BLUE OCEAN STRATEGY: How to make uncontested market space and make the competition irrelevant by W. Chan Kim & Renée Mauborgne

In today’s business world, where you have to fight for every customer, what kind of strategy should you choose to get ahead of your competition? Is it lower prices, better quality of your product or service, is it better customer care, more ads…? Most companies unwillingly pick a strategy that causes their cost to rise, and results are minimal at best. But does it have to be this way?

Well a lot of companies proved it doesnt’ have to be like that. Instead of fighting for a bigger share of your current market with your competition, you could just create a new market, or at least move the boundaries of the current market. And how do you do that? Well. you do that by stepping a few steps back, and taking another look at the industry you are in. As you will read in the book, people who are in one industry for to long see the boundaries of their industry really clearly… to clearly. And they actually embrace these boundaries, which causes them to limit their strategies on how to get more customers. Instead of accepting the “standards of the industry” you should try to push the boundaries a bit. Instead of thinking how to “steal” customers from your competition, think about how you could create more customers for your industry. That is what blue ocean strategy is all about. Creating new value, new markets, new demand, and getting customers from different industries that fulfils the same purpose in terms of customer needs and wants as you are, meanwhile also lowering your costs if possible. On the other hand a red ocean strategy is where you compete with lowering your prices, giving higher value service with little to no effect… to make a “long story” short, companies try to outperform their rivals by grabbing a bigger share of existing demands.

For example: If people want to have a good time on a friday night they can go out to the cinema, to a fancy restaurant,  a coffee shop, a club, an art gallery or a concert. And lets say you own a restaurant. Until now you have searched for ways to get people who visit other restaurants to come to yours. But what if you try to get people who want to do something fun, or just something to pass the time on a friday night to come to you instead of the cinema or a club? That suddenly widens the boundaries of your industry. You are not just looking for people who want to eat something, you are looking for people who want to experience a great time. And you can give them that, so let them know. By thinking in this way you start reshaping your market. If it worked for other companies such as Apple, Novo Nordisk, Netjets, Casella Wines, Cirque du Soleil and many more, it could also work for you. First you need to set your mindset. Put yourself in the shoes of your customers, take a look at their “problems” – their needs, and try to find solutions for them. When you want to create a blue ocean strategy you need to challenge the industry’s strategic logic and business model. You do this by finding answers to these four questions:

1. Which of the factors that the industry takes for granted should be eliminated?

2. Which factors should be reduced well below the industry’s standard?

3. Which factors should be raised well above the industry’s standard?

4. Which factors should be created that the industry has never offered?

Ok, so now your started thinking and planning, and you have your creative juices flowing. That is great, but before you get ready to go all in keep in mind these six assumption, on which most companies hypnotically build their strategies and because of them they are trapped competing in the red oceans (so do not do this):

1. Most companies define their  industry similarly and focus on being the best within.

2. They look at their industries through the lens of generally accepted strategic groups and strive to stand out.

3. They focus on the same buyer group, be it the purchaser, the user, or the influencer.

4. They define the scope of the products and services offered by their industry similarly.

5. They accept their industry’s functional or emotional orientation.

6. They focus on the same point in time and often on current competitive threats when formulating strategy.

My notes from the book:

