Blue Ocean Strategy
How to create Uncontested Market Space
and Make the Competition Irrelevant
W. Chan Kim
Renee Mauborgne
Book Review
Larin Sanders
Brian Davis
Ivan Salazar
Part One
Blue Ocean
Strategy
Chapter 1: Creating Blue Oceans
New Market Space
Red oceans- represent all the industries in
existence today: the known market space.
Blue oceans- denote all the industries not in
existence today: the unknown market space.
Example- Cirque du Soleil was an “untapped
market space”
The Rising Imperative of Creating Blue
Oceans
• Driving forces to creating blue oceans:
– Technological advances
– Increase in supply and decrease in demand
– Globalization
• Trade Barriers
• Communications
– Increasing price wars and shrinking profit margins
– Differentiating products is more difficult
From Company and Industry to
Strategic Move
• Strategic Move, and not the company or the
industry, is the best unit of analysis for
explaining the creation of blue oceans and
sustained high performance.
• Making a major market-creating business
offering is a managerial duty.
• Blue oceans were achieved by diverse
industries, organization, firms, and managers.
Value Innovation: The Cornerstone of
Blue Ocean Strategy
• Instead of focusing on beating the
competition, one focuses on making the
competition irrelevant by creating a leap in
value for buyers and ones company.
• Affect both its cost structure and its value to
buyers.
• Over time, costs are reduced further as
economies of scale kick in.
Chapter 2: Analytical Tools and
Frameworks
The Strategy Canvas
• Is both a diagnostic and an action framework
• Drawing the value curve
• Value Curve- basic component of the strategy
canvas
• Reorienting strategic focus from competitors
to alternatives, and from customers to
noncustomers of the industry
The Four Actions Framework
• Reduce: Which factors should be reduced well
below the industry’s standard?
• Eliminate: Which of the factors that the industry
takes for granted should be eliminated?
• Raise: Which factors should be raised well above
the industry’s standard?
• Create: Which factors should be created that the
industry has never offered
= A New Value Curve
The Eliminate-Reduce-Raise-Create
Grid
Eliminate
• Enological terminology
and distinctions
• Aging qualities
• Above-the-line marketing
Reduce
• Wine complexity
• Wine range
• Vineyard prestige
Raise
•
•
Price versus budget wines
Retail store involvement
Create
•
•
•
Easy drinking
Ease of selection
Fun and adventure
Three Characteristics of a Good
(Blue Ocean) Strategy
• Focus: A company’s dedication to its strategy
– Examples: Southwest Airlines and [yellowtail]
• Divergence: The basis of finding a Blue Ocean
• Compelling Tagline: Simple but crucial
– Must deliver a clear message, but offer a truthful
message
– Strong and authentic
Guide for reconstruction to arrive at a
breakthrough in value both for buyers and for
companies.
Reading the Value Curves
•
•
•
•
•
Types of Tools and Frameworks
Companies Caught in the Red Oceans
Overdelivery without Payback
An incoherent Strategy
Strategic Contradictions
An internally Driven Company
Part Two
Formulating Blue
Ocean Strategy
Chapter 3: Reconstruct Market
Boundries
The six paths framework to remaking market
boundries:
1.
2.
3.
4.
5.
6.
Define industry and strive to be the best within it
Look at industry through lens of strategic group
Focus on same buyer group
Define scope of products/service offered
Accept industry’s functional or emotional orientation
Focus on the same point in time in formulating strategy
How each of these six paths work?
• Path 1: Look Across Alternative Industries
– Different form and function but same purpose
• Path 2: Look Across Strategic Groups
– Group of companies within an industry that
pursue a similar strategy
• Path 3: Look Across the Chain of Buyers
– Chain of three buyers directly and indirectly
• Purchaser, User, and Influencer
How each of these six paths work?
• Path 4: Look Across Complementary Product and
Service Offerings
– What happens before, during, and after your product is
used?
• Path 5: Look Across Functional or Emotional Appeal to
Buyers
– When companies are willing to challenge the functionalemotional orientation of their industry, they often find
new market space.
• Path 6: Look Across Time
– Analyzing the external trends all industries are subject to
with the right perspective can help create Blue Ocean
opportunities.
Drawing your Strategy Canvas
Visual
Awakening
Visual
Exploration
Visual Strategy
Fair
Visual
Communication
-Compare your
business with your
competitors’ by
drawing your “as
is” strategy canvas
-Go into the field to
explore the six
paths to creating
blue oceans
-Draw your “to be”
strategy canvas
based on insights
from field
observation
-Distribute your beforeand-after strategic
profiles on one page for
easy comparison
-See where your
strategy needs to
change
-Observe the
distinctive
advantages of
alternative
products and
services
-See which factors
you should
eliminate, create,
or change
-Get feedback on
alternative
strategy canvases
from customers.
Competitors’
customers and
noncustomers
-Use feedback to
build the best “to
be” future strategy
-Support only those
projects and operational
moves that allow your
company to c lose the
gaps to actualize the
new strategy
European Financial Services
EFS online
Strongest Competitors
Other Online Competitors
European Financial Services
Eliminate
•Relationship management
Raise
•Ease of use
•Security
•Accuracy
•Speed
•Market commentary
Reduce
Create
•Account executives
•Corporate dealers
•Confirmation
•tracking
European Financial Services
EFS's "after" Strategy
EFS and other Traditinoal Competitors'
"Before" Strategy
Reach Beyond Existing Demand
Three Tiers of Noncustomers
• First Tier: “Soon-to-be”
noncustomers who are on the
edge of your market, waiting to
jump ship.
