Blue Ocean Strategy is a business strategy book first published in 2005 and written by W.

Chan Kim and Renée Mauborgne of The Blue Ocean Strategy Institute at INSEAD. The book illustrates what the authors believe is the high growth and profits an organization can generate by creating new demand in an uncontested market space, or a "Blue Ocean", than by competing head-to-head with other suppliers for known customers in an existing industry. Blue Ocean Strategy has been selected by 2 prominent Chinese national book lists as: One of the 40 most influential books in the History of the People's Republic of China (1949-2009) in the category of ‘Economics and Finance’ amongst Adam Smith's ‘The Wealth of Nations’, Milton Friedman's ‘Free to Choose’, Joseph Schumpeter's ‘Capitalism, Socialism and Democracy’, and Samuelson and Nordhaus' ‘Economics’.  One of the 40 most influential books in the three Decades of China’s Reform and Opening to the outside world under the category of « Economics and Finance »

The Belgian business journal TRENDS selected the book Blue Ocean Strategy as one of the 10 best Management books of the last decade. – January 2010. Selected in 2007 as one of the thirty most influential books in the last 25 years in Taiwan. Best Business/Economics Book in: Canada, China, Germany, Iceland, Israel, Italy, Japan, Korea, Latin America, Malaysia, Poland, Scandinavia, Singapore, South Africa, Taiwan, UK, USA Blue oceans, 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. It is an analogy to describe the wider, deeper potential of market space that is not yet explored. It is vast, deep and powerful in terms of profitable growth. Therefore, after extensive analysis of the industry, Blue Ocean Strategy has revealed that the ‘strategic move’, and not the company or the industry, is the right unit of analysis for explaining the creation of blue oceans and the root of profitable growth. Strategic moves are a set of managerial actions and decisions involved in making a major market-creating business offering. The basis of blue ocean systematic methodology is based on a study of over 150 strategic moves from over 30 industries, spanning from 1880 to 2000. The principles of Blue Ocean Strategy apply across all types of industries — from consumer product goods, pharmaceutical, financial services, entertainment, agriculture, IT and even government. In India, we have several opportunities to leverage and apply the principles of Blue Ocean Strategy to create uncontested market space.
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Consider some of the well known Blue Oceans created by the New York Police Department. Red Ocean vs. smooth. Southwest Airlines. Here are the differences between the Blue and Red Oceans. The Blue Ocean. defined competitors and a typical way to run a business in any specific industry. and The Body Shop. There is a defined market. and have a compelling tagline that speaks to the market.As for defining characteristics. This is where everyone would like to be and it is possible for you to have a Blue Ocean. Cirque du Soleil. Nintendo (Wii). they attracted car drivers by making flying closer to the car-driving experience. analogous to a shark infested ocean where the sharks are fighting each other for the same prey. the airlines that are either in bankruptcy or close to it remain stuck in the red ocean of competition. Page 2 of 17 . is calm. created a totally blue ocean by attracting car drivers. If you look at the airline industry. a true blue ocean strategy must have three key components in order to implement and communicate your strategic move: the strategy must be focused. These organizations created their blue ocean and so can you. Southwest Airlines. Cemex Cement. They offered the speed of the airplane with the economics and flexibility of driving. on the other hand. The researchers called this the Red Ocean. Casella Wine [yellowtail]. Instead. Southwest did not compete head-on against other airlines by offering better meals or other incentives. Blue Ocean The Red Ocean is where every industry is today. diverge from the competition’s strategic profile. Starbucks and IKEA are other examples of companies that have created new markets for their products through value innovation. with lots of food and little or no competition. on the other hand.

