Blue Ocean Strategy, Expanded Edition

1. Blue Ocean Strategy: Create uncontested market space

Blue ocean strategy challenges companies to break out of the red ocean of bloody competition by creating uncontested market space that makes the competition irrelevant.

Redefine industry boundaries. Blue Ocean Strategy is about creating new market space where competition is irrelevant, rather than competing in existing crowded markets (red oceans). This approach focuses on value innovation, which simultaneously reduces costs while increasing value for customers.

Shift strategic focus. Instead of benchmarking competitors and trying to outperform them, companies should look across alternative industries, strategic groups, buyer groups, complementary products and services, and even across time to identify opportunities for creating new demand. This shift in perspective allows companies to break free from the constraints of traditional industry boundaries and create innovative offerings that appeal to a broader range of customers.

Create and capture new demand. By focusing on noncustomers and looking for commonalities across buyer groups, companies can unlock new markets and create products or services that attract both existing and new customers. This approach not only increases the size of the market but also allows companies to achieve sustainable, profitable growth.

2. Value Innovation: Simultaneously pursue differentiation and low cost

Value innovation is created in the region where a company's actions favorably affect both its cost structure and its value proposition to buyers.

Break the value-cost trade-off. Value innovation is the cornerstone of blue ocean strategy, emphasizing the simultaneous pursuit of differentiation and low cost. This approach challenges the conventional wisdom that companies must choose between providing superior value at a higher cost or reasonable value at a lower cost.

Focus on buyer value. Companies should concentrate on the factors that buyers truly value, while eliminating or reducing elements that are less important. This allows for the creation of products or services that offer a leap in value for customers while maintaining a low-cost structure for the company.

Align the whole system. Value innovation requires aligning the entire system of a company's activities, including its value proposition, profit proposition, and people proposition. This holistic approach ensures that all aspects of the business are working together to create and deliver exceptional value to customers while maintaining profitability.

3. Strategy Canvas: Visualize and create new demand

The strategy canvas is both a diagnostic and an action framework for building a compelling blue ocean strategy.

Visualize competitive landscape. The strategy canvas is a powerful tool that graphically depicts the current state of play in a known market space. It allows companies to understand where competitors are investing, what factors the industry competes on, and what customers receive from existing offerings.

Identify opportunities. By analyzing the strategy canvas, companies can identify areas where they can differentiate themselves from competitors and create new value for customers. This visual representation helps in spotting potential blue ocean opportunities and guiding strategic decisions.

Key elements of an effective strategy canvas:

• Focus: Concentrating on key factors that truly matter to customers
• Divergence: Creating a value curve that stands apart from competitors
• Compelling tagline: Crafting a clear message that speaks to customers

4. Four Actions Framework: Eliminate, reduce, raise, and create

To break the trade-off between differentiation and low cost and to create a new value curve, there are four key questions to challenge an industry's strategic logic and business model.

Challenge industry assumptions. The Four Actions Framework provides a structured approach to questioning and reconstructing buyer value elements. It prompts companies to examine which factors can be eliminated, reduced, raised, or created to offer unprecedented value.

• Eliminate: Which factors that the industry has long competed on should be eliminated?
• Reduce: Which factors should be reduced well below the industry's standard?
• Raise: Which factors should be raised well above the industry's standard?
• Create: Which factors should be created that the industry has never offered?

Redefine value proposition. By applying this framework, companies can create new value curves that diverge from industry norms, leading to innovative offerings that attract new customers and create uncontested market space.

5. Three Tiers of Noncustomers: Unlock new demand

To reach beyond existing demand, think noncustomers before customers; commonalities before differences; and desegmentation before pursuing finer segmentation.

Identify untapped markets. The Three Tiers of Noncustomers framework helps companies identify and understand potential customers who are currently not served by the industry. This approach allows for the creation of new demand and market expansion.

Three tiers of noncustomers:

1. Soon-to-be noncustomers: Those who minimally use the industry's offerings and are ready to leave
2. Refusing noncustomers: Those who consciously choose not to use the industry's offerings
3. Unexplored noncustomers: Those in markets distant from the industry's conventional boundaries

Focus on commonalities. By identifying common pain points and desires across these noncustomer groups, companies can develop offerings that appeal to a broader range of potential customers, effectively growing the market and creating new demand.

