Blue Ocean Strategy book summary
The main point in this blue ocean strategy book summary could be summarized as follows: To build a strong positive image, companies should think differently from their competitors and focus on making unique products or services that bring value to customers.
The authors provide a complete method for thinking creatively and finding new markets that your competitors haven’t explored. The idea of discovering a “blue ocean” instead of competing in a crowded and competitive market is fascinating and well-illustrated throughout the book with powerful examples.
The case studies are relevant and detailed, which helps explain the authors’ concepts. However, they might sometimes feel a bit too detailed.
While the book is primarily aimed at large companies, it can also be a valuable resource for entrepreneurs. The book offers helpful questions to stimulate your thinking and six practical ways to redefine market boundaries. These are just a few of the many tools provided in the book that can help you implement the suggested strategy – as long as you take action.
Originally published in 2004
Authors: Renée Mauborgne, W. Chan Kim
Blue Ocean Strategy
Part One: The Blue Ocean Strategy
Chapter 1: Creating New Oceans
Imagine a “blue ocean” as a new market space created by companies where they don’t have any competition. This is different from “red oceans,” which are crowded and competitive markets.
Creating a blue ocean means changing how you see the problem, finding new customers, and giving them better value while reducing costs for your company. This leads to higher profits and a whole new market. It’s like taking a big step forward in what you offer and how well you serve customers.
Some examples of companies that did this include Ford Model T, Compaq, Starbucks, and Cirque du Soleil. Cirque du Soleil, for instance, reinvented the circus by mixing it with dance and ballet, making it enjoyable for everyone, not just kids.
Chapter 2: Analytical Tools and Frameworks
The authors propose 3 tools to help create blue oceans:
The strategic canvas.
This helps us see what competitors focus on and where they stand out. It shows their positions on these different things. For example, when we talk about wine, we can look at seven main things:
- How much the bottle costs
- The fancy wine words they use
- Their advertisements
- How well the wine ages
- The vineyard’s reputation and history
- How complex the wine tastes
- The variety of wines they offer
We then make a chart to show how important each of these things is for the competitors. In a “red ocean,” all the competitors have similar charts. They all try to be different, but they end up being the same.
But in a “blue ocean,” one company has a chart that’s different from the others. They focus on new things and do things differently. They don’t just copy their rivals; they find new ways to stand out and attract people who aren’t their regular customers.
The four actions framework. It’s about asking yourself 4 questions:
- What things in the industry are seen as unimportant and can be removed?
- What things should be made less important compared to what’s usually done in the industry?
- What things should be made much more important than what’s typical in the industry?
- What new things that the industry hasn’t paid much attention to should be introduced?
This is called the “eliminate-reduce-raise-create grid.” By answering these questions, you can figure out what actions to take in this grid to create a successful strategy.
According to the authors, a good strategy has three characteristics:
- Focus: The company should concentrate on its main goal and a few important factors.
- Be Different: It needs to do things differently from its competitors and the usual practices in its industry.
- Clear Slogan: A good strategy should be summarized in a catchy and powerful slogan. If a company doesn’t have one, it might not be very customer-focused.
To create new market spaces (blue oceans), it’s essential to understand and use a tool called the “strategic canvas.” This tool helps you see how your company adds value.
The authors also suggest that if a company is stuck in a crowded and competitive market (a red ocean), you’ll notice these signs:
- Spending a lot on investments without getting much in return.
- Having a strategy that doesn’t make much sense.
- Having conflicting strategies within the company.
- Being focused too much on internal matters instead of what the customers need.
Part Two: Formulating Blue Ocean strategy
Chapter 3: Redefine Market Boundaries
The main idea in creating blue oceans is to break away from competition by changing how we look at the market. The authors suggest six ways to do this:
Path No. 1: Explore Alternatives
Don’t just think about your direct competitors; also consider those who offer different solutions that fulfill the same needs. For example, a restaurant and a movie theater may seem different, but they compete when people decide how to spend a fun night out. To find new opportunities, ask why customers choose one option over another.
Path No. 2: Look at Different Groups:
In your industry, there are different groups of companies that follow similar strategies. These strategies can be based on things like price or performance. For example, luxury car brands like Daimler, BMW, and Jaguar are in one group, while small economy car makers are in another. Usually, companies pay more attention to their own group and not much to others. But it’s crucial to understand why customers might switch between these groups. Sony did this when they created the Walkman by blending the high-quality sound of boom boxes with the portability and affordability of transistor radios.
