BusinessSuccess

Blue Ocean Strategy

Blue Ocean Strategy

Summary of “Blue Ocean Strategy”: To grow and develop a strong positive image, a company has an interest in turning its back on its competitors and conventional wisdom in order to devote its resources to creating a blue ocean of competition and bringing value to customers, using the book’s tools.

By W. Chan Kim and Renée Mauborgne, 2005, 288 pages.

Review and Summary of “Blue Ocean Strategy”:

Part One: The Blue Ocean Strategy

Chapter 1: Creating New Oceans

Blue oceans are new spaces created by companies where they are alone in the market and therefore without competition, as opposed to red oceans (of blood) of the standard competitive sectors.

The creation of a blue ocean is characterized by the redefinition of the problem rather than the solution, the creation and the conquest of a new demand, and the main advantage of being able to allow at the same time a greater added value for the customers and lower costs for the company, which leads to very strong profitability and the definition of a new market. It’s a leap forward in terms of what is done and in quality for the customer.

Some examples of blue oceans: The Ford T, Compaq, Starbucks, Cirque du Soleil (which reinvented the circus by combining it with dance and ballet and making it a show for everyone, not just for children).

Chapter 2: Analytical Tools and Frameworks

The authors propose 3 tools to help create blue oceans:

The strategic canvas.

It makes it possible to distinguish the criteria on which competitors battle and position themselves. It then represents their respective positions on each of these criteria. For example, wine can be distinguished according to 7 major criteria or areas:

  1. The price of the bottle
  2. The use of enological terminology
  3. Advertising
  4. Aging quality
  5. The prestige and legacy of the vineyard
  6. The complexity of taste
  7. The range of wines offered

The importance of each of these points according to the competitors is then represented on a diagram. What characterizes a red ocean is the strong resemblance of the curve thus drawn between all competitors: “ they all pursue a strategy of differentiation…but they all differentiate in the same way“. A player creating a blue ocean, on the contrary, has a curve of its own and which is different from those of the competitors, both on the key points and by the creation of points which are specific to it and on which the competitors don’t position themselves. The idea is to focus on alternatives rather than rivals, non-customers rather than customers.

The four actions framework. It’s about asking yourself 4 questions:

  1. Which criteria that players in the sector take for granted should be eliminated?
  2. Which criteria should you reduced relative to what is considered normal in the sector?
  3. And which criteria should be raised well above the sector’s standard?
  4. Which criteria, previously neglected by the sector, should be created?
  • The eliminate-reduce-raise-create grid. From the answers to the previous 4 questions, it’s necessary to determine actions that take place in this grid.

According to the authors, a good strategy has three characteristics:

  1. Focus. The company must focus on its objective, on a moderate number of criteria.
  2. Divergence. It must diverge from its traditional sector and its competitors.
  3. Compelling slogan. A good strategy should be summed up in a clear and powerful slogan. It’s a safe bet that a company that does not have a strong slogan is very much internally driven, with limited business prospects.

Finally, to use the strategic canvas, a basic tool for creating blue oceans, one must know how to read and determine a value curve. The criteria that the authors put forward as indicative of a company caught in a red ocean are:

  • An increase in investments without payback.
  • An incoherent strategy.
  • Strategic contradictions.
  • An internally driven company.

Part Two: Formulating Blue Ocean strategy

Chapter 3: Redefine Market Boundaries

The first principle of creating blue oceans is the need to break from competition by redefining market boundaries. The authors propose 6 paths to accomplish this:

Path No. 1:

Explore alternative solutions in the market. Rather than considering only direct competitors, you should also consider the indirect ones, those who propose an alternative (rather than competitive) offer of which the form and functions are different from yours, but which satisfy the same needs. For example, a restaurant and a movie theater may have little in common: however, they are sometimes in competition when it comes to choosing how to spend an entertaining evening in the city. In order to try to find a new strategic space, it should be asked, why customers sometimes choose one solution over another.

Path No. 2:

Explore the different strategic groups within the sector.  A strategic group is a set of companies in the same sector that follow a similar strategy, which can generally be classified into two main areas: price and performance. For example, Daimler, BMW and Jaguar are in the same strategic group in the luxury car market, and small car manufacturers in that of economical cars. Everyone takes a great interest in the behavior of their competitors in their strategy group and show little interest in competitors of a different strategy group. However, it’s important to understand what motivates customers to switch groups, whether up or down. Sony created the Walkman by marrying the high fidelity of boom boxes (you know, the popular radios in the 1980s, often shown being carried on the shoulder) with the mobility and low cost of the transistor.

