BLUE ocean strategy has gained much attention in the business environment. It has been practiced throughout history according to its authors. In Blue Ocean Strategy, W Chan Kim and Renée Mauborgne advocate shifting focus away from “competition” to “creating uncontested market space.” The book is based on an examination of 150 strategic moves made between 1880 to 2000, and across more than 30 industries.
Kim and Mauborgne examined the history of three representative industries in the United States—automobiles, computers, and movie theatres. Their study showed that companies and industries do not maintain high performance indefinitely. The emergence of a profitable growth trajectory has repeatedly been linked to a blue ocean creation strategic move. Blue ocean strategic moves originate from either start-ups or established companies.
According to Kim and Mauborgne, traditional strategic planning involves an elaborate description of current industry conditions and the competitive situation. It is followed by a discussion on how to increase market share, capture new segments, and reduce costs. Specific goals and objectives are subsequently laid out at the meeting.
The logic of blue ocean strategy differs from traditional structuralist views of strategy, where environmental conditions are fixed and those delimiters determine strategy. Blue ocean strategists do not focus solely on outshining the competition and do not play a zero-sum game. They focus on making the competition irrelevant by attempting to create a jump in value for buyers and the company. In the process, an uncontested market space is opened up.
The gulf between theory and practice can often be enormous and thus inhibit ready adoption. Kim and Mauborgne provide analytical tools and frameworks to enable applicability. In order to craft a significant increase in value, organisations need to shift their strategic focus from competitor products to alternative products, and from customers to noncustomers. They can accomplish this by using the “four actions framework”.
This framework refers to answering questions about whether the factors that the industry has competed in can be eliminated. It then examines whether products and services add value and reduces those that do not. Next, the compromises that customers have been forced to make are examined for avenues of improvement. Finally, companies should explore creating new value-adding avenues that have never been offered by the industry. When the company has satisfactorily addressed the four items, they would gain new insights. These can instruct on how to create a new value curve or ignite a blue ocean.
Kim and Mauborgne provide six principles to help companies further break down the blue ocean strategy into operational components and aid in its execution. The first principle is to “reconstruct market boundaries”. Companies can do this in six ways:
- Looking across alternative industries to find out why customers trade across them,
- Looking across strategic groups within industries to find out why customers trade upwards,
- Looking across the chain of buyers to find out about behavioural patterns of the target audience,
- Looking across complementary product offerings to explore if other value-adding services can be provided,
- Looking across functional or emotional appeal of products to explore ways of crossing over to the other value-creating avenues, and
- Looking across time to examine how current trends today may affect consumers’ needs in the future.
The other principles discussed in the book are “focus on the big picture, not the numbers”, “reach beyond existing demand”, “get the strategic sequence right”, “overcome key organisational hurdles”, and “build execution into strategy”.
Kim and Mauborgne say a key component to companies’ success is tied to staying on the consecutive waves of blue ocean creation. However, no company to date has been able to execute blue ocean strategic moves continuously to sustain excellence over the long run. Reputed brand names are usually able to reinvent themselves by trying to create new market spaces.
Copyright © 2012 Singapore Institute of Management