The Blue Ocean Strategy - W. Chan Kim and Renée Mauborgne

The Blue Ocean Strategy - W. Chan Kim and Renée Mauborgne

Find out, in a practical and quick way, what are the principles of the strategy used to create new markets and knock out the competition!

"The Blue Ocean Strategy" shows that many of the business strategy of the past few decades had focused on competition. In these strategies, called by the authors W. Chan Kim and Renée Mauborgne as red oceans, market structures are known, and companies try to outperform their rivals for a part of an existing demand.

One strategy example of that is the SWOT analysis by Michael Porter. Over time, markets become overburdened, product prices fall sharply and profits go away. This trend may be exacerbated by technological advances.

In contrast, the blue ocean strategy creates new market spaces, building new demands and results in sustainable growth. Here, the structure of the market will be explained.

Got curious about this fundamental topic for business? Continue this reading with us and learn to sail blue oceans in the future!

The book "The Blue Ocean Strategy"

In the book "The Blue Ocean Strategy", written by W. Chan Kim and Renée Mauborgne in 2015, it is shown research of 150 successful people and people who failed in 30 different industries and saw that traditional explanations did not explain the method of the winners.

What they found is that companies that create new niches, making competition an irrelevant factor, find a way to growth. The book teaches you how to put this strategy into practice.

Who are W. Chan Kim and Renée Mauborgne?

Author W. Chan Kim and author Renée Mauborgne are co-directors of the INSEAD, Blue Ocean Strategy Institute and chaired professors of Strategy and International Management at the Boston Consulting Group.

They are in the top 3 of the Thinkers50 list, being considered one of the greatest gurus in the management area. Also, they are members of the World Economic Forum.

Why should I read it?

This book is suitable for leaders of organizations and industries around the world who are having problems with a saturated market or for those who wish to start entrepreneurship.

If you are looking for new strategies to boost your sales and ignore your competitors, this book will help you in this journey!

What are the key points of the book "The Blue Ocean Strategy"?

  • The Blue Ocean strategy is to create an untapped space in the market;
  • Excess in the attributes and services offered, which happens through the effort to imitate the competition;
  • You should not narrow your vision by looking only at competitors from within your industry;
  • Usually, customers do not care about the technology under the product - they want to know if the product will solve their problems.

Let us present the content of this book, which can be divided into 7 parts. Let's go?

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[Book Summary] Blue Ocean Strategy - W. Chan Kim, Renée Mauborgne

Creating a Blue Ocean

The authors W. Chan Kim and Renée Mauborgne begins the book "The Blue Ocean Strategy" explaining what a blue ocean is and comparing it to the red ocean.

Blue Ocean vs. Red Ocean

Blue ocean and red ocean

In the 1980s, the circus industry was dominated by Ringling Bros. and Barnum & Bailey, who produced classic attractions with clowns and animals. Its main audience was children and their families.

However, the competition started to grow. The circuses competed for the best artists and exotic animals, which increased the cost.

Overtime the customers had more entertainment options, like television and video games. In addition, there was growing public concern about the confinement and training of animals.

Thinking about it, the street artist Guy Laliberté decided to escape the red ocean of the circuses and create a blue ocean of theatrical entertainment: the Cirque du Soleil. His attractions combine the circus with the theater, featuring acrobatics and natural talents embedded in a story with original music.

Essentially, he took advantage of the best of both worlds, he created an entirely new form of entertainment, that is, made a value innovation, while reducing costs and increasing profit margins.

The following table explains exactly both strategies concept.

Difference between red ocean and blue ocean strategy

This image was adapted from Figure 1.3, page 17 of the book.

Analysis models and tools

In this chapter of the book "The Blue Ocean Strategy", the authors W. Chan Kim and Renée Mauborgne introduces tools and analysis models used to minimize the risk of the entrepreneur.

The value evaluation matrix

This matrix visualizes the current state of the industry and shows how a blue ocean strategy differs from its competitors. It is assembled as follows:

  • Horizontal axis: represents the variety of attributes in which the sector invests and competes;
  • Vertical axis: it depicts the level of supply of each attribute according to the perception of the buyers.

The goal is to deliver more of what consumers value (offering a clearly superior product) and less than they do not care, reducing costs.

Graphic of variety of attributes x level of supply

This image has been adapted from figure 2.7, page 40 of the book.

