Glossary

Blue Ocean Strategy challenges companies to create uncontested market space and make competition irrelevant. By focusing on , firms can simultaneously pursue and low cost, breaking free from the traditional value-cost trade-off.

This approach contrasts with conventional "red ocean" strategies that compete in existing markets. Blue Ocean Strategy provides tools like the and to help companies discover new demand and redefine industry boundaries.

Blue Ocean Strategy Fundamentals

Value Innovation and Strategy Canvas

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  • Value innovation involves creating a leap in value for buyers and the company, opening up new and uncontested market space
  • Value innovation occurs only when companies align innovation with utility, price, and cost positions
  • The strategy canvas is an analytic framework and diagnostic tool for building a compelling blue ocean strategy
    • Captures the current state of play in the known market space (industry or strategic group)
    • Allows you to understand where the competition is currently investing and the factors the industry currently competes on in products, services, and delivery
    • The horizontal axis captures the range of factors the industry competes on and invests in
    • The vertical axis captures the offering level that buyers receive across all these key competing factors

Red Ocean vs. Blue Ocean Strategy

  • represent all the industries in existence today, the known market space where industry boundaries are defined and accepted, and the competitive rules of the game are known
    • In red oceans, companies try to outperform their rivals to grab a greater share of existing demand
    • As the market space gets crowded, prospects for profits and growth are reduced (mobile phone industry)
  • Blue oceans denote all the industries not in existence today, the unknown market space, untainted by competition
    • In blue oceans, demand is created rather than fought over
    • There is ample opportunity for growth that is both profitable and rapid ()
    • Competition is irrelevant because the rules of the game are waiting to be set

Tools for Creating Blue Oceans

Four Actions Framework and Eliminate-Reduce-Raise-Create Grid

  • The four actions framework poses four key questions to challenge an industry's strategic logic and business model:
    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?
  • The eliminate-reduce-raise-create grid pushes companies to simultaneously pursue differentiation and low cost to break the value-cost trade-off
    • The grid encourages companies to act on all four to create a new (strategy canvas)
    • By driving companies to fill in the grid with the actions of eliminating, reducing, raising, and creating, the four actions framework breaks companies out of the "compete within" and "value-cost trade-off" mentalities (Yellow Tail wine)

Noncustomers and Creating New Demand

  • To maximize the size of their blue oceans, companies need to look to noncustomers as well as existing customers
  • There are three tiers of noncustomers that can be transformed into customers:
    1. "Soon-to-be" noncustomers who are on the edge of your market waiting to jump ship
    2. "Refusing" noncustomers who consciously choose against your market
    3. "Unexplored" noncustomers who are in markets distant from yours
  • By looking across these three tiers of noncustomers and focusing on key commonalities, not differences, companies can understand how to pull them into their new market and expand the blue ocean (Nintendo Wii appealing to moms and seniors)

Implementing Blue Ocean Strategy

Tipping Point Leadership and Overcoming Organizational Hurdles

  • Tipping point leadership allows leaders to overcome the key organizational hurdles that block the implementation of blue ocean strategy
    • Cognitive hurdle: Waking employees up to the need for a strategic shift
      • Get managers out of the office to see how people use products and services (Bratton riding NYC subways)
    • Resource hurdle: Freeing up resources for the strategic shift
      • Assess which activities consume the greatest amount of resources yet have the potential to unlock the greatest savings (Southwest Airlines serving no meals)
    • Motivational hurdle: Motivating key players to move fast and persevere
      • Redistribute resources to "kingpins", the key influencers in the organization
      • Shine a spotlight on actions that exemplify the new strategy (Bratton's broken windows)
    • Political hurdle: Dealing with powerful vested interests that resist the impending strategic shift
      • Leverage your kingpins to build a coalition that has the power to knock down political roadblocks
      • Isolate those who resist the new strategy (Tipping Point #3 in Bratton's turnaround of the NYPD)

Key Terms to Review (17)

