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Blue Ocean Strategy

Blue Ocean Strategy

How to Create Uncontested Market Space and Make the Competition Irrelevant
by W. Chan Kim 2004 240 pages
4.02
82k+ ratings
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Key Takeaways

1. Blue Ocean Strategy: Create uncontested market space

Blue ocean strategy challenges companies to break out of the red ocean of bloody competition by creating uncontested market space that makes the competition irrelevant.

Redefine industry boundaries. Blue Ocean Strategy is about creating new market space where competition is irrelevant, rather than competing in existing crowded markets (red oceans). This approach focuses on value innovation, which simultaneously reduces costs while increasing value for customers.

Shift strategic focus. Instead of benchmarking competitors and trying to outperform them, companies should look across alternative industries, strategic groups, buyer groups, complementary products and services, and even across time to identify opportunities for creating new demand. This shift in perspective allows companies to break free from the constraints of traditional industry boundaries and create innovative offerings that appeal to a broader range of customers.

Create and capture new demand. By focusing on noncustomers and looking for commonalities across buyer groups, companies can unlock new markets and create products or services that attract both existing and new customers. This approach not only increases the size of the market but also allows companies to achieve sustainable, profitable growth.

2. Value Innovation: Simultaneously pursue differentiation and low cost

Value innovation is created in the region where a company's actions favorably affect both its cost structure and its value proposition to buyers.

Break the value-cost trade-off. Value innovation is the cornerstone of blue ocean strategy, emphasizing the simultaneous pursuit of differentiation and low cost. This approach challenges the conventional wisdom that companies must choose between providing superior value at a higher cost or reasonable value at a lower cost.

Focus on buyer value. Companies should concentrate on the factors that buyers truly value, while eliminating or reducing elements that are less important. This allows for the creation of products or services that offer a leap in value for customers while maintaining a low-cost structure for the company.

Align the whole system. Value innovation requires aligning the entire system of a company's activities, including its value proposition, profit proposition, and people proposition. This holistic approach ensures that all aspects of the business are working together to create and deliver exceptional value to customers while maintaining profitability.

3. Strategy Canvas: Visualize and create new demand

The strategy canvas is both a diagnostic and an action framework for building a compelling blue ocean strategy.

Visualize competitive landscape. The strategy canvas is a powerful tool that graphically depicts the current state of play in a known market space. It allows companies to understand where competitors are investing, what factors the industry competes on, and what customers receive from existing offerings.

Identify opportunities. By analyzing the strategy canvas, companies can identify areas where they can differentiate themselves from competitors and create new value for customers. This visual representation helps in spotting potential blue ocean opportunities and guiding strategic decisions.

Key elements of an effective strategy canvas:

  • Focus: Concentrating on key factors that truly matter to customers
  • Divergence: Creating a value curve that stands apart from competitors
  • Compelling tagline: Crafting a clear message that speaks to customers

4. Four Actions Framework: Eliminate, reduce, raise, and create

To break the trade-off between differentiation and low cost and to create a new value curve, there are four key questions to challenge an industry's strategic logic and business model.

Challenge industry assumptions. The Four Actions Framework provides a structured approach to questioning and reconstructing buyer value elements. It prompts companies to examine which factors can be eliminated, reduced, raised, or created to offer unprecedented value.

  • Eliminate: Which factors that the industry has long competed on should be eliminated?
  • Reduce: Which factors should be reduced well below the industry's standard?
  • Raise: Which factors should be raised well above the industry's standard?
  • Create: Which factors should be created that the industry has never offered?

Redefine value proposition. By applying this framework, companies can create new value curves that diverge from industry norms, leading to innovative offerings that attract new customers and create uncontested market space.

5. Three Tiers of Noncustomers: Unlock new demand

To reach beyond existing demand, think noncustomers before customers; commonalities before differences; and desegmentation before pursuing finer segmentation.

Identify untapped markets. The Three Tiers of Noncustomers framework helps companies identify and understand potential customers who are currently not served by the industry. This approach allows for the creation of new demand and market expansion.

Three tiers of noncustomers:

  1. Soon-to-be noncustomers: Those who minimally use the industry's offerings and are ready to leave
  2. Refusing noncustomers: Those who consciously choose not to use the industry's offerings
  3. Unexplored noncustomers: Those in markets distant from the industry's conventional boundaries

Focus on commonalities. By identifying common pain points and desires across these noncustomer groups, companies can develop offerings that appeal to a broader range of potential customers, effectively growing the market and creating new demand.

6. Sequence of Blue Ocean Strategy: Utility, price, cost, and adoption

To maximize the size of your blue ocean, you should first reach beyond existing demand to noncustomers and desegmentation opportunities as you formulate future strategies.

Ensure commercial viability. The strategic sequence of blue ocean strategy helps companies validate their ideas and reduce risks associated with new market creation. By following this sequence, companies can ensure that their innovative offerings are both commercially viable and attractive to customers.

