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This microbook is a summary/original review based on the book: Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant
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Also available in audiobook
Creating and leading a truly successful business is becoming increasingly difficult in a globalized world. Markets are overcrowded, customers always have a cheaper option available – and they will usually buy it. So, how can you compete in today’s global market economy? Simple: by not competing at all. Instead, create a new market and eliminate the competition. Create your own blue ocean. How? Get ready to learn how to create and implement the Blue Ocean Strategy.
When Cirque du Soleil was founded in 1984 by a group of street performers, it was entering an already over-saturated circus market. However, in a short period of time, it managed to create revenue in venues that had taken their main competitor, Ringling Bros. and Barnum & Bailey, more than a hundred years to reach. How did Cirque du Soleil manage to do this?
Cirque du Soleil redefined the market it wanted to enter and tapped into a previously neglected customer base: adult theatre-goers. By combining elements of the theatre and the circus, Cirque du Soleil was able to increase performances and prices, while at the same time cutting a majority of the costs by getting rid of animal acts. It had created its own blue ocean - an uncontested, new market space.
In many industries these days, supply exceeds demand. And as a result, most companies concentrate on the red waters of competition. Outbidding competitors, dividing up market shares, and focusing on an ever-shrinking target customer market are common business practices. To successfully lead a business, however, you must leave your competition behind. You need to create a blue ocean, which is an entirely new market, full of untapped buyer potential.
Value innovation is the key element of the Blue Ocean Strategy. It creates a leap in value for both your company and your customers and thereby leaves the competition behind. But it does not mean simply adding value to an existing product or coming up with a new technological revolution. Instead, it means both reducing the cost and increasing the value of a product.
To create the framework of Blue Ocean Strategy, the authors analyzed more than 150 strategic moves made by companies between 1880 and 2000. Their main finding: there is no such thing as an excellent company – every company has its ups and downs. There is, however, such a thing as a successful business strategy: The Blue Ocean Strategy. Like all strategies, it offers both opportunity and risk.
To create your own Blue Ocean Strategy, you need the right tools. Your analytic framework is the strategy canvas. It allows you to capture the current state of affairs in the market on a graph. On the horizontal axis, plot the defining factors of the market. For example, in the case of the American wine industry, these are things such as the aging quality of the wine, the complexity of the wine’s taste, the price per bottle and the terminology and labels used to advertise the wine.
On the vertical axis, range the other companies in the market from low to high. In terms of price, high would mean a high price. This creates the value curve for the industry, which is the basic component of your strategy canvas. In terms of the American wine industry, this shows up with a similar strategic makeup for all companies.
And even though the common business strategy in this situation would be to offer more for less, this does not work in the existing market space. Instead, you need to change the way you think - from “competitors to alternatives, and from customers to noncustomers of the industry.” Casella Wines, an Australian winery, did exactly that. It realized that the main market share in the American alcohol consumption was captured by “easy-to-drink” varieties, such as beers and spirits, and that most people thought of wine as pretentious and too complex. So, instead of increasing the complexity of wines, as other American wineries had done, Casella Wines decided to decrease complexity and appeal to a more general market.
Now that you know what the market looks like, you need the Four Actions Framework to create your blue ocean: eliminate, reduce, raise, and create. First, look at ways in which you can reduce costs by asking the following two questions:
Then, you look at two questions to increase buyer value and to create demand:
Using the Four Actions Framework allows you to get rid of conventional industry wisdom and to create your own blue ocean. You know you’ve found a good strategy when it fulfills these three characteristics: focus, divergence, and a compelling tagline. Your strategic profile, or value curve, should show a clear focus. It also should stand apart from previous competitors in the field, and it should be possible to summarize your business mission in a clear tagline.
Finding the blue ocean can be difficult. How, in face of the endless possibilities, can you define the one business model to reconstruct the market boundaries? Luckily, there are a few basic approaches that you can follow, and these are applicable across all industries.
First, try looking across alternative industries. When customers decide what to buy, they usually weigh their alternatives. And that doesn’t necessarily mean comparing the same product within the same industry. For example, if someone wants two hours of self-indulgence, they could either go to the movies, go to a café with a book or treat themselves to a massage.
Most companies overlook this fact, but often the intersection between various industries can be a great place to create a blue ocean – just remember Cirque du Soleil, who created something new at the intersections of theatre and circus.
The chain of buyers also offers options for the creation of blue oceans. There are purchasers, users, and influencers. A specific industry usually converges around one of these buyer groups. Pharmaceuticals are targeted at influencers (the doctors), while the clothing industry focuses on the user.
