Blue Ocean Strategy is a book by W. Chan Kim and Renée Mauborgne published in 2004, yet just as relevant in the present. The book proposes the concept of red oceans and blue oceans. Red oceans are the competitive market, where rivals try to capture their piece of market share and the industry rules are defined. Blue oceans are a completely new market and opportunity which makes the competition irrelevant. The book is studied at various universities and has sold over 4 million copies worldwide.
Book Title— Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant
Author— W. Chan Kim and Renée Mauborgne
Date of Reading— March, 2023
Table of Contents
What Is Being Said In Detail
Blue Ocean Strategy has been a bestseller since its publishing, as it offered an alternative for companies to thrive. The book, as its name suggests, explores the concept of blue oceans and provides steps for companies to take in order to realize the potential of uncontested markets and create their strategies accordingly. Whereas the red ocean is filled with competition and has clearly defined boundaries, blue oceans are unexplored markets brimming with potential for companies that dare to take the leap.
The book itself consists of eight chapters and a conclusion, divided into three parts:
- Part One: Blue Ocean Strategy
- Part Two: Formulating Blue Ocean Strategy
- Part Three: Executing Blue Ocean Strategy
Most frameworks are followed by graphs which are easily understood and further explain the concepts. The book provides a lot of useful examples of well-known companies which managed to create their blue ocean, such as Southwest Airlines.
PART ONE: Blue Ocean Strategy
Chapter One: Creating Blue Oceans
Chapter 1 introduces the concept of red and blue oceans. Red oceans are the competitive marketspace, where rivals try to outperform each other and the industry boundaries and rules are defined. Blue oceans, on the other hand, represent a completely new market, and uncontested market space which makes the competition irrelevant. The chapter gives an example of Cirque du Soleil, which managed to create a whole new market space – its own blue ocean, by leaving behind the traditional form of circus, and instead combining circus elements with theatre. This strategy allowed them to target a completely new set of customers – adult theatre customers.
Chapter Two: Analytical Tools and Frameworks
Chapter 2 introduces useful frameworks and analytical tools to help companies move from the red ocean to the blue ocean. Mentioned frameworks and tools are The Strategy Canvas, The Four Actions Framework, and The Eliminate-Reduce-Raise-Create Grid.
The Strategy Canvas shows the current state of the market and allows one to understand the competition’s investments and the factors that the market is competing on. As a part of the strategy canvas, the value curve shows the company’s relative performance compared to factors of competition in the industry.
The Four Actions Framework focuses on four questions in order to challenge the industry’s current business model and strategy:
- Which of the factors that the industry takes for granted should be eliminated?
- 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?
The Eliminate-Reduce-Raise-Create Grid is a sort of continuation of The Four Actions Framework because it pushes companies to not only ask those four questions but also to act on those questions and create value.
The chapter also introduces three characteristics of a good strategy: focus, divergence, and a compelling tagline.
PART TWO: Formulating Blue Ocean Strategy
Chapter Three: Reconstruct Market Boundaries
Chapter 3 emphasizes the importance of reconstructing market boundaries to break away from the competition and create blue oceans. Through their research and observations, the authors found six approaches to remaking boundaries in the market spaces and conveniently called them the six paths framework. This framework enables companies to target recurring problems within their industries and overcome their competitors by making them irrelevant to their success. The six-path framework goes as follows:
- Path 1: Look Across Alternative Industries.
- Path 2: Look Across Strategic Groups Within Industries.
- Path 3: Look Across the Chain of Buyers.
- Path 4: Look Across Complementary Product and Service Offerings.
- Path 5: Look Across Functional or Emotional Appeal to Buyers.
- Path 6: Look Across Time.
Chapter Four: Focus on the Big Picture, Not the Numbers
Chapter 4 proposes that a lot of companies don’t have a precise and clear strategy, rather, they have a whole lot of tactics that don’t add up when combined. The authors of the book recommend drawing a strategy canvas and by doing so visualizing strategy. This visualization process has four distinct steps:
- Visual Awakening. This step entails evaluating our strategy and deciding where and how it needs to change.
- Visual Exploration. Exploration means focusing on the above-mentioned six paths framework and finding factors that need to be eliminated, created, or changed.
- Visual Strategy Fair. In this step, the company devises a potential strategy canvas and receives feedback from various stakeholders. Then it implements the feedback to build the best strategy.
- Visual Communication. Here the company compares its before and after strategic profile and starts supporting projects which help to actualize its new strategy.
