Blue Ocean Strategy

1. Create uncontested market space by redefining industry boundaries

Blue oceans denote all the industries not in existence today. This is the unknown market space.

Redefine competition. Instead of competing in existing market space (red oceans), companies can create new market space (blue oceans) where competition is irrelevant. This involves looking across alternative industries, strategic groups, buyer groups, complementary products/services, functional-emotional orientation, and even time to reconstruct market boundaries.

Challenge industry assumptions. Blue ocean strategy requires breaking free from accepted industry norms and competitive benchmarking. By questioning fundamental assumptions about how an industry operates, companies can discover innovative ways to create value for customers.

Examples of blue ocean creation:

• Cirque du Soleil reinvented circus by combining elements of theater and circus
• [yellow tail] wines created a new market by simplifying wine for casual drinkers
• Nintendo Wii redefined gaming by focusing on simple, intuitive motion controls

2. Focus on the big picture, not the numbers, to develop strategy

The strategic profile with high blue ocean potential has three complementary qualities: focus, divergence, and a compelling tagline.

Visualize strategy. Use the strategy canvas tool to capture the current state of play in the known market space and visualize potential new strategies. This provides a graphic depiction of a company's relative performance across key competing factors in its industry.

Pursue differentiation and low cost. Blue ocean strategy seeks to break the value-cost trade-off by pursuing both differentiation and low cost simultaneously. This is achieved by eliminating and reducing factors an industry competes on, while raising and creating factors the industry has never offered.

Four actions framework:

• Eliminate: Which factors 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?

3. Reach beyond existing demand to unlock new markets

To maximize the size of their blue oceans, companies need to take a reverse course. Instead of concentrating on customers, they need to look to noncustomers.

Look beyond current customers. Rather than focusing on existing customers and finer segmentation, companies should look to noncustomers to unlock new demand. This involves understanding why non-customers don't buy from the industry and addressing their needs.

Focus on commonalities. Instead of focusing on customer differences and customization, build on powerful commonalities in what buyers value. This allows companies to reach beyond existing demand to attract new masses of customers.

Three tiers of noncustomers:

1. "Soon-to-be" noncustomers who are on the edge of the market
2. "Refusing" noncustomers who consciously choose against the market
3. "Unexplored" noncustomers in distant markets

4. Get the strategic sequence right for sustainable business models

A company is not only top management, nor is it only middle management. A company is everyone from the top to the front lines.

Follow the right sequence. To create a viable blue ocean strategy, follow this sequence: 1) Exceptional utility for buyers, 2) Strategic pricing to ensure mass appeal, 3) Target costing to ensure healthy profit margins, 4) Addressing adoption hurdles.

Ensure profitability. A blue ocean strategy must deliver value to buyers, the company, and its partners. Use target costing to ensure profitability, and consider new pricing models if necessary to hit the strategic price point.

Key questions for each step:

1. Utility: Is there exceptional buyer utility?
2. Price: Is it easily accessible to the mass of buyers?
3. Cost: Can you attain your cost target to profit at your strategic price?
4. Adoption: Have you addressed adoption hurdles upfront?

5. Overcome organizational hurdles to execute blue ocean strategy

Tipping point leadership allows you to overcome these four hurdles fast and at low cost while winning employees' backing in executing a break from the status quo.

Identify key hurdles. Executing blue ocean strategy requires overcoming four key organizational hurdles: cognitive, resource, motivational, and political. Use tipping point leadership to overcome these hurdles quickly and at low cost.

Focus on disproportionate influence. Instead of trying to mount a massive challenge, focus on identifying and leveraging factors of disproportionate influence in an organization. This allows for rapid, low-cost implementation of new strategies.

Tipping point leadership tactics:

• Break through the cognitive hurdle by highlighting the need for change
• Jump the resource hurdle by concentrating resources on key areas
• Jump the motivational hurdle by focusing on key influencers
• Knock over the political hurdle by silencing internal opponents and leveraging allies

6. Build execution into strategy through fair process

To build people's trust and commitment deep in the ranks and inspire their voluntary cooperation, companies need to build execution into strategy from the start.

Emphasize fair process. To build trust, commitment, and voluntary cooperation in executing strategy, companies must practice fair process. This involves engaging people in strategic decisions, explaining the rationale behind decisions, and setting clear expectations.

Align hearts and minds. Fair process helps align people's hearts and minds with the new strategy, encouraging them to go beyond compulsory execution to voluntary cooperation. This is crucial for successful implementation of blue ocean strategies.

Three E principles of fair process:

1. Engagement: Involving individuals in decisions that affect them
2. Explanation: Ensuring everyone understands the rationale for decisions
3. Expectation clarity: Clearly communicating new rules and expectations

7. Sustain and renew blue ocean strategy to maintain growth

Eventually, however, almost every blue ocean strategy will be imitated. As imitators try to grab a share of your blue ocean, you typically launch offenses to defend your hard-earned customer base.

Monitor value curves. Continuously monitor your value curve on the strategy canvas to identify when it's time to create a new blue ocean. When your value curve converges with competitors', it's time to value-innovate again.

Build barriers to imitation. Blue ocean strategies often come with natural barriers to imitation, such as brand image, patents, or network effects. Leverage these barriers to sustain your blue ocean for as long as possible.

Sustaining blue oceans:

• Dominate the blue ocean by continually improving and expanding your offering
• Make yourself a moving target for imitators
• Create multiple blue oceans from your initial success
• Innovate again when competitors begin to catch up

Last updated: July 23, 2024