Blue Ocean Strategy

How to Create Uncontested Market Space

and Make the Competition Irrelevant
W. Chan Kim and Renée Mauborgne
©2005 Harvard Business School Publishing Corporation
Adapted by permission of Harvard Business School Publishing Corporation
ISBN: 978-1591396192
Estimated reading time of book: 2–3 hours

Key Concepts
• There will always be a need for companies to compete in the “red oceans” of known market space; but long-
term growth opportunities lie in the “blue oceans” of uncontested market space.
• Achieving fundamental change in an industry’s framework—its strategy canvas and strategic profile—re-
quires shifting focus from competitors to alternatives, from customers to noncustomers, and from exploit-
ing existing demand to creating new demand.
• At the heart of blue ocean strategy is value innovation—the simultaneous pursuit of differentiation and low
cost.
• Remaking market boundaries is necessary to create a blue ocean. To break out of conventional boundar-
ies and achieve differentiation and low cost, companies must look across alternative industries, strategic
groups, buyer groups, complementary product and service offerings, the functional or emotional orienta-
tion of an industry, and even across time.
• The traditional strategic planning process keeps companies stuck in red oceans. Instead of becoming im-
mersed in numbers and operational details, blue ocean strategists must focus on the big picture of buyer
value and market opportunity.
• To maximize the size of a blue ocean, companies must reach beyond existing demand. This approach chal-
lenges conventional wisdom, which prioritizes current buyers over the ocean of noncustomers companies
can unlock.
• Blue ocean strategy must be built in the right sequence: buyer utility, price, cost, and adoption. To succeed,
the company must first identify an offering that unlocks exceptional value.
• Because blue ocean strategy represents a significant departure from the status quo, executives must be pre-
pared for distinctive execution challenges. Leaders can overcome these hurdles by focusing on the people,
acts, and activities that exercise a disproportionate influence on performance.
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Blue Ocean Strategy W. Chan Kim and Renée Mauborgne

• To create a culture of trust and commitment that motivates people to execute blue ocean strategy, exercis-
ing fair process in its creation and roll-out is key.
• Blue ocean strategy is premised upon the alignment of the three strategy propositions of value, profit and
people in pursuit of both differentiation and low cost.
• Organizations should dominate the new market space for as long as possible. When competitors make sig-
nificant inroads, it is time to create a new blue ocean.

Introduction
In the continual quest for sustainable growth, companies have traditionally focused on the competition. They
have fought over the same customers, tried to improve on the same benefits, and hoped to wring profits from
a shrinking revenue stream. In Blue Ocean Strategy, professors W. Chan Kim and Renée Mauborgne argue that
the key to success is to make the competition irrelevant. They offer a practical, tested analytical framework that
innovators in any sector can use to create new, uncontested market space. In this “blue ocean,” organizations
can take advantage of untapped demand and deliver powerful leaps in value—both for their customers and for
themselves.
Red oceans will
Creating Blue Oceans always matter and
The market universe has two parts: red oceans and blue oceans. Red oceans will always be a fact
are the domain of all existing companies, competing against one another for of business life. But
bigger shares of known demand. Blue oceans make up the world of enter- with supply exceed-
prises that have not yet begun. Here demand is unknown and potential is ing demand in more
vast—for those who understand how to tap into it.
industries, compet-
In today’s business world, creating blue oceans is more than an opportunity. ing for a share of
Increasingly, it is an imperative. Technology has boosted productivity so much contracting markets,
that supply outstrips demand in many industries. Globalization is wiping out while necessary, will
niche markets and monopolies. Developed countries are experiencing popu-
not be sufficient to
lation declines. The result of such forces: commoditization, price wars, and
shrinking margins. sustain high perfor-
mance.
How can companies break out of the less and less profitable red oceans? The
key is value innovation, a new strategic focus. Instead of trying to beat the competition, value innovators make
the competition irrelevant by opening up uncharted (blue) waters. Instead of making conventional tradeoffs
between value creation and low price, they pursue both of these goals simultaneously.

In blue oceans, value is created by introducing benefits and/or standards unique in the industry. Cost savings
result from eliminating traditional points of competition. As an example, Cirque du Soleil reinvented the con-
cept of a circus. It offered a unique entertainment experience that combined thrills with drama and artistry.
While the competition focused on animal shows and star performers, Cirque du Soleil did away with these high
cost, low margin elements—and dramatically increased demand for its product. At the same time, it was able to
charge the highest prices in the industry because audiences thought of its shows more as theatre than as circus.

