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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 ocean strategies do something similar. They define a new value curve that creates more customer value at lower cost.

Blue ocean strategies can be depicted on a strategy canvas, which shows how your offering and competing offerings stack up along a range of factors. The more your offering differs from the competition’s the more likely your blue ocean strategy will truly be a new offering.

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Blue ocean strategies do not:

  • Try to maximize all factors and try to be the best at everything. Blue oceans focus on the critical value factors and eliminate unnecessary factors.
  • Simply reduce price. This is competition in pricing, and it’s a race to the bottom.

Discovering Your Blue Ocean 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 several strategies.

Redefine the market:

  • Consider alternatives that customers have for your product. What other products or services do customers use to achieve the same goal? Can you combine those attributes into a new offering?
  • Consider why customers trade up and down in quality. Concentrate on delivering the critical factors while eliminating needless ones.
  • Consider complements: what happens before, during, and after your product is used. Offering complements to your product may add additional value through bundling.
  • Consider making an emotional industry more functional by stripping away unnecessary extras, or by making a functional industry more emotional.

Consider the buyer experience:

  • Can you improve meaningfully on any step of the buyer cycle, from Purchase to Delivery to Use to Supplements to Maintenance to Disposal?
  • Can you improve on any dimension of the buyer experience, such as Customer Productivity, Simplicity, Convenience, Risk, Image, and Environmental Friendliness?

Use these as inspiration to develop multiple strategic canvases around different product offerings. Then test these with customers and your organization to figure out which ideas are leaders.

Executing Your Blue Ocean Strategy

Now that you have a strategy, it’s time to execute it.

Organizations undergoing a...

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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 mean incremental improvements. For instance, decreasing costs and prices by 2% can create a lot of value – but it doesn’t lead to a new market space and differentiation.
  • Likewise, innovation without value tends to obsess over new technologies and market pioneering that shoot beyond what buyers are ready to pay for (example: Webvan in the 1990’s tech bubble).

In contrast, value innovation simultaneously improves its cost structure and its value to buyers. A blue ocean strategy reduces costs by reducing features or services that are competed over, but are not important to buyers. It then raises buyer value by creating new features or services the buyer wants.

We’ll cover more of what this looks like in a number of examples, as well as frameworks for visualizing this.

Properties of Blue Oceans

Blue oceans are being continuously created. A century ago, these industries...

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 mass-market, Ford’s cars were getting boring. In 1924, General Motors introduced variety – “a car for every purse and purpose.”
    • A range of options created new demand as buyers went up or down-market relative to the Model T.
    • With frequent updates to cars, they were replaced more frequently, driving up demand.
    • From 1926 to 1950, GM increased market share from 20% to 50%, while Ford’s fell from 50% to 20%.
    • But Ford and Chrysler followed this strategy, and they began a red ocean period of competition and imitation. The Big 3 owned 90% of the US market.
  • In the 1970s, Japanese manufacturers created a blue ocean of small, efficient, high-quality cars. US automakers, who had fallen complacent and focused on luxury, were caught by surprise.
  • In 1984, Chrysler unveiled the minivan, a cross between a car and a van. It became Chrysler’s bestselling car.
  • In the...

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 of the big names. Smaller circuses compete largely on the same dimensions, but executes less well and commands a lower price.

Now look at where Cirque du Soleil differs drastically, and where it offers similar value.

  • It cut down on costly expenses that didn’t provide customer value – star performers and animal shows.
  • Cirque du Soleil’s shows featured similar acrobatic wonderment and thrill as circuses.
  • It introduced entirely new elements like high production value and artistry, which were important to their customers but completely absent from normal circuses.

This strategy canvas clearly shows how Cirque du Soleil offered superior customer value while lowering certain costs.

When you plot your strategy canvas, there are two warning signs of bad strategies:

  • When your value curve closely resembles those of competitors. This suggests you’ll be competing...

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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?

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 eliminates the hassle of commercial airlines while avoiding the overhead of total jet ownership, while also offering the convenience of regional airports, direct flights, and customized in-flight service.
  • In the 1990s, telecom in Japan consisted of cell phones (not yet connected to the internet) and the internet accessible through desktop computers.
    • NTT DoCoMo decided to bring the killer apps of the internet (email, news, entertainment) to cell phones through i-mode, eliminating the complexity of accessing the broad internet for the less powerful mobile phones. The i-mode phone was 25% more expensive than a regular cell phone but much cheaper than a PC or laptop. This phone served as the gateway to the internet for a generation of Japanese users and was the first smartphone to be mass-adopted by a country.
  • Southwest looked to driving as their model for transportation...

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?

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 creating separate teams to highlight different opinions on competition factors
  • See where your strategy needs to change
    • Notice where your org has lost focus, is spread thin, or resembles the exact strategy of competitors
    • Notice where a competitor may have a clearly differentiated strategy

2. Visual exploration

  • Goal: See customer problems in person for inspiration on new offerings.
  • Go directly to customers, non-customers, lost customers, and competitors’ customers to evaluate the 6 paths to creating blue oceans (from chapter 3)
    • Talk to people. Watch them in action.
    • Find which factors they care a lot about. Find which factors they couldn’t care less about. At least a few of your assumptions are probably wrong.
  • Try alternatives to your product to find new factors your product doesn’t have
  • Draw a range of new strategy canvases
    • ...

