What is a blue ocean? Consider two playing fields:
Blue ocean strategy pushes companies to create new industries and break away from the competition.
In short, you create a blue ocean by focusing on the factors that customers really care about, while discarding factors they don’t. This creates a new product offering that doesn’t currently exist. Because it doesn’t exist, you don’t have competitors competing directly against you. Furthermore, you attract a new type of customer the industry hadn’t previously supported, thus growing the market.
Let’s make this clear with an example. In a very competitive circus industry, Cirque du Soleil was a blue ocean. It created a new theatrical show that combined the acrobatics with a premium theater experience. In so doing:
Unlock the full book summary of Blue Ocean Strategy by signing up for Shortform.
Shortform summaries help you learn 10x faster by:
Here's a preview of the rest of Shortform's Blue Ocean Strategy summary:
Much of business strategy in the past few decades has focused on competition, including Michael Porter’s five forces and SWOT analysis. In these red oceans, market structures are known, and companies try to outperform rivals to grab share of existing demand. Over time, markets become crowded, products become commodities competing on price, and profits dissipate. This trend is aggravated by technological improvements that allow incredible creation of supply that can outstrip demand, causing further price competition.
In contrast, blue ocean strategy creates new market spaces, creates new demand, and leads to profitable growth. Here, the market structure is yet to be decided, so the price competition is far less intense. In other words, a blue ocean is a new, uncontested market space where the existing competition is irrelevant.
In their analysis of strategic moves over 120 years, the authors found a consistent pattern to successful blue ocean strategies: value innovation.
The best way to understand value innovation is to consider “value” and “innovation” separately.
While this came in Appendix A in the book, this is a good time to cover three industries with repeated blue ocean creation. Each industry underwent continuous upheaval, each time spurred by a blue ocean strategy that 1) reduced factors unimportant to buyers, 2) increased factors important to buyers, 3) expanded the market.
A major reason imitative competition is so popular is that it provides a straightforward blueprint for what to do - just copy what your competitor’s doing.
In contrast, breaking new ground with creative blue ocean ideas is relatively risky. Blue Ocean Strategy introduces analytical tools to minimize risk.
The strategy canvas visualizes the current state of the industry and shows how a blue ocean strategy differs from incumbents. It plots two axes:
The goal of a blue ocean strategy is to deliver more of what customers value (thus offering a clearly better product), and less of what they don’t (thus saving costs). The strategy canvas makes this clear.
Here’s a canvas of Cirque du Soleil vs Ringling Bros and smaller regional circuses:
Notice how smaller regional circuses are simply lower-cost imitations...
Try to create a new product offering that upends the conventional thinking of your industry. Think about your target customer, then think about what factors about the offering the customer really cares about.
What factors does the industry take for granted that should be eliminated? What would your customer not miss if it were gone?
"I LOVE Shortform as these are the BEST summaries I’ve ever seen...and I’ve looked at lots of similar sites. The 1-page summary and then the longer, complete version are so useful. I read Shortform nearly every day.""
Now that we understand what blue oceans are, the rest of the book discusses how to create a blue ocean strategy and how to execute it. Chapters 3-6 are about developing and planning the strategy. Chapters 7-10 are about executing the strategy.
The first step to creating blue ocean strategy is to find new ideas and redefine markets as they’re commonly understood. The book offers 6 paths to find new blue ocean opportunities outside your immediate industry.
Don’t tunnel vision on competing in your current industry – consider alternatives that customers have for your product. What other products or services do customers use to achieve the same goal?
For instance, cinemas and restaurants have superficially different forms, but they serve the same purpose of having a night out.
Think outside your immediate market to create a blue ocean strategy.
What alternatives do customers have to your product? Why do they use them? Could you combine these features into your offering?
Now that you know how to find blue ocean opportunities, the first implementation step is to draw your strategy canvas, which we covered in Chapter 2. This simple visual clearly situates your previous and new strategy in the context of the overall industry and provides an easy-to-understand rallying cry for all levels of the company.
To review, a strategy canvas accomplishes the following:
The strategy canvas gets you to focus on big-picture strategic items, rather than getting mired in numbers, spreadsheets, and incremental improvements.
Here is a summary of how to generate and develop strategy canvases, step by step:
1. Visual awakening
How do you maximize the size of your blue ocean? Blue Ocean Strategy argues that you must reach beyond existing demand and include non-customers. Don’t just focus on competition for market share of the existing industry, a classic red ocean strategy.
