Blue Ocean Strategy by W. Chan Kim and Renee Mauborgne

by Paul Simister on September 3, 2011

Blue Ocean Strategy : How To Create Uncontested Market Space And Make The Competition Irrelevant by W. Chan Kim and Renee Mauborgne is a must-read book for anyone interested in business strategy, customer value and innovation.

The book has been brilliantly conceived and marketed and it starts with the powerful metaphor.

Blue Ocean Strategy vs Red Ocean Strategy

There have been other books which focus on customer value and use techniques very similar to the strategy canvas but what really captures the imagination is the stark comparison between blue oceans and red oceans.

Red Oceans

Red oceans are the ideas of traditional competitive strategy where industry boundaries are known and accepted – what the authors call the known market space. The basic rules of competition (key success factors) are well known and competitors work within the rules, creating commoditised products or sub-dividing into ever-narrower niches which create small opportunities for specialised products. It is difficult to make a good profit, competition is bloody and hence the name “red oceans.”

Blue Oceans

Businesses don’t have to accept the normal rules and fight for meagre profits in red oceans because other opportunities are available to create new markets and product categories – in what W. Chan Kim and Renee Mauborgne call uncontested market spaces.

These new markets which don’t yet exist but can be created are blue oceans. You create the rules of competitions because you’re the first in.

Instead of fighting over demand for an existing product or service, you create demand for a new product.

Of course, competitors will copy, turning the blue ocean red but a follower of a blue ocean strategy makes money early, establishes the leading brand name which protects it from the most intense competition and moves on to find the next blue ocean.

The idea of blue ocean strategy is very appealing to anyone who wants differentiation rather than commoditisation but does it provide a good return?

Blue Ocean Strategy by W. Chan Kim and Renee Mauborgne Blue Ocean Strategy book cover

The Success Of Blue Ocean Strategy

W. Chan Kim and Renee Mauborgne quote statistics in Blue Ocean Strategy to show the dramatic comparison between red ocean strategy and blue ocean strategy based on business launches for 108 companies.

Business launches

Red ocean – 86%

Blue ocean – 14%

Revenue impact

Red ocean – 62%

Blue ocean – 38%

Profit impact

Red ocean – 39%

Blue ocean – 61%

The profit impact to launches ratio shows a very dramatic difference.

Red ocean (39/86) = 0.45

Blue ocean (61/14) = 4.36

This indicates that blue ocean strategy based launches could be ten times more profitable, demonstrating the impact of basing your business in uncontested market spaces rather than those that are already battlegrounds for competition.

Of course statistics change and can be interpreted in different ways but for business managers caught up in the bloody battle of red ocean competition, the idea that they can escape the pressures and move into blue oceans is hugely appealing, especially as pressures that create commoditisation seem to be increasing in the global Internet based world where more information than ever is readily available.

Value Innovation Is The Heart Of Blue Ocean Strategy

Moving to a blue ocean is hugely appealing. It’s one of those questions where the answer is almost too obvious…

“Do you want to compete hard against many competitors where your chances of making a good profit are small or do you want to create and own a market you can dominate?”

“The new market please…”

But how do you get there?

How can you develop a blue ocean strategy?

Through value innovation.

W. Chan Kim and Renee Mauborgne make it clear that the emphasis has to be on both value and innovation.

If you concentrate on value, then you risk getting caught making incremental improvements along existing important value dimensions. This is vertical differentiation but it’s hard to stand out from your competitors unless your performance is demonstrably superior.

If you focus on innovation on its own you’re following the bleeding edge technology changes and pioneering new markets with little attention to what customers and consumers want and are willing to pay for.

Blue ocean strategy based on value innovation offers the opportunity to escape from the value-cost trade-off made famous by Michael Porter, his generic strategies and the danger of being stuck in the middle.

The Four Guiding Principles To Value Innovation With A Blue Ocean Strategy

The Blue Ocean Strategy is written around the four guiding principles of value innovation:

  1. Reconstruct market boundaries – how to avoid search risk
    .
  2. Focus on the big picture, not the numbers – how to avoid planning risk
    .
  3. Reach beyond existing demand – how to avoid scale risk
    .
  4. Get the strategic sequence right – how to avoid business model risk

Each of these topics gets a chapter in Blue Ocean Strategy with additional chapters on how to implement the ideas throughout the organisation.

The Blue Ocean Strategy Tools And Analytical Frameworks

The main tools to help you to identify a blue ocean strategy are:

The Strategy Canvas – a way to visually identify relative performance on key value elements

The Four Action Framework – Eliminate Reduce Raise Create – a way for you to think through the way you can differentiate your product and move out of the red ocean into the blue ocean of a new product category.