someone will lose a customer. they will not be successful for a very long time. Southwest Airlines appealed to auto travelers. of course. Make the competition irrelevant. how can anyone compete with you? All the would-be competitors fall by the wayside. The competition becomes irrelevant because they cannot duplicate the ideas in a way that is a commercial success. you. then it is assumed. someone must lose. create and capture new demand. thus the focus on the customers currently purchasing in that industry. Beat the competition vs. Remember. If someone wins a customer. or they don’t know how. Create uncontested markets to serve. there is a focus on trying to increase the size of the industry by attracting people who have never purchased in that industry. Compete in existing markets vs. Nintendo’s Wii appeals to families and seniors. whether they are doing business with you or your competitors. If you cut your strategy teeth on Michael Porter’s Competitive Strategy concepts. focus on noncustomers. there is only a winner. Exploit existing demand vs. For someone to win. If you are doing that.Focus on current customers vs. In most industries there is little effort to attract new buyers to the industry. No one else is fighting for the business because either they don’t know about it. Existing markets are all the customers doing business in the industry right now. break the value cost tradeoff. you understand that there were only two Page 3 of 17 . They will try. Make the value-cost tradeoff vs. In uncontested markets. In the Blue Ocean. but if you have done things the Blue Ocean Strategy way. You will be creating value so high that you will be attracting customers that never before would have considered entering the market. the whole idea of Blue Ocean Strategy is to have high value at low cost.

. if you don’t break the value cost tradeoff. and because value to the company is generated from the offering’s price minus its cost. gets eliminated or reduced. In fact. The entire organization must be aligned this way. price and cost is aligned. You can’t just say you are going to have differentiation and low cost. thereby opening up new and uncontested market space. Strategy Canvas The strategy canvas is the central diagnostic and action framework for building a compelling blue ocean strategy. Kim and Mauborgne have broken that concept and said that you can have high value and low cost and developed the tools to do it. Value Innovation Value Innovation is the cornerstone of blue ocean strategy.. It was understood that you could not have both value and low cost. You must search every nook and cranny of your processes and organization to strip away unnecessary cost. and the vertical axis captures the offering level that buyers receive across all these key competing factors.anything that doesn’t create or contribute to value. The strategy canvas serves two purposes: Page 4 of 17 . value or low cost.strategies to chose from. value innovation is achieved only when the whole system of utility. aligning the organization with differentiation AND low cost. It is just the most efficient way to run an organization whether in a blue or red ocean. Value innovation focuses on making the competition irrelevant by creating a leap of value for buyers and for the company. Align the organization with differentiation OR low cost vs. competitors will easily duplicate what you are doing and the ocean will once again be very red. The horizontal axis captures the range of factors that the industry competes on and invests in. Value innovation is the simultaneous pursuit of differentiation and low cost. Because value to buyers comes from the offering’s utility minus its price.

In the case of price. It is a value element used to attract buyers. I. it propels you to action by reorienting your focus from competitors to alternatives and from customers to noncustomers of the industry. The strategy canvas has three components.  Secondly.  The value curve is the basic component of the strategy canvas. it captures the current state of play in the known market space.Firstly. Competitive factors are the six to twelve features or benefits considered key or essential to the promotion of a product or service to its intended market. This allows you to understand where the competition is currently investing and the factors that the industry competes on. Understand that since you are going to be listing only your top 6 – 12 factors. and therefore invests more in that factor. at what level do you provide education? A high score means a company offers buyers more. a higher score means a higher price. the level of the offering is going to be high for each factor and each competitor in the industry. The level of a competitive factor that the buyer receives and a company invests. It is a graphic depiction of a company's relative performance across its industry's factors of competition. First are the competitive factors.e. These are listed across bottom horizontal axis of the canvas. Refer to the strategy canvas example below of the electronic games industry. The second component is the Offering level up the vertical axis. The third component is the Value Curve created when you plot the competitive factor against Page 5 of 17 .