The value innovation/blue ocean strategy discards the conventional view of market boundaries and structures
as fixed constraints. Instead, it assumes that these conditions can be reconstructed. The key points of this strat-
egy include:

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Blue Ocean Strategy W. Chan Kim and Renée Mauborgne

• Creating uncontested market space

• Making the competition irrelevant
• Creating and capturing new demand
• Breaking the value-cost trade off
• Aligning the whole system of a firm’s activities in pursuit of differentiation and low cost

Analytical Tools and Frameworks

An analytical framework called the “strategy canvas” lies at the heart of value innovation and the creation of blue
oceans. Its purpose is to capture the key factors that define existing market space: how the industry competes,
where competitors invest, what customers receive from current offerings. With this canvas as a backdrop, an
innovator is ready to shift focus from competitors to alternatives, and from customers to noncustomers.

For example, Australian winemaker Casella Wines used a strategy canvas to identify the factors undermining
its traditional competitors. Key players were over-delivering on prestige and quality while the vast majority of
consumers felt intimidated by the product’s complexity and the industry’s pretentiousness. Casella identified
the blue ocean opportunity: to make a fun, unconventional wine that would appeal to everyone.

Value innovation
is the cornerstone
of blue ocean strat-
egy. We call it value
To begin executing on the strategy canvas, companies use the ”Four Actions
Framework,” which poses the following questions:
1. Which of the factors that the industry takes for granted should be elimi
nated?

innovation because
instead of focusing
on beating the com-
petition, you focus
on making the com-
petition irrelevant
by creating a leap
in value for buyers
and your company,
thereby opening up
new and uncontest-
ed market space.
2. Which factors should be reduced well below the industry’s standard?
3. Which factors should be raised well above the industry’s standard?
4. Which factors should be created that the industry has never offered?
After considering these questions, Casella was able to choose a specific direc-
tion. It created a new drink called yellow tail, a beverage similar enough to
wine to satisfy wine drinkers, but different enough to attract consumers who
usually chose beer or cocktails. It was cheaper to make as well as easier to enjoy
than anything else on the market. Instead of pushing a bewildering variety of
choices, Casella gave buyers one simple product. In two years, it was the fastest
growing brand in the history of both the Australian and U. S. wine industries.
The “Eliminate-Reduce-Raise-Create Grid” helps companies to specify how
they will act on the four questions they have answered. The grid provides the
following benefits:

• It pushes the company to simultaneously pursue differentiation and low costs.

• It flags companies that are overly focused on raising standards or over-engineering.
• It is easily understood by managers at any level.
• It drives companies to scrutinize every factor the industry competes on, thus challenging all their previous
assumptions.
An effective blue ocean strategy, like that pursued by Cirque du Soleil and Casella Wines, has three characteris-
tics:

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Blue Ocean Strategy W. Chan Kim and Renée Mauborgne

1. Focus: The company’s strategic profile should emphasize as few value points as possible. If it overreaches, it
will diffuse its efforts and fail to stand out in the minds of consumers.
2. Divergence: A company loses its uniqueness when it simply tries to beat competitors on their own terms.
Successful value innovators diverge from the pack in what they offer to whom.
3. Compelling Tagline: If a strategy is truly clear and sufficiently simple, it can be expressed in a brief, authentic,
and memorable tagline.
Without these qualities, the efforts of a potential value innovator can become muddled and overly expensive.

Reconstruct Market Boundaries

Blue ocean strategy begins by reconstructing market boundaries. Across industries, there are six paths that
companies can take to lead them beyond traditional expectations and constraints.