As an aside, there are two ways to create a new product category:

  1. You can take an existing product category and call it something else through brute force marketing. If you say something enough times, people will start to believe it. The danger in the Internet world is that you take yourself out of the traffic stream which is searching for the solution under its popular name.
    .
  2. You can genuinely create a different product with unique value dimensions and performance levels. This is the blue ocean strategy way.

Three Characteristics Of A Good Strategy – focus, divergence and a compelling tagline.

None of these techniques are unique to Blue Ocean Strategy but they do create important focus.

Searching For A Blue Ocean Strategy Opportunity

Traditionally the way to create a successful strategy was to look at a market to find a smaller segment or niche with special needs that were being under-served.

This gives a business a chance to launch a more focused offering, designed for the niche and the approach works very well. In fact the Internet and the globalisation of business has made it much easier to build niche market positions where demand is high enough to create high profits.

The problem is that markets are divided into niches which are then sub-niched into even smaller specialities.

Blue Ocean Strategy presents a refreshing change which rejects the niching idea with the Blue Ocean Six Paths Framework to create something bigger by collecting up small niche segments into a newly constructed market.

It’s like taking several jigsaw puzzles and selecting pieces from each and putting them together to form a new picture which never existed before,  just like you can do with Photoshop.

The six pathways are:

  1. Alternative industries
    .
  2. Different strategic groups within industries
    .
  3. Chains of buyers
    .
  4. Complementary products and services
    .
  5. Functional and emotional appeal
    .
  6. Time

My intent isn’t to create a Blue Ocean Strategy but to review the book so I’m going to stop.

I’m sure you get the flavour for how Blue Ocean Strategy leads you through the value innovation process.

Criticisms Of Blue Ocean Strategy

The power of the blue ocean / red ocean metaphor has made the book very popular and it is certainly essential reading for anyone wanting to create a new product or service category the right way.

However Blue Ocean Strategy is not without criticism.

  1. The blue ocean strategy process is more descriptive than prescriptive. The authors have been accused of looking at business success through a blue ocean lens and identifying cases where the ideas fit with success. That doesn’t mean following a blue ocean strategy will lead to success.
    .
  2. The research process by W. Chan Kim and Renee Mauborgne has been criticised for its lack of control group so you can’t see how many blue ocean strategies fail.
    .
  3. Many of the ideas within Blue Ocean Strategy aren’t new but have been superbly branded through the powerful metaphor. In some ways have created a new category of strategy by giving it a new name.
    .
  4. Competition isn’t made irrelevant by blue ocean strategy. A business is still competing for share of the consumer’s wallet with a wide variety of other products. It is just differentiation by another name as it gives customers more choice of how they want to solve particular problems and issues.
    .
  5. While a business may break free to create a new market, success will mean imitators rapidly follow and the niching process begins as products for bigger groups of customers inevitably mean compromises, even when the value is preferred to what was available before.
    .
  6. Blue Ocean Strategy isn’t as customer-centric as you might think since it smacks of “building a better mousetrap syndrome”. It doesn’t go into detail about understanding the customers core problems and frustrations with existing products which create the opportunity for value innovation.
    .
  7. There’s a big question of what is a market? A customer will look across many different alternative ways to satisfy a broader need so your competitors may not be who you think they are. Read What Are You Doing On Saturday Night for a practical demonstration of this point.
    .
  8. It encourages the mad scientist approach to business like the old jokes “what do you get if you cross an octopus with a cow? An animal that can milk itself.” It can create false confidence behind a “brilliant” idea that isn’t grounded in customer realities.

Overall Thoughts On Blue Ocean Strategy by W. Chan Kim and Renee Mauborgne

I know I’ve listed a lot of criticisms and research on Google will quickly reveal plenty of people who have an intense dislike to Blue Ocean Strategy but overall I like it a lot.

It helps you to think about how you can differentiate your business and products and for that it should be encouraged.

It is very easy to read, entertaining and thought-provoking.

What Do You Think About Blue Ocean Strategy?

If you’ve read Blue Ocean Strategy by W. Chan Kim and Renee Mauborgne, I’d like to know what you think so please leave a comment.

I always find it interesting to read the rave reviews and hate reviews on Amazon.com. The success of Blue Ocean Strategyhas stirred up a lot of feeling.

5 star Amazon reviews

1 star Amazon reviews

Paul Simister is a business strategy coach who helps business owners to differentiate their businesses and develop winning strategies. Get your free copy of the ebook The Six Steps Profit Formula.

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