  • All companies rise and fall based on the strategic moves they make or don’t make.
  • Competition should not occupy the center of strategic thinking. Too many companies let competition drive their strategies. Customers, not competition must be at the core of strategy.
  • Blue ocean strategy shows how strategy can shape structure in an organization’s favor to create new market space. It is based on the view that market boundaries and industry structure are not given and can be reconstructed by the actions and beliefs of industry players.
  • In the red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Companies try to outperform their rivals to grab a greater share of existing demand.
  • Blue oceans are defined by untapped market space, demand creation, and the opportunity for highly profitable growth. Although some blue oceans are created well beyond existing industry boundaries, most are created from within red oceans by expanding industries boundaries. In blue oceans, competition is irrelevant, because the rules of the game are waiting to be set.
  • Value innovation is the cornerstone of blue ocean strategy. It is called value innovation because instead of focusing on beating the competition, you focus on making the competition irrelevant by creating a leap in value for buyers and your company, thereby opening up new and uncontested market space.
  • Blue ocean strategy should be about risk minimization and not risk taking.
  • To fundamentally shift the strategy canvas of an industry, you must begin by reorienting your strategic focus from competitors to alternatives, and from customers to noncustomers of the industry.
  • A key tool to creating a blue ocean is the eliminate – reduce – raise – create grid.
  • When a company’s strategy is formed reactively as it tries to keep up with the competition, it loses its uniqueness.
  • A good strategy has a clear-cut and compelling tagline.
  • The first principle of blue ocean strategy is to reconstruct market boundaries to break from the competition.
  • In the broadest sense, a company competes not only with the other firms in its own industry but also with companies in other industries that produce alternative products or services.  For example: people enjoy a night out in a cinema, or a restaurant. Despite the difference in form and function they fulfill the same objective – a good time.
  • The key to creating blue ocean across existing strategic groups is by understanding which factors determines customers decisions to trade up or down from one group to another.
  • Look across the chain of buyers (the influencers, the purchaser, the user). Challenging an industry’s conventional wisdom about which buyer group to target can lead to the discovery of a new blue ocean.
  • Untapped value is often hidden in complementary products and services. The key is to define the total solution buyers seek when they choose a product or service. A simple way to do so is to think about what happens before, during and after your product is used.
  • When developing blue ocean strategies ask yourself. What is the context in which your product or service is used? What happens before, during and after? Can you identify the pain points? How can you eliminate these pain points through a complementary product or service offering?
  • When companies are willing to challenge the functional – emotional orientation of their industry, they often find new market space. If you compete on emotional appeal, what elements can you strip out to make it functional? If you compete on functionality, what elements can be added to make it emotional?
  • The reason why only few strategic plans lead to the creation of blue oceans or are translated into action is that most of the time only few employees deep down in teh company even know what the strategy is. And most plans don’t contain a strategy at all but rather a smorgasbord of tactics that individually make sense but collectively don’t add up to a unified clear direction.
  • Revenue, profitability, market share, and customer satisfaction are all measures of a company’s current position. Those measures cannot point the way to the future. Today’s market share is a reflection of how well a business had performed historically.
  • For companies to maximize the size of their blue oceans they need to look to noncustomers instead of concentrating on customers. And instead of focusing on customer differences, they need to build on powerful commonalities in what buyers value. That allows companies to reach beyond existing demand to unlock a new mass of customers that did not exist before.
  • Bleeding edge technology is not the same as bleeding edge utility for buyers. If buyers’ lives are not made dramatically simpler, more convenient, more productive, or less risky the product will not attract the masses no matter how many awards it wins.
  • The buyer experience cycle contributes to utility for buyers (purchase -> delivery -> use ->supplements -> maintenance -> disposal).
  • A blue ocean strategy threatens the status quo of the company and for that reason it may provoke fear and resistance among its three main stakeholders. Its employees, its business partners and the general public. Before plowing forward and investing in the new idea, the company must first overcome such fears by educating the fearful.
  • Showing the worst reality to your superiors can also shift their mind-set fast.
  • When you want to wake up your organization to the need for a strategic shift and a break from the status quo, get your managers, employees, and superiors face-to-face with your worst operational problem.
  • To trigger epidemic movements you should concentrate your efforts on kingpins. These are the leaders, who are well respected and persuasive, or who have an ability to unlock or block access to key resources.
  • At the heart of motivating kingpins is a tactic called “fishbowl management”. This is when kingpins’ actions and inactions are made as transparent to others as are fish in a bowl of water. By doing this you greatly raise the stakes of inaction, because light is shined on who is lagging behind, and a fair stage is set for rapid change agents to shine.
  • A company is not only top management, nor is it only middle management. A company is everyone from the top to the front lines.
  • You must create a culture of trust and commitment that motivates people to execute the agreed strategy – not to the letter, but to the spirit.
  • The more removed people are from the top and the less they have been involved in the creation of the strategy the more they fear new strategies. On the front line, at the very level at which a strategy must be executed day in and day out, people can resent having a strategy thrust upon them with little regard for what they think and feel.
  • There are three mutually reinforcing elements that define fair process: engagement, explanation, and clarity of expectation. Engagement means involving individuals in the strategic decision that affects them by asking for their input and allowing them to refute the merits of one another’s ideas and assumptions.
  • Perspective is critical to success. Your mindset is more ingrained than you realize.
  • The blue ocean strategist gains insight about reconstructing market boundaries not by looking at existing customers, but by exploring noncustomers. Do not focus on existing customers and how to make them happier, While such a perspective may shed insight on ways to improve value for current industry customers, it is not the path to create new demand.
  • Noncustomers, not customers hold the greatest insight into an industry’s pain points and points of intimidation that limit the size and boundary of the industry.
  • There is a common misperception that to create a blue ocean and break out of the red, organizations must venture into industries outside their core. Also a misconception is to think that blue ocean strategies are about new technologies. That is not true, it is about fun, easy to use, simple stuff that buyers fall in love with.
  • Blue ocean strategy is not about being first to market. Rather it’s about being first to get it right by linking innovation to value. Organizations that mistakenly assume blue ocean strategy is about being first to market all too often get their priorities wrong. They inadvertently put speed before value.
  • Corporate graveyards are full of companies that got to market first with innovative offerings not linked to value.
  • The key is not to pursue pricing against the competition within and industry but to pursue pricing against substitutes and alternatives that are currently capturing the noncustomers of your industry.
  • The focus of blue ocean strategy is on creating new aggregate demand through a leap in buyer value at an accessible price.

