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Blue Ocean Strategy

Tools and Frameworks

@ 2014 Kim & Mauborgne. Blue Ocean Strategy. All rights reserved. blueoceanstrategy.com
Blue Ocean Strategy
Tools and Frameworks

@ 2014 Kim & Mauborgne. Blue Ocean Strategy. All rights reserved. blueoceanstrategy.com
Contents
Red vs. Blue 3 3 Tiers of Noncustomers 16
Value Innovation 4 Sequence of BOS 18
Strategy Canvas 6 Buyer Utility Map 20
Four Actions Framework 8 Four Hurdles to Execution 22
ERRC Grid 10 Tipping Point Leadership 24
Six Paths Framework 12 Fair Process 26
PMS Map 14

@ 2014 Kim & Mauborgne. Blue Ocean Strategy. All rights reserved. blueoceanstrategy.com
Page 4

Red Ocean vs. Blue Ocean Strategy

Red Ocean Strategy VS Blue Ocean Strategy


Compete in existing market space. Create uncontested market space.

Beat the competition. Make the competition irrelevant.

Exploit existing demand. Create and capture new demand.

Make the value-cost trade-off. Break the value-cost trade-off.

Align the whole system of a firm’s activities with Align the whole system of a firm’s activities
its strategic choice of differentiation or low cost. in pursuit of differentiation and low cost.

@ 2014 Kim & Mauborgne. Blue Ocean Strategy. All rights reserved. blueoceanstrategy.com
Page 5

Value
Innovation
Value innovation, the cornerstone of blue ocean strat- Break the value-cost tradeoff by answering
egy, is the simultaneous pursuit of differentiation and the following questions:
low cost, creating a leap in value for both buyers and · Which of the factors that the industry takes for
the company. Because value to buyers comes from the
granted should be eliminated?
offering’s utility minus its price, and because value to
the company is generated from the offering’s price · Which factors should be reduced well below the
minus its cost, value innovation is achieved only when industry’s standard?
the whole system of utility, price, and cost is aligned. · Which factors should be raised well above the
industry’s standard?
· Which factors should be created that the
industry has never offered?

@ 2014 Kim & Mauborgne. Blue Ocean Strategy. All rights reserved. blueoceanstrategy.com
Page 6

Value
Innovation
Cost savings are made by eliminating
COST
and reducing the factors an industry
competes on.

Buyer value is lifted by raising and creating


factors the industry has never offered.
Value
Innovation

BUYER VALUE

@ 2014 Kim & Mauborgne. Blue Ocean Strategy. All rights reserved. blueoceanstrategy.com
Page 7

Strategy Canvas

The strategy canvas is both a diagnostic and an action The strategy canvas serves two purposes:
framework for building a compelling blue ocean
strategy. The horizontal axis captures the range of · To capture the current state of play in the
factors that the industry competes on and invests in, known market space, which allows users to
while the vertical axis captures the offering level that clearly see the factors that the industry
buyers receive across all of these key competing competes on and where the competition
factors. currently invests and

· To propel users to action by reorienting focus


from competitors to alternatives and from
customers to noncustomers of the industry

The value curve is the basic component of the


strategy canvas. It is a graphic depiction of a
company’s relative performance across its industry’s
factors of competition. A strong value curve has focus,
divergence as well as a compelling tagline.

@ 2014 Kim & Mauborgne. Blue Ocean Strategy. All rights reserved. blueoceanstrategy.com
Page 8

Strategy Canvas
High

Blue Ocean Strategic Move


Offering Level

Industry Value Curve

Low
Key Competing Factors

@ 2014 Kim & Mauborgne. Blue Ocean Strategy. All rights reserved. blueoceanstrategy.com
Page 9

Four Actions
Framework
The Four Actions Framework is used to reconstruct
buyer value elements in crafting a new value curve. To
break the trade-off between differentiation and low
cost and to create a new value curve, the framework
poses four key questions, shown in the diagram, to
challenge an industry’s strategic logic.