to grow their share of a market.the offering level and connects the dots. companies strive to retain and expand existing customers. By focusing on key commonalities across Page 6 of 17 . Instead of concentrating on customers. There are three tiers of noncustomers that can be transformed into customers. And instead of focusing on customer differences. The more intense the competition is. To maximize the size of their blue oceans. These are buyers who have seen your industry’s offerings as an option to fulfill their needs but have voted against them. This key component of the strategy canvas is created when the offering level of an industry’s or organizations competitive factors are plotted on the strategy canvas and the dots connected. As companies compete to embrace customer preferences through finer segmentation. This often leads to finer segmentation and greater tailoring of offerings to better meet customer preferences. they need to look to noncustomers. They are noncustomers who have never thought of your market’s offerings as an option. A value proposition is what the customer gets for their money. They are buyers who minimally purchase an industry’s offering out of necessity but are mentally noncustomers of the industry. few companies have keen insight into who noncustomers are and how to unlock them. Thus you can average the results and combine to create the industry canvas representing all competitors. the competitors in each industry will follow the same general curve shape. They differ in their relative distance from your market. Because competitors benchmark each other. To convert this huge latent demand into real demand in the form of thriving new customers. The second tier of noncustomers is people who refuse to use your industry’s offerings. Think of this as a visual representation of the industry’s value proposition. They are waiting to jump ship and leave the industry as soon as the opportunity presents itself. That allows companies to reach beyond existing demand to unlock a new mass of customers that did not exist before. companies need to deepen their understanding of the universe of noncustomers. they often risk creating too-small target markets. not only would they stay. 3 Tiers of Noncustomers Typically. is the resulting customization of offerings. but also their frequency of purchases would multiply. However. The third tier of noncustomers is farthest from your market. Although the universe of noncustomers typically offers big blue ocean opportunities. The first tier of noncustomers is closest to your market. the greater. companies need to take a reverse course. they need to build on powerful commonalities in what buyers’ value. unlocking enormous latent demand. They sit on the edge of the market. if offered a leap in value. on average.

elderly. they will bolt away from these games. to break the trade-off between differentiation and low cost and to create a new value curve. See the Three Tiers example below: 4 Actions Framework And ERRC Grid To reconstruct buyer value elements in crafting a new value curve. but don't want to. the first tier would be males that have outgrown that stage of their life and may still play games. So girls are the second tier of non customers. young antisocial males would be at the heart of the red ocean market. The third tier of non customers is probably everyone else. When they find it. companies can understand how to pull them into their new market. In the center is your red ocean market. So if we use the electronic game industry as an example. families. They reject the games in favor of more social activities. Moving away from them. seniors. we use the Four Actions Framework. They are the primary players of electronic games. who know about games. 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? Page 7 of 17 . can play the games. As shown in the diagram above. but are looking for something else.these noncustomers and existing customers. This first tier is followed by girls.

 After you define the three tiers of non customers. the idea is that you poll these noncustomers and find out what it would take to purchase your product or service.  It is easily understood by managers at any level. By driving companies to fill in the grid with the actions of eliminating and reducing as well as raising and creating. Nintendo asked people in their three tiers why they didn’t play games. The average person wanted something easy to learn and have fun with. Looking at the competitive factors researched for electronic games (see Creating Your Strategy Canvas. Then they asked what would entice them to play. They took the answers to those questions and designed the Nintendo Wii. The number of games was still important for variety 4. wanting something much simpler 6. For example. attracting noncustomers who never before played electronic games. The online play wasn’t so important 5.The Eliminate-Reduce-Raise-Create Grid (ERRC) is complementary with the four actions framework.a common plight in many companies. making them discover the range of implicit assumptions they make unconsciously in competing. but turned everyone else off. They thought the price was high. The console specifications didn’t need to be so broad making the console difficult to learn 7. It pushes companies not only to ask all four questions in the four actions framework but also to act on all four to create a new value curve. They wanted the additional feature of being easy to use Page 8 of 17 . it drives companies to robustly scrutinize every factor the industry competes on. the grid gives companies four immediate benefits: It pushes them to simultaneously pursue differentiation and low cost to break the valuecost trade off. which thrilled the young antisocial males in that market. The typical electronic game was very high tech and difficult to learn. They wanted the additional feature of activity 8.  It immediately flags companies that are focused only on raising and creating and thereby lifting the cost structure and often over engineering products and services . May 11. creating a high level of engagement in its application.  Because completing the grid is a challenging task. It has been a huge hit. 2009). They like the graphics but the very high resolution wasn’t necessary 3. we find out the following regarding the noncustomers we researched from the Three Tiers: 1. essential for unlocking a new blue ocean. They disliked the complexity. preferring something more affordable 2.

