7.24.2013

Blue Ocean Strategy

Most business strategies focus on how to beat the competition. It seems obvious that the success of any business relies on its ability to outperform its rivals. However, RenĂ©e Mauborgne and W. Chan Kim present another option in their widely-acclaimed business book "Blue Ocean Strategy". The book argues that you can actually make competition irrelevant by creating uncontested market space, or "blue oceans". Although finding these opportunities is certainly easier said than done, the book offers a comprehensive outline of the practices other companies have followed to create their own blue oceans.


The first step is to follow the "Four Actions Framework", a method of re-prioritizing attributes of an existing product or service in such a way that creates an entirely new category or industry where no relevant competitors exist. Essentially, you need to determine what consumers value most and increase the focus on these factors while reducing or eliminating the focus on unimportant factors. Most importantly, you must then introduce completely new factors that create unprecedented value. The "four actions" that comprise this process include:
  • Eliminating factors that the industry takes for granted but are not valued by the customer
  • Reducing factors that can be minimized without much negative impact on the customer experience
  • Raising factors that are valued by the customer but are not adequately emphasized
  • Creating factors that the industry has never offered but provide high value to the customer
By reallocating resources and refocusing your offering, you can find uncontested market space within your industry (although you will essentially be creating an entirely new industry in the process). It is critical to pursue both value and innovation in order for this strategy to succeed. This means you need to keep costs low by reducing and eliminating factors in order to make it feasible to deliver the innovative factors that effectively differentiate the new offering. You can't create and raise factors without eliminating and reducing other factors (or at least you can't do it cost effectively enough to succeed in the long-term).

To identify areas of potential uncontested market space, the book offers six "paths" that you can follow:
  • Path 1 - Look across alternative industries (NetJets combines convenience, flexibility and service of private air travel with cost closer to commercial air travel)
  • Path 2 - Look across strategic groups within industries (Curves focuses on women, combining cost, convenience and nonthreatening environment of home workout programs with health club equipment and the motivation offered by a group workout atmosphere)
  • Path 3 - Look across the chain of buyers - Redefine the industry buyer group (Prescription drug companies began marketing directly to consumers instead of focusing on medical professionals)
  • Path 4 - Look across complementary product and service offerings (The addition of childcare to gyms and movie theaters, encouraging parents to patronize their business without having to worry about finding a babysitter)
  • Path 5 - Look across functional or emotional appeal to buyers - Rethink the functional/emotional orientation of the industry by adding a sentimental aspect to traditionally utility products or reducing emotional associations to create a simpler purchase process (Swatch adding image to utility of budget watch market)
  • Path 6 - Look across time - Participate in shaping external trends over time (Should only be followed if the trends you are leveraging are decisive to the business, irreversible and follow a clear trajectory)
It is essential that you ignore long held beliefs and industry norms in order to move into new market space. If you try to compete with your rivals on the traditional terms, you will remain in a red ocean indefinitely. What blue ocean opportunities exist in (or outside) your industry?