Blue Ocean Strategy by W. Chan Kim and Renée Mauborgne
I re-read this book for a 3rd. Time August 2022. I recommend this book 9/10.
The 6 strategic pathways in this book will elevate your strategic thinking. You learn how to draw a map of your business vs. your competitor and give you a vision of moving from your competitive landscape to define your next undisputed territory.
Get your copy here.
My notes and thoughts:
In red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Here, 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. Products become commodities, and cut-throat competition turns the red ocean bloody. Blue oceans, in contrast, are defined by untapped market space, demand creation, and the opportunity for highly profitable growth. Although some blue oceans are created well beyond existing industry boundaries, most are created from within red oceans by expanding existing industry boundaries. In blue oceans, competition is irrelevant because the rules of fame are waiting to be set.
Value innovation is the cornerstone of blue ocean strategy. We call it value innovation because instead of focusing on beating the competition, you focus on making the competition irrelevant by creating a leap in value for buyers and your company, thereby opening up new and uncontested market space.
Four action framework:
Reduce: Which factors should be reduced well below the industry's standards?
Create: Which factors should be created that the industry has never offered?
Raise: Which factors should be raised well above the industry's standards?
Eliminate: Which factors that the industry takes for granted should be eliminated?
P38. Yellow tail
P39. Cirque du Soleil
The first principle of blue ocean strategy is to reconstruct market boundaries to break the competition and create blue oceans. This principle addresses the search risk many companies struggle with. The challenge is to successfully identify, out of the haystack of possibilities that exist, commercially compelling blue ocean opportunities. This challenge is key because managers cannot afford to be riverboat gamblers betting their strategy on intuition or a random drawing.
Path 1: Look across alternative industries:
For some reason, we often abandon this intuitive thinking when we become sellers. Rarely do sellers think consciously about how their customers make trade-offs across alternative industries. A shift in price, a change in model, or even a new ad campaign can elicit a tremendous response from rivals within an industry, but the same actions in an alternative industry usually go unnoticed. Trade journals, trade shows, and customer rating reports reinforce the vertical walls between one industry and another. Often, however, the space between alternative industries provides opportunities for value innovation.
Path 2: Look across strategic groups within industries:
The key to creating blue ocean across existing strategic groups is to break out of this narrow tunnel vision by understanding which factors determine customers' decisions to trade up or down from one group to another.
What are the strategic groups in your industry? Why do customers trade up for the higher group, and why do they trade down for the lower one?
Path 3: Look across the chain of buyers:
What is the chain of buyers in your industry? Which buyer group does your industry typically focus on? If you shifted the buyer group of your industry, how could you unlock new value?
Path 4: Look across complementary product and service offerings:
Few products and services are used in a vacuum. In most cases, other products and services affect their value. But in most industries, rivals converge within the bounds of their industry's product and service offerings. Take movie theaters. The ease and cost of getting a babysitter and parking the car affect the perceived value of going to the movies. Yet these complementary services are beyond the bounds of the movie theater industry as it has been traditionally defined.
What is the context in which your product or services is used? What happens before, during, and after? Can you identify the pain points? How can you eliminate these pain points through a complementary product or service offering?
Path 5: Look across functional or emotional appeal to buyers:
Competition in an industry tends to converge not only on an accepted notion of the scope of its products and services but also on one of two possible bases of appeal. Some industries compete principally on price and function largely on calculations of utility; their appeal is rational. Other industries compete largely on feelings; their appeal is emotional.
When companies are willing to challenge the functional-emotional orientation of their industry, they often find new market space. We have observed two common patterns. Emotionally oriented industries offer many extras that add price without enhancing functionality. Stripping away those extras may create a fundamentally simpler, lower-priced, lower-cost business model that customers would welcome. Conversely, functionally oriented industries can often infuse commodity products with new life by adding a dose of emotion and, in so doing, can stimulate new demand.
Does your industry compete on functionality or emotional appeal? If you compete on emotional appeal, what elements can you strip out to make it functional? If you compete in functionality, what elements can be added to make it emotional?
Path 6: Look across time:
All industries are subject to external trends that affect their businesses over time. Think of the rapid rise of the cloud or the global movement toward protecting the environment. Looking at these trends with the right perspective can show you how to create blue ocean opportunities.
What trends have a high probability of impacting your industry, are irreversible, and are evolving in a clear trajectory? How will these trends impact your industry? Given this, how can you open up unprecedented customer utility?
The process of discovering and creating blue oceans is not about predicting or preempting industry trends. Nor is it a trial-and-error process of implementing wild new business ideas that happen to come across managers' minds or intuition. Rather, managers are engaged in a structured process of reordering market realities in a fundamentally new way.
Think of a typical strategic plan. It starts with a lengthy description of current industry conditions and the competitive situation. Next is the discussion of how to increase market share, capture new segments, or cut costs, followed by an outline of numerous goals and initiatives. A full budget is almost invariably attached, as are lavish graphs and a surfeit of spreadsheets. The process usually culminates in the preparation of a large document culled from a mishmash of data provided by people from various parts of the organization who often have conflicting agendas and poor communication. In this process, managers spend the majority of strategic thinking time filling in boxes and running numbers instead of thinking outside the box and developing a clear picture of how to break from the competition.
The strategic profile with high blue ocean potential has three complementary qualities: focus, divergence, and a compelling tagline. If a company's strategic profile does not clearly reveal those qualities, its strategy will likely be muddled, undifferentiated, and hard to communicate. It is also likely to be costly to execute.