Four actions model

To create a new value curve, the blue ocean strategy has four key questions that ask the strategic logic and business model of the sector:

Four key questions of blue ocean strategy

This image was adapted from figure 2.2, page 29 of the book.

The questions about "eliminate" and "reduce" force the company to evaluate whether there is excess in the attributes and services offered, which happens through the effort to imitate the competition.

The other two issues lead the company to increase value for buyers and provide more than they really want. New factors offer entirely new experiences and create new demands.

The eliminate-reduce-raise-create matrix

The results of the four-action model can be presented in this matrix which, in addition to being easily understood, induces the company to act based on what was found. In the example, the eliminate-reduce-raise-create matrix of Cirque du Soleil can be defined as:

Eliminate-reduce-raise-create matrix

This image has been adapted from figure 2.5, page 36 of the book.

Rebuilding Market Boundaries

Here, Kim and Mauborgne states that to find new ideas and build new markets, products, and services, you need to go across 6 borders, which we'll cover in this overview.

First border: examine the alternative sectors

Do not narrow your view only on competitors within your industry, also consider the alternatives that customers have for their products. For example, cinemas and restaurants compete in different branches, but both can serve the purpose of "going out at night".

For this, it is important to ask the following: what are the alternative sectors to my own sector? Why do customers choose one or the other?

By focusing on the critical attributes that drive buyers to choose between alternative industries and eliminate or reduce everything else, it is possible to create the blue ocean of a new market space.

Second border: explore the strategic groups within the sectors

Strategic groups are companies within a market that pursue a similar strategy. Usually, they differ in two dimensions: price and performance.

For example, "premium" cars, such as BMW and Mercedes, form a group; while more popular cars, such as Volkswagen and Fiat, make up another group.

It is common not to pay attention to other strategic groups. However, it is important to look at them if you want to gain competitive advantage. In addition, it is important to think about why customers go up or down the scale of offers in the market.

Third Border: Analyze the Buyers Chain

Normally, businesses converge around who owns purchasing power, but that person can be different from his actual user.

A corporate software vendor often negotiates with the CTO, not with the engineers who will use his product.

So, ask the questions: what is the chain of acquirers in your industry? In which groups of buyers does your industry focus? How could you create a new value by shifting the focus to another group of consumers?

Fourth Border: Evaluate the offerings of complementary products and services

Hardly ever products are used in isolation - they are often part of an entire experience. Going to a football game, for example, also requires transportation or parking, as well as food and beverages that will be purchased locally.

Therefore, it is important to consider what happens before, during and after the use of your products. Offering add-ons to your service, even free, can serve to add much value.

Fifth Border: Study the Functional and Emotional Appeals of Buyers

Businesses tend to focus only on one side of the functional-emotional spectrum. Either they compete for prices and functions or compete for customers' feelings.

Does your industry compete on the basis of emotional or functional appeals? What elements can be eliminated to make it functional? In the opposite direction, if your industry follows functional guidance, what elements should be added to make it emotional?

Sixth border: note the passage of time

It is always important understand the trends that emerge, but many companies focus on projecting the trend instead of seeking understand how it will change the value to the customer and the organization business model.

Which trends are most likely to influence your industry, which ones are irreversible, and which ones are evolving in a clear path? How will these trends transform your industry? In the face of these circumstances, how to create unprecedented utility for customers?

Focus on the big picture, not the numbers

Designing your strategic model allows you to see the most important factors in your industry, as well as show the strategic profile of everyone working in that market.

In this part 4 of the book "The Blue Ocean Strategy", the authors W. Chan Kim and Renée Mauborgne shown the model used to achieve this object:

Visual Awakening

  • Compare your company with competitors, designing the matrix of value evaluation regarding the current situation;
  • Identify where your strategy should change.

Visual exploration

  • Take the field to explore the six borders that lead to the creation of blue oceans;
  • Notice the differentiating advantages of alternative products and services.
  • See which factors to eliminate, create, or change.

Visual Strategy Fair

  • Draw your future matrix based on perceptions resulting from field observations;
  • Receive feedback on the value assessment matrix of alternatives, coming from customers and non-customers;
  • Use feedback to build the best strategy for the future.