Another way of creating a blue ocean is by looking across “complementary product and service offerings.” Seldomly, a product or service exists in isolation. Very often, they are used in addition to other products or services – but this is something overlooked by most companies. Consider going to the movies: the overall experience is defined by how easily people can get a babysitter or find a parking space. So, you could create a movie theatre that also offers babysitting services and valet.
Lastly, consider the way a product is marketed. Whether marketing is based on a functional or an emotional appeal to customers largely depends on how companies have been competing in the past. Often you can create new values by instilling emotion or functionality in these products. Just consider Swatch, who made the change from offering a function-based watch to offering an emotionally-infused fashion statement.
The Blue Ocean Strategy requires a deviation from traditional strategic plans, as these are focused on the competition in the field. Instead of focusing on numbers, try and see the big picture when formulating your plan. Your strategy canvas allows you to do just that. And by following the current trends, you can chart your own future Blue Ocean Strategy.
To maximize the size of your blue ocean - meaning your future customer base - you must stop looking at existing customers and focusing on their differences. Instead, look at the people who are not your customers yet, and focus on what most buyers value about your product or service. There are three tiers of noncustomers: the first tier is closest to your market, or, people on the edge of the industry who only purchase goods out of necessity.
The second tier are those who know about your product, but refuse to use it – for example sports enthusiasts who choose tennis equipment over golf equipment. And finally, the third tier are unexplored noncustomers. These are customers who have never even thought about using your products. Focus on the tier that will bring you the most customers when creating your strategy.
Finally, you will need a successful business model. The authors suggest the right strategic approach is to focus on, “the sequence of buyer utility, price, cost, and adoption.” Only when you have found a product that shows exceptional utility should you move on to pricing. Set a price that will attract your target buyers, and only once you have done that, move on to cost. Ask yourself if you can produce your offering at the target cost and still earn a healthy profit margin.
You should never drive the price to achieve lower cost, and nor should you forgo utility. If you cannot make a profit at the price you have set, you need to rethink your model. Lastly, you should focus on adoption hurdles and address these upfront, before launching your Blue Ocean Strategy.
There are four main hurdles when it comes to executing your new strategy: convincing employees of the need for a strategic shift, limited resources, motivation, and politics.
To execute the Blue Ocean Strategy you need to reach the organization’s tipping point. This means concentrating your influence on a small group of people to gain momentum and “an epidemic movement toward an idea.” To overcome the cognitive hurdle of opposition within your company, avoid trying to convince people with numbers. Instead, show them the harsh reality firsthand. This will result in change being driven from within the company.
To quickly motivate a great number of employees at a low cost, focus your efforts on “kingpins.” These are the key influencers at every level of your organization. This will create a mass positive movement.
Another hurdle most businesses face when wanting to implement a new strategy is limited resources. However, the way the Blue Ocean Strategy works means that fewer resources are usually needed than were previously necessary.
Finally, politics can stand in the way of implementing your new strategy. You will probably get vocal protest, both from within and outside your company. To deal with the dissenters, you should always appoint a consigliere in your management team. In addition, give the “angels” in your company more voice than the “devils.”
Let’s say you have succeeded in implementing your Blue Ocean Strategy. You have created an entire new market, and it’s all yours. Sooner or later, people will try to copy your success. Although the inherent characteristics of the Blue Ocean Strategy make it very difficult to be copied, eventually you will have competitors who will turn your ocean red.
When is it appropriate to stay in the market, and when should you reframe a new blue ocean? Monitor your value curve. As long as it doesn’t converge with that of your competitors, you can still scale up your market coverage. But as soon as convergence starts happening, you should start creating another value innovation.
To create your blue ocean, you first need to know the industry in which you are operating. Who are your competitors? Who are your customers? Once you have drawn up a strategy canvas, you can look at paths to redefine the industry by looking at alternative industries, external trends, or complementary products.
“Blue Ocean Strategy” is an eye-opening analysis of a successful business strategy. The Economist has judged it, “The most successful book on business master-planning.”
What are the defining features of products or services in your industry? Use these to map out your strategy canvas.
Renée Mauborgne is co-director of the INSEAD Blue Ocean Strategy Institute and The INSEAD Distinguished Fellow and professor of strategy at INSEAD. Mauborgne served on President Barack Obama's Council of Assessors on Historically Black Universities and Universities (HBCUs) in the two terms of office of the president. She is also a member of the World Economic Forum. His book Blue Ocean Strategy, co-authored with W. Chan Kim, sold 3.6 million copies and is a bestseller... (Read more)
Kim is the professor in charge of strategic management and international management at INSEAD France and co-director of the Blue Ocean Strategy Institute. Before joining INSEAD, he was a professor at the... (Read more)
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