Book review: BLUE OCEAN STRATEGY

How to make uncontested market space and make the competition irrelevant

by W. Chan Kim and Renée Mauborgne

Genres:

Leadership
Business
Management
Growth Economics
Entrepreneurship

Review posted on:

15.10.2016

The number of pages:

320 pages

Book rating:

5/5

Year the book was published:

First edition published 2015

Who should read this book:

Entrepreneurs, Start-up founders, Growth hackers, Marketers.

Why did I pick up this book and what did I expect to get out of it:

I have played with the idea of starting my own business for many times now, but I never did make that first step into entrepreneurship. Mostly it’s because I never had something really innovative to offer. Maybe you feel the same, you are on that edge where you want to try but at the same time, you find enough excuses not to start your own business. So when I heard about the book Blue Ocean Strategy by W. Chan Kim and Renée Mauborgne I quickly picked it up and after reading the covers and the intro I knew I had to read it. I expect to get an insight into why some companies in spite of a lot of competition break out and become trendsetters in their markets. Of course, I expect real-life case studies of companies that made it, and it would also be great if there were some case studies of companies that didn’t and why not.

My thoughts about the book:

For me, Blue Ocean Strategy was one of the best books I have read in some time now. I highly recommend it to every person with an entrepreneurial spirit, marketer, manager, salesperson, student, and anyone who is figuring out what to do next and how to create the most value in his field of work. The best part of the book for me were the examples right after the authors explained their theory. W. Chan Kim and Renée Mauborgne talk about leadership, trust, and other things you need to be on top of when your organization goes through change. The authors really cover every aspect of implementing a new strategy that is very different than what your business is doing at the moment.

The “red thread” of the book is that when thinking of new business strategies most companies are thinking of what to do on the existing market and are sadly not thinking of how to create a new market or at least move the current market boundaries. The biggest problem of being an expert in your field is that you accept the boundaries others tell you that are there. And with time you find evidence, that they really do exist and as a consequence, you and many other entrepreneurs limit your business strategies. Instead of accepting the “standards of the industry” you should try to push the boundaries a bit. Instead of thinking about how to “steal” customers from your competition, think about how you can create more customers for your industry. That is what Blue Ocean Strategy is all about. It’s about creating new value, new markets, new demand, and getting customers from different industries. On the other hand, a red ocean strategy is where you compete by lowering your prices, giving higher value service with little to no effect other than lowering your profits.

Here is an example of how your train of thought should go when searching for developing your blue ocean strategy. 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 let’s 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 and who is in it.

If you picked up this book please let me know what you think about it in the comment section.

Some case studies from the book:

Other 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 circus’s experience. The result was rising costs without raising 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), and acrobatic acts were reduced and made more elegant. They also offered a storyline, with it, intellectual richness, artistic music, and dance.
Cirque du Soleil creations had a theme and a storyline, 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.

By 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 that 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 70% of its total turnover coming from this offering.

Curves 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 to use, needed no adjusting, and were non-threatening.
While exercising, women could talk to and support each other. Thus making the social atmosphere totally different from that of a typical health club.
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 world’s largest women’s fitness franchise.

In the USA the wine industry and its conventional wisdom caused winners to focus on over-delivering 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 wine’s taste created flavor challenges for the average person (the basis on which the industry fought to excel).
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 of a simple nontraditional label.

Every traditional fund-raising 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 doing 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 masses 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.

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 your 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 industry boundaries. In Blue Oceans, competition is irrelevant, because the rules of the game are waiting to be set.
Value innovation is the cornerstone of the 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.
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.
When a company’s strategy is formed reactively as it tries to keep up with the competition, it loses its uniqueness.
The first principle of the 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 a Blue Ocean across existing strategic groups is understanding which factors determine 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.
When developing a Blue Ocean Strategy 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?
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 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 a few strategic plans lead to the creation of blue oceans or are translated into action is that most of the time only a few employees deep down in the company even know what the strategy is. 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 has 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.
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.
A company is not only top management, nor is it only middle management. A company is everyone from the top to the front lines.
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 a fair process: engagement, explanation, and clarity of expectation. Engagement means involving individuals in strategic decision that affects them by asking for their input and allowing them to refute the merits of one another’s ideas and assumptions.
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.
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.
The key is not to pursue pricing against the competition within an 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.