The four steps of visualizing strategy:
Compare your business with your competitors' by drawing your "as is" strategy canvas.
See where your strategy needs to change.
Go into the field to explore the six paths to creating blue oceans.
Observe the distinctive advantages of alternative products and services.
See which factors you should eliminate, create, or change.
Visual strategy fair:
Draw your "to be" strategy canvas based on insights from field observations.
Get feedback on alternative strategy canvases from customers, competitor's customers, and non-customers.
Use the feedback to build the best "to be" future strategy.
Distribute your before-and-after strategic profiles on one page for easy comparison.
Support only those projects and operational moves that allow your company to close the gaps to actualize the new strategy.
Obviously, the first port of call should be the customers. But you should not stop there. You should also go after non-customers. And when the customer is not the same as the user, you need to extend your observations to the users, as Bloomberg did. You should not only talk to these people but also watch them in action. Identifying the array of complementary products and services that are consumed alongside your own may give you insight into bundling opportunities. Finally, you need to look at how customers might find alternative ways of fulfilling the need that your product or services satisfy. For example, driving is an alternative to flying, so you should also examine its distinct advantages and characteristics.
Each team had to draw six new value curves using the six-path framework explained in chapter 3. Each new value curve had to depict a strategy that would make the company stand out in its market. (Value curve P.55)
To maximize the size of their blue oceans, companies need to take a reverse course. Instead of concentrating on customers, they need to look at non-customers. And instead of focusing on customer differences, they need to build on powerful commonalities in what buyers value. That allows companies to reach beyond existing demand to unlock the new mass of customers that did not exist before.
Where are the greatest blocks to utility across the buyer experience cycle for your customers and non-customers? Does your offering effectively eliminate these blocks? If it does not, chances are your offering is innovation for innovation's sake or a revision of existing offerings. When a company's offering passes this test, the company is ready to move to the next step.
The key is not to pursue pricing against the competition within an industry but rather to pursue pricing against substitutes and alternatives across industries and non-industries. Had Ford, for example, priced its Model T against other autos, which were more than three times the price of horse-drawn carriages, the market for the Model T would not have exploded.
Blue ocean idea index:
Utility—Is there exceptional utility? Are there compelling reasons to buy your offering?
Price—Is your price easily accessible to the target mass of buyers?
Cost—Does your cost structure meet the target cost?
Adoption—Have you addressed adoption hurdles up front?
There are four organizational hurdles to strategy execution:
Cognitive hurdle—An organization weeded to the status quo.
Resources hurdle—Limited resources.
Motivational hurdle—Unmotivated staff.
Political hurdle—opposition from powerful vested interests.
The key questions answered by tipping point leaders are as follows: What factors or acts exercise a disproportionately positive influence on breaking the status quo? On getting the maximum bang out of each buck of resources? On motivating key players to aggressively move forward with change? And on knocking down political roadblocks that often trip up even the best strategies? By single-mindedly focusing on points of disproportionate influence, tipping point leaders can topple the four hurdles that limit the execution of blue ocean strategy. They can do this fast and at a low cost.
Tipping point leaders build on this insight to inspire a fast change in mindset that is internally driven by people's own accord. Instead of relying on numbers to tip the cognitive hurdle, they make people experience the need for change in two ways.
To tip the cognitive hurdle, not only must you get your managers out of the office to see operational horror, but you also must get them to listen to their most disgruntled customers firsthand. Don't rely on market surveys. To what extent does your top team actively observe the market firsthand and meet with your most disgruntled customers to hear their concerns?
When you want to wake up your organization to the need for a strategic shift and a break from the status quo, do you make your cases with numbers? Or do you get your managers, employees, and superiors (and yourself) face-to-face with your worst operational problems? Do you get your managers to meet the market and listen to disenchanted customers holler? Or do you outsource your eyes and send out market research questionnaires?
Do you indiscriminately try to motivate the masses? Or do you focus on key influencers, your kingpins? Do you put the spotlight on and manage kingpins in a fishbowl based on a fair process? Or do you just demand high performance and cross your fingers until the next quarter's numbers come out? Do you issue grand strategic visions? Or do you atomize the issue to make it actionable to all levels?
Do you have a consigliere—a highly respected insider—in your top management team, or only a CFO and other functional heads? Do you know who will fight you and who will align with the new strategy? Have you built coalitions with natural allies to encircle dissidents? Do you have your consigliere remove the biggest land mines so that you don't have to focus on changing those who cannot and will not change?
Anticipate pushback from people, think about their concerns, and have answers ready.
You must create a culture of trust and commitment that motivates people to execute the agreed strategy—not to the letter, but the spirit.
There are three mutually reinforcing elements that define a fair process: engagement, explanation, and clarity of expectation. Whether people are senior executives or shop floor employees, they all look to these elements.
For any strategy to be successful and sustainable, an organization must develop an offering that attracts buyers; it must create a business model that enables the company to make money out of its offering, and it must motivate the people working for it with the company to execute the strategy.
To produce a high-performing and sustainable blue ocean strategy, you need to ask the following questions. Are your three strategy propositions (value, profit, people) aligned in pursuit of differentiation and low cost? Have you identified all the key stakeholders, including external ones, on which the effective execution of your blue ocean strategy will depend? Have you developed compelling people propositions for each of these to ensure they are motivated and behind the execution of your new idea?