products or services.In red oceans, companies compete fiercely, and it’s like sharks in a feeding frenzy. Blue oceans, on the other hand, are calm and peaceful, where there are few competitors.Example: Think of the smartphone market as a red ocean, with many companies battling for the same customers. Now, imagine creating a brand new product that nobody has ever seen before — like the first iPhone. Apple did this and created a blue ocean.
2. Value Innovation: Kim and Mauborgne emphasize the importance of “value innovation” in creating blue oceans. This involves simultaneously pursuing differentiation (offering unique value) and low cost (efficient production). By doing so, companies can break the trade-off between value and cost and generate new market demand.The authors say that to make a blue ocean, you need to do two things at once: offer something new and valuable to customers and do it at a lower cost than your competitors.Example: When Toyota introduced the Prius hybrid car, they offered something new (environmentally friendly technology) and valuable (better gas mileage) while keeping the cost reasonable. That’s value innovation.
3. Strategy Canvas: The authors introduce the “strategy canvas” as a tool for visualizing and comparing the competitive positions of industry players. It helps businesses identify the factors that drive competition and discover opportunities to differentiate themselves in the marketplace.A strategy canvas is like a map that shows how your company compares to others in the same industry. It helps you see where you can stand out.Example: If you look at the strategy canvas for coffee shops, you’ll see that Starbucks stands out by offering a cozy atmosphere and premium coffee, while other chains focus more on convenience and low prices.
4. The Four Actions Framework: This framework guides businesses in shifting their strategic focus from competing in existing market spaces to creating new ones. It consists of four key questions: Which factors should be reduced below industry standards? Which factors should be raised above industry standards? Which factors should be eliminated? Which factors should be created that the industry has never offered?The Four Actions Framework consists of four key questions that guide companies in creating blue oceans:
   • Eliminate: What factors or features that the industry has long competed on should be eliminated to reduce costs?
   • Reduce: What factors should be reduced well below the industry’s standard to save costs?
   • Raise: What factors should be raised well above the industry’s standard to offer superior value to customers?
   • Create: What factors or features should be created that the industry has never offered before?

Key Takeaways

1. Red vs. Blue Oceans: The book introduces the concept of red oceans, representing overcrowded and competitive markets, and blue oceans, which symbolize untapped market spaces with little or no competition.
2. Value Innovation: Value innovation is the cornerstone of creating a blue ocean. It involves simultaneously pursuing differentiation (offering unique value) and low cost (efficient production).
3. Strategy Canvas: The strategy canvas is a visual tool that helps businesses compare and analyze the competitive positions of industry players, facilitating the identification of strategic opportunities.
4. Four Actions Framework: This framework guides companies in creating blue oceans by asking four key questions: What factors should be reduced below industry standards? What factors should be raised above industry standards? What factors should be eliminated? What factors should be created that the industry has never offered?
5. Case Studies: The book provides several case studies to illustrate the blue ocean strategy, including examples like Cirque du Soleil, Nintendo’s Wii, and Yellow Tail Wine, showcasing how these companies successfully created new market spaces.
6. Tipping Point Leadership: Implementing a blue ocean strategy often requires a shift in organizational culture and mindset, and the authors discuss the concept of “tipping point leadership” as a way to drive change effectively.
7. Execution: Kim and Mauborgne emphasize that strategy execution is as important as strategy formulation, and they provide guidance on aligning the organization, building execution into the strategy, and achieving buy-in from employees.
8. Renew Blue: The book introduces the “Renew Blue” case, a real-world example of how Best Buy successfully applied the blue ocean strategy to revitalize its business in the face of tough competition from online retailers.
9. Avoiding the Commodity Trap: Blue ocean strategy helps companies avoid the commoditization trap by focusing on differentiation, creating unique value, and escaping price wars.
10. Continuous Innovation: The authors stress that blue ocean strategy is not a one-time event but a continuous process. Companies should be prepared to adapt and evolve their strategies as market conditions change.

Chapter Summary

Chapter 1: Creating Blue Oceans

• Key Concept: The authors introduce the core idea of the book: the distinction between red oceans (competitive markets) and blue oceans (untapped market spaces).
• Example: The authors use the example of Cirque du Soleil, which created a blue ocean by merging elements of traditional circus and theater while eliminating costly animal acts and star performers.

Chapter 2: Analytical Tools and Frameworks

• Key Concept: This chapter introduces analytical tools such as the strategy canvas, the four actions framework, and the eliminate-reduce-raise-create (ERRC) grid.
• Example: The authors use the strategy canvas to illustrate how to visually map the competitive landscape and identify areas of differentiation. They discuss the ERRC grid with an example from the wine industry, showing how Yellow Tail Wine created a blue ocean by reducing complexity and costs.

Chapter 3: Reconstructing Market Boundaries

• Key Concept: The authors discuss the importance of challenging industry boundaries and creating new market spaces.
• Example: They use the example of the cosmetics industry and discuss how companies like Sephora and MAC Cosmetics redefined market boundaries by offering a unique shopping experience and product range.

Chapter 4: Focus on the Big Picture, Not Numbers

• Key Concept: This chapter emphasizes the need to focus on value, innovation, and strategy rather than getting bogged down in numerical metrics.
• Example: The authors cite the example of NetJets, a private jet company that shifted its focus from tracking flight hours to delivering exceptional service, creating a blue ocean in the process.

Chapter 5: Reaching Beyond Existing Demand

• Key Concept: The authors discuss how to tap into new demand by targeting non-customers, the so-called “sleeping giants.”
• Example: They use the example of the Nintendo Wii, which expanded the gaming market by targeting non-gamers with its innovative motion-sensing technology.

Chapter 6: Get the Strategic Sequence Right

• Key Concept: This chapter emphasizes the importance of getting the strategic sequence right, starting with value innovation and then pursuing cost savings.
• Example: The authors use the case of Southwest Airlines, which first focused on offering a unique value proposition (low-cost, no-frills flights) and then optimized its operations for efficiency.

Chapter 7: Overcome Key Organizational Hurdles

• Key Concept: Implementing a blue ocean strategy often requires overcoming organizational resistance and inertia.
• Example: The authors discuss the “Renew Blue” case, where Best Buy successfully transformed its business by aligning its organization with the blue ocean strategy.

Chapter 8: Building Execution into Strategy

• Key Concept: Execution is as important as strategy formulation, and organizations should build execution into their strategic plans.
• Example: The authors use the case of Tata Group’s Nano car to illustrate how execution challenges can impact the success of a blue ocean strategy.

Chapter 9: Conclusion and Ending Notes

• Key Concept: The book concludes by summarizing key takeaways and providing guidance on sustaining blue ocean strategies over time.
• Example: The authors remind readers of the continuous nature of blue ocean strategy and how companies must adapt and evolve their strategies as market conditions change.

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Useful resources

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