Visual Communication

  • Distribute your initial and final strategic profiles to a single page for easy comparison;
  • Support only the projects and initiatives that allow your company to close the gaps in the implementation of the new strategy.

Set the Strategic Sequence

In Part 5, the authors W. Chan Kim and Renée Mauborgne presents the strategic sequence to be used to increase customer value.

Utility for the buyer

A classic strategic mess is confusing innovation with greater customer value. Just being a new technology or approach does not mean it will improve the lives of consumers.

Usually, they do not care about the technology under the product - they want to know if the product will solve their problems. If what you offer doesn't fit to the needs of customers, it doesn't represent greater value.

To analyze this, you need to fill out the utility map for the buyer represented below:

Map with the six stages of the purchasing experience cycle

This image has been adapted from Figure 6.2, page 119 of the book.

The map creates conditions for managers to identify the full spectrum of utilities that can be filled by the product or service.

Strategic Pricing

In order to ensure a strong revenue stream for your offer, you must set the right strategy for the price. This ensures that buyers will not only want to buy the product but will also have purchasing power to pay the price.

To establish the right price, you must research the main alternatives to your product, create a price range (or a corridor) that will attract most consumers, and then specify a price according to the desired level of protection.

Strategic price according to the blue ocean strategy

This image has been adapted from figure 6.5, page 126 of the book.

Target-cost

The target-cost is the next step in the strategic sequence. It takes care of the profit of the business model. Here costing occurs from price, rather than from costing, and is essential to arrive at a cost structure that is both profitable and hardly equitable.

In order to reduce costs, Kim and Mauborgne says that you should:

  • Simplify operations: reduce spending on services that add little value;
  • Closing partnerships: it is possible to transfer production and distribution activities to efficient partners;
  • Change the pricing model of your industry.

Adoption

Almost always, the new idea threatens the status quo and, for that reason, may arouse fear and resistance among the company's three main stakeholders: employees, business partners, and the general audience.

In the book "The Blue Ocean Strategy" there are some tips to deal with each of them:

Employees

  • Communicate that you are aware of the threats but believe that change is necessary;
  • Explain change practices and prepare everyone to share their mindset.

Business partners

  • They are afraid to threaten a lucrative partnership;
  • Explain how strategic changes can increase profits in the future.

General Audience

  • Anticipate common objections to your strategy;
  • Prepare enlightening messages about your innovation.

Embed Execution to Strategy

The main idea of this section, according to Kim and Mauborgne, is that you should involve people in implementing a blue ocean project. In this overview, the authors then define three principles to build this involvement.

Engagement

  • Involve employees by asking their opinions and allowing them to discuss ideas;
  • When people feel intellectually respected, they are more comfortable sharing their knowledge.

Explanation

  • Help all participants understand your reasons and criteria;
  • Make it clear that you have considered all the opinions and decided on what is best for the company.

Expectation

Renew the Blue Oceans

To conclude "The Blue Ocean Strategy", the authors emphasize the importance of the blue ocean and its advantages over the red ocean.

The creation of blue ocean strategies is not a static realization but a dynamic process. Once an innovation is discovered, sooner or later imitators will emerge on the horizon.

As the blue and red oceans have always coexisted, practical reality requires companies to navigate successfully in both waters.

For example, Microsoft, to come out of the decline, needed to work on creating a more balanced portfolio in all businesses that not only compete in the red oceans, but also create blue oceans that will renew, expand, and build their brand value.

That's why it's so important to always be aware of key innovation indicators so your business can lead the business world, which is becoming more and more congested.

Books about Strategy

Simon Sinek, in the book "Start With Why" believes that the most important thing is to find out and understand the reason to do something. This is a discovery process, not invention one, which occurs in one day.

In "Selling to Big Companies", the author Jill Konrath explains that being focus is crucial. Don't try to sell for everyone. Become a specialist in one business, define it in a cautious way.

In the book "Zero to One", the author Peter Thiel gives the following tip: when there are competitors, companies does not have the power to control the market. Because of that, they are forced to sell their products with prices regulated by the market.

So, how can I make my business thrive?

  • Create untapped market spaces;
  • Make competition irrelevant;
  • When implementing a project, involve people as it is important to engage all involved;
  • Convince and listen your partners and employees about the new strategy to achieve better results.

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Book 'The Blue Ocean Strategy'

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