6. Sequence of Blue Ocean Strategy: Utility, price, cost, and adoption

To maximize the size of your blue ocean, you should first reach beyond existing demand to noncustomers and desegmentation opportunities as you formulate future strategies.

Ensure commercial viability. The strategic sequence of blue ocean strategy helps companies validate their ideas and reduce risks associated with new market creation. By following this sequence, companies can ensure that their innovative offerings are both commercially viable and attractive to customers.

Key steps in the strategic sequence:

1. Buyer utility: Ensure the offering provides exceptional utility to customers
2. Price: Set a strategic price that is accessible to the target mass of buyers
3. Cost: Achieve the target cost to ensure profitability
4. Adoption: Address potential adoption hurdles upfront

Validate and refine. This sequence allows companies to refine their ideas at each stage, ensuring that the final offering delivers exceptional value to customers while maintaining profitability for the company.

7. Overcome Key Organizational Hurdles: Cognitive, resource, motivational, and political

To achieve this effectively, however, companies must abandon perceived wisdom on effecting change.

Address execution challenges. Implementing a blue ocean strategy often requires overcoming four key organizational hurdles: cognitive, resource, motivational, and political. Tipping point leadership focuses on identifying and leveraging factors of disproportionate influence to overcome these hurdles quickly and at low cost.

Strategies for overcoming organizational hurdles:

• Cognitive: Make key managers experience the need for change firsthand
• Resource: Concentrate resources on areas with the greatest impact
• Motivational: Focus on key influencers within the organization
• Political: Silence opponents and win support from powerful allies

Create rapid change. By focusing on these factors of disproportionate influence, companies can create rapid, dramatic changes in their organizations, facilitating the successful implementation of blue ocean strategies.

8. Fair Process: Build execution into strategy

To reach your organization's tipping point and execute blue ocean strategy, you must alert employees to the need for a strategic shift and identify how it can be achieved with limited resources.

Engage and motivate employees. Fair process is crucial for building trust, commitment, and voluntary cooperation among employees during the execution of a blue ocean strategy. This approach involves three key elements: engagement, explanation, and expectation clarity.

Key principles of fair process:

• Engagement: Involve individuals in decisions that affect them
• Explanation: Provide clear reasons for final decisions
• Expectation clarity: Ensure everyone understands the new rules of the game

Foster trust and commitment. By implementing fair process, companies can create a culture of trust and commitment that motivates people to execute the agreed strategy voluntarily and enthusiastically, going beyond compulsory execution to voluntary cooperation.

9. Align Value, Profit, and People Propositions: Ensure sustainability

To produce a high-performing and sustainable blue ocean strategy, you need to ask the following questions. Are your three strategy propositions aligned in pursuit of differentiation and low cost?

Create holistic alignment. A sustainable blue ocean strategy requires the alignment of three key propositions: value, profit, and people. This alignment ensures that the strategy is not only compelling to customers but also profitable for the company and motivating for employees and partners.

Key elements of strategy alignment:

• Value proposition: Offers compelling value to customers
• Profit proposition: Ensures a viable business model and profitability
• People proposition: Motivates employees and partners to execute the strategy

Ensure long-term success. By aligning these three propositions, companies can create a strategy that is not only innovative but also sustainable in the long run, making it difficult for competitors to imitate.

10. Renew Blue Oceans: Institutionalize the creation process

To avoid the trap of competing at the individual business level, monitoring value curves on the strategy canvas is essential.

Maintain competitive edge. As blue oceans eventually turn red due to imitation, companies must institutionalize the process of creating new blue oceans to maintain their competitive advantage and continue their growth trajectory.

Strategies for renewing blue oceans:

• Monitor value curves to identify when to create new blue oceans
• Focus on dominating current blue oceans before creating new ones
• Use the Pioneer-Migrator-Settler (PMS) map to manage a portfolio of businesses
• Balance the need for both red and blue ocean strategies at the corporate level

Foster continuous innovation. By making blue ocean creation a repeatable process, companies can ensure their long-term success and maintain their position as industry leaders in innovation and value creation.

Last updated: November 19, 2024