Chapter Five: Reach Beyond Existing Demand
Chapter 5 suggests that the focus is often on the existing demand and customer, which is a short-term solution. To reach beyond the existing demand, companies need to focus on expanding the market by approaching and converting noncustomers. There are three tiers of noncustomers to be defined:
- First Tier: Soon-to-be noncustomers. These are customers on the edge of the company’s market, minimally purchasing and waiting for an opportunity to leave the market.
- Second Tier: Refusing noncustomers. They are customers who cannot afford or simply do not use the product or service, and find it beyond their means.
- Third Tier: Unexplored noncustomers. In this case, the potential customers are far away from the industry, they never thought of it as an option.
There is no clear rule on which type of noncustomers to focus on, it depends on the blue ocean opportunity which presents itself. Based on the industry, the company should focus on tiers that convert the largest number of noncustomers to customers at the time.
Chapter Six: Get the Strategic Sequence Right
Chapter 6 proposes the Sequence of Blue Ocean Strategy, which consists of four steps. It helps the companies assess their plans and blue ocean strategy while reducing their business model risk. For a successful implementation of this sequence, it is important to follow the steps in the exact order, which go as follows:
- Buyer utility. Is there exceptional buyer utility in your business idea?
- Price. Is your price easily accessible to the mass of buyers?
- Cost. Can you attain your cost target to profit at your strategic price?
- Adoption. What are the adoption hurdles in actualizing your business idea? Are you addressing them up front?
The chapter also discusses The Six Stages of Buyer Experience Cycle, which consists of six self-explanatory steps: purchase, delivery, use, supplements, maintenance, and disposal.
PART THREE: Executing Blue Ocean Strategy
Chapter Seven: Overcome Key Organizational Hurdles
With Chapter 7 the book enters its final phase – executing the Blue Ocean strategy. It is like translating thoughts into action, the company has planned its strategy and now it is time to successfully implement it. Through The Four Organizational Hurdles to Strategy Execution, the authors show the four most common issues that organizations encounter when executing their strategies. They go as follows:
- Cognitive Hurdle. This hurdle prevents employees and top managers from accepting change and new opportunities. The authors of the book suggest introducing a culture of innovation and experimentation.
- Resource Hurdle. Resources often become scarce when leading change, so the suggestion is to use technology’s potential and make productive partnerships with other organizations.
- Motivational Hurdle. It is often difficult to activate people, make them step out of their comfort zone, or make them feel like they have a say. Some of the possible solutions are involving employees in the strategic planning process and therefore empowering them, as well as sharing the company’s strategic vision with them.
- Political Hurdle. This is a concern about the internal policies of the company and resistance to change. To avoid this hurdle, it is important to involve stakeholders such as employees and partners early on for them to perceive the benefits of the proposed strategy.
Chapter Eight: Build Execution into Strategy
Chapter 8 stresses the importance of aligning all members of the organization around a strategy for it to be successful. Not only formally, but aligning people’s hearts and minds and recognizing their value as individuals. This process also includes fairness which consists of engagement, explanation, and expectation clarity.
Conclusion: The Sustainability and Renewal of Blue Ocean Strategy
Conclusion reminds the reader that eventually, every blue ocean strategy will be imitated. In such moments, companies should not succumb to the temptation of competing like in red oceans. Rather than that, the Blue Ocean strategy constantly needs to be monitored and improved through advice offered in the book.
Most Important Keywords, Sentences, Quotes
PART ONE: Blue Ocean Strategy
CHAPTER ONE: Creating Blue Oceans
“In less than twenty years Cirque du Soleil has achieved a level of revenues that took Ringling Bros. and Barnum & Bailey—the global champion of the circus industry—more than one hundred years to attain.”
“Cirque du Soleil did not compete with Ringling Bros. and Barnum & Bailey. Instead it created uncontested new market space that made the competition irrelevant.”
“In the red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known.”
“Blue oceans, in contrast, are defined by untapped market space, demand creation, and the opportunity for highly profitable growth.”
“Yet the overriding focus of strategic thinking has been on competition-based red ocean strategies. Part of the explanation for this is that corporate strategy is heavily influenced by its roots in military strategy.”
“As discussed earlier, history also shows that industries are constantly being created and expanded over time and that industry conditions and boundaries are not given; individual actors can shape them.”
“In assessing industry, organizational, and strategic variables we found that the creation and capturing of blue oceans were achieved by small and large companies, by young and old managers, by companies in attractive and unattractive industries, by new entrants and established incumbents, by private and public companies, by companies in low- and high-tech industries, and by companies of diverse national origins.”