Apple's iTunes: Apple's iTunes is a media player and media library application developed by Apple Inc. that allows users to purchase, organize, and play digital music and videos. Launched in 2001, iTunes revolutionized how consumers accessed music, shifting from physical formats to digital downloads and enabling users to create personalized libraries, which aligns with the concept of offering unique value in untapped market spaces.
Buyer Utility Map: The Buyer Utility Map is a strategic tool that visualizes the various ways a product or service can deliver utility to customers across different stages of their experience. It helps companies understand and innovate around the key factors that influence buyer satisfaction, including product performance, ease of use, and emotional appeal. By mapping out these factors, businesses can identify opportunities to create new value propositions and enhance their competitive advantage.
Cirque du Soleil: Cirque du Soleil is a Canadian entertainment company known for its innovative circus arts that blend acrobatics, dance, and theatrical storytelling. It revolutionized the traditional circus experience by eliminating animal acts and emphasizing human performance, leading to a unique form of entertainment that appeals to a broader audience.
Cost Leadership: Cost leadership is a competitive strategy where a company aims to be the lowest cost producer in its industry, allowing it to offer products or services at lower prices than competitors. This strategy emphasizes operational efficiency, economies of scale, and cost minimization in every aspect of the business, leading to a stronger market position.
Creating Uncontested Market Space: Creating uncontested market space refers to the strategic approach of developing new market opportunities that are free from competition, allowing businesses to thrive without direct rivalry. This concept emphasizes innovation and differentiation, leading to the creation of unique offerings that capture new demand rather than competing for existing customers in crowded markets.
Differentiation: Differentiation is a strategy used by businesses to distinguish their products or services from those of competitors, focusing on unique features, quality, or customer service. By providing distinct value, companies aim to create customer loyalty and justify premium pricing, which is essential for gaining a competitive advantage in the marketplace.
Focusing on non-customers: Focusing on non-customers means identifying and understanding the needs, preferences, and motivations of potential customers who are currently outside the market. This approach encourages businesses to innovate and create value by attracting these non-customers, rather than just competing for existing customers. By tapping into this group, companies can discover new opportunities for growth and drive demand in unexplored segments.
Four Actions Framework: The Four Actions Framework is a strategic tool used in Blue Ocean Strategy to help organizations develop new market spaces by rethinking their value propositions. It involves four key actions: eliminating, reducing, raising, and creating, which guide businesses in assessing and reshaping their offerings to unlock new demand and differentiate themselves from competitors. This framework encourages companies to consider what they can remove from their traditional offerings, what they can cut down, what they can enhance, and what entirely new features they can introduce.
Increased Demand: Increased demand refers to a situation where consumers are willing and able to purchase more of a product or service at a given price, often due to various factors like changing preferences, improved economic conditions, or effective marketing strategies. This concept is crucial in understanding how markets operate, particularly in creating opportunities for businesses to innovate and capture new segments of consumers. The notion of increased demand is central to strategies that focus on making products or services more appealing, which ties into the idea of creating a blue ocean market space free from competition.
Market Creation: Market creation refers to the process of developing new markets where none previously existed, often by introducing innovative products or services that fulfill unmet needs. This approach focuses on expanding market boundaries rather than competing within existing markets, encouraging businesses to think creatively about how they can address customer demands in unique ways. The essence of market creation lies in innovation, which allows firms to tap into new customer segments and generate demand that did not exist before.
Red Oceans: Red oceans refer to existing market spaces where industries are well-defined and competition is fierce, leading to bloody competition as companies vie for market share. In these environments, the focus is on outperforming rivals to capture a greater share of existing demand, often resulting in price wars and reduced profitability. This contrasts sharply with the concept of blue oceans, which represent untapped market spaces and opportunities for innovation.
Renée Mauborgne: Renée Mauborgne is a renowned French business theorist best known for her work in strategy and innovation, particularly as co-author of the influential book 'Blue Ocean Strategy.' Her contributions focus on creating uncontested market spaces that foster innovation and growth, as opposed to competing in saturated markets. Mauborgne's ideas encourage businesses to move away from traditional competitive strategies and instead explore new, value-driven approaches that unlock new demand.
Strategic Canvas: A strategic canvas is a visual framework that illustrates a company's strategic position relative to its competitors by plotting key competitive factors. It helps businesses understand the current market landscape and identify potential areas for differentiation. By mapping out how various players in the market perform across these factors, organizations can discover new opportunities for innovation and value creation.
Strategy canvas: A strategy canvas is a visual tool used to compare the strategic positioning of a company against its competitors across key factors that define competition within an industry. It helps organizations identify their unique value propositions and understand how they can create a blue ocean by differentiating themselves from the existing market players. By mapping out the current landscape, companies can spot opportunities for innovation and new market creation.
Value Curve: A value curve is a graphical representation that illustrates how a company’s product or service performs across different factors compared to its competitors. It helps identify the unique value proposition and strategic positioning within a market, particularly in relation to customer needs and competitor offerings. By analyzing the value curve, businesses can find opportunities to differentiate themselves and create a Blue Ocean Strategy, where they compete in untapped market spaces rather than against existing competition.
Value Innovation: Value innovation is the process of creating new market space by delivering unique value to customers while simultaneously reducing costs. It focuses on breaking the trade-off between differentiation and low cost, enabling businesses to create a leap in value for both their customers and themselves. This approach is central to strategies that aim to capture untapped market potential and challenge existing competition.
W. Chan Kim: W. Chan Kim is a prominent business strategist and professor best known for co-developing the concept of Blue Ocean Strategy, which focuses on creating uncontested market space and making the competition irrelevant. His work emphasizes innovation and value creation rather than competing in crowded markets, leading organizations to pursue new growth opportunities in untapped areas. This approach has transformed how companies think about strategy, moving them away from traditional competitive strategies.
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