• Second Tier: “Refusing”
noncustomers who consciously
choose against your market.
• Third Tier: “Unexplored”
noncustomers who are in markets
distant from yours.
Strategy Sequence
Utility
Is there exceptional utility? Are there compelling
reasons to buy your offer?
Price
Is your price easily accessible to the mass of the
buyers?
Cost
Does your cost structure meet the target cost?
Adoption
Have you addressed adoption hurdles up front?
Buyer Utility Map
Price
Part Three
Executing Blue
Ocean Strategy
Chapter 7
Overcome key organizational curves
• Blue ocean strategies represent a significant
departure from the status quo
•Managers have assured that this challenge is steep
and these are their 4 hurdles
•(1) Cognitive
• (2) limited resources
•(3)Motivation
•(4) Politics
Overcome key organizational hurdles
•To effectively jump over hurdles managers need to
abandon conventional wisdom and use whats called
the tipping point leadership
•Traces its roots to epidemiology and the theory of
tipping points
•Managers should find the people, acts, or activities
that exercise a disproportionate influence on
performance
Overcome key organizational hurdles
Break the Cognitive Hurdle
•The hardest battle is to make people aware of a
strategic shift
•Most CEOs will point to the numbers to set and
achieve better results
•Tipping point leaders will zoom in on the act of
disproportionate influence: making people see and
experience harsh reality firsthand.
•Inspire a fast change in mindset that is internally
driven of peoples own accord.
Overcome key organizational hurdles
Break the resource hurdle
•Instead of focusing on getting more resources,
tipping point leaders concentrate on multiplying the
value of the resources they have.
•There are 3 factors of disproportionate influence that
managers can leverage to dramatically free up
resources: hot spots, cold spots, and horse trading
•Organizations can gain insight into freeing up lowreturn resources and redirecting them to high-impact
areas
Overcome key organizational hurdles
Break the motivation hurdle
•People must not only recognize what needs to be
done, but act on that insight in a sustained and
meaningful way
•Believe massive actions are required to create
massive reactions
•Tipping point leaders focus on 3 factors of
disproportionate influence in motivating employees
(1)Kingpins
(2)Fishbowl management
(3)atomization
Overcome key organizational hurdles
Break the political hurdle
•Even if the tipping point of execution has been
reached, powerfully vested interests will resist
change.
• these interest can be both internal and external, and
they can seriously damage any attempt at a new
strategy
•Tipping point leaders therefore focus on three
disproportionate influence factors
(1)Getting a consigliere on their top mtg. team
(2)Leverage angels
(3)Silence devils
Chapter 8
Build Execution into Strategy
•When all members of a company are aligned around
a strategy and support it, the company can stand
apart as a great and consistent executor
•a company needs to invoke the attitudes and
behavior of its people deep in the organization
•Execution needs to be built into the strategy from
the start
Build Execution into Strategy
•Companies should reach to fair processes when
making/executing a strategy….ex. Court system
•When fair process is exercised in the strategy-making
process , people trust that a level playing field exists.
•There are 3 mutually reinforcing elements that
define a fair process
(1)engagement
(2)explanation
(3) Clarity of expectation
Build Execution into Strategy
•Why does using a fair process matter?
•Using fair process in strategy making is strongly
linked to both intellectual and emotional recognition
•Emotionally, individuals seek recognition of their
value not as “labor” or “personnel”, but as human
beings who are appreciated for their worth
•Intellectually, individuals seek recognition that their
ideas are sought after or given reflection on
Chapter 9
The Sustainability and Renewal of Blue Ocean
Strategy
•Once a company creates a blue ocean and its
powerful performance results are
known…competitors/imitators will appear on the
horizon.
•The key questions to answer are (1)How soon or late
will they arrive? and (2)When should a company
reach out to create a new blue ocean?
Sustainability and Renewal of a Blue
Ocean Strategy
• Having a Blue Ocean strategy entails considerable
barriers to imitation.
•These barriers are cognitive and operational.
•Blue Ocean strategies have been shown to go
without credible challenges for 10 to 15 years
Sustainability and Renewal of a Blue
Ocean Strategy
•Barriers to imitation
•(1) A value innovation move does not make sense
based on conventional wisdom.
•(2) Natural Monopoly is formed
•(3) Brand Image conflicts
•(4)Patents or legal permits
•(5) A value innovation that leads to rapid cost
advantages
•(6) Politics bc changes in business practices
•(7) Brand buzz and a loyal following
Sustainability and Renewal of a Blue
Ocean Strategy
•Eventually, imitators will try to grab market share in
the blue ocean.
•Over time, the competition, and not the customer
will be the focus of your strategy
•Monitoring value curves signals when to valueinnovate and when not to.
•If a company’s value curve still has focus, divergence,
and a tagline, you should resist value-innovating
•Swim as far into the blue ocean as possible