Path 1: Look Across Alternative Industries

To develop the broadest perspective on market opportunities, companies should consider not only substitutes
for their products (which offer the same functions) but also alternatives to their products (which have different
functions serving the same purpose). For example, one movie theatre is a substitute for another, but restaurants
are alternatives to movie theaters because they serve the same purpose of giving people an enjoyable night
out.
To break out of red
Blue oceans can be created by delivering the advantages of an alternative oceans, companies
product while eliminating its conventional points of competition. Home
must break out of the
Depot accomplished this result: it brought the expertise of professional home
contractors into a hardware store setting while reducing the costs and stream- accepted boundaries
lining the focus of both original industries. that define how they
compete. Instead of
Path 2: Look Across Strategic Groups within Industries looking within these
Strategic groups are groups of companies within an industry that pursue simi- boundaries, manag-
lar strategies, and can generally be ranked on price and performance (each
ers need to look sys-
price increase is associated with more or better performance). Most compa-
nies within a strategic group try to outdo each other on the same dimensions.
tematically across
But the key to blue ocean thinking is to identify dimensions with untapped them to create blue
potential. oceans.
For example, the Curves women’s fitness firm recognized that its customers were dissatisfied both with typical
health clubs, where they felt forced to compete with men, and with home exercise programs, which provided
insufficient motivation. Instead of trying to create a more female-friendly health club or a more motivating home
program, Curves developed something new. Its facilities offered privacy and a nonthreatening atmosphere
but also a strong element of mutual support and encouragement. By identifying high-potential improvement
dimensions from two strategic groups within the fitness industry, Curves exploded in size and market value.

Path 3: Look Across the Chain of Buyers

Competition in most industries converges on a single buyer group: users, purchasers, or influencers. For instance,
clothing sellers focus on users, office equipment vendors target corporate purchasing departments, and phar-
maceutical firms pursue doctors. But opportunity may lie in questioning these traditional approaches.

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Blue Ocean Strategy W. Chan Kim and Renée Mauborgne

Danish insulin producer Novo Nordisk followed this path. While other industry players competed by offering
doctors increasingly sophisticated medicine, Novo shifted its focus to patients. Its new product revolutionized
healthcare by giving people an easy, convenient alternative to the standard insulin syringe. The NovoPen, a
prefilled disposable injection device, successfully transformed the industry landscape as well as the company.

Path 4: Look Across Complementary Product and Service Offerings

Untapped value can often be found by redefining products and services as solutions to buyers’ problems. This
involves thinking about the context in which products are used and the problems people face in using them.
Zeneca’s Salick cancer centers, for instance, created a blue ocean by combining all the treatments patients might
need under one roof, eliminating the hassles of separate appointments and multiple trips.

Path 5: Look Across Functional or Emotional Appeal to Buyers

In most industries, competition is focused either on function or emotion. But many products have a dual
functional/emotional appeal that can break new ground for companies willing to pursue it. In an emotionally
oriented industry, stripping away attributes that are costly but functionally meaningless may result in a cheaper,
easier-to-use product. In a functionally oriented industry, a bit of emotion can add excitement and distinctive-
ness to what would otherwise be a boring commodity.

Path 6: Look Across Time

Although the universe
of noncustomers typi-
cally offers big blue
ocean opportunities,
few companies have
keen insight into who
noncustomers are
and how to unlock
them.
The red-ocean approach to emerging trends is to watch them and adapt
incrementally (or attempt to resist) the ways they change the marketplace.
The blue-ocean approach is to ask how the trends are likely to affect con-
sumer value and the company’s business model—then proactively take steps
to ride the waves.
For example, Apple took note of the flood of illegal music file sharing in the
1990s. While the recording industry fought the trend, Apple took advantage
of it by launching iTunes, the first digital music store, in 2003. By offering
dependable quality along with searching and browsing functions, the com-
pany reduced the appeal of illegal downloading and sold over 700,000 songs
in its first year.

Focus on the Big Picture, Not the Numbers

The traditional strategic planning process is mired in operational and tactical details that leave companies stuck
in red oceans. To envision a bigger picture, innovators start with a strategy canvas. This planning tool depicts
the factors that affect competition, the profile of existing competitors, and how the company might shift its own
value curve through strategic investments.

There are four steps in drawing and discussing a strategy canvas:

Step 1: Visual Awakening

• Compare one’s business with the competition by drawing an “as is” strategy canvas.
• See where current strategy needs to change.
The goal here is to clarify the current state of play. This gets everyone on the same page and serves as a wakeup
call for managers who are reluctant to change.

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Blue Ocean Strategy W. Chan Kim and Renée Mauborgne

Step 2: Visual Exploration

• Go into the field to explore the six paths to creating blue oceans.
• Observe the distinctive advantages of alternative products and services.
• See which factors should be eliminated, created, or changed.
There is no substitute for managers seeing for themselves what can be done and what needs to be done to
create a blue ocean. Field research is the best way to challenge old assumptions and gain insight into new reali-
ties.

