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.
Blue ocean strategy is based on a decade long study of more than 150 strategic moves spanning
more than 30 industries over 100 years. The central focus of the Book is to aware the organizations
to ‘create ″blue oceans″ of uncontested market space’. In other words to look at areas where your
competition is not looking and to provide extensions to your products or services to attack those
markets.

The authors observed that the traditional units of strategic analysis that organizations used are of
limited use in explaining how and why blue oceans are created. The most appropriate unit of
analysis is the strategic move, the set of managerial actions and decisions involved in making a
major market-creating business offering. This book provides a unified framework which addresses
not only the analytic aspects behind the creation of blue ocean strategy but also the human aspects
of how to bring an organization and its people on this journey with a willingness to execute these
ideas in action. Here, understanding how to build trust and commitment, as well as an
understanding of the importance of intellectual and emotional recognition, are highlighted and
brought to the core of strategy.

The book is divided into three parts:

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

2. The second part describes the four principles of blue ocean strategy formulation.

3. The third and final part describes the two key implementation principles of blue ocean strategy
including tipping point leadership and fair process.

Chan Kim and Mauborgne use the metaphor of red and blue oceans to describe the market. Red
oceans represent the known market space. In a red ocean, several companies already explored and
industry sector boundary is defined and accepted. Companies try to outperform each other and gain
a greater share of product or service demand. As the market gets crowded, the prospect of profit
and growth diminishes. Products and services become commodities and cutthroat competition
turns the ocean bloody; hence, the term “red oceans”.

Blue oceans, in contrast, denote the uncontested market space. The market that does not yet
exist. This market is untainted by competition. In blue oceans the demand is created so there is no
need to fight over space. There is opportunity for growth that is both profitable and rapid. In blue
oceans, competition is irrelevant because the market space is yet to be explored. It creates and
captured new demand.

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. 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. 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.
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.

The companies caught in the red ocean followed a conventional approach, racing to beat the
competition by building a defensible position within the existing industry order. The creators of
blue oceans followed a different strategic logic that which the authors named value innovation.
Value innovation is called the cornerstone of blue ocean strategy. Value innovation focuses on
making the competition irrelevant by creating a leap in value for buyers and the company, thereby
opening up new and uncontested market space. Value innovation is created in the region where a
company’s actions favorably affect both its cost structure and its value proposition to buyers. Cost
savings are made by eliminating and reducing the factors an industry competes on. Buyer value is
lifted by raising and creating elements the industry has never offered. Over time, costs are reduced
further as scale economies kick in due to the high sales volumes that superior value generates.
Value innovation is achieved only when the whole system of the company’s utility, price, and cost
activities is properly aligned. It is this whole-system approach that makes the creation of blue
oceans a sustainable strategy. Blue ocean strategy integrates the range of a firm’s functional and
operational activities.

The blue ocean strategy built on Six Principles. On one hand there are formulation principles which
consists of Reconstruction of market boundaries, focusing on the big picture, reach beyond existing
demands and getting the strategic sequence right. On the other hand there are execution principles
which consists of Overcoming key organizational hurdles and build execution into strategy. To
make the formulation and execution of blue ocean strategy as systematic and actionable as
competing in the red waters of known market space a set of analytical tools and frame work has
been suggested by the author. There are three types of analytic framework that is central to value
innovation and the creation of blue oceans: strategy canvas, the four actions framework and The
Eliminate-Reduce-Raise-Create grid.

The strategy canvas is both a diagnostic and an action framework for building a compelling blue
ocean strategy. It allows us to understand where the competition is currently investing, the factors
the industry currently competes on in products, service, and delivery, and what customers receive
from the existing competitive offerings on the market which can be presented on a value carve.

The value curve, the basic component of the strategy canvas, is a graphic depiction of a company’s
relative performance across its industry’s factors of competition.

To set a company on a strong, profitable growth trajectory in the face of red ocean industry
conditions, it won’t work to benchmark competitors and try to outcompete them by offering a little
more for a little less. As buyer are usually less inclined to accept any change in existing taste of
the product and services offered in their known space, to shift the strategy canvas of an industry,
one must begin by reinvent the strategic focus from competitors to alternatives, and from
customers to noncustomers of the industry to pursue both value and cost.

To achieve this, one should focus on the second basic analytic tools underlying blue oceans: the
four actions framework. To break the trade-off between differentiation and low cost and to create
a new value curve, there are four key questions to challenge an industry’s strategic logic and
business model:

• Which of the factors that the industry takes for granted should be eliminated?

• Which factors should be reduced well below the industry’s standard?

• Which factors should be raised well above the industry’s standard?

• Which factors should be created that the industry has never offered?

By pursuing the first two questions (of eliminating and reducing) that we can gain insight into how
to drop the cost structure vis-à-vis competitors. The second two factors, by contrast, provide us
with insight into how to lift buyer value and create new demand.

There is a third tool that is key to creation of blue oceans. It is a supplementary analytic to the four
actions framework called the eliminate-reduce-raise-create grid. The grid pushes companies not
only to ask all four questions in the four action framework but also to act on all four to create a
new value curve.

When expressed through a value curve, then, an effective blue ocean strategy has three
complementary qualities focus, divergence, and a compelling tagline. Without these qualities, a
company’s strategy will likely be muddled, undifferentiated, and hard to communicate with a high
cost structure. The four actions of creating a new value curve should be well guided toward
Building a company’s strategic profile with these characteristics. These three characteristics serve
as an initial litmus test of the commercial viability of blue ocean ideas.

There are six basic approaches to remaking market boundaries which are called 6 path framework.
The first approach is to look across alternative industries that have different functions and forms
but serve the same purpose. The second one is to look across strategic groups within industries
that pursue a similar strategy and can generally be ranked in rough hierarchical order built on two
dimensions of price and performance. The third one involves focusing on the chain of buyers,
influencers and consumers. The fourth one involves to look at the complementary product &
service offerings which means to look at the buyer pain points before they use the product or
service. The fifth one involves looking into ways to convert originally functionally oriented
products to provide an emotional appeal and vice versa. The final strategy is to look across time
which means looking at these trends with the right perspective to learn how to create blue ocean
opportunities.