Mobility and low-cost transistor + high fidelity boom box = the Walkman

Path No. 3:

Explore the chains of buyers-users. You have to be able to distinguish among the customers, the buyers, the users and the influencers. Often companies have a clear idea of who makes up each of these categories. These ideas are often based on relevant economic logic, but also in many cases denote a non-critical acceptance of industry practices. Thus, a company can create a blue ocean by discovering that it can address different people when promoting its products.

Path No. 4:

Explore complementary products and services. It’s rare that a product or service exists in a vacuum; it’s often connected to other products or services sometimes very different and that have an influence on its value. For example, a movie theater will be able to explore the babysitting service sector as many parents have to find a babysitter if they want to go to the movies. It is a service very different from that which is offered by the move theater, but which has an incidence on its number of movie goers and thus its profitability. A movie theater with a babysitting service could see its attendance explode.

Note: Or a babysitting service can offer its services to a movie theater in exchange for a commission or just for the satisfaction of movie theater customers. Many win-win partnerships of this type can be considered. For other relevant examples of such partnerships, read the review on Jay Abraham’s “Getting Everything You Can Out of All You Got.

Path No. 5:

Explore the functional or emotional content of a sector. Competitors in the same sector tend to agree on the importance of one of the two essential axes of communication: the rational axis or the emotional axis. According to the authors, the choice of such an axis is too cut-and-dried with reality and stems most often from a long-term strategy of the company that has shaped in part the expectations of consumers. For example, Swatch transformed the low-end watch sector into an emotionally driven fashion statement, and The Body Shop did the opposite by bringing the sale of beauty products to a functional activity.

Path No. 6:

Explore time by projecting major trends. All sectors are subject to the influence of significant external trends that shape the future, such as the Internet or the global movement for environment protection. Most companies are adapting progressively, except it’s possible – although a difficult exercise – to anticipate the changes brought by these trends to position themselves early on to take advantage of and to create a blue ocean. For example, Apple, observing the growing illegal music file sharing on the Internet via software such as Napster, Kazaa or LimeWire, understood that the musical distribution mode of the future was the Internet, while the recording industry clung to an outdated support, CDs. Thus, Apple created the iTunes Store, a legal digital music store, offering a new service to its customers, creating a blue ocean in perfect harmony with its other flagship product, the iPod.

Finally, he common point of all these paths is the adoption of cross-disciplinary thinking that challenges the usual presuppositions and popular beliefs, and which makes it possible to adopt a breakthrough strategy.

Chapter 4: Focusing on the Big Picture, Not the Numbers

The strategic planning method of many companies condemns them to red oceans. How to organize it to focus on the big picture and draw the strategic canvas of your company?

The authors suggest going beyond the obsession with numbers and focus on the substantive issues in 4 steps:

Step No. 1: Visual awakening.

In order to overcome differences of opinion on the current state of competition and to realize the need for change, it’s necessary for managers to chart the value curve of their strategy. Faced with the obvious, managers will no longer be able to defend a weak and unoriginal strategy.

Step No. 2: Visual exploration.

Once the warning is heard and the decision is made to change strategy, you have to go out into the field, meeting with customers, non-customers, and buyers when they are not the end users, to determine shortcomings of the current offer and understand their expectations. To achieve this, you can use the 6 paths mentioned in chapter 3.

Step No. 3: Visual strategy fair.

2 teams will work on the results obtained to draw a new strategic canvas. This will be submitted to different people internally, to customers (preferably among the most demanding), customers of competitors and non-customers. They will elect the best canvas with a simple voting method while indicating the reasons for their choice, which will be the occasion for further improvement of the strategic canvas.

Step No. 4: Visual communication.

Once you determine the strategic canvas, you must communicate it as effectively as possible to the lowest hierarchical level.

The authors also suggest using the tool, the PMS map (pioneer-migrator-settler):

  • Pioneers refer to activities that create unprecedented value.
  • Settlers are activities of which the value curve corresponds to the industry standard.
  • Migrators fall between the two others.

The manager will focus on composing his business portfolio to achieve the right balance between growth (long-term) and profitability (short-term).

Chapter 5: Aim Beyond Existing Demand

Leaving a red ocean to enter a puddle makes no sense. So how to create the largest blue ocean possible? To do this, it’s necessary to reach beyond the existing demand.

To that end, the authors suggest addressing non-customers, who divide into 3 categories or circles:

First circle: Soon-to-be non-customers.