Furthermore, instead of further segmenting existing customers in your market, you must build on commonalities between customer groups to find unmet pain points. Segmentation can create more value through focus, but it often constrains your market size necessarily.
The book argues there are three tiers of noncustomers:
Consider the commonalities among all three tiers of noncustomers, not differences. They likely share the same pain points that make them question participating in your industry, and this is where a blue ocean can be created.
With Shortform, you can:
Access 1000+ non-fiction book summaries.
Access 1000+ premium article summaries.
Take Notes on your
Read on the go with our iOS and Android App.
Download PDF Summaries.
So now you’ve researched and vetted possible blue ocean strategies, you’ve batched the common pain points of noncustomers, and you’re ready to figure out how to execute the strategy. This comes down to the business model - the nuts and bolts of what you will offer.
Blue Ocean Strategy proposes going in this strategic sequence:
Altogether, these form the ultimate goal - a profitable business. The first two items concern revenue and sales. The third considers cost, which affects profit margin. The last considers barriers to execution.
In short, value innovation increases demand of a good; price is set to maximize the mass of buyers in the expanded market; and lowers cost to maximize profit.
These are serial steps – you move to the next step only after it’s clear the current step is a success. If you can’t offer something of buyer utility,...
Now that you have a strategy, it’s time to execute it. The final part of this book (Chapters 7-10) cover the common hurdles of executing your blue ocean idea, particularly in terms of breaking status quo bias and securing worker relations.
Organizations undergoing a strategic shift face four hurdles:
The conventional wisdom on changing an organization is to deploy strength proportional to the size of the change needed. To get a big change, mobilize massive effort.
The book suggests a more targeted method, to focus your limited resources on the areas of greatest disproportionate leverage. To illustrate this, the book uses the example of Bill Bratton, NYPD police chief who transformed New York City from a cesspool of crime to widespread safety within a few years.
Stakeholders often aren’t convinced of the gravity of the problem and the need for a strategic change.
To convince them, don’t rely on numbers and data. Instead, make people see the reality firsthand. Make them touch, see, and feel the problem so they can come to...
The point of this chapter is that you shouldn’t develop and implement the blue ocean strategy in a silo, ignoring people on your team.
If your blue ocean strategy upends the status quo, your team will be scared – for their jobs, their position in the organization. The further removed a person is from the strategic planning process, the more scared they will be. The more scared the team is, the more likely they are to distrust, refuse to cooperate, and even sabotage.
Because your team mobilizes your strategy, you need to communicate clearly. The further removed they are from strategic decision making, the more they need to be communicated to.
Consider the importance of procedural justice – people care as much about the fairness of the process as they do about the ultimate outcome. If people feel listened to and respected, they’ll more likely support a decision, even if they disagree...
As we’ve covered before, a successful blue ocean strategy requires three pillars: 1) clear customer value, 2) profitability through strategic pricing and cost reduction, and 3) alignment with stakeholders like employees and external partners.
Knocking out one of these pillars jeopardizes the long-term sustainability of the strategy. Failing the customer value piece is the most obvious failure (if you build something no one wants). But the importance of the people proposition is less obvious, particularly for top-down managers, as employees and partners can sabotage the project without buy-in.
The book two warning examples:
The Tata Nano was a 4-wheeled car costing $2,000 meant to replace more dangerous 2-wheeled motorcycles in India. With major cost savings inherent in the car design (like no power steering and one windscreen wiper instead of two) and broad popular support pre-launch, it seemed like a clear blue ocean win.
However, it failed sales expectations. The book cites a people problem as a major contributor, when the community surrounding Tata’s manufacturing plant rebelled against Tata. This lowered popular impression of the company and...
When you create a blue ocean, inevitably imitators will arrive, turning it into a red ocean. This raises two challenges:
To prolong sustainability of your blue ocean, 1) broaden your defensive moat to ward off competitors, and 2) renew the blue ocean with constant innovation.
A strong blue ocean strategy is difficult for other companies to imitate and execute well. The following behaviors are amplified by blue ocean strategies that deviate from the status quo:
Blue Ocean Strategy ends with ten cognitive traps that can deter you from creating blue oceans or that jeopardize your execution. These will be phrased as myths that are then debunked:
Myth: Blue ocean strategy is a customer-led strategy focusing on existing customers.
Myth: To create blue oceans, you must leave your core business.
Myth: Blue ocean strategy requires new technologies.