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Blue Ocean Strategy by W. Chan Kim and Renée A. Mauborgne.
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1-Page Summary 1-Page Book Summary of Blue Ocean Strategy

What is a blue ocean? Consider two playing fields:

  • Red oceans, where competition is fierce in bloody waters, strategy centers around beating rivals, and wins are often zero-sum.
  • Blue oceans, where a market space is new and uncontested, and strategy centers around value innovation.

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.

Cirque du Soleil: An Illustrative Example

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:

  • Cirque du Soleil decreased significant costs common to the industry for things that their customers didn’t care about.
    • They removed animal acts and their associated care, training, transportation, and housing.
    • Instead of three rings, their shows feature one stage, reducing the number of performers needed.
    • Instead of featuring star clowns and lion tamers, they anonymize the performers, thus preventing performers from gaining leverage and starting a bidding war with competitors.
  • Cirque du Soleil increased value to the buyer with an innovative show and increased demand.
    • Production value increased with music, lighting, storylines, and artistry. This increased sophistication to match prestigious Broadway shows, allowing high pricing of tickets to theater levels, well above the mass-market circus pricing.
    • The performance theater was upgraded with more comfortable seats, avoiding circus hard benches and sawdust floors.
    • Traditional circuses were by and large the same, whereas Cirque du Soleil could create multiple unique productions around different acts and music. This increased demand so a viewer could happily see multiple shows.

All blue...

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Blue Ocean Strategy Summary Chapter 1: What are Blue Oceans?

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.

Blue Ocean Strategy Pursues Value Innovation

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.

  • Value creation without innovation tends to...

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Blue Ocean Strategy Summary Three Examples of Blue Oceans

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.

Automobile Industry

  • In the 1890s, the horse and buggy was the primary mode of transportation.
  • In 1893, the Duryea brothers created the first automobile. Despite being unreliable, they cost $1,500, twice the average annual income. They thus became a publicly maligned symbol of excess.
  • In 1908, 500 American automakers existed making custom automobiles. Henry Ford created the Model T, the first standardized, mass-produced automobile.
    • Standardization reduced costs by employing unskilled laborers instead of car artisans. Limiting car options reduced the number of unique parts needed.
    • It cost $850, half the price of existing cars. By 1924 the price was down to $290.
    • By 1923, the majority of American households owned an automobile.
    • Market share increased from 9% in 1908 to 61% in 1921
  • Now that cars were...

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Blue Ocean Strategy Summary Chapter 2: Frameworks for Blue Oceans

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

The strategy canvas visualizes the current state of the industry and shows how a blue ocean strategy differs from incumbents. It plots two axes:

  • On the horizontal axis: List the factors the customer cares about, and current dimensions of competition.
  • On the vertical axis: Segment buyers into distinct groups. For each group, plot a value curve showing how much buyers receive in each of the factors.

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:

alt_text

Notice how smaller regional circuses are simply lower-cost imitations...

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Shortform Exercise: Define Your Blue Ocean

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?

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Blue Ocean Strategy Summary Chapter 3: Redefine the Market

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.

Path 1: Look at Your Customer’s Alternatives

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.

Examples

  • In travel, businesses tend to either own their own jet (less travel time but expensive and sitting idle much of the time) or book business-class commercial flights (more travel time but cheaper).
    • NetJets sells fractions of jets (as small as 1/16th ownership at $400,000), trying to get the best of both alternatives. It...

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Shortform Exercise: Brainstorm New Offering Ideas

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?

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Blue Ocean Strategy Summary Chapter 4: Explore Your Strategy Visually

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:

  • It identifies the important factors of competition in the industry
  • It shows the strategic profile of current competitors, including your company
  • It shows how a new blue ocean strategy creates a unique value curve, focusing on values critical to customers at the expense of less-important factors

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

  • Goal: Agree on the current state of the industry and how your company fits in. Overcome denial about your company’s current position.
  • Draw the strategy canvas of your industry and your current strategy
    • Consider...