©2014 Blue Ocean Strategy. All rights reserved. blueoceanstrategy.com


Page 10

Four Actions Reduce


Framework Which factors should be
reduced well below the
industry’s standard?

Eliminate Create

Which of the factors that the New Value Which factors should be
industry takes for granted Curve created that the industry
should be eliminated? has never offered?

Raise

Which factors should be


raised well above the
industry’s standard?

@ 2014 Kim & Mauborgne. Blue Ocean Strategy. All rights reserved. blueoceanstrategy.com
Page 11

ERRC Grid

The Eliminate-Reduce-Raise-Create (ERRC) · It pushes them to simultaneously pursue differentiation


Grid compliments the Four Actions Framework. and low cost to break the value-cost trade off.
It pushes companies not only to ask the questions
posed in the Four Actions Framework but also to act · It immediately flags companies that are focused only
on all four to create a new value curve, which is essen- on raising and creating and thereby lifting the cost
tial to unlocking a new blue ocean. By driving compa- structure and often overengineering products and
nies to fill in the grid with the actions of eliminating services – a common plight in many companies.
and reducing as well as raising and creating, the grid · It is easily understood by managers at any
gives companies four immediate benefits: level, creating a high level of engagement in
its application.
· Because completing the grid is a challenging task,
it drives companies to robustly scrutinize every
factor the industry competes on, making them
discover the range of implicit assumptions they make
unconsciously in competing.

@ 2014 Kim & Mauborgne. Blue Ocean Strategy. All rights reserved. blueoceanstrategy.com
Page 12

ERRC Grid
Eliminate Raise

Which of the factors that the Which factors should be


industry takes for granted raised well above the
should be eliminated? industry’s standard?

Reduce Create

Which factors should be Which factors should be


reduced well below the created that the industry
industry’s standard? has never offered?

@ 2014 Kim & Mauborgne. Blue Ocean Strategy. All rights reserved. blueoceanstrategy.com
Page 13

Six Paths Framework

The Six Paths Framework allows managers to The table outlines these six basic assumptions and the
address the search risk many companies struggle pathway managers can take to break away from
with. It enables them to successfully identify out of head-to-head competition towards blue ocean
the haystack of possibilities that exist, commercially creation.
compelling blue oceans by reconstructing market
boundaries. The six paths have general applicability across industry
sectors. None of the paths requires special vision or
There are six basic approaches to reconstructing foresight about the future. All are based on looking at
market boundaries. These paths challenge the six familiar data from a new perspective.
fundamental assumptions underlying many companies’
strategies that keep companies trapped competing in
red oceans. Instead of looking within the accepted
boundaries of competition, the Six Paths Framework
allows managers to look systematically across them to
create blue oceans.

@ 2014 Kim & Mauborgne. Blue Ocean Strategy. All rights reserved. blueoceanstrategy.com
Page 14

The Six Paths


From Head-to-Head Competition
to Blue Ocean Creation
Head-to-Head Competition Blue Ocean Creation

Industry Focuses on rivals within its industry Looks across alternative industries

Strategic Focuses on competitive position


Group within strategic group Looks across strategic groups within industry

Buyer Focuses on better serving the buyer group Redefines the industry buyer group
Group

Scope of Product Focuses on maximizing the value of Looks across to complementary product
or Service Offering product and service offerings within
the bounds of its industry and service offerings

Functional-emotional Focuses on improving the price performance Rethinks the functional-emotional


within the functional-emotional orientation orientation of its industry
Orientation of its industry
Focuses on adapting to external Participates in shaping external
Time trends as they occur trends over time

