Blue Ocean Strategy: Create Uncontested Market Space

Blue Ocean Strategy offers a fresh approach to strategy development, enabling companies to break out of cutthroat competition by creating uncontested market space. Developed by W. Chan Kim and Renee Mauborgne, professors at INSEAD, the concept challenges the conventional wisdom that success comes from battling competitors. Instead, it argues that lasting success comes not from fighting over a shrinking profit pool in established markets, but from creating "blue oceans" of untapped new market spaces ripe for growth.

At the heart of Blue Ocean Strategy is the idea of value innovation. This means pursuing differentiation and low cost simultaneously, thereby making the competition irrelevant. Rather than making a choice between differentiation and cost, blue ocean strategists aim to break the value-cost trade-off and pursue both.

The authors contrast "red oceans", representing all the industries in existence today, with "blue oceans", which denote all the industries not in existence today. In red oceans, industry boundaries are clearly delineated and competitive rules are well understood. Companies try to outperform rivals to grab a larger slice of the existing market share. As the space gets crowded, growth and profit prospects shrink, leading to fierce, bloody competition – hence the metaphor "red oceans".

Blue oceans, on the other hand, are uncharted and untainted by competition. They offer the opportunity for highly profitable growth. The key is to create them by tapping into latent demand, rather than by fighting over existing customers. By expanding market boundaries, blue ocean strategists aim to create and capture new demand, thereby rendering rivals obsolete.

To help companies visualize the current state of play in their industry and devise a blue ocean strategy, Kim and Mauborgne developed the Strategy Canvas tool. The horizontal axis captures the range of factors an industry competes on, while the vertical axis represents the offering level for each of those factors. By plotting a value curve showing how a company and its competitors currently invest in those key competing factors, strategists can see the trade-offs being made and identify opportunities to break away from the pack.

The Strategy Canvas is typically used in conjunction with the Four Actions Framework to reconstruct buyer value elements and craft a new value curve. The framework poses four key questions:

1. What factors that the industry takes for granted should be eliminated?
2. What factors should be reduced well below the industry standard?
3. What factors should be raised well above the industry standard?
4. What factors that the industry has never offered should be created?

By applying this framework, companies can systematically explore how to redraw industry boundaries and create blue oceans. Classic examples of this in action include:

• Cirque du Soleil eliminated animals and star performers, reduced aisle concessions, raised unique venue ambiance and artistic music/dance, and created a refined sophistication
• Southwest Airlines eliminated lounges and meals, reduced fares and seating choices, raised friendly service and speed, and created point-to-point routes and high aircraft utilization

While these examples are well known, the authors stress that creating blue oceans is not about predicting or preempting industry trends. Nor is it a matter of being first to market or the latest technology. Rather, it is about reordering market realities to break from the

The Six Principles of Blue Ocean Strategy

1. Reconstruct market boundaries: Blue ocean strategists don't let existing market structures limit their thinking. They look across alternative industries, strategic groups, buyer groups, complementary product and service offerings, functional-emotional orientation of an industry, and even across time to create new market space.
2. Focus on the big picture, not the numbers: Instead of getting bogged down in detailed planning and number crunching, blue ocean strategists focus on getting the strategic big picture right. They pursue the "four actions framework" of eliminating, reducing, raising, and creating to develop a compelling value proposition.
3. Reach beyond existing demand: Rather than focusing on existing customers and segmenting markets ever more finely, blue ocean strategists aggregate demand. They look to non-customers to expand the pie and create new demand.
4. Get the strategic sequence right: Blue ocean strategists build their strategies in the sequence of buyer utility, price, cost, and adoption. They seek to create exceptional utility for buyers, set strategic pricing to attract the mass of target buyers, and secure a viable profit by aligning cost structure with strategic pricing.
5. Overcome key organizational hurdles: Implementing a blue ocean strategy requires overcoming organizational hurdles such as cognitive, resource, motivational, and political challenges. Blue ocean leaders focus on tipping point leadership to achieve a strategic shift with limited resources and motivate key players to aggressively move forward with change.
6. Build execution into strategy: Blue ocean strategy is not just about dreaming up radical ideas but making them happen. Strategy development and execution are inextricably linked. Fair process, which builds execution into strategy making from the start, is key to achieving staff buy-in and voluntary cooperation.