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Blue Ocean Strategy Summary Chapter 5: Expand Your Market to Non-Customers

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:

  • First tier: Soon-to-be noncustomers are begrudging customers in your market, waiting to jump to better alternatives.
  • Second tier: Refusing noncustomers have considered your industry’s options but have decided not to consume them.
  • Third tier: Unexplored noncustomers have never thought of your industry’s products as an option.

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.

Examples:

  • In the time of...

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Blue Ocean Strategy Summary Chapter 6: Develop a Sound Business Model

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:

  • Buyer utility – Is there exceptional utility in your idea?
  • Price – Is your price accessible to the target mass of buyers?
  • Cost – Can you attain your cost target to profit at your price?
  • Adoption – What adoption hurdles impede your idea? Consider whether customers, partners, and employees will resist your idea.

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,...

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Blue Ocean Strategy Summary Chapter 7: Get Your Organization On Board

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:

  • Cognitive – recognizing the need for change
  • Limited resources
  • Motivation – inspiring real action
  • Politics

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.

Cognitive Hurdle

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...

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Blue Ocean Strategy Summary Chapter 8: Engage Your Team in the New Strategy

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...

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Blue Ocean Strategy Summary Chapter 9: Align Your Partners

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:

Failure #1: Tato Nano

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...

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Blue Ocean Strategy Summary Chapter 10: Keep Discovering Blue Oceans

When you create a blue ocean, inevitably imitators will arrive, turning it into a red ocean. This raises two challenges:

  1. How do you prolong the sustainability of your blue ocean to maximize profits?
  2. How do you perpetuate your organization as your former blue oceans turn red?

Maximizing a Blue Ocean Business

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.

Defensive Barriers

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:

  • Cognitive barrier: By deviating from typical value curves, a blue ocean strategy doesn’t make sense. Strategies are often ridiculed as something people surely wouldn’t want.
  • Organization barrier: Once a blue ocean strategy gets traction, incumbents start paying attention, but their organizational structure is woefully equipped to execute the new value curve. Even worse, replicating the blue ocean would jeopardize their core business, causing political strife. This can delay a...

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Blue Ocean Strategy Summary Chapter 11: Red Ocean Mistakes

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:

  1. Myth: Blue ocean strategy is a customer-led strategy focusing on existing customers.

    • Reality: Blue oceans are about exploring noncustomers and creating new demand. Focusing on how to make your existing customers happier leads to red ocean thinking.
    • Still, though, you need to figure out your potential customers’ pain points and why they refuse to participate in an industry.
  2. Myth: To create blue oceans, you must leave your core business.

    • Reality: It doesn’t have to be this risky or scary. Use your core competencies to discover new blue oceans, where you have a natural advantage. Redefine your industry’s boundaries instead of leaping to a new industry where you have no expertise.
    • Casella wines created [yellow tail], Chrysler created the minivan, Apple created the iMac. All leveraged existing capabilities in new product areas.
  3. Myth: Blue ocean strategy requires new technologies.

    • Reality: Customers don’t care about new technology...

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Table of Contents

  • 1-Page Summary
  • Chapter 1: What are Blue Oceans?
  • Three Examples of Blue Oceans
  • Chapter 2: Frameworks for Blue Oceans
  • Exercise: Define Your Blue Ocean
  • Chapter 3: Redefine the Market
  • Exercise: Brainstorm New Offering Ideas
  • Chapter 4: Explore Your Strategy Visually
  • Chapter 5: Expand Your Market to Non-Customers
  • Chapter 6: Develop a Sound Business Model
  • Chapter 7: Get Your Organization On Board
  • Chapter 8: Engage Your Team in the New Strategy
  • Chapter 9: Align Your Partners
  • Chapter 10: Keep Discovering Blue Oceans
  • Chapter 11: Red Ocean Mistakes