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Page 15

Pioneer-Migrator-Settler (PMS) Map


A useful exercise for a corporate management team If current and planned offerings consist of a lot of
pursuing profitable growth is to plot the company’s migrators, reasonable growth can be expected. But the
current and planned portfolios on the Pioneer- company is not exploiting its potential for growth, and
Migrator-Settler (PMS) map. it risks being marginalized by a company that value-
innovates. In our experience the more an industry is
Settlers are defined as me-too businesses, migrators populated by settlers, the greater the opportunity to
are business offerings better than most in the market- value-innovate and create a blue ocean of new market
place, and a company’s pioneers are the businesses space.
that offer unprecedented value. These are your blue
ocean strategists, and are the most powerful sources This exercise is especially valuable for managers who
of profitable growth. These businesses have a mass want to see beyond today’s performance. Revenue,
following of customers. profitability, market share, and customer satisfaction
are all measures of a company’s current position.
If both the current portfolio and the planned offering Contrary to what conventional strategic thinking sug-
consist mainly of settlers, the company has a low gests, those measures cannot point the way to the
growth trajectory, is largely confined to red oceans, future; changes in the environment are too rapid.
and needs to push for value innovation. Although the Today’s market share is a reflection of how well a busi-
company might be profitable today as its settlers are ness has performed historically.
still making money, it may well have fallen into the trap
of competitive benchmarking, imitation, and intense Clearly, what companies should be doing is shifting the
price competition. balance of their future portfolio toward pioneers. That
is the path to profitable growth.

©2014 Blue Ocean Strategy. All rights reserved. blueoceanstrategy.com


Page 16

Pioneer-Migrator-Settler (PMS) Map

Pioneers
Value Innovation

Migrators
Value Improvement

Settlers
Value Imitation

Today Tomorrow

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Page 17

3 Tiers of Noncustomers
Typically, to grow their share of a market, companies The first tier of noncustomers is closest to the current
strive to retain and expand their existing customer market, sitting just on the edge. They are buyers who
base. This often leads to finer segmentation and minimally purchase an industry’s offering out of neces-
greater tailoring of offerings to better meet customer sity but are mentally noncustomers of the industry.
preferences. The more intense the competition is, the They are waiting to jump ship and leave the industry as
greater, on average, is the resulting customization of soon as the opportunity presents itself. However, if
offerings. As companies compete to embrace customer offered a leap in value, not only would they stay, but
preferences through finer segmentation, they often also their frequency of purchases would multiply,
risk creating too-small target markets. unlocking enormous latent demand.

To maximize the size of their blue oceans, companies The second tier of noncustomers is people who refuse
need to take a reverse course. Instead of concentrating to use your industry’s offerings. These are buyers who
on customers, they need to look to noncustomers. And have seen your industry’s offerings as an option to
instead of focusing on customer differences, they need fulfill their needs but have voted against them.
to build on powerful commonalities in what buyers
value. This reorientation allows companies to reach The third tier of noncustomers is farthest from your
beyond existing demand to unlock a new mass of market. They are noncustomers who have never
customers that did not exist before. thought of your market’s offerings as an option.

There are three tiers of noncustomers that can be By focusing on key commonalities across
transformed into customers. They differ in their rela- these noncustomers and existing customers, compa-
tive distance from the current market. nies can understand how to pull them into their new
market.

©2014 Blue Ocean Strategy. All rights reserved. blueoceanstrategy.com


Page 18

3 Tiers of Noncustomers

Customers of your industy

“Soon-to-be” noncustomers who are on the


1 edge of your market waiting to jump ship.
CURRENT
MARKET
TIER 1
“Soon-to-be”
TIER 2
“Refusing”
TIER 3
“Unexplored”

“Refusing” noncustomers who consciously


2 choose against your market.

3 “Unexplored” noncustomers who are in


markets distant from yours.

@ 2014 Kim & Mauborgne. Blue Ocean Strategy. All rights reserved. blueoceanstrategy.com
Page 19

Sequence of Blue Ocean Strategy

Companies need to build their blue ocean strategy in


the sequence of buyer utility, price, cost, and adoption.

