Blue Ocean Strategy Summary - W. Chan Kim

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Blue Ocean Strategy

Blue Ocean Strategy Summary
Career & Business and Corporate Culture & Communication

This microbook is a summary/original review based on the book: Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant

Available for: Read online, read in our mobile apps for iPhone/Android and send in PDF/EPUB/MOBI to Amazon Kindle.

ISBN: 978-1591396192

Also available in audiobook

Summary

The Blue Ocean Strategy is a business book that has become mandatory for modern managers by proposing an organized structure to identify and implement differentiation in any industry and help you grow your business faster.

The blue ocean strategy explains how to guide your business across seas with less competition and greater profitability.

The authors researched the impact of innovative ideas on traditional industries and studied cases from companies such as Tesla Motors and Starbucks, creating a most attractive model of innovation that allows you to rethink the way your business competes in today's marketplace.

The book proposes rules and principles to be followed by entrepreneurs, managers, CEOs, and directors to help companies get out of the deadly waters of the red oceans.

To Avoid Red Oceans, Do Not Swim With Sharks

Do you work for a company that only thinks about ending the competition? To annihilate competitors is the agenda of every meeting? Know that this has a reason. Traditional business strategies originate from military models and are based on capturing the enemy to gain a position of defense.

Even keywords in the corporate universe, such as the term "headquarters" for headquarters, have their origins in the military universe. As companies shape their strategies and outline their corporate goals, military metaphors such as "taking a stand", "winning a business", "defeating the competition", proliferate.

This language generates a model of competition in the market that says that for one to win, someone has to lose. This violent competition causes damage to corporate fighters and fills the water with blood, creating a "red ocean." In this ocean, companies that struggle end up with a market loss, profits reduction, and stagnant growth. Exaggerated competitiveness, while appearing essential to today's business culture, is no longer the only corporate strategy. You must navigate the blue oceans, creating new markets where there is no conflict and growth and profits are plentiful.

This may seem a strange concept at first, but many of the industries and products you know and use every day - cars, record labels, petrochemicals and even aviation - did not exist in the last century. In the last decades, we have seen multibillion-dollar industries, including mobile telephony, personal computing, and biotechnology.

But who can predict the "blue ocean" industries that will emerge in the coming decades? That is the question that your company should be asking for you to navigate in softer seas.

The concept of the blue ocean not only created new industries - it created new industries exceptionally profitable. Among the companies analyzed by Kim and Mauborgne that had revenue growth, 62% of total new revenues came from established competitive markets. However, this revenue growth produced only 39% of total profits.

Already the new businesses, in blue oceans, have almost reversed the numbers: their expansion accounted for 38% of total revenues and 61% of profits. Innovations are happening today at an intense pace due to globalization, mass production, and technology, which facilitate and accelerate the creation of new products, but similar to each other.

Big brands face an extraordinary invasion of new entrants into their markets, while consumers base their decisions on price only when space is little differentiated. To escape this "red ocean" cycle, with intense and direct competition, some companies have created lucrative new operations using the "blue ocean" strategy.

A good example is Starbucks, which made coffee a form of entertainment and networking, or Southwest Airlines, that made the problem of flying by economy class a fun and profitable business.

The Body Shop is another company that, with its affordable, natural cosmetics, has established a new blue ocean in a high-quality industry filled with very expensive competitors. Coffee, fun flights and natural lotions are all innovations focused on value, or as the authors call, value innovations.

They generate, through a new product, more value to the final customer than the similar products. Any company, regardless of size or area of expertise, can exploit a value innovation. To be successful, an innovation in value must provide effective savings and a new benefit that the consumer can immediately realize.

If you want to go to the blue ocean, make sure your value innovation is accessible enough that most customers realize its benefit and differential shortly. With a strategic bias, this type of innovation can only be viable when it becomes part of an intrinsic process of the company, involving constant improvements in operations, functionalities, and price, focused on generating a real and tangible value for the client.

The Circus Caught Fire!

Cirque du Soleil is a clear example of the success of the blue ocean. It introduced an entirely new form of entertainment based on a saturated thesis model, the traditional circus. Redefining the purpose of every element of the old model, from the tent to the acrobatic shows, Cirque du Soleil recreated its business and formulated a new form of entertainment. To do this: it cultivated an entirely new audience of adults who prefer theater to the circus;

Developed an intellectual and dramatic entertainment format; Reduced its cost structure and raised the price of tickets above the price charged by traditional circuses to compete with the prices of Broadway plays. As a result of this new approach, Cirque du Soleil took less than 20 years to exceed the profits made by the world's largest circuses that already have more than 100 years of performances and tours around the world.

Without any direct competition, Cirque du Soleil succeeded in completely redefining its product, its audience, and its market. This approach contrasts directly with the concept of environmental determinism, which says that business in any industry must follow the reality in which they are embedded and compete within the confines of the industry.

This type of thinking creates situations of red ocean, where companies compete for the price and almost without differentiation in their products. Contrast this belief with Cirque du Soleil's trajectory: they challenged all the established concepts of the market and were able to create a new segment where there is virtually no competition.

The Six Rules of The Blue Ocean Strategy

A new market asks for new rules. And it is through them that you build or point your business toward a blue ocean.