blue-ocean-strategy

So which fish do you want to be? The one jumping to an empty bowl of new fresh water/opportunity? Or the fish stuck in the same bowl, same “environment” with the same fish as always? One of the reasons I really liked this book is because of the examples of how companies developed and  implemented their blue ocean strategy. So let’s have a look at a couple of cases.

Case studies/ Examples of Blue ocean strategy

Example 1: CIRQUE DU SOLEIL

  • cirque_du_soleil_logoOther circuses focused on benchmarking one another and maximizing their share of already shrinking demand by tweaking traditional circus acts. This included trying to secure more famous clowns and lion tamers. A strategy that raised circuses’ costs without substantially altering the circuses experience. The result was rising costs without rising revenue.
  • Cirque du Soleil paid no attention to what the competition did. Instead it offered the fun and thrill of the circus and the intellectual sophistication and artistic richness of the theater at the same time. It created a market for circus customers and adult theater customers.
  • The lasting allure of the traditional circus came down to only three key factors. The tent, the clowns and the classic acrobatic acts. Cirque de Soleil kept the clowns, it glamorized the tent (while many other circuses had begun to forfeit in favor of rented venues), acrobatic acts were reduced and made more elegant. They also offered a story line, with it, intellectual richness, artistic music and dance,..
  • Cirque du Soleil creations had a theme and a story line, like a theater performance. They also borrowed ideas from Broadway shows.
  • By giving people a reason to come to the circus more often they dramatically increased demand.

Example 2: NOVO NORDISK – NOVOPEN (INSULIN)

  • novo_nordiskBy competing in producing the best quality insulin, they would not make a big difference in the market (as the quality of insulin was already really high), but they would have made a lot of costs for themselves.
  • Instead they focused on the end users/patients and not on doctors. Both are their customer, the patients are the end users, and the doctors are the influencers. By doing so Novo Nordisk discovered that patients did not want to use syringes. So they created a delivery solution, that looked like a pen which contained an insulin cartridge and the dosing controls were easy to use.
  • This blue ocean strategy shifted the industry landscape and transformed the company from an insulin producer to a diabetes care company.
  • Novo Nordisk has a 70% of its total turnover coming from this offering.

 

Example 3: CURVES – FITNESS CLUB FOR WOMEN

  • curves_fitness_logoCurves created its blue ocean by eliminating all the aspects of the traditional health club (special machines, food, spa, pool,…).
  • The machines were arranged in a circle to facilitate interchange among members, making the experience fun. The machines were easy for use, needed no adjusting and were nonthreatening.
  • While exercising, women could talk and support each other. Thus making the social atmosphere totally different from that of a typical health club.
  • The price was only 30$ and not 100$ like in traditional fitness clubs.
  • Their tagline: “For the price of a cup of coffee a day you can obtain the gift of health through proper exercise.”
  • By doing this it has become the worlds largest women’s fitness franchise.