“By looking across the market boundary of theater, Cirque du Soleil also offered new noncircus factors, such as a story line and, with it, intellectual richness, artistic music and dance, and multiple productions.”
CHAPTER TWO: Analytical Tools and Frameworks
“Effective blue ocean strategy should be about risk minimization and not risk taking.”
“The dominance of a few key players allows them to leverage distributors to gain shelf space and put millions of dollars into above-the-line marketing budgets.”
“The strategy canvas is both a diagnostic and an action framework for building a compelling blue ocean strategy.”
“Sometimes there is a fundamental change in what buyers value, but companies that are focused on benchmarking one another do not act on, or even perceive the change.”
“When expressed through a value curve, then, an effective blue ocean strategy like [yellow tail]’s has three complementary qualities: focus, divergence, and a compelling tagline.”
“[yellow tail], Cirque du Soleil, and Southwest Airlines created blue oceans in very different business situations and industrial contexts. However, their strategic profiles shared the same three characteristics: focus, divergence, and a compelling tagline.”
PART TWO: Formulating Blue Ocean Strategy
CHAPTER THREE: Reconstruct Market Boundaries
“The first principle of blue ocean strategy is to reconstruct market boundaries to break from the competition and create blue oceans.”
“We found clear patterns for creating blue oceans. Specifically we found six basic approaches to remaking market boundaries. We call this the six paths framework.”
“To break out of red oceans, companies must break out of the accepted boundaries that define how they compete. Instead of looking within these boundaries, managers need to look systematically across them to create blue oceans.”
“Products or services that have different forms but offer the same functionality or core utility are often substitutes for each other. On the other hand, alternatives include products or services that have different functions and forms but the same purpose.”
“Despite the differences in form and function, however, people go to a restaurant for the same objective that they go to the movies: to enjoy a night out. These are not substitutes, but alternatives to choose from.”
“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.”
“Three principles are critical to assessing trends across time. To form the basis of a blue ocean strategy, these trends must be decisive to your business, they must be irreversible, and they must have a clear trajectory.”
“By thinking across conventional boundaries of competition, you can see how to make convention-altering, strategic moves that reconstruct established market boundaries and create blue oceans.”
CHAPTER FOUR: Focus on the Big Picture, Not the Numbers
“If you ask companies to present their proposed strategies in no more than a few slides, it is not surprising that few clear or compelling strategies are articulated.”
“And a closer look reveals that 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 that sets a company apart—let alone makes the competition irrelevant.”
“In our research and consulting work, we have found that drawing a strategy canvas not only visualizes a company’s current strategic position in its marketplace but also helps it chart its future strategy.”
“Visualizing strategy can also greatly inform the dialogue among individual business units and the corporate center in transforming a company from a red ocean to a blue ocean player.”
“A company’s pioneers are the businesses that offer unprecedented value. These are your blue ocean strategists, and they are the most powerful sources of profitable growth.”
CHAPTER FIVE: Reach Beyond Existing Demand
“By aggregating the greatest demand for a new offering, this approach attenuates the scale risk associated with creating a new market. To achieve this, companies should challenge two conventional strategy practices. One is the focus on existing customers. The other is the drive for finer segmentation to accommodate buyer differences.”
“To reach beyond existing demand, think noncustomers before customers; commonalities before differences; and desegmentation before pursuing finer segmentation.”
“To convert this huge latent demand into real demand in the form of thriving new customers, companies need to deepen their understanding of the universe of noncustomers.”
“What are the key reasons first-tier noncustomers want to jump ship and leave your industry? Look for the commonalities across their responses. Focus on these, and not on the differences between them.”
“It is not enough to maximize the size of the blue ocean you are creating. You must profit from it to create a sustainable win-win outcome.”
CHAPTER SIX: Get the Strategic Sequence Right
“With an understanding of the right strategic sequence and of how to assess blue ocean ideas along the key criteria in that sequence, you dramatically reduce business model risk.”
“Remember, a company does not want to rely solely on price to create demand. The key question here is this: Is your offering priced to attract the mass of target buyers so that they have a compelling ability to pay for your offering?”
“In setting a price, all companies look first at the products and services that most closely resemble their idea in terms of form.”
“A good way to look outside industry boundaries is to list products and services that fall into two categories: those that take different forms but perform the same function, and those that take different forms and functions but share the same over-arching objective.”
