F1 Learning Resources Blue Ocean Strategy
From GTwM
Blue Ocean Strategy (Boston: Harvard Business School Press 2005),is a corporate strategy and bestselling business book written by Professors W. Chan Kim and Renée Mauborgne, of INSEAD. The book offers examples of how successful businesses captured uncontested market space, and thereby made competition irrelevant. This was formerly described as "Value Innovation," in 5 articles for the Harvard Business Review by Kim & Maubourgne before they released the book in 2005. Blue Ocean Strategy is the result of a decade-long study of 150 strategic moves spanning more than 30 industries over 100 years (1880-2000).
Contents |
Concept
The "ocean" refers to the market or industry. "Blue oceans" are untapped and uncontested markets, which provide little or no competition for anyone who would dive in, since the markets are not crowded. A "red ocean", on the other hand, refers to a mature / saturated market where there is fierce competition, already crowded with people (companies) providing the same type of services or producing the same kind of goods.
Their idea is to do something different from everyone else, producing something that no one has yet seen, thereby creating a "blue ocean". An essential concept is that the innovation (in product, service, or delivery) must raise and create value for the market, while simultaneously reducing or eliminating features or services that are less valued by the current or future market. The authors critique Michael Porter's idea that successful business are either low-cost providers or niche-players. Instead, they propose finding value that crosses conventional market segmentation and offering value and lower cost.
Examples
Some examples of companies that may have created new market spaces in the opinion of Kim and Mauborgne include Cirque du Soleil (unique circus format, combining Theatre & best elements of Trad Circus / removing Animals & "Star" performers) and Home Depot (offering the prices and range of lumberyard, while offering consumers classes to help them with DIY projects). A current example of this strategy is the success of the Nintendo Wii, which Nintendo designed to target audiences not traditionally known to play videogames. GTwM's first stab at one is stored in our resource library.
Creating a compelling value innovation
Analysis
Value Innovation forms the cornerstone of the Blue Ocean approach. The authors argue the need to compete on value AND simultaneously differentiating yourself from the competition. To achieve this they argue and survive one should use a Strategic Value Canvas. Start by mapping out your offering across a full range of factors that are important to the customer and then compare this with the full range of competition. For example a commercial airline operator should not just compare itself with other airlines - rather it should compare itself with the car at one end of the transport spectrum and private jets at the other. (see NetJets) Understanding the buying decisions of non customers thus becomes as important as understanding those of current customers. One then needs to find a way of tapping into this "non customer" group thereby effectively redraw the boundaries of your market. Analyse why "Non Customers" do not use your industries products or services, see what factors you could deliver if you rethought your product / service. Then focus on delivering value only as the customer / non customer sees it not in the more diffuse way driven by benchmarking within an industry.
Strategy Formulation
To help you formulate a new strategic offering they suggest you challenge current assumptions by looking at 6 Pathways.
- Look across alternative industries (see Net Jets above)
- Look across strategic groups (Curves offer a women friendly gym that appeals to many who were previously customers of "home" orientated products)
- Look across the buyer chain (Novo Nordisk target the sale of their insulin products at users not Doctors)
- Look across complementary products & services (Cinema with a creche)
- Look across Functional / Emotional appeal (Bodyshop sold cosmetics avoiding trad. emotional approach)
- Look across time at trends. (Perhaps the hardest)
Action
Having re defined what you wish to deliver identify exactly what this means. Which factors need to be eliminated, created, reduced or raised.
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Eliminate | Create |
| Reduce | Raise |
You will know when you have created a focussed new value innovation when you can express this in a simple tagline. For GTpB we believe the agility of the software brings many advantages however these could be summed up in the tagline "Suck and See Software for sME". To back this claim up we could offer to develop free working prototype to address the main concerns of SME's who traditionally perceive bespoke software as risky & expensive.
Criticisms
- While the professors offer approaches to finding uncontested market space, at the present there are few if any success stories of companies that applied their theories. This hole in their data persists despite the publication of Value Innovation concepts since 1997. The critical question therefore is whether this book and its related ideas are descriptive rather than prescriptive.
- Kim and Maubourgne take the marketing of a value innovation as a given, assuming the marketing success will come as a matter of course. The authors present many examples of successful innovations, and then explain from their Blue Ocean perspective - essentially interpreting success through their lenses.
- Blue Ocean argues to understand performance the unit of analysis should move away from the traditional focus on organisations (In Pursuit of Excellence, Good To Great, Built To Last etc.) to strategic moves. However Porter argues organisations & strategies need to be located in a geographical sense. In "The Competitive Advantage of Nations" he argues particular gropus of organisations cluster in particular regions and we need to understand organisational succeess in far more holistic terms.