Step 3: Visual Strategy Fair

• Draw a “to be” strategy canvas based on insights from field observations.
• Get feedback on alternative strategy canvases from customers, competitors’ customers, and noncustomers.
• Use feedback to build the best “to be” future strategy.
After managers develop a set of strategy alternatives based on the previous two steps, they present these “to be”
proposals to senior executives. The executives act as judges, providing another level of feedback which is then
synthesized and incorporated into a final canvas.

Step 4: Visual Communication

• Distribute before-and-after strategic profiles on one page for easy comparison.
• Support only those projects and operational moves that allow your company to close the gaps to actualize
the new strategy.
The last step in choosing a future strategy is to communicate it—and the reasoning behind it—clearly enough
so that it can be understood by all employees. It can then become a meaningful reference point for all future
investment and operational decisions.

Of course, numbers and tactics will need to be introduced into the new strategic framework. But when manag-
ers start with the big picture, they can more effectively fill in the right details to create a blue ocean.

Reach Beyond Existing Demand

A major component of value innovation is to maximize demand by reaching
beyond existing customers. This means seeking ways to attract noncustomers; You should swim as
prioritizing buyer commonalities over differences; and aggregating groups of cus- far as possible in the
tomers instead of dividing them into ever-smaller segments. blue ocean, mak-
There are three types, or tiers, of noncustomers. In the first tier are those who buy
ing yourself a mov-
current products but are dissatisfied and will readily switch to something better. ing target, distancing
Though they may differ on some dimensions, the key to converting these “soon-to- yourself from your
be” noncustomers is to focus on what they have in common. British fast food chain early innovators, and
Pret-A-Manger took this approach by offering restaurant-quality, affordable meals discouraging them in
served fast in a uniquely attractive setting. The company succeeded in aggregat-
the process.
ing demand across huge numbers of people who wanted food that was delicious
and convenient as well as relatively cheap.

In the second tier are “refusing” noncustomers, who either find current products unacceptable or cannot afford
them. They can be won over by understanding the factors that turn them away from existing offerings. For
example, JCDecaux, a French outdoor advertising vendor, realized that many companies refused to buy bill-
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Blue Ocean Strategy W. Chan Kim and Renée Mauborgne

board or bus-panel space because these ads were both transitory and expensive. So JCDecaux invented the
concept of low-cost advertising on street furniture, like benches and street lights. Former “refusers” flocked to
this new option, which was both stationary—giving people more time to read the copy—and affordable.

In the third tier of noncustomers are the “unexplored.” The industry has always ignored them because they are
assumed to be loyal to other markets. For instance, manufacturers of oral care products traditionally thought of
tooth whitening as a service available and sought only from dentists. But after careful study of the need, they
realized it was possible to deliver high quality, low cost solutions that unleashed a vast new ocean of demand
among the formerly “unexplored.”

Get the Strategic Sequence Right

Companies need to build a blue ocean strategy on the right foundations. But it is equally important to pursue
goals in the right sequence: buyer utility, price, cost, and adoption.

To deliver exceptional buyer utility, companies can choose among six “utility levers.” These include customer
productivity, simplicity, convenience, risk reduction, fun and image, and environmental friendliness. The key to
maximizing the effectiveness of the levers is to use them to remove the biggest blocks to customer utility that
are associated with current offerings.

Setting the right strategic price is critical to attracting new customers in large numbers. The need to build sales
volume quickly is more important than in the past; many groundbreaking products are knowledge-based, thus
incurring heavy upfront research and development costs that must be recouped as fast as possible. Also, a new
offering that combines exceptional utility with an attractive price is hard for competitors to imitate.

But the lowest price is not always the best price. Blue-ocean innovators look to other industries to understand
what buyers expect to pay for products that have a different form but the same function. Once the company
knows its strategic price, it should deduct the desired profit margin from the price to arrive at target cost. It can
then use three cost levers to hit the target:

1. Streamlining operations and introducing cost innovations from manufacturing to distribution.

2. Partnering with other companies to leverage their expertise and economies of scale.
3. Changing the pricing model of the industry; for example, from purchase to rental, leasing, or time-share.
Innovators must educate their employees, business partners, and the general public about their blue ocean idea
to help ensure adoption. This can be accomplished by explaining the merits of the idea, setting clear expecta-
tions, and addressing how the company will address any negative ramifications.

