Introduction
“Blue Ocean Strategy” by W. Chan Kim and Renée Mauborgne is a groundbreaking book that challenges conventional competitive strategies in business. The authors introduce the concept of creating “blue oceans” – untapped market spaces ripe for innovation and growth, as opposed to “red oceans” – saturated markets with intense competition. The book outlines a systematic approach for businesses to break free from the competition and create their own market space, emphasizing the importance of value innovation. This summary highlights key principles, tools, and examples provided in the book.
Chapter 1: Creating Blue Oceans
Kim and Mauborgne begin by defining the difference between red oceans and blue oceans. Red oceans represent all industries in existence today – the known market space. In these markets, companies try to outperform rivals to grab a larger share of existing demand. As the market space gets crowded, prospects for profits and growth diminish. Blue oceans, in contrast, denote all industries not in existence today – the unknown market space. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set.
An example of a blue ocean strategy is Cirque du Soleil. Instead of competing with traditional circuses, Cirque du Soleil created a new form of entertainment that blended circus arts with theatrical performance, appealing to a new group of customers – adults and corporate clients – and commanding premium prices.
Chapter 2: Analytical Tools and Frameworks
The authors introduce several tools and frameworks to help companies identify blue oceans. One key tool is the Strategy Canvas, which is used to capture the current state of play in the known market space. It helps visualize how companies compete on factors such as price, quality, and service.
Another important tool is the Four Actions Framework, which helps businesses reconstruct market boundaries by asking four questions:
- Which factors should be eliminated that the industry takes for granted?
- 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?
An example is the creation of the wine brand Yellow Tail. By eliminating and reducing certain elements (e.g., wine complexity, above-the-line marketing), raising others (e.g., ease of drinking), and creating new factors (e.g., fun and adventure), Yellow Tail opened up a new market space in the wine industry, attracting non-wine drinkers.
Chapter 3: Reconstruct Market Boundaries
This chapter delves into the six paths framework for reconstructing market boundaries. These paths include looking across alternative industries, strategic groups, buyer groups, complementary product and service offerings, the functional-emotional orientation of an industry, and even across time.
Kim and Mauborgne illustrate this with the example of NetJets, a company that offers fractional jet ownership. NetJets created a blue ocean by looking across alternative industries (commercial airlines and private jets) and offering a cost-effective and convenient alternative for business travelers who needed the flexibility of private jet travel without the full cost of ownership.
Chapter 4: Focus on the Big Picture, Not the Numbers
The authors emphasize the importance of visualizing the strategy and focusing on the big picture. They suggest a four-step process for visualizing strategy: drawing the “as-is” strategy canvas, visual exploration, visual strategy fair, and drawing the “to-be” strategy canvas.
The example of Southwest Airlines demonstrates this process. Southwest visualized its strategy by offering point-to-point flights, low costs, and high-frequency departures, targeting price-sensitive and convenience-oriented travelers. By focusing on these strategic elements, Southwest created a new market space in the airline industry, differentiating itself from both low-cost carriers and full-service airlines.
Chapter 5: Reach Beyond Existing Demand
Kim and Mauborgne highlight the importance of reaching beyond existing demand to unlock a new mass of customers. They identify three tiers of noncustomers:
- “Soon-to-be” noncustomers who are on the edge of the market.
- “Refusing” noncustomers who consciously choose against the market.
- “Unexplored” noncustomers who are in markets distant from the existing market.
The example of Novo Nordisk, a pharmaceutical company, illustrates this concept. Novo Nordisk created the insulin pen, making insulin delivery easier and more convenient, thus reaching noncustomers who were reluctant to use traditional insulin syringes. This innovation opened up a new market and expanded the customer base.
Chapter 6: Get the Strategic Sequence Right
To ensure the viability of a blue ocean idea, the authors present the Blue Ocean Idea Index, which involves the following sequence: buyer utility, price, cost, and adoption. This sequence ensures that the new offering provides exceptional utility, is priced to attract the mass of target buyers, can be produced at a cost that allows for profit, and overcomes adoption hurdles.
An example is NABI (North American Bus Industries), which developed a bus with a lightweight composite body. The bus offered superior fuel efficiency and lower maintenance costs, providing high buyer utility. NABI also ensured that the price was attractive to municipalities and that production costs were manageable, leading to successful market adoption.
Chapter 7: Overcome Key Organizational Hurdles
Kim and Mauborgne discuss the common hurdles organizations face when implementing a blue ocean strategy: cognitive, political, motivational, and resource hurdles. They suggest practical ways to overcome these hurdles, such as engaging employees in the strategy formulation process and building a coalition of support within the organization.
The example of the New York City Police Department under Commissioner William Bratton illustrates overcoming these hurdles. Bratton implemented a blue ocean strategy to reduce crime by focusing on quality-of-life offenses and using data-driven approaches. He engaged officers by showing the direct impact of their efforts on crime rates and garnered political support by demonstrating early successes.
Chapter 8: Build Execution into Strategy
The authors emphasize the importance of fair process in strategy execution. Fair process involves engaging all relevant stakeholders in the decision-making process, explaining the rationale behind decisions, and setting clear expectations. This approach fosters trust and commitment, ensuring successful strategy implementation.
An example is the transformation of the global operations of the British retail chain Tesco. The company involved employees at all levels in its strategy development, communicated openly about the changes, and set clear goals and expectations. This inclusive approach led to successful execution and significant improvements in performance.
Chapter 9: Conclusion – The Sustainability and Renewal of Blue Ocean Strategy
Kim and Mauborgne discuss the sustainability and renewal of blue ocean strategies. They emphasize the importance of continually monitoring the market and making strategic adjustments to stay ahead of competitors. They also highlight the role of leadership in fostering a culture of innovation and strategic thinking.
One final example is Apple’s continuous innovation in the consumer electronics market. By consistently identifying new blue oceans (e.g., iPod, iPhone, iPad), Apple has maintained its competitive edge and market leadership, demonstrating the sustainability of a blue ocean strategy through constant renewal and adaptation.
Conclusion
“Blue Ocean Strategy” by W. Chan Kim and Renée Mauborgne offers a comprehensive framework for creating new market spaces and making the competition irrelevant. Through a combination of theoretical insights and practical tools, the book provides a roadmap for businesses to innovate and achieve sustainable growth. By embracing the principles of value innovation and focusing on the strategic sequence, companies can unlock new demand, overcome organizational hurdles, and build execution into their strategy, ensuring long-term success. The numerous examples, from Cirque du Soleil to Apple, illustrate how these concepts can be effectively applied across different industries and contexts.