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 Callaway Golf’s rise, the US golf industry generally focused on competing for share of existing golfers. In contrast, Callaway asked why otherwise athletic and wealthy people did not pick up golf. It found that hitting a golf ball was simply too difficult and the learning curve was steep.
    • Callaway introduced the Big Bertha clubs, with larger heads and sweet spots that made mistakes far less punishing.
    • Not only did this attract non-customers into the sport by lowering the skill barrier, it also converted current golfers, who had begrudgingly accepted the difficulty of golf and blamed themselves for hitting poorly (these could be seen as “soon-to-be” noncustomers.
  • When Pret a Manger opened in 1986, professionals in Europe ate at restaurants for lunch. But sitting down in restaurants took time, seemed unhealthy, and were expensive. Despite large differences in food...

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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, there’s little point in figuring out how much it costs to produce.

Furthermore, no downstream step should strongly influence an upstream step. For instance, shouldn’t allow high costs to change your offering and buyer utility, because this will warp your strategy. If you hit a cost roadblock, you must drop the idea because the original blue ocean idea won’t be profitable, or you must iterate on your model to lower costs.

We’ll cover each strategic step in more detail.

Buyer Utility

Does your business idea really add superior customer value?

A classic strategic blunder is to conflate innovation with superior customer value. “Because it’s a novel technology or approach, it must automatically improve customer’s lives!”

Generally, customers don’t really care about the technology underlying the product – they care about whether the product solves their problems. If your...

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 their own conclusions about the need for change

  • Bratton forced top brass to ride the subway everyday to see the graffiti, gangs, and aggressive beggars firsthand.
  • In a previous role, he opposed a decision to purchase smaller, more efficient squad cars. Bratton invited his general manager for a tour of his squad, picking him up in one of the smaller cars. After two hours of driving, with little legroom up front and Bratton struggling with his police gear, the manager conceded. Larger cars were ordered.

Meet dissatisfied customers directly. Don’t rely solely on market surveys or metrics.

  • Bratton’s metrics looked good – response times down, arrests up. But residents were still dissatisfied, and Bratton forced chiefs to meet with customers (citizens). The police learned citizens felt harassed by minor offenses like graffiti and drunkards. This prompted an overhaul of...

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 with it.

There are three elements of fair process:

  1. Engagement
    • Involve people by asking for their input and allowing them to discuss each other’s ideas.
    • When people feel respected intellectually, they’re more likely to share their knowledge.
  2. Explanation
    • Understand why decisions are made as they are. Make clear that you have considered people’s opinions and decided for the overall interest of the company.
    • If people’s roles are safe, communicate this clearly. If layoffs have to happen, state this early and clarify the impact to control the messaging.
  3. Clear expectations
    • Make clear how employees will be evaluated. Specify what successful goals are, and what constitutes failure. With this knowledge, workers can focus on execution rather than angst.

Now consider the inverse of fair process, where decisions are made behind closed doors...

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 dampened demand.

(Shortform note: While the book doesn’t cover this, it also seems the Nano failed in delivering core customer value. The price, despite being the cheapest production car in the world, was still out of reach of its target motorscooter market. Thus, it didn’t represent clear value over a fully-featured used car, which would cost the same but carry more cachet and have more features.

Furthermore, The marketing as a cheap car backfired when the Nano was seen as a “poor man’s car,” violating the aspirational preferences of Indian buyers. The massive pre-launch hype also caused overcommitment to manufacturing, rather than a leaner and iterative approach.)

Failure #2: Napster

Napster was a peer-to-peer media downloading platform as the Internet became mainstream. It had a clear first-mover advantage with over...

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 reaction for years.
    • Southwest Airlines innovated through a standardized aircraft fleet, flying direct paths, to secondary airports. Incumbent airlines had so much investment in a varied fleet, hub model, and primary airports that executing Southwest’s strategy would have required an overhaul of their logistics and marketing.
  • Image barrier: A blue ocean strategy often diverges in brand image, which can prevent incumbents from replicating the marketing – for instance, luxury players can’t suddenly appear to be down-market; fashionable brands can’t become utilitarian.
  • Momentum barrier: If the strategic price is set at a level that attracts a mass group of buyers, the blue ocean entrant can rapidly develop a large, loyal customer base that is difficult for incumbents to recruit.
    • Microsoft Money was never able to depose Intuit’s Quicken.
  • **Market size...

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 as much as they do about new value to their lives – in terms of productivity, simplicity, ease of use, convenience, and fun. Don’t obsess over new technology for its own sake, or worry that your strategy can’t survive without brand new tech.
    • Starbucks, Comic Relief, and advertising company JCDecaux didn’t use new technology per se – they created a new method of solving a problem.
    • And new technologies like the Segway, Philips CD-I, and the Motorola Iridium satellite phone were all technological innovations, but failed to create substantial customer value.
  4. Myth: You must be first to market to have a successful blue ocean strategy.

    • Reality: It’s more important to be the first company that makes a huge leap in customer value. Speed alone won’t create a blue ocean, and many first-to-market companies have failed.
    • Apple’s iMac wasn’t the first PC, and...