Overcome Key Organizational Hurdles

Because successful execution of a blue ocean strategy means departing from the status quo, the process can
engender employee suspicion and resistance. This poses four challenges:

1. Breaking through the cognitive hurdle. It is not easy to make the case for change, particularly to employees
who are threatened by it. One approach is to force naysayers to come face-to-face with the shortcomings of
the status quo by actually experiencing the problems and/or talking directly to disgruntled customers.
2. Jumping the resource hurdle. Instead of trying to get more resources, innovators focus on leveraging and/or
multiplying the value of resources they already have. This involves:

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Blue Ocean Strategy W. Chan Kim and Renée Mauborgne

• Redistributing resources to hot spots, which have low resource input but high performance potential.
• Redirecting resources from cold spots, which have high resource consumption but low impact.
• Horse trading, where resources in one unit are traded to another to fill in resource gaps.
3. Jumping the motivational hurdle. Grand strategic visions often fail to motivate the mass of employees. It is
more effective to focus on key influence factors:
• Concentrate on persuading kingpins, the organization’s most respected opinion leaders.
• Place kingpins in a fishbowl: in other words, shine a spotlight on their actions to enable change agents
to stand out.
• Atomize the strategic challenge, breaking it down into small pieces that people can relate to and that
seem attainable.
4. Knocking over the political hurdle. Organizational politics can stymie the best-laid strategic plans. There are
effective ways to avoid this:
• Include a “consigliere,” a politically adept insider, on the top management team.
• Identify and leverage the support of “angels,” those who have the most to gain from blue-ocean efforts
and are naturally aligned with change agents.
• Identify and isolate “devils,” those who have the most to lose and will fight hardest to block change.

Build Execution into Strategy

Removing the obstacles to execution of blue ocean strategy is necessary but it is not sufficient. To realize the
full promise of innovation, it must be willingly and sincerely embraced by all the members of the organization.
Building execution into strategy from the start is important as a way to win people’s trust and cooperation. The
success of this approach depends on fair process.

Fair process is based on three “E Principles:” engagement, explanation, and clarity of expectation. These prin-
ciples are relevant at every organizational level, from shop floor to C-suite.

• Engagement: This is a means for management to communicate respect for individuals’ ideas and opinions.
It involves asking employees for their input and giving them opportunities to debate the merits of different
ideas.
• Explanation: The goal of explanation is to ensure that everyone affected by a strategic decision understands
why it was made. With that understanding, employees can trust their managers’ intentions even if they
disagree with a specific change.
• Expectation clarity: This requires management to state clearly what new standards employees must meet,
how they will be penalized for failure, and who will be responsible for what. The exact nature of the new
policies matters less than making sure everyone understands them.
The motivational power of fair process is linked to intellectual and emotional recognition theory, which sug-
gests that people seek to be recognized for their individual worth. When they believe that their intellectual
value is appreciated, they are willing to share their knowledge. When they feel an emotional connection to the
strategy, they are inspired to go beyond the call of duty in order to bring it to fruition.

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Blue Ocean Strategy W. Chan Kim and Renée Mauborgne

The Sustainability and Renewal of Blue Ocean Strategy

Inherent in blue ocean strategy are significant barriers to imitation. Over time, however, most innovations will
be imitated. The key to long-term sustainability and renewal is to dominate the new market space for as long as
possible, while continually monitoring the strategy canvas. When an innovator’s value curve begins to converge
with that of the competition, it is time to create more blue oceans.

About the Authors

W. Chan Kim is Cofounder and Codirector of the INSEAD Blue Ocean Strategy Institute and The Boston Consult-
ing Group Bruce D. Henderson Chair Professor of Strategy and International Management at INSEAD, France (the
world’s second-largest business school). Prior to joining INSEAD, he was a professor at the University of Michigan
Business School. He has served as a board member as well as an adviser for a number of multinational corpora-
tions in Europe, the United States, and Asia Pacific. He is an advisory member for the European Union and is the
Country Advisor to Malaysia.

Renée Mauborgne is Cofounder and Codirector of the INSEAD Blue Ocean Strategy Institute, INSEAD Distin-
guished Fellow, and a professor of strategy at INSEAD, France (the world’s second-largest business school).
Mauborgne is a Fellow of the World Economic Forum.

Harvard Business Review articles coauthored by Kim and Mauborgne are worldwide bestsellers and have sold
over half a million reprints. Their “Value Innovation” and “Fair Process” articles were selected as among the best
classic articles ever published in Harvard Business Review. They have coauthored articles in the Wall Street Journal,
the Wall Street Journal Europe, the New York Times, and the Financial Times, among others.

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