Review On

Blue ocean strategy - how to create uncontested market space

and the competition irrelevant

Prepared for:

Mustaque Ahmed

Course Instructor of Brand Strategy

Prepared by:

Nazmus Saqib Nafis

ID: ZR 1603028

Dhaka, IBA, University of Dhaka

March 09, 2018

Review on The book - Blue Ocean Strategy:

"Blue ocean strategy - how to create uncontested market space and the competition
irrelevant" is an outcome of 20 years of journey of two authors Mr. W. Chan Kim and Ms.
Renee Mauborgne. This book is an outcome their friendship, loyalty and belief. With their
research the authors have found that there are no permanently excellent companies, just as
there are no permanently excellent industries. Corporate takes decisions both smart and un-
smart. They need to identify the positivity of their company to succeed continuously. The
authors focused on a strategy that is blue ocean strategy.

Blue Ocean Strategy is a marketing theory which is basically a brain child of W. Chan
Kim and Renée Mauborgne, professors at INSEAD and co-directors of the INSEAD Blue
Ocean Strategy Institute. Based on a study of 150 strategic moves spanning more than a
hundred years and thirty industries, Kim & Mauborgne argue that companies can succeed by
creating "blue oceans" of uncontested market space, as opposed to "red oceans" where
competitors fight for dominance, the analogy being that an ocean full of vicious competition
turns red with blood.
They assert that these strategic moves create a leap in value for the company, its buyers, and
its employees while unlocking new demand and making the competition irrelevant. The book
presents analytical frameworks and tools to foster an organization's ability to systematically
create and capture blue oceans.
The expanded edition updates all strategic moves in the book, bringing their stories up to the
present, and adds new chapters on achieving strategic alignment and avoiding red ocean traps
as well as expanding the discussion on sustainability and renewal.

The book is divided into three parts: as the other scenarios differ from those mentioned below
would be an entirely separate story vice versa.
1. The first part presents key concepts of blue ocean strategy, including Value Innovation –
the simultaneous pursuit of differentiation and low cost – and key analytical tools and
frameworks such as the strategy canvas and the four actions framework. The four actions
framework aids in eliminating the trade-off between differentiation and low cost within a
company. The four actions framework consists of the following;

a. Rise: This questions which factors must be raised within an industry in terms of
product, pricing or service standards.
b. Eliminate: This questions which areas of a company or industry could be
completely eliminated to reduce costs and to create an entirely new market.
c. Reduce: This questions which areas of a company’s product or service are not
entirely necessary but play a significant role in your industry, for example, the
cost of manufacturing a certain material for a product could be reduced.
Therefore, it can be reduced without completely eliminating it.
d. Create: This prompts companies to be innovative with their products. By creating
an entirely new product or service, a company can create their own market
through differentiation from the competition.
2. The second part describes the four principles of blue ocean strategy formulation. These
four formulation principles address how an organization can create blue oceans by
 looking across the six conventional boundaries of competition (Six Paths Framework),
reduce their planning risk by following the four steps of visualizing strategy, create new
demand by unlocking the three tiers of noncustomers and launch a commercially viable
blue ocean idea by aligning unprecedented utility of an offering with strategic pricing and
target costing and by overcoming adoption hurdles. The book uses many examples across
industries to demonstrate how to break out of traditional competitive (structuralist)
strategic thinking and to grow demand and profits for the company and the industry by
using blue ocean (reconstructionist) strategic thinking. The four principles are:

1. How to create uncontested market space by reconstructing market boundaries,

2. Focusing on the big picture,
3. Reaching beyond existing demand and supply in new market spaces
4. Getting the strategic sequence right.
3. The third and final part describes the two key implementation principles of blue ocean
strategy including tipping point leadership and fair process. These implementation principles
are essential for leaders to overcome the four key organizational hurdles that can prevent
even the best strategies from being executed. The four key hurdles comprise the cognitive,
resource, motivational and political hurdles that prevent people involved in strategy execution
from understanding the need to break from status quo, finding the resources to implement the
new strategic shift, keeping your people committed to implementing the new strategy, and
from overcoming the powerful vested interests that may block the change.
In the book the authors draw the attention of their readers towards the correlation of success
stories across industries and the formulation of strategies that provide a solid base to create
unconventional success – a strategy termed as "blue ocean strategy". Unlike the "red ocean
strategy", the conventional approach to business of beating competition derived from the
military organization, the "blue ocean strategy" tries to align innovation with utility, price and
cost positions. The book mocks at the phenomena of conventional choice between
product/service differentiation and lower cost, but rather suggests that both differentiation
and lower costs are achievable simultaneously.
The authors ask readers "What is the best unit of analysis of profitable growth? Company?
Industry?" – a fundamental question without which any strategy for profitable growth is not
worthwhile. The authors justify with original and practical ideas that neither the company nor
the industry is the best unit of analysis of profitable growth; rather it is the strategic move that
creates "blue ocean" and sustained high performance. The book examines the experience of
companies in areas as diverse as watches, wine, cement, computers, automobiles, textiles,
coffee makers, airlines, retailers, and even the circus, to answer this fundamental question
and builds upon the argument about "value innovation" being the cornerstone of a blue ocean
strategy. Value innovation is necessarily the alignment of innovation with utility, price and
cost positions. This creates uncontested market space and makes competition irrelevant. The
new chapters in the expanded edition of the book deal with the issues of how to develop and
align the three strategy propositions of value, profit and people, how to sustain and renew
blue ocean strategy at both the business level and the corporate level, and how to avoid red
ocean traps that keep organizations anchored in existing market space even as they attempt to
create new market space. The following section discusses the concept behind the book in
detail.