These non-customers occasionally use existing offers because they cannot find anything better. They are ready at any time to turn their backs on you but also carry a potential demand that you need to identify in order to harness. Customers of a fast food restaurant who will eat there despite the poor quality of the food because it is the only restaurant close to their work, is a good example of soon-to-be customers: it’s a safe bet that as soon as a second restaurant opens in the area, they will leave the fast-food restaurant.

Second circle: Refusing” non-customers.

They are the ones who never use the products currently on offer, either because they find them unacceptable or because they cannot afford them. For example, JCDecaux, by creating street furniture – free for municipalities – which allows for outdoor advertising, has convinced “refusing” non-customers to buy advertising billboards, whereas, before, such spaces relegated to the outskirts of cities were considered irrelevant to other forms of advertising.

Third circle: unexplored non-customers.

In most cases, no sector company has targeted them or even considered them as customers. Yet this third circle contains vast undeveloped blue oceans simply because nobody has challenged certain ideas. For a long time, the simple idea that only dentists could whiten their teeth prevented toothpaste manufacturers from entering the market, whereas when they woke up, they realized that they could offer high-performance products, safe and inexpensive.

Chapter 6: Successful Strategic Sequence

Now that the new strategy is well-defined, how can you build a business model that is robust enough to ensure profitability?

According to the authors, it’s important to ask the right questions in the right order, about the right topics:

1. Buyer utility. 

Does the idea have exceptional buyer utility? In order to avoid the disappointment of innovative products that don’t satisfy any demand, such as the Philips CD-I or the Motorola Iridium satellite phone, the authors propose 6 utility levers:

  1. Customer productivity
  2. Simplicity
  3. Convenience
  4. Risk
  5. Fun and image
  6. Environmental friendliness

And 6 stages of the buyer-user experience cycle:

  1. Purchase
  2. Delivery
  3. Use
  4. Supplements
  5. Maintenance
  6. Disposal

To assemble in a matrix in order ask the right questions concerning the real interest of the product, the ideal is to create a product with exceptional utility.

2. The price. 

Once the product has exceptional utility, you must find the right strategic positioning at the price level. Indeed, it’s important that customers have the ability to buy the product, and in droves. In fact, high-volume sales now generate significant profitability, in most cases. In particular, if someone else can easily copy your product or service, you should offer it at a very affordable cost to flood the market and ensure a firm position before imitators try to steal it from you. To determine the right price, the authors propose two steps:

  • Step 1: Identify the price corridor at the heart of the market
  • Step 2: Designate a price level within the price corridor

We do this with a graphical tool.

3. The cost. 

Once you have determined the price, it is necessary to determine the target cost, that is, the cost of production that the product will have to reach in order to be profitable. This is the opposite approach of the usual one, which determines the selling price from the cost. Thus, the cost takes a radical and indispensable character: if it isn’t reached, the product is not profitable and therefore not producible. You must then go hunting for unnecessary costs by streamlining as much as possible, by creating partnerships or by innovating in terms of price fixing. For example, when the first video tapes cost $80, a price that kept many consumers out of business, Blockbuster broke new ground by changing the pricing model: it rented out the tapes rather than selling them, creating an immediate unprecedented demand.

4. Adoption.

Finally, even an unbeatable business model is worthless if there is no commercial success around the sale of the product. The creation of an ocean is almost always a threat to tested practices, and it’s necessary to disarm fears by communicating with:

  • Employees
  • Partners
  • The general public.

Finally, the authors propose a tool to synthesize their data, in the form of the blue ocean idea index.

Part Three: Executing a Blue Ocean Strategy

Chapter 7: Overcome Key Internal Hurdles

Once the company has developed a Blue Ocean strategy and the associated profitable business model, it must move to implementation. This passage to action comes up against four obstacles:

  1. Resistance to change in the workforce, which can be reinforced by an organization mired in its usual practices.
  2. Lack of resources, endemic in most companies.
  3. The motivation of the key players, so that they quickly and effectively break with the tested practices.
  4. Internal struggles for influence. These power struggles are the lot of any entity bringing together humans.

Finally, the authors argue for tipping point management to overcome these 4 obstacles: it is a question of focusing on the few important elements that will make it possible to turn the situation around with a minimum of effort and resources – it is a question of the application of the 80/20 method. The authors illustrate this method very clearly throughout the chapter through the example of Bill Bratton, police commissioner of New York, who managed to make one of the most dangerous cities in the United States one of the safest, and in just 2 years.

Chapter 8: Integrate Execution into Strategic Development

In order to succeed in your blue ocean strategy, it is necessary to win the support of the entire company, not just the highest levels of the hierarchy: ensuring the trust and commitment of your employees, not to the letter, but to the spirit, is of paramount importance.

