Blue Ocean Strategy
and
Value Innovation
Fixed mental maps
• There is a pernicious tendency of managers to
build a fixed mental map of the industry in
which they compete
• The focus is on familiar competitors who use
similar techniques to produce similar products
or services for a shared customer base
– These are the ‘usual suspects’
Strategy is about breaking free
•
•
•
•
•
•
•
From an obsession with management tools
Of industry dogma
From the industry ‘rules’
Of the present to create the future
From tactics
From sameness
From hostility to change
Blue ocean thinking
• Kim and Mauborgne propose
a new approach to strategy
• They question the essence of
Porter-type approaches and
call it red-ocean thinking
– They are critical both of the
idea of industry attractiveness
and the need to choose
between differentiation and
low-cost generic strategies
Blue oceans
• All the industries not in existence today
Red oceans
• In red oceans, by comparison, industry
boundaries are defined and accepted; the rules
of the game are known by all
• If you are in a red ocean, you will of course
have to be smart about how to outcompete
rivals
• Kim and Mauborgne, however, are urging us to
imagine blue oceans to enter: red oceans are
becoming increasingly bloody
Blue ocean thinking
• Kim and Mauborgne, Blue Ocean Strategy
(2005) propose a new approach to strategy
• Their approach is entirely consistent with the
idea of trying to drive markets
• They provide some ideas on how to “break
free”
The creators of Value Innovation
Renee Mauborgne

First ground-breaking
article in Harvard
Business Review,
January 1997: Value
Innovation: the
Strategic Logic of High
Growth

Regularly featured in
leading business
publications (HBR, WSJ,
FT, NYT)
Chan Kim
The Premise Behind Value Innovation
Pushes for a leap in buyer value
While
Aiming to achieve a significant
reduction in a company’s costs
Four Basic Questions to Ask …..
Reduce
What factors should be
reduced well below the
industry standard?
Eliminate
What factors should be
eliminated that the
industry has taken for
granted?
New Value
Curve
Raise
What factors should be
raised well beyond the
industry standard?
Create
What factors should be
created that the industry
has never offered?
Source: Kim & Mauborgne
Factor
Economy
Price
Standard
X (e )
Food
yes
7kg (reduce)
Loading
37kg
X (e)
Air port service
Yes
X ( e)
Insurance
yes
500 (raise )
Seat
350
Place
Factor
Big
Size
Reduce
Album , cd , 18
song
Song
1usd (create )
Value Curves in the French Low Budget Hotel Industry
Value Curve for FORMULE 1
Raise F 1
Create
Reduce
Eliminate
Reduce
Wifi
Using “Value Curves” to plot relative strategic positioning
Results of FORMULE 1’s Strategy
From ACCOR’s perspective:
Cost per room
Cost of staff
Profit Margins
Occupancy rates
15,000 Euro vs. 41,000 Euro
20-23% of sales vs. 25-35%
> 2x industry average
> 3x industry average
From customers’ perspective:
Hygiene
Bed quality
Quietness
Price
> average 2* hotel
> average 2* hotel
> average 2* hotel
15 Euro vs. 30 Euro
The Value Curve
• gives a clear overall view of company’s
strategy.
• instantly illustrates if a company’s strategy
will stand out in the marketplace
• is easy to understand and communicate
• ensures that every employee shares a single
visual reference point for the strategy.
Lessons
• Identify what is valued most by customers
• Take aim at the mass of customers - seek out
the commonalities in what they value
• “We focus on what unites customers;
customer differences often prevent you from
seeing what’s most important”
(
Accor quote)
The unit of analysis
• We need to focus on the strategic move
• There is little point going in search of the
perpetually high-performing company
– The In Search of Excellence problem
Analytical tools
• Kim and Mauborgne outline a series of
analytical tools and frameworks to facilitate
blue-ocean/market driving thinking:
– The strategy canvas
– The four actions framework
– The eliminate-reduce-raise-create grid
The strategy canvas
• This attempts to capture the principal factors
that presently characterize the way the game
is played in a particular market or industry
• These factors can be ranked high to low
• The strategy canvas reveals the shape of what
Kim and Mauborgne call the ‘value curve’
The US Wine Industry
The four actions framework
• This framework guides the search for a new
value curve by asking four questions:
– Which of the factors that the industry takes for
granted should be eliminated?
– Which factors should be reduced well below the
industry’s standard?
– Which factors should be raised well above the
industry’s standard?
– Which factors should be created that the industry
has never offered?
The ERRC grid
• An extension of the four actions
framework is the eliminate-reduce-raisecreate grid
• It is about ‘value innovation’: creating
value for both the organization and for
customers
The characteristics of good
strategy
• Kim and Mauborgne insist that ‘good’ strategy
has three characteristics:
– The value curve has focus
– The value curve diverges from other players’
– The strategic profile has a clear and compelling
tagline
Red Ocean versus Blue Ocean Strategy
The imperative for red ocean and blue ocean strategies are
starkly different
Red Ocean Strategy





Compete in existing market space
Beat the competition
Exploit existing demand
Make the value/cost trade off
Align the whole system/activities with
either differentiation or low cost
Blue Ocean Strategy





Create uncontested market space
Make the competition irrelevant
Create and capture new demand
Break the value/cost trade off
Align the whole system/activities in
pursuit of differentiation and low cost