In the preface the authors rightfully mentioned that "Blue ocean opportunities have been out
there. As they have been explored, the market universe has been expanding. This expansion,
we believe, is the root of growth. Yet poor understanding exists both in theory and in practice
as to how to systematically create and capture blue oceans." There are two ways to create
blue oceans. One is to launch completely new industries, as eBay did with online auctions.
But it’s much more common for a blue ocean to be created from within a red ocean when a
company expands the boundaries of an existing industry.

Kim and Mauborgne argue that while traditional competition-based strategies (red ocean
strategies) are necessary, they are not sufficient to sustain high performance. Companies need
to go beyond competing. To seize new profit and growth opportunities they also need to
create blue oceans. The authors argue that competition based strategies assume that an
industry's structural conditions are given and that firms are forced to compete within them, an
assumption based on what academics call the structuralist view, or environmental
determinism. To sustain themselves in the marketplace, practitioners of red ocean strategy
focus on building advantages over the competition, usually by assessing what competitors do
and striving to do it better. Here, grabbing a bigger share of the market is seen as a zero-sum
game in which one company's gain is achieved at another company’s loss. Hence,
competition, the supply side of the equation, becomes the defining variable of strategy. Here,
cost and value are seen as trade-offs and a firm chooses a distinctive cost or differentiation
position. Because the total profit level of the industry is also determined by structural factors,
firms principally seek to capture and redistribute wealth instead of creating wealth. They
focus on dividing up the red ocean, where growth is increasingly limited.
Blue ocean strategy, on the other hand, is based on the view that market boundaries and
industry structure are not given and can be reconstructed by the actions and beliefs of
industry players. This is what the authors call the reconstructionist view. Assuming that
structure and market boundaries exist only in managers’ minds, practitioners who hold this
view do not let existing market structures limit their thinking. To them, extra demand is out
there, largely untapped. The crux of the problem is how to create it. This, in turn, requires a
shift of attention from supply to demand, from a focus on competing to a focus on value
innovation – that is, the creation of innovative value to unlock new demand. This is achieved
via the simultaneous pursuit of differentiation and low-cost. As market structure is changed
by breaking the value/cost tradeoff, so are the rules of the game. Competition in the old game
is therefore rendered irrelevant. By expanding the demand side of the economy, new wealth
is created. Such a strategy therefore allows firms to largely play a non–zero-sum game, with
high payoff possibilities.

In this book authors brought up a story of circus industry and explained few things. Despite a
long-term decline in the circus industry, Cirque du Soleil profitably increased revenue 22-
fold over the last ten years by reinventing the circus. Rather than competing within the
confines of the existing industry or trying to steal customers from rivals, Cirque developed
uncontested market space that made the competition irrelevant.

Cirque created what the authors call a blue ocean, a previously unknown market space. In
blue oceans, demand is created rather than fought over. There is ample opportunity for
growth that is both profitable and rapid. In red oceans - that is, in all the industries already
existing - companies compete by grabbing for a greater share of limited demand. As the
market space gets more crowded, prospects for profits and growth decline. Products turn into
commodities, and increasing competition turns the water bloody. In the 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 cutthroat 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, as Cirque du Soleil did. In blue oceans, competition is irrelevant because the
rules of the game are waiting to be set.