Key steps in the strategic sequence:

  1. Buyer utility: Ensure the offering provides exceptional utility to customers
  2. Price: Set a strategic price that is accessible to the target mass of buyers
  3. Cost: Achieve the target cost to ensure profitability
  4. Adoption: Address potential adoption hurdles upfront

Validate and refine. This sequence allows companies to refine their ideas at each stage, ensuring that the final offering delivers exceptional value to customers while maintaining profitability for the company.

7. Overcome Key Organizational Hurdles: Cognitive, resource, motivational, and political

To achieve this effectively, however, companies must abandon perceived wisdom on effecting change.

Address execution challenges. Implementing a blue ocean strategy often requires overcoming four key organizational hurdles: cognitive, resource, motivational, and political. Tipping point leadership focuses on identifying and leveraging factors of disproportionate influence to overcome these hurdles quickly and at low cost.

Strategies for overcoming organizational hurdles:

  • Cognitive: Make key managers experience the need for change firsthand
  • Resource: Concentrate resources on areas with the greatest impact
  • Motivational: Focus on key influencers within the organization
  • Political: Silence opponents and win support from powerful allies

Create rapid change. By focusing on these factors of disproportionate influence, companies can create rapid, dramatic changes in their organizations, facilitating the successful implementation of blue ocean strategies.

8. Fair Process: Build execution into strategy

To reach your organization's tipping point and execute blue ocean strategy, you must alert employees to the need for a strategic shift and identify how it can be achieved with limited resources.

Engage and motivate employees. Fair process is crucial for building trust, commitment, and voluntary cooperation among employees during the execution of a blue ocean strategy. This approach involves three key elements: engagement, explanation, and expectation clarity.

Key principles of fair process:

  • Engagement: Involve individuals in decisions that affect them
  • Explanation: Provide clear reasons for final decisions
  • Expectation clarity: Ensure everyone understands the new rules of the game

Foster trust and commitment. By implementing fair process, companies can create a culture of trust and commitment that motivates people to execute the agreed strategy voluntarily and enthusiastically, going beyond compulsory execution to voluntary cooperation.

9. Align Value, Profit, and People Propositions: Ensure sustainability

To produce a high-performing and sustainable blue ocean strategy, you need to ask the following questions. Are your three strategy propositions aligned in pursuit of differentiation and low cost?

Create holistic alignment. A sustainable blue ocean strategy requires the alignment of three key propositions: value, profit, and people. This alignment ensures that the strategy is not only compelling to customers but also profitable for the company and motivating for employees and partners.

Key elements of strategy alignment:

  • Value proposition: Offers compelling value to customers
  • Profit proposition: Ensures a viable business model and profitability
  • People proposition: Motivates employees and partners to execute the strategy

Ensure long-term success. By aligning these three propositions, companies can create a strategy that is not only innovative but also sustainable in the long run, making it difficult for competitors to imitate.

10. Renew Blue Oceans: Institutionalize the creation process

To avoid the trap of competing at the individual business level, monitoring value curves on the strategy canvas is essential.

Maintain competitive edge. As blue oceans eventually turn red due to imitation, companies must institutionalize the process of creating new blue oceans to maintain their competitive advantage and continue their growth trajectory.

Strategies for renewing blue oceans:

  • Monitor value curves to identify when to create new blue oceans
  • Focus on dominating current blue oceans before creating new ones
  • Use the Pioneer-Migrator-Settler (PMS) map to manage a portfolio of businesses
  • Balance the need for both red and blue ocean strategies at the corporate level

Foster continuous innovation. By making blue ocean creation a repeatable process, companies can ensure their long-term success and maintain their position as industry leaders in innovation and value creation.

Last updated:

FAQ

What's Blue Ocean Strategy about?

  • Creating New Market Space: Blue Ocean Strategy by W. Chan Kim introduces "blue oceans," which are untapped market spaces where competition is irrelevant, contrasting with "red oceans," where companies compete in saturated markets.
  • Value Innovation Focus: The book emphasizes value innovation, which involves creating a leap in value for both buyers and the company, rather than competing on price.
  • Practical Frameworks: It provides analytical tools and frameworks to help organizations systematically pursue blue oceans, making the process actionable and replicable.

Why should I read Blue Ocean Strategy?

  • Transformative Insights: The book offers insights that can fundamentally change how you think about competition and market creation, encouraging a shift from competing to creating.
  • Proven Success: With over 3.5 million copies sold and translated into 43 languages, it has influenced countless businesses and leaders across various industries.
  • Broad Applicability: The strategies are applicable to all sectors, including non-profits, government, and social sectors, making it relevant for a wide audience.

What are the key takeaways of Blue Ocean Strategy?

  • Red vs. Blue Oceans: Understanding the difference between red oceans (competitive markets) and blue oceans (uncontested markets) is crucial for strategic planning.
  • Six Paths Framework: The book outlines six paths to reconstruct market boundaries, helping organizations identify new opportunities for growth.
  • Strategic Sequence: Emphasizes the importance of getting the strategic sequence right—starting with buyer utility, followed by pricing, cost, and addressing adoption hurdles.

What is value innovation in Blue Ocean Strategy?