Avoiding Common Blue Ocean Strategy Traps

In their pursuit of blue oceans, companies need to be aware of several potential traps:

• Not focusing on creating uncontested market space: The essence of blue ocean strategy is to create uncontested market space. If a strategy doesn't do this, it is not a blue ocean move.
• Seeking differentiation without also pursuing low cost: Value innovation requires the simultaneous pursuit of differentiation and low cost. Focusing only on differentiation without an equally important emphasis on cost leads to higher costs that buyers may not be willing to pay for.
• Launching blue ocean ventures without a supporting business model: Without a viable business model to generate profit over the long run, a blue ocean idea will likely fizzle out. The business model needs to ensure profitable and sustainable growth.
• Expecting an overnight shift in the company's strategy and culture: Shifting an organization from a red to blue ocean mindset takes time. It requires instilling a culture of trust, commitment, and voluntary cooperation which can't be achieved overnight.
• Crafting a blue ocean initiative that is too tactical and not strategic enough: Blue ocean initiatives need to be strategic, not just tactical moves. They should involve a significant departure from the existing business model, rather than incremental improvements.

Implementing Blue Ocean Strategy

Putting blue ocean strategy into practice requires a systematic approach. Key steps include:

• Identifying unmet customer needs and pain points: This involves getting out into the field, observing how people use and struggle with existing offerings, and looking for the commonalities that indicate untapped market potential.
• Aligning utility, price and cost: The goal is to create exceptional utility for buyers while also maintaining a viable business model. This requires setting the right strategic price that attracts the mass of target buyers and streamlining costs to hit the target profit.
• Building a culture of trust and commitment: People deep within the organization need to be engaged and energized to carry out a break from the status quo. Creating a fair process where people are involved, ideas are selected impartially, and the rationale is clearly explained builds trust and commitment.
• Embedding execution into strategy: The process of strategy making needs to be inclusive, not top-down. Involving people in the process from the start ensures that execution is built into the strategy. This is supported by an iterative process with fluid adjustments based on market feedback.
• Overcoming organizational hurdles: Implementation often faces four types of hurdles: cognitive, resource, motivational and political. Overcoming these involves engaging in open and transparent communication, leveraging existing resources, instilling confidence, and identifying kingpins whose support is vital. Tipping point leadership focuses on identifying and leveraging factors of disproportionate influence to overcome these hurdles.

Applying Blue Ocean Strategy Concepts

Traditional strategic planning processes often result in static, quickly outdated plans that fail to keep pace with rapidly changing market conditions. By embracing Blue Ocean thinking, we're helping organizations embed agility and responsiveness into their strategy development.

Central to this is leveraging technology to enable faster feedback loops between strategy creation, execution and evaluation. Real-time data and analytics provide visibility into how the strategy is playing out in the market, informing quick adjustments. Collaborative platforms support fluid, iterative planning processes that engage people throughout the organization.

The goal is continuous adaptation of strategy based on validated learning. Rather than an annual exercise, strategic planning becomes an ongoing process of hypothesis testing and refinement. This approach is especially well-suited to the ambiguity and dynamism of Blue Oceans.

Of course, technology is just an enabler. The real key is instilling a culture that rewards smart risk-taking and sees strategy as everyone's job, not just the purview of senior leaders at an offsite retreat. When people at all levels feel empowered to question industry assumptions and surface unmet customer needs, that's when the most compelling Blue Ocean opportunities tend to emerge.

Conclusion

In an increasingly complex and fast-changing business environment, Blue Ocean Strategy offers a refreshing approach to pursuing growth through value innovation. Rather than battling competitors over a shrinking profit pool, it provides a systematic methodology to create uncontested market space and make the competition irrelevant.

At the heart of Blue Ocean Strategy is a focus on delivering exceptional value to buyers while also maintaining a healthy cost structure. By eliminating and reducing certain factors an industry competes on, while raising and creating others, companies can unlock new demand and open up untapped market space.

Of course, creating Blue Oceans is easier said than done. It requires overcoming significant organizational hurdles and getting comfortable with ambiguity and experimentation. But for companies willing to challenge industry conventions and explore unchartered waters, the potential for transformative growth is tremendous.

Ultimately, Blue Ocean Strategy is about having the courage to imagine new possibilities, the discipline to validate them in the market, and the conviction to rally an organization around a break from the status quo. Those that master this balance position themselves to not just survive but thrive in the constantly shifting currents of today's business environment.

Related Reading

• Strategic Planning in a VUCA World
• The Role of Experimentation in Strategy
• Building Agility into Your Strategic Rhythm

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