Example 4: CASELLA WINES – YELLOW TAIL

yellow-tail

  • In the USA the wine industry and its conventional wisdom caused winers to focus on overdelivering on prestige and the quality of wine at its price point.
  • Casella wines redefined the problem of the wine industry to a new one by finding a solution to a question: How to make a fun and nontraditional wine that’s easy to drink for everyone.
  • They did so by looking at the demand side of the alternatives of beer, spirits and ready-to-drink cocktails, which captured 3 times as many US consumer alcohol sales as wine. Casella Wines found that the mass of american adults saw wine as a turnoff. It was intimidating and pretentious, and the complexity of wines taste created flavor challenges for the average person (the basis on which the industry fought to excel).
  • Casella Wines created a social drink accessible to everyone: beer drinkers, cocktail drinkers,…
  • They dramatically reduced the range of wines offered, creating only two at the start: Chardonnay and Shiraz. It also removed all technical jargon from the bottles and created instead a simple nontraditional label.

 

 

Example 5: COMIC RELIEF – RED NOSES

  • Every traditional fund-racomic_reliefising charity in the UK used sad or shocking images in their campaigns, stimulating negative feelings of guilt and pity to trigger donations. Comic relief, in contrast, had eliminated guilt and pity. It used a breakthrough new fund-raising approach, RED NOSE DAY. Forget pity, it’s all about doing something funny for money to change the world.
  • People do not need to donate money. They can contribute by buying a little plastic red nose for 1$, or do something fun for a sponsorship/donation. Thus making the whole process personal and fun.
  • While traditional fund-raising charities tend to focus on wealthy older donors, red nose day is all about targeting the mass and raising funds via lots of small increments.
  • Traditional fund-raising charities employ people to collect donations every year, while Comic Relief does not, it organizes events every couple of years.

For me this was one of the best books I have read in some time now. And I highly recommend it to every person with and entrepreneurial spirit, marketer, manager, sales person, student, and anyone who is figuring out what to do next and how to create the most value in his field of work. Basically once you have read the book you are like aaaah… yes everything is so logical, why havent I already think of it, but hey… That is exactly one of the points of this book, we make boundaries for ourselves, and now we need to find a way to push or even better yet, to lift those boundaries. The best part of the book for me was that the authors wrote examples right after making a point. So when the book was talking about which customers to focus about, after they told the whole theory, they gave us an example or two like the Novo Nordisk Novopen. For me this is great,  because sometimes you might imagine things otherwise or maybe you do missunderstand what the author is talking about exactly in the book, but this won’t happen with this book. Because you always get examples. I only posted 5 examples, but if you want to read more of then I recommend you pick up the book. You never know what idea you might get for yourself after reading it. Authors also talk about leadership, trust, and what to be aware of in times of change. They really cover every aspect of creating and implementing a new strategy that might be 360 degrees different than what your business is doing at the moment. So to make a long story short – yes BLUE OCEAN STRATEGY: How to make uncontested market space and make the competition irrelevant by W. Chan Kim & Renée Mauborgne is a must read.

And a really great think is that you can follow the movement Blue Ocean Strategy is creating for more then 10 years now. I suggest you visit their web page www.blueoceanstrategy.com and see what else you can find out. The page has a lot of useful content.

Feel free to comment about the book. I would also appreciate your input about the post and the blog. If you have any suggestions what you found good, what you would like to see different, or simply any advice on what would you like to read as a review of a book let me know.

Thank you for your time. I hope you have found this post helpful. Talk to you in the comment section.

purposefocuscommitment

2 Thoughts to “BLUE OCEAN STRATEGY: How to make uncontested market space and make the competition irrelevant by W. Chan Kim & Renée Mauborgne”

  1. Dejan

    Great review of a great book. I read it a while back, was nice being able to go over some of its key points again. Great blog man, keep the posts coming.

    1. Thank you. I’m glad to hear you found the post useful. Will do.

Leave a Reply