Blue Ocean Strategy by W. Chan Kim

Summary of "Blue Ocean Strategy"

Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant by W. Chan Kim and Renée Mauborgne is a groundbreaking work in business strategy that introduces the concept of "blue oceans" — untapped market spaces ripe for innovation. W. Chan Kim and Renée Mauborgne, both professors at INSEAD and co-directors of the INSEAD Blue Ocean Strategy Institute, present tools and frameworks for companies to break away from intense competition in "red oceans" (overcrowded markets) and create new, uncontested market spaces.

Main Concepts:

1. Red Ocean vs. Blue Ocean - The book contrasts two types of market spaces:

• Red Ocean: Represents all the industries in existence today, where companies compete head-to-head in a saturated market. Here, businesses strive to outperform rivals to capture greater market share, leading to fierce competition and often, price wars.

• Blue Ocean: Refers to the creation of entirely new markets or market segments where competition is minimal or non-existent. In blue oceans, demand is created rather than fought over, and companies have the opportunity to innovate and redefine industry boundaries.

2. Value Innovation - At the core of the Blue Ocean Strategy is the concept of "value innovation," which is about making the competition irrelevant by simultaneously pursuing differentiation and low cost. Companies achieve value innovation when they create products or services that offer a leap in value to both the company and its customers.

3. The Four Actions Framework - Kim and Mauborgne introduce the Four Actions Framework to help companies systematically pursue value innovation. This framework involves four key questions:

• Eliminate: Which factors that the industry takes for granted 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?

4. The Strategy Canvas - The Strategy Canvas is a diagnostic and action framework used to capture the current state of play in the known market space. It depicts the relative performance of competing firms across key factors of competition. The canvas helps companies to visualize their current strategic profile and the blue ocean opportunities that can be explored by shifting focus to alternative factors.

5. The Six Paths Framework - To systematically explore new market spaces, the authors introduce the Six Paths Framework, which encourages companies to:

• Look across alternative industries.

• Look across strategic groups within industries.

• Look across the chain of buyers.

• Look across complementary product and service offerings.

• Look across the functional-emotional orientation of an industry.

• Look across time to shape external trends over time.

6. The ERRC Grid - The Eliminate-Reduce-Raise-Create (ERRC) Grid is a strategic tool that prompts companies to take action based on the Four Actions Framework. It helps firms systematically consider what to eliminate, reduce, raise, and create, thereby fostering the development of a new value curve.

7. Overcoming Organizational Hurdles - Kim and Mauborgne discuss the organizational challenges that may arise when implementing a blue ocean strategy. They identify four key hurdles: cognitive, resource, motivational, and political, and provide strategies for overcoming each. For example, leadership can use visual awakening and fair process to help shift employees’ mindsets and secure buy-in.

8. Execution and Sustainability - The book emphasizes that execution is critical for the success of a blue ocean strategy. It discusses the importance of aligning the company’s value, profit, and people propositions to ensure that the strategy is sustainable and can be executed effectively. This alignment helps to create a culture that supports innovation and strategic shifts.

9. Renewing Blue Oceans - Kim and Mauborgne also highlight the need for companies to continuously monitor and renew their blue oceans. They warn that as competitors eventually catch up, the blue ocean can become red. Therefore, companies must continuously seek new value innovation opportunities and not rest on their laurels.

10. Case Studies and Examples - Throughout the book, the authors provide numerous case studies and examples of companies that successfully implemented blue ocean strategies. These examples illustrate the practical application of the concepts and frameworks discussed and demonstrate how businesses in various industries can create and capture new demand.

Conclusion:

Blue Ocean Strategy offers a paradigm shift in thinking about competition and market strategy. W. Chan Kim and Renée Mauborgne provide a comprehensive toolkit for companies to break out of the traditional competitive landscape and create new, uncontested markets. By focusing on value innovation and systematically exploring new opportunities, businesses can achieve sustained growth and profitability. For a comprehensive understanding of these concepts and practical applications, reading the full book is highly recommended.