Book: Blue Ocean Strategy

Blue Ocean Strategy

Executive Summary:

"Blue Ocean Strategy" challenges the traditional competitive mindset of fighting for market share in existing industries ("red oceans"). Instead, it advocates for creating new, uncontested market spaces ("blue oceans") through value innovation. Value innovation is achieved by simultaneously pursuing differentiation and low cost, breaking the value-cost trade-off. The book provides analytical tools and frameworks for identifying and capitalizing on blue ocean opportunities, focusing on noncustomers, and aligning strategy with the overall business model.

Key Themes and Concepts:

• Red Oceans vs. Blue Oceans:Red oceans represent existing market spaces where competition is intense, and profitability is often low.
• Blue oceans are uncontested market spaces ripe for growth and profit. "Southwest Airlines created a blue ocean by breaking the trade-offs customers had to make between the speed of airplanes and the economy and flexibility of car transport."
• Value Innovation: The cornerstone of Blue Ocean Strategy. It's about achieving differentiation and low cost simultaneously, rather than making a trade-off. This is done by:
• Eliminating: Factors that the industry takes for granted but no longer provide value.
• Reducing: Factors that are over-designed relative to customer needs.
• Raising: Factors that should be raised well above the industry standard.
• Creating: Factors that the industry has never offered.
• Analytical Tools and Frameworks:Strategy Canvas: A visual diagnostic tool to capture the current state of play in an industry, revealing strategic profiles of competitors and identifying areas for differentiation. Analyzing the language used in the strategy canvas helps a company understand how far it is from creating industry demand.
• Four Actions Framework: The methodology for reconstructing buyer value elements to create a new value curve (the eliminate-reduce-raise-create grid).
• Buyer Utility Map: A framework to ensure that a blue ocean offering unlocks exceptional utility for buyers across the entire buyer experience cycle.
• Pioneer-Migrator-Settler (PMS) Map: A tool for plotting a company's current and planned business portfolio to manage growth. Settlers are "me-too" businesses, Migrators are businesses better than most in the marketplace, and Pioneers are value innovation offerings.

1. Six Paths Framework (Ways to Reconstruct Market Boundaries):Look Across Alternative Industries: Identify why customers trade across alternative industries. Example: NetJets saw that customers traded between commercial airlines and owning a private jet and created fractional jet ownership. "What are the alternative industries to your industry? Why do customers trade across them? By focusing on the key factors that lead buyers to trade across alternative industries and eliminating or reducing everything else, you can create a blue ocean of new market space."
2. Look Across Strategic Groups within Industries: Understand why customers trade up or down between strategic groups. Ralph Lauren combined elements of haute couture and classical lines.
3. Look Across the Chain of Buyers: Challenge the industry's conventional wisdom about which buyer group to target. Novo Nordisk focused on insulin users instead of just doctors (influencers). "By questioning conventional definitions of who can and should be the target buyer, companies can often see fundamentally new ways to unlock value."
4. Look Across Complementary Product and Service Offerings: Identify pain points in the customer's total solution. Philips addressed lime scale in tap water with a kettle having a mouth filter.
5. Look Across Functional or Emotional Appeal to Buyers: Consider whether to shift an industry's appeal from functional to emotional or vice versa. Swatch transformed watches from functional to fashion statements; The Body Shop moved cosmetics from emotional to functional.
6. Look Across Time: Participate in external trends that affect your business. Apple's iTunes anticipated the trend towards digital music downloads.

• Reaching Beyond Existing Demand: Focus on converting noncustomers into customers.
• Three Tiers of Noncustomers:First Tier: Those on the edge of the market, ready to jump ship. Focus on commonalities in why they are dissatisfied.
• Second Tier: Those who refuse to use current offerings. JCDecaux targeted municipalities by offering street furniture with advertising.
• Third Tier: Those who have never considered the industry's offerings. JSF Program looked across the needs of the Navy, Marines, and Air Force
• Getting the Strategic Sequence Right (UPCA): The sequence to test the viability of a blue ocean idea:

1. Utility: Is there exceptional utility? A compelling reason for the mass of people to buy. Use the Buyer Utility Map to ensure that the offering removes the biggest blocks to utility across the buyer experience.
2. Price: Is the offering priced to attract the mass of target buyers (compelling ability to pay)?
3. Cost: Can the offering be produced at the target cost and still earn a healthy profit margin? "You should not let costs drive prices. Nor should you scale down utility because high costs block your ability to profit at the strategic price."
4. Adoption: Are there hurdles to adoption? Address concerns of employees, partners, and other stakeholders.

• Blue Ocean Idea (BOI) Index: A tool to assess the overall commercial viability of a blue ocean idea.
• Tipping Point Leadership: Overcoming organizational hurdles.
• Sustainability: Build barriers to imitation through brand buzz, economic/legal barriers, and network externalities.
• Importance of Alignment: Aligning Value Proposition, Profit Proposition, and People Proposition.
• Historical Examples: Model T Ford, early IBM tabulating machines, Dell Computer, Nintendo Wii, Cirque du Soleil, Starbucks, and many others illustrate the principles of Blue Ocean Strategy.
• Companies should build their blue ocean strategy in the sequence of utility, price, cost, and adoption. "After setting a price that was attractive to the mass of target buyers, NTT DoCoMo strove to obtain the capabilities it needed to deliver the service within its cost target in order to turn a profit."

Key Takeaways:

• Blue Ocean Strategy offers a systematic approach to creating new market space and rendering competition irrelevant.
• Value innovation is achieved by simultaneously pursuing differentiation and low cost.
• Focusing on noncustomers is crucial for unlocking new demand.
• A holistic approach, considering utility, price, cost, and adoption hurdles, is essential for success.
• Blue ocean strategy is not just about technology or low cost; it's about delivering exceptional value to buyers and the company. "When organizations miss this point and mistakenly see blue ocean strategy as synonymous with low cost and low pricing, they inadvertently focus on what to eliminate and reduce in the current industry offering to offer rock-bottom prices. In doing so, they fail to simultaneously focus on what they should raise and create to also achieve the differentiation needed to stand apart and set sail into the blue ocean."

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