  • Core Concept: Value innovation is the simultaneous pursuit of differentiation and low cost, creating a leap in value for both the company and its customers.
  • Breaking Trade-offs: It challenges the traditional belief in the value-cost trade-off, showing that companies can achieve both high value and low cost.
  • Practical Examples: Examples like Cirque du Soleil illustrate how redefining the circus experience enhanced value through artistic performance.

How does Blue Ocean Strategy define red and blue oceans?

  • Red Oceans: These are existing industries where companies compete for a limited market share, leading to fierce competition and often declining profits.
  • Blue Oceans: Created by identifying and developing new market spaces, where competition is irrelevant and demand is created rather than fought over.
  • Strategic Importance: Encourages businesses to focus on creating new value rather than competing in saturated markets.

What are the six paths to creating blue oceans in Blue Ocean Strategy?

  • Look Across Alternative Industries: Identify alternatives that fulfill the same need and understand why customers choose them.
  • Look Across Strategic Groups: Analyze different strategic groups within the industry to find opportunities for value innovation.
  • Look Across the Chain of Buyers: Understanding different roles in the buying process can reveal new customer segments to target.
  • Look Across Complementary Products: Identifying complementary products can help create a more compelling offering that enhances customer experience.
  • Look Across Functional or Emotional Appeal: Shift focus from functional to emotional appeal, or vice versa, to unlock new demand.
  • Look Across Time: Analyze trends over time to predict future market needs and create offerings that meet those needs.

How does the strategy canvas work in Blue Ocean Strategy?

  • Visual Tool: The strategy canvas is a visual representation of a company’s current strategic position relative to competitors, highlighting key factors of competition.
  • Identifying Gaps: Helps organizations identify gaps in their strategy and areas where they can innovate to create blue oceans.
  • Focus on Big Picture: Encourages companies to focus on the big picture rather than getting lost in numbers and operational details.

What is the four actions framework in Blue Ocean Strategy?

  • Four Key Questions: Consists of four questions: What factors should be eliminated? What factors should be reduced? What factors should be raised? What factors should be created?
  • Eliminate-Reduce-Raise-Create Grid: This grid helps organizations systematically analyze their current offerings and identify areas for improvement.
  • Practical Application: Guides companies in developing strategies that differentiate them from competitors while lowering costs.

How does Blue Ocean Strategy suggest overcoming organizational hurdles?

  • Tipping Point Leadership: Introduces the concept of tipping point leadership to help managers mobilize their organizations to overcome key hurdles in implementing blue ocean strategies.
  • Addressing Resistance: Emphasizes the importance of addressing cognitive, resource, motivational, and political hurdles that can impede execution.
  • Building Commitment: Fostering a culture of trust and commitment enhances voluntary cooperation among employees, facilitating smoother implementation of new strategies.

What are the common red ocean traps to avoid according to Blue Ocean Strategy?

  • Focusing on Competition: Companies often fall into the trap of benchmarking against competitors rather than focusing on creating unique value for customers.
  • Incremental Improvements: Many organizations get stuck in a cycle of making small improvements rather than pursuing innovative leaps that create new market space.
  • Ignoring Noncustomers: Failing to consider noncustomers can limit growth potential, as many opportunities lie in understanding and converting these groups.

What is the importance of fair process in Blue Ocean Strategy?

  • Building Trust and Commitment: Fair process involves engaging employees in decision-making, explaining the rationale behind decisions, and clarifying expectations.
  • Enhancing Execution: When fair process is applied, employees are more likely to go beyond mere compliance and actively support the execution of strategies.
  • Long-term Sustainability: Cultivates a culture of cooperation and shared purpose among all stakeholders, positioning organizations for long-term success.

What are the best quotes from Blue Ocean Strategy and what do they mean?

  • "The only way to beat the competition is to stop trying to beat the competition.": Emphasizes the need to create new market spaces rather than competing in existing ones.
  • "Value innovation is the cornerstone of blue ocean strategy.": Highlights the importance of aligning innovation with value creation to unlock new demand.
  • "A red ocean is where the industry boundaries are defined and accepted.": Clarifies the concept of red oceans, contrasting them with the limitless possibilities of blue oceans.

Review Summary

4.02 out of 5
Average of 82k+ ratings from Goodreads and Amazon.

Blue Ocean Strategy receives mixed reviews. Many praise its innovative approach to creating uncontested market spaces and making competition irrelevant. Readers appreciate the practical tools and frameworks provided. However, critics argue the concept is obvious and oversimplified, lacking consideration for implementation challenges. Some find the examples cherry-picked and outdated. Despite criticisms, many consider it a thought-provoking read for business leaders and entrepreneurs, offering a fresh perspective on strategy and market creation.

Your rating:

About the Author

W. Chan Kim is a renowned management expert and professor at INSEAD. He co-authored the bestselling book Blue Ocean Strategy, which has sold millions of copies worldwide and been translated into numerous languages. Kim is highly regarded in the business world, consistently ranking among top management thinkers globally. He has received prestigious awards and recognitions for his work in strategy and leadership. Kim serves as an advisor to various countries and organizations, including the European Union and World Economic Forum. His research and teachings have significantly influenced modern business strategy and management practices.

Other books by W. Chan Kim

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