  1. Rebuild the limits of the market. Reassess the premises that make up the assumptions of your industry and from there, define your business model. Master the key competitive guidelines of your industry (such as customer preferences, product quality, price level and quality) to create a visual representation of the strategy that clearly shows each of these factors.
    To create a new perspective, explore which of these current industry standards you could ignore, reduce, enlarge or even transform. Wine company Casella Wines used this analytical process to make its Yellow Tail brand the fastest growing wine in the history of American and Australian preference and the best-selling red wine in the United States in 2003.
    You must be wondering how is this possible. Simple. Through extensive research, Casella identified that beer drinkers and cocktails were a large potential market and a different consumer from their traditional consumer. Therefore, it has simplified the taste of your wine, making it fruitier, sweeter and lighter.
    The company also shifted the focus of its marketing efforts, abandoning the traditional and elitist appeal that focused on the palate complex, the aging of the wine and the location of the winery. It built its brand with a blue ocean strategy, targeted and differentiated. Red ocean strategies are based on finite and scarce markets. To expand your market boundaries into a broad blue ocean, look at your key competitors. Determine your limitations and identify spaces where they do not arrive. Find something you see, and it does not. Curves, a women's gym that offers a 30-minute workout program focused on the female audience, took advantage of the price, location, and ease of use of its service to create a new market and compete with traditional gyms. Novo Nordisk, an insulin-producing company, focused its communication of benefits from its product to physicians to revamp its market and begin offering direct treatment to the diabetic patient. To sell its product, it invoked consumer emotions and listed the benefits to end-users. Look far and see beyond. Apple acknowledged an emerging trend and a shift in consumer habits of online music users (which occurred in piracy and informality) when it captured the music download market through iTunes.

  2. Focus on the big picture, not the numbers. Pay attention to the global picture and do not get lost in statistics alone. Many strategists get bogged down in the data and lose sight of the whole and their ability to identify trends. To maintain your sense of direction, use your strategy map, a graphical representation of products, prices, and position in the industry, yours and your competitors. This map reveals your current position and possible opportunities. This exercise helps you glimpse the competitive environment through the eyes of your customers, enabling you to discover the factors that really matter to them. This can mitigate the risk of you investing time and effort into the wrong initiatives. When Samsung prepares new products, such as the 40-inch LCD TVs and the world's best-selling cell phone, it uses interdepartmental teams, representing all possible angles the customer may have about the products on the market to use the strategies map approach. With this analysis in hand, teams improve existing technologies to deliver new benefits of which their customers can readily take advantage.

  3. Go beyond existing demand, create demand. New businesses are naturally focused on their current customers, but real growth goes beyond existing demand. To reach the open sea, focus on potential future customers. To attract new customers to its advertising business via billboards on the streets of large metropolises, the French company JCDecaux thought that municipalities would be more interested in outdoor ads if they could get them for free and without any concern for maintenance. To meet these criteria, the company built durable street support equipment and signed long contracts with city halls. More plaques across the city have attracted more and more advertisers. Today the company operates in 33 countries and dominates, with high-profit margins, this specialized advertising sector.

  4. Understand the strategic sequence. Run your strategy sequentially to achieve your value innovation. Having a new and extravagant technology does not mean you have a blue ocean product. Technological innovation is not necessarily value innovation if it is not perceived and desired by the customer. To be truly innovative, technology must deliver immediate value. Map the experience you want buyers to have in each of the sequential stages of your plan. Assess the utility, availability, comfort, safety, and environmental sustainability of your product from the perspective of how each of these factors affects the consumer when he or she buys takes them home, uses them and eventually discards their product. To develop your blue ocean strategy, follow four logical steps. Ask, in that order: Why should someone buy your product? Does it have any exceptional utility? Does it have a fair price to attract a large audience? Can you create it at a profitable price? Is there any impediment that discourages the market from accepting your product?

  5. Overcome internal obstacles. Successful execution requires your company to resolve disagreements between teams and departments. It is natural to face an organizational upheaval as you enter new waters in the blue ocean market. Managers may be bothered by the need for a major change, with the problems that may arise from the reallocation of resources, and uncertainty about the novelties’ performances. The insecurities about how this transition will transform the existing hierarchy are also common and need to be overcome.

Implementation Is Part of The Strategy

Reduce risk management by incorporating blue ocean implementation processes, such as the strategy map, into your company's ongoing processes. Since building a blue ocean strategy involves uncertainties and risks, building trust among all stakeholders is essential to success. To get to and from the open sea, you need a crew.

Demand commitment from the crew, explain yourself clearly, communicate more and more, leave everyone inside the reason for the search for the new route and set the expectations, and what results we aim to launch into new oceans.

Final Notes:

If you have come here, you are striving to make an effort to swim towards the open and blue seas.

Here are the main concepts to assimilate. Creating a blue ocean for your company is based on believing that to be successful in business you have to generate and capture more value and not attack and compete with established companies where margins are low, and prices always fall. The new big markets did not exist a few decades ago, and they all had explosive growth.

Think smartphones, social networks or even the Starbucks phenomenon. None of them was a success for "charging less" but for generating value in innovative ways and easily applicable in the day to day of the consumer.

To navigate blue oceans, you also need a map. Create a strategic map of all the potential benefits of being offered, perceived, and potential new markets before pointing your boat in a new direction.

12min tip: How about checking out our microbook 33 war strategies and learning what war strategies can teach us about humanity and everyday situations?

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Who wrote the book?

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)