Red oceans represent all the industries in existence today – the known market space. In the
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
product or service demand. As the market space gets crowded, prospects for profits and
growth are reduced. Products become commodities or niche, and cutthroat competition turns
the ocean bloody; hence, the term "red oceans".
Blue oceans, in contrast, denote all the industries not in existence today – the unknown
market space, untainted by competition. In blue oceans, demand is created rather than fought
over. There is ample opportunity for growth that is both profitable and rapid. In blue oceans,
competition is irrelevant because the rules of the game are waiting to be set. Blue ocean is an
analogy to describe the wider, deeper potential of market space that is not yet explored.
The cornerstone of blue ocean strategy is "value innovation", a concept originally outlined in
Kim & Mauborgne's 1997 article "Value Innovation - The Strategic Logic of High
Growth".[8] Value innovation is the simultaneous pursuit of differentiation and low cost,
creating value for the buyer, the company, and its employees, thereby opening up new and
uncontested market space. The aim of value innovation, as articulated in the article, is not to
compete, but to make the competition irrelevant by changing the playing field of strategy.
The strategic move 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
Four Actions Framework is used to help create value innovation and break the value-cost
trade-off. Value innovation challenges Michael Porter's idea that successful businesses are
either low-cost providers or niche-players. Instead, blue ocean strategy proposes finding
value that crosses conventional market segmentation and offering value and lower cost.
Educator Charles W. L. Hill proposed a similar idea in 1988 and claimed that Porter's model
was flawed because differentiation can be a means for firms to achieve low cost. He proposed
that a combination of differentiation and low cost might be necessary for firms to achieve a
sustainable competitive advantage.
Many others have proposed similar strategies. For example, Swedish educators Jonas
Ridderstråle and Kjell Nordström in their 1999 book Funky Business follow a similar line of
reasoning. For example, "competing factors" in blue ocean strategy are similar to the
definition of "finite and infinite dimensions" in Funky Business. Just as blue ocean strategy
claims that a red ocean strategy does not guarantee success, Funky Business explained that
"Competitive Strategy is the route to nowhere". Funky Business argues that firms need to
create "sensational strategies". Just like blue ocean strategy, a sensational strategy is about
"playing a different game" according to Ridderstråle and Nordström. Ridderstråle and
Nordström also claim that the aim of companies is to create temporary monopolies. Kim and
Mauborgne explain that the aim of companies is to create blue oceans, that will eventually
turn red. This is the same idea expressed in the form of an analogy. Ridderstråle and
Nordström also claimed in 1999 that "in the slow-growth 1990s overcapacity is the norm in
most businesses". Kim and Mauborgne claim that blue ocean strategy makes sense in a world
where supply exceeds demand.

This book offers three key components in successful Blue Ocean shifts:

 Mindset: The authors found that, as in the world of Agile management, Blue Ocean
strategy is fundamentally a shift in mindset. It involves “expanding mental horizons
and shifting understanding of where opportunity lies.”
 Tools: Successful implementers of Blue Ocean strategy have used practical tools to
systematically “translate blue ocean thinking into commercially compelling new
offerings.” Sporadic, one-off “Blue Ocean strategy” is one thing: systematically
adopting Blue Ocean thinking is another.
 •Human-ness: Successful implementers exemplify “a humanistic process, which
inspires people’s confidence to own and drive the process to own and drive the
process for effective execution.”

The book also offers a five-step process for systematically reproducing such strategic
triumphs, and shows how a Blue Ocean initiative can be successfully launched in even the
most bureaucratic organization that is trapped in a bloody Red Ocean. The five steps are:

1. Choosing the right place to start and constructing the right Blue Ocean team for the
initiative.
2. Getting clear about the current state of play
3. Uncovering the hidden pain points that limit the current size of the industry and
discovering an ocean of non-customers.
4. Systematically reconstructing market boundaries and developing alternative Blue
Ocean opportunities.
5. Selecting the right Blue Ocean move, conducting rapid market tests, finalizing, and
launching the shift.

Though this process, the organization is able to move from the limitations of competing
within the existing industry (“settlers”) to migrate towards greater value improvement
(“migrators”) and eventually towards creating new value for people who are not already
customers (the “pioneers” of marketing-creating innovation.)

For initiating blue ocean a company should focus on value innovation. And the most effective
value innovation is technological value innovation. With this type of value innovation
companies can set high price and limits access for other companies. However, in a world of
nonrival and nonexcludable goods, such as knowledge and ideas, these are imbued with the
potential of economies of scale, learning, and increasing returns, the importance of volume,
price, and cost grows in an unprecedented way. Under these conditions, companies would do
well to capture the mass of target buyers from the outset and expand the size of the market by
offering radically superior value at price points accessible to them.

In this book the authors have tried to show the companies how they can get relatively easy
success by focusing on innovation rather than going for a price war.
In a nut-shell:

For creating a powerful brand and creating an everlasting or long lasting brand equity blue
ocean strategy is the best strategy.