Here is a picture of the concept: To help you keep track of your competitive factors and see what you are doing. you can reduce your investment in them. These four actions then are the basis for creating a new strategy canvas.When you look at the competitive factors. there are really only four actions you can take with them. you can raise your investment in them or you can create totally new factors. You can eliminate them completely. the EliminateReduce-Raise-Create Grid (ERRC) keeps the factors sorted: Page 9 of 17 .

It is easy to see the difference and to show this to the entire company from senior managers to janitorial staff and have them understand how the company or product will be different. now you can recreate your value curve on the strategy canvas.Once you have this information. Page 10 of 17 . See how different the Red Ocean and Blue Ocean Value Curves are? These represent both the old (Red Ocean) and new (Blue Ocean) value propositions to the customers.

Many companies have products and services that offer increased value but are not particularly innovative. offer the customer more for less. have a mass following of customers providing a huge opportunity for growth and diverges from the competition (have no competition). Red Oceans will always be around and you must be able to navigate these oceans well. Examples of Pioneers are the Nintendo Wii. If the product competitors copy easily and catch up it will fall into Settler status. but basically stay within the realm of the industry competitors. The products and services that are Pioneers offer unprecedented value. The Settlers are the products and services that have a great deal of competition and offer only incremental opportunities for real growth. These products and services are considered Migrators because they might migrate into either the Pioneer or Settler status. If the product or service can be altered to be more innovative and offer unprecedented value. rather than the higher technology equipment of the typical health club competitors. it will migrate into Pioneer status. Also Curves utilizes the lower technology of simple hydraulic exercise equipment. which diverged from the competition to use lower technology rather than higher technology to appeal more to the masses.Pioneer-Migrator-Settler Map How can you determine whether you are in a bloody red ocean or a true blue ocean? How can you determine if there is a possibility of creating a blue ocean for any of your current products or services? The Pioneer-Migrator-Settler Map helps you visualize where your portfolio of products falls in the proverbial ocean. Many CEOs assume that to be a pioneer you must be technologically innovative. That is definitely not true. Page 11 of 17 . The Blue Ocean Strategy tools can help you become more competitive in your bloody red ocean as well as help you create your true Blue Ocean Strategies. It is important to understand the value of these Settlers and the Red Ocean business.

At the time the company’s core activities were paper and rubber products. and no product is introduced to the market without first getting a Value Innovation Certificate. peripheral division three years earlier. in fact not even from within the industry. Place a dot in the Pioneer or Migrator or Settler square where each product or service falls today. and its first quarter profits were 50 times higher than that of the same period the previous year. He completely reoriented the company’s focus from technology driven to customer solution driven. Finland’s and Nokia’s largest market. If you have dots in the Pioneer Square. In 2003 the Digital Media unit launched 40 new products using the VI process. collapsed overnight. Here is the structure. Last year there were 2. Utilizing the tools of Blue Ocean Strategy and making critical strategic moves can keep you ahead of the competition. very well. Nokia: In 1991 trade with the Soviet Union. which was just a small.000 employees working in cross-functional teams on 90 Value Innovation projects at Samsung. COMPANIES USING BLUE OCEAN STRATEGY Samsung: Value Innovation is Samsung’s core tool for product development and played a significant role in helping Samsung become the world’s top consumer electronics company. What is critical here is that you be able to navigate this ocean very. what can you do to keep the Pioneer status into the future? If most of your products and services are Settlers. create your P-M-S Map. you have a lot of company. so that by Page 12 of 17 . Then look at where the dots are. the first company leader who was not from within the company.To see how bloody red or true blue your portfolio is. By 1994 Nokia was selling off its industrial divisions and was listed on NYSE as the world’s premier supplier of mobile phones. The Settlers and the Red Ocean markets are now and will always be important. IBM: Between 1991 and 1993 IBM recorded losses of USD 16 Billion and the future was looking grim to say the least. based on the definitions above. In 1993 Lou Gerstner became CEO.