For the authors, this means fair management, which goes beyond carrots and sticks and is based on three principles, the three E’s:

  • Engagement.  This means encouraging the participation of the individuals in the strategic decisions which concern them, to solicit their opinions, and to allow them to contest the positions taken by others.
  • Explanation.  Make sure everyone understands why strategic decisions, and the reasoning behind them, are important.
  • Expectation clarity.  This means explaining the new rules of the game. Employees should know from the start the criteria according to which they will be judged and the sanctions applicable in case of failure.

Chapter 9: Conclusion: Sustainability and Renewal of Blue Ocean strategies

Whatever the speed and perfection with which you have created your Blue Ocean, imitators will sooner or later show up, developing in turn the Blue Ocean. And the more you develop the Blue Ocean, the more competitors it will attract, which will eventually turn it into a red ocean. The question then arises: when is it necessary to embark on the creation of another blue ocean?

Fortunately, there are barriers to imitation. The authors define 8 of them, then conclude that tools and methods for dealing with red oceans saturate companies today and hope that it will be the same for the creation of blue oceans in a few years.

Appendix A: The Creation of Blue Oceans: Historical Overview

In this 20-page appendix, the authors draw a portrait of three economic sectors: the automotive industry, personal computers and movie theaters in the United States. They detail the appearance of blue oceans in each of these sectors; the benefits derived by their “inventors” and how they were supplanted in turn by other blue oceans. It contains the following:

  • No sector of activity can claim a permanent boom.
  • No company can claim a permanent boom.
  • The creation of a blue ocean proves to be the main factor in starting an upward curve of profitable growth.
  • Blue oceans are the work of historical players as well as newcomers.
  • The creation of blue oceans is not primarily a matter of technological innovation.
  • The creation of blue oceans has a powerful and long-term effect on the company’s brand image: Ford and Apple draw a strong and positive image from the blue oceans that they created decades ago.

Book critique of “Blue Ocean Strategy”

The authors offer in this book a complete and detailed method to think “outside the box” and find new markets that our competitors have not thought of. The concept of finding a blue ocean rather than battling in the blood-red ocean where our competitors skin each other alive is an extremely interesting concept, which powerful demonstrations and examples throughout the book help to develop. The case studies are relevant and explained in detail, and perfectly illustrate the concepts proposed by the authors – in fact, a bit too much. I’ll come back to that.

Although this book and the strategy it proposes is primarily intended for large companies, any entrepreneur will be able to draw an excellent support from it to stimulate their thinking, thanks in particular to the author’s relevant questions, that one merely has to ask him/herself, and thanks to 6 concrete and relevant ways to redefine market boundaries. These are just a few of the many “ready-to-use” tools that this book offers, and that easily makes it possible to implement the proposed strategy – provided you get started, of course.

The main criticism I will make of it is that which is common to all the models that you defined after the fact:

The authors defined their model of success, then looked for examples which corresponded exactly to this model, while undoubtedly putting aside those which did not correspond. Of course, the examples presented are relevant and very clearly illustrated, but didn’t the authors cherry-pick? Because neither of them worked with Starbucks, Cirque du Soleil, The Body Shop or NetJets to build their success: they simply analyzed these successes and looked for what corresponded to their model. Then, I did some research, and I did not find an example of a company that has consciously applied the Blue Ocean strategy and that has achieved great success with it. If you know of any, dear reader, tell us in the comments. It would be of interest to everyone😉.

Still, the book’s philosophy is to think outside the box, laterally; and that it offers many tools ready to use to do so, especially in the form of questions. The vast majority of entrepreneurs are caught up in the daily grind, with their nose to the grindstone. I think that reading this book will be an opportunity for them to take a step back and to especially REFLECT on their positioning and their business strategy, and to do so intelligently. And that is priceless. The greatest leverage you can exert to transform your business is to reflect; and this book gives you a valuable opportunity to do so, and to do it well. I therefore highly recommend it 🙂.

Strong points:

  • Detailed method, simple and clear for thinking outside the box.
  • Ready-to-use tools provided by the book.
  • Good intelligent questions that allow you to take a step back from your business and to reflect.
  • Detailed and relevant case studies

Weak points:

  • Cherry-picked examples after having developed their model. Are there any counter examples?
  • Are there companies that have consciously applied the Blue Ocean strategy and have been successful?

My rating : Wealth and Happiness time strategies Wealth and Happiness time strategies Wealth and Happiness time strategiesWealth and Happiness time strategiesWealth and Happiness time strategiesWealth and Happiness time strategiesWealth and Happiness time strategiesWealth and Happiness time strategiesWealth and Happiness time strategies

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