Path No. 3: Understand Different Roles
When you’re exploring new opportunities, it’s important to know that there are different types of people involved in a purchase. These include the customers (who use the product), the buyers (who make the purchase decisions), the users (who actually use the product), and the influencers (who can impact the decision). Companies often have fixed ideas about who falls into these categories, but sometimes these ideas are based on industry norms rather than critical thinking. To create a blue ocean, a company might discover that it can appeal to different people within these roles.
Path No. 4: Explore complementary products and services
Most products or services are connected to other things that affect their value. For example, a movie theater could consider offering a babysitting service because many parents need a babysitter to watch their kids when they go to the movies. Babysitting is very different from running a movie theater, but it can boost the theater’s attendance and profits. Alternatively, a babysitting service might partner with a movie theater to offer their services to moviegoers. These kinds of partnerships can benefit both sides.
Path No. 5:
Companies in the same industry often choose to communicate with customers in either a logical, fact-based way or an emotional, feeling-based way. This choice is often influenced by the company’s long-term strategy and what customers expect. For example, Swatch made cheap watches into a fashion statement, appealing to emotions, while The Body Shop made selling beauty products a practical, functional activity.
Path No. 6:
Every industry is influenced by big trends like the Internet or environmental concerns. Most companies slowly adapt, but it’s possible to get ahead by predicting how these trends will change things and positioning yourself early. For instance, Apple saw that people were sharing music online illegally, so they created iTunes, a legal digital music store that worked well with their iPods. They created a new market space by thinking ahead.
In all these paths, the key is to think creatively, challenge common assumptions, and come up with new strategies that break the mold.
Chapter 4: Focusing on the Big Picture, Not the Numbers
Many companies get stuck in highly competitive markets because their strategic planning methods focus too much on numbers and not enough on the big picture.
Solution: To change this, the authors suggest a four-step process:
Step No. 1: Visual awakening.
Managers need to create a picture (a “value curve”) of their current strategy to see where it stands in terms of competition. This helps them realize when their strategy is weak or unoriginal.
Step No. 2: Visual exploration.
After recognizing the need for change, it’s time to go out and talk to customers, non-customers, and buyers who aren’t the end users. This helps figure out what’s wrong with the current offerings and what people expect. You can use the six paths from chapter 3 to do this.
Step No. 3: Visual strategy fair.
Two teams take the results from Step 2 and create a new strategic plan. They then share this plan with different people, including customers (especially the picky ones), customers of competitors, and non-customers. These people choose the best plan through a simple vote and give reasons for their choice, helping further improve the plan.
Step No. 4: Visual communication.
Once the new strategic plan is determined, it needs to be communicated effectively throughout the company, all the way down to the lowest levels.
Additionally, the authors introduce the “PMS map” (pioneer-migrator-settler) tool:
- Pioneers: These are activities that create brand-new and unique value.
- Settlers: These activities align with industry norms.
- Migrators: They fall somewhere in between.
Managers should balance their business portfolio between growth (long-term goals) and profitability (short-term goals) by considering these categories.
Chapter 5: Aim Beyond Existing Demand
Problem: Leaving a highly competitive market (red ocean) to enter a small, unexciting one (puddle) doesn’t make sense. So, how do you create the biggest and most exciting new market (blue ocean)? To achieve this, you need to go beyond the customers you already have.
Solution: The authors suggest focusing on non-customers, who come in three categories or groups:
First circle: Soon-to-be non-customers.
These are people who sometimes use existing products or services because they have no better options. They could easily switch to something else as soon as it becomes available. For instance, imagine people who eat at a fast-food restaurant just because it’s the only option near their workplace. Once another restaurant opens nearby, they’ll likely switch.
Second circle: “Refusing” non-customers.
These are individuals who never use the current offerings because they don’t like them or can’t afford them. For example, JCDecaux convinced “refusing” non-customers to use their advertising billboards by offering free street furniture to municipalities. This made outdoor advertising more accessible.
Third circle: unexplored non-customers.
In many cases, no companies in the industry have ever considered these people as potential customers. However, this group can hold vast untapped opportunities for creating new markets. Sometimes, these opportunities exist because no one challenged certain assumptions. For instance, toothpaste manufacturers once believed only dentists could whiten teeth. When they realized they could offer effective, safe, and affordable teeth-whitening products, they entered a new market with great potential.
Chapter 6: Successful Strategic Sequence
Problem: Once you have a great strategy, how do you make sure your business model is strong enough to be profitable?