“Partnering, however, provides a way for companies to secure needed capabilities fast and effectively while dropping their cost structure. It allows a company to leverage other companies’ expertise and economies of scale.”
“Potentially even more damaging than employee disaffection is the resistance of partners who fear that their revenue streams or market positions are threatened by a new business idea.”
PART THREE: Executing Blue Ocean Strategy
CHAPTER SEVEN: Overcome Key Organizational Hurdles
“Companies, like individuals, often have a tough time translating thought into action whether in red or blue oceans.”
“Tipping point leadership traces its roots to the field of epidemiology and the theory of tipping points. It hinges on the insight that in any organization, fundamental changes can happen quickly when the beliefs and energies of a critical mass of people create an epidemic movement toward an idea. Key to unlocking an epidemic movement is concentration, not diffusion.”
“In the realm of experience, positive stimuli reinforce behavior, whereas negative stimuli change attitudes and behavior.”
“Showing the worst reality to your superiors can also shift their mindset fast.”
“For a new strategy to become a movement, people must not only recognize what needs to be done, but they must also act on that insight in a sustained and meaningful way.”
“Identify your detractors and supporters—forget the middle—and strive to create a win-win outcome for both.”
CHAPTER EIGHT: Build Execution into Strategy
“And it is only when all the members of an organization are aligned around a strategy and support it, for better or for worse, that a company stands apart as a great and consistent executor.”
“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 this trepidation builds.”
“Just when you think you have done everything right, things can suddenly go very wrong in your front line.”
“Our research shows that fair process is a key variable that distinguishes successful blue ocean strategic moves from those that failed.”
“When fair process is exercised in the strategy-making process, people trust that a level playing field exists.”
“Emotionally, individuals seek recognition of their value, not as ‘labor,’ ‘personnel,’ or ‘human resources’ but as human beings who are treated with full respect and dignity and appreciated for their individual worth regardless of hierarchical level.”
“Lacking trust in the strategy-making process, people lack trust in the resulting strategies.”
“With fair process, people tend to be committed to support the resulting strategy even when it is viewed as not favorable or at odds with their perception of what is strategically correct for their unit.”
CONCLUSION: The Sustainability and Renewal of Blue Ocean Strategy
“Creating blue oceans is not a static achievement but a dynamic process.”
“More often than not, a blue ocean strategy will go without credible challenges for ten to fifteen years, as was the case with Cirque du Soleil, Southwest Airlines, Federal Express, The Home Depot, Bloomberg, and CNN, for starters.”
“As imitators try to grab a share of your blue ocean, you typically launch offenses to defend your hard-earned customer base.”
“When the company’s value curve still has focus, divergence, and a compelling tagline, you should resist the temptation to value innovate again and instead should focus on lengthening, widening, and deepening your rent stream through operational improvements and geographical expansion to achieve maximum economies of scale and market coverage.”
“Because blue and red oceans have always coexisted however, practical reality demands that companies succeed in both oceans and master the strategies for both. But because companies already understand how to compete in red oceans, what they need to learn is how to make the competition irrelevant.”
Book Review (Personal Opinion):
This book was an easy read, it kept my attention throughout the chapters as it used a lot of real-life situations of companies entering blue oceans. Reading it made me realize its universal nature and why it is still relevant to this day.
Blue Ocean Strategy provides the motivation for companies to realize their potential in ways they might not have considered prior to reading this book. Not only that, I liked the way it was organized into sections concerning all aspects of planning and executing a strategy – with a big focus on stakeholders. I especially liked reading about Cirque du Soleil and how they managed to change the circus industry and create something new.
This Book Is For:
- Company leaders looking to elevate their business
- Entrepreneurs looking to position their startups in a new market
- Business and Management students
If You Want To Learn More
Renée Mauborgne talks about Blue Ocean Strategy, creating new markets, and leaving the competition behind in this speech.
How I’ve Implemented The Ideas From The Book
Since this is a book aimed at larger organizations looking to change markets and deal with competitors, it is hard to implement it as an individual. However, it can be interpreted on a personal level as well. Instead of constantly trying to find opportunities in oversaturated markets and fields, I am trying to think out of the box and look for opportunities in places where other people do not see them.
One Small Actionable Step You Can Do
The book contains a lot of interesting statistical and graphical representations of concepts and ideas discussed in the book. I suggest taking a look at The Strategy Canvas of multiple industries provided in the book (airlines industry, wine industry, or even the circus industry) and comparing them. It puts the concept of Blue Ocean strategy into perspective and shows its impact in a simple and straightforward way.