today NetJets is a multibillion-dollar business. Because the Duet had features never seen before: It could wash big loads yet used very little water and electricity. Other companies using Blue Ocean Strategy are:  Cirque du Soleil (the circus reinvented for the entertainment market). They said that it changed their lives because it saves them time and gave back some of their freedom.  Starbucks (coffee as low-cost luxury for high-end consumers). vs. with more than five hundred aircraft. The Duet was tagged at US$ 2. But best of all. yet it became a sensation. The reality is that NetJets reconstructed market boundaries to create this blue ocean by looking across alternative industries. Purchased by Berkshire Hathaway in 1998. and cleaned better. futuristic form creates a strong emotional bond. to face either forward or backward. Apple: Apple computers invented a new market with the iPOD digital music player. When Stokke introduced the Xplory baby stroller in the U. Stokke: Norwegian furniture company Stokke entitled 'Hotweels' from Fast Company (May 2005). which the company introduced to a well-saturated market in 2001. and enabling the stroller to navigate any terrain. Netjets: NetJets. This radical shift in company culture and orientation is widely accredited with IBM’s exemplary recovery to growth and healthy profitability. It’s flashy. and comforters.personal portable stereos). it sold in the first nine weeks what it had planned to sell over six months. It could also handle silks.  Sony (the Walkman . The company’s idea was to create a portable music player so people could listen to it anywhere. with revenues growing at 30–35 percent per year from 1993 to 2000..  EBay (online auctioning). In less than twenty years NetJets has grown larger than many airlines. Page 13 of 17 . it inspired real affection among women. Because it offers a package of unprecedented attributes: its flexible design makes life easier for parents by allowing the seat to be raised to eye-level. operating more than two hundred fifty thousand flights to more than one hundred forty countries. hassle free travel experience. NetJets’ success has been attributed to its flexibility. adding $6.S.2 billion to the company’s revenue. priced at a hefty US$ 749. increased reliability.300. and strategic pricing.2001 $35 Billion of $86 Billion total sales were from the newly created Global Services. Apple has sold more than 10 million music players. lace. which created the blue ocean of fractional jet ownership. US$ 600 a pair for most existing models. doing laundry in record time. shortened travel time. Whirlpool: Whirlpool’s front-loading washer-dryer combo called the Duet.

How do you motivate key players to move fast and tenaciously to carry out a break from the status quo? Politics. like individuals. of course. the greater the resources and time you will need to bring about results. They can do this fast and at low cost.”    Although all companies face different degrees of these hurdles. Cars: Japanese fuel-efficient autos (mid-70s) and Chrysler minivan  Dell (mid-1990s). Conventional wisdom asserts that the greater the change. so why rock the boat? Limited resources. tipping point leaders can topple the four hurdles that limit execution of blue ocean strategy. The key questions answered by tipping point leaders are as follows: What factors or acts exercise a disproportionately positive influence on breaking the status quo? On getting the maximum bang out of each buck of resources? On motivating key players to aggressively move forward with change? And on knocking down political roadblocks that often trip up even the best strategies? By single-mindedly focusing on points of disproportionate influence. but they feel comfortable to people and may have even served an organization well until now. To achieve this effectively. “In our organization you get shot down before you stand up. Instead. however. 4 Hurdles to Execution Once a company has developed a blue ocean strategy with a profitable business model. the greater it is assumed are the resources needed to execute it. Tipping point leadership allows you to overcome these four hurdles fast and at low cost while winning employees’ backing in executing a break from the status quo. Waking employees up to the need for a strategic shift. for any strategy. you need to flip conventional wisdom on its head using what we call tipping point leadership. it must execute it. knowing how to triumph over them is key to attenuating organizational risk. But many companies find resources in notoriously short supply Motivation. The greater the shift in strategy. Companies. and many may face only some subset of the four. Red oceans may not be the paths to future profitable growth. As one manager put it. They face four hurdles:  A cognitive hurdle. The challenge of execution exists. The challenges managers face are steep. Page 14 of 17 . often have a tough time translating thought into action whether in red or blue oceans. companies must abandon perceived wisdom on effecting change.