Solution: The authors suggest asking the right questions in the right order about certain things:
1. Buyer utility.
First, make sure your idea is exceptionally useful to buyers. To do this, consider these six aspects:
- Does it make customers more productive?
- Is it simple to use?
- Does it offer convenience?
- Does it reduce risks for customers?
- Is it fun or improve their image?
- Is it environmentally friendly?
Also, think about the six stages of the buyer’s experience: buying, receiving, using, getting additional stuff, maintaining, and disposing of the product. The goal is to create a product that’s incredibly useful.
2. The price.
Once you know your product is very useful, figure out the right price. You want to make it affordable for a lot of people to buy it. This can be especially important if others could easily copy your idea. To find the right price, start by identifying the price range in the market and then choose a price within that range.
3. The cost.
Once you’ve set the price, you need to determine the target production cost. In other words, figure out how much it should cost you to make the product. This is the opposite of the usual approach, which starts with the cost and sets the price. If you can’t produce it at the right cost, it won’t be profitable. So, cut unnecessary costs, find partnerships, or come up with new ways to make things cheaper. For example, when video tapes were too expensive to buy, Blockbuster started renting them out instead, creating a big demand.
Even if you have a great business model, it won’t work if you can’t sell the product. Creating something new often goes against the usual way of doing things, so you need to communicate with your employees, partners, and the public to overcome their fears and ensure commercial success.
Finally, the authors suggest a tool called the “blue ocean idea index” to help you summarize all this information.
Part Three: Executing a Blue Ocean Strategy
Chapter 7: Overcome Key Internal Hurdles
Problem: When a company comes up with a great Blue Ocean strategy and a profitable business plan, they need to put it into action. But there are four big challenges:
- Resistance to Change: Employees might not like the new way of doing things, especially if the company is used to its old methods.
- Lack of Resources: Many companies don’t have enough money or other resources to make the new plan work.
- Motivation of Key Players: It’s important that the people in charge quickly and effectively adopt the new practices and get behind the plan.
- Internal Power Struggles: When people work together, there can be disagreements and competition for influence, which can slow things down.
Solution: The authors suggest using “tipping point management” to tackle these challenges. This means focusing on a few important things that can make a big difference with the least amount of effort and resources. It’s a bit like using the 80/20 rule – concentrating on the 20% of actions that will yield 80% of the results. They illustrate this approach with the example of Bill Bratton, who, in just two years, turned one of the most dangerous cities in the United States (New York) into one of the safest.
Chapter 8: Integrate Execution into Strategic Development
To succeed with your blue ocean strategy, it’s not just about getting support from the top leaders in your company; you need everyone on board. It’s crucial to build trust and commitment among your employees, not just following rules, but understanding and believing in the goals.
For the authors, this involves fair management, based on three principles called the three E’s:
- Engagement: This means involving individuals in making important strategic decisions that affect them. It’s about listening to their opinions and allowing them to challenge what others think.
- Explanation: Ensure that everyone understands why certain strategic decisions are made and the reasoning behind them. Make the ‘why’ clear.
- Expectation Clarity: Explain the new rules everyone needs to follow. Employees should know from the start how they will be evaluated and what consequences there are for not meeting expectations.
Chapter 9: Conclusion: Sustainability and Renewal of Blue Ocean strategy
No matter how fast or well you create your Blue Ocean, competitors will eventually come in and create their own Blue Oceans. The more successful your Blue Ocean becomes, the more competitors it attracts, and it can turn into a highly competitive market (a red ocean). So, when should you start creating a new Blue Ocean?
Fortunately, there are barriers that make it hard for others to copy your success. The authors identify eight of these barriers. They hope that, in the future, just like there are tools and methods to deal with competitive red oceans today, there will be tools and methods to deal with the creation of blue oceans, making it easier for companies to keep finding new, uncontested markets.
Appendix A: The Creation of Blue Oceans: Historical Overview
In this 20-page appendix in the book Blue Ocean Strategy, the authors talk about three industries: cars, personal computers, and movie theaters in the United States. They explain how new, uncontested markets (blue oceans) appeared in each of these industries and how the companies that created them benefited. They also discuss how these blue oceans eventually gave way to new ones.
Here are the main points:
- No industry or company can stay successful forever.
- Creating a blue ocean is the key to starting a period of profitable growth.
- Both established companies and newcomers can create blue oceans.
- Creating blue oceans doesn’t always rely on new technology.
- Creating blue oceans can have a long-lasting, positive impact on a company’s brand image. For example, Ford and Apple are still seen in a positive light because of the blue oceans they created many years ago.