price. this principle shows how to aggregate demand. across the functionalemotional orientation of an industry. 4. It presents an alternative to the existing strategic planning process. across buyer groups. this principle proposes a fourstep planning process whereby you can build a strategy that creates and captures blue ocean opportunities. To create the greatest market of new demand. 2. Page 15 of 17 . Illustrates how to design a company's strategic planning process to go beyond incremental improvements to create value innovations. 3. and even across time. hence attenuating search risk. cost and adoption requirements. hence minimizing scale risk. Focus on the big picture. When companies meet the sequence of utility. Reconstruct market boundaries. This principle identifies the paths by which managers can systematically create uncontested market space across diverse industry domains. This principle describes a sequence which companies should follow to ensure that the business model they build will be able to produce and maintain profitable growth. not by focusing on the differences that separate customers but by building on the powerful commonalities across noncustomers to maximize the size of the blue ocean being created and new demand being unlocked. across strategic groups. This principle tackles planning risk. Using a visualizing approach that drives managers to focus on the big picture rather than to be submerged in numbers and jargon. Instead. It teaches companies how to make the competition irrelevant by looking across the six conventional boundaries of competition to open up commercially important blue oceans. This practice often results in increasingly small target markets. Reach beyond existing demand. which is often criticized as a numbercrunching exercise that keeps companies locked into making incremental improvements. they address the business model risk and the blue ocean idea they created will be a commercially viable one.Principles of Blue Ocean Strategy Principles of Blue Ocean Strategy are the six main principles that guide companies through the formulation and execution of their Blue Ocean Strategy in a systematic risk minimizing and opportunity maximizing manner. not the numbers. The six paths focus on looking across alternative industries. Get the strategic sequence right. The remaining two principles address the execution risks of Blue Ocean Strategy. managers must challenge the conventional practice of aiming for finer segmentation to better meet existing customer preferences. across complementary product and service offerings. The first four principles address Blue Ocean Strategy formulation: 1.

5. what Kim & Mauborgne call. not the numbers Reach beyond existing demand Get the strategic sequence right Search risk Planning risk Scale risk Business model risk Risk Factors Evaluation principles Overcome key organizational hurdles Build execution into strategy Organizational risk Management risk REFERENCES http://www.html Page 16 of 17 . Build execution into strategy. people are motivated to act on and execute a blue ocean strategy in a sustained way deep in an organization. This principle deals with organizational risk. Overcome key organizational hurdles. Principles Formulation Principles Reconstruct market boundaries Focus on the big fair process. motivational. Tipping point leadership shows managers how to mobilize an organization to overcome the key organizational hurdles that block the implementation of a blue ocean strategy. 6. Because a blue ocean strategy perforce represents a departure from the status quo. By integrating execution into strategy making. resource. and political hurdles in spite of limited time and resources in executing blue ocean strategy. It lays out how leaders and managers alike can surmount the cognitive.1000advices. This principle introduces. It deals with management risk associated with people's attitudes and behaviors. fair process is required to facilitate both strategy making and execution by mobilizing people for the voluntary cooperation needed to execute blue ocean strategy.

com/abo/ Page 17 of 17 .html http://www.blueoceanstrategy.php? Term=principles-of-blue-ocean-strategy http://www.blueoceanstrategy.html

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