@ 2014 Kim & Mauborgne. Blue Ocean Strategy. All rights reserved. blueoceanstrategy.com
Page 20

Sequence of BOS
Rethink
Buyer Utility
Is there exceptional buyer utility in your business idea?

YES NO

Rethink
Price
Is your price easily accessible to the mass of buyers?

YES NO

Rethink
Cost
Can you attain your cost target to profit at your strategic price?

YES NO

Adoption
What are the adoption hurdles in actualizing your business idea?
Are you addressing them upfront?

A Commercially Viable Blue Ocean Idea

@ 2014 Kim & Mauborgne. Blue Ocean Strategy. All rights reserved. blueoceanstrategy.com
Page 21

Buyer Utility Map


The Buyer Utility Map helps to get managers thinking Nor does the idea that a product might reduce a
from a demand-side perspective. It outlines all the customer’s financial, physical, or credibility risks. And a
levers companies can pull to deliver exceptional utility product or service offers convenience simply by being
to buyers as well as the various experiences buyers can easy to obtain, use, or dispose of. The most commonly
have with a product or service. This mindset helps used lever is that of customer productivity, in which an
managers identify the full range of utility spaces that a offering helps a customer do things faster or better.
product or service can potentially fill.
By locating a new offering on one of the spaces of the
The Buyer Experience Cycle (BEC): A buyer’s buyer utility map, managers can clearly see how, and
experience can usually be broken into a cycle of six whether, the new idea creates a different utility
stages, running more or less sequentially from proposition from existing offerings but also removes
purchase to disposal. Each stage encompasses a wide the biggest blocks to utility that stand in the way of
variety of specific experiences. Purchasing, for converting noncustomers into customers. In our
example, might include the experience of browsing experience, managers all too often focus on delivering
Amazon.com as well as the experience of pushing a more of the same stage of the buyer’s experience. This
shopping cart through Wal-Mart’s aisles. approach may be reasonable in emerging industries,
where there is plenty of room for improving a
Utility levers: Cutting across the stages of the buyer’s company’s utility proposition. But in many existing
experience are what we call utility levers – the ways in industries, this approach is unlikely to produce a
which companies unlock utility for buyers. Most of the market-shaping blue ocean strategy.
levers are obvious. Simplicity, fun and image, and
environmental friendliness need little explanation.

@ 2014 Kim & Mauborgne. Blue Ocean Strategy. All rights reserved. blueoceanstrategy.com
Page 22

Buyer Utility Map


The Six Stages of Buyer Experience Cycle

Purchase Delivery Use Supplements Maintenance Disposal

Customer
Productivity
The Six Utility Levers

Simplicity

Convenience

Risk

Fun and
Image

Environmental
Friendliness

Current Industry Focus Blue Ocean Offering

@ 2014 Kim & Mauborgne. Blue Ocean Strategy. All rights reserved. blueoceanstrategy.com
Page 23

Four Hurdles to Execution


Once a company has developed a blue ocean strategy · The Motivational Hurdle: How do you motivate
with a profitable business model, it must execute it. key players to move fast and tenaciously to carry
The challenge of execution exists, of course, for any out a break from the status quo?
strategy. Companies, like individuals, often have a
· The Political Hurdle: As one manager put it, “In
tough time translating thought into action whether in
our organization you get shot down before you
red or blue oceans.
stand up.”
Knowing how to triumph over challenges is key to
To overcome these hurdles, companies must abandon
attenuating organizational risk. To varying degrees,
perceived wisdom on effecting change. Conventional
companies may face all or a subset of the following
wisdom asserts that the greater the change, the
four hurdles:
greater the resources and time you will need to bring
· The Cognitive Hurdle: Waking employees up to the about results. Instead, you need to flip conventional
need for a strategic shift. Red oceans may not be wisdom on its head using what we call tipping point
the paths to future profitable growth, but they leadership.
may have served the organization historically and
employees have grown comfortable with them, so
why rock the boat?

· The Resource Hurdle: It is assumed that the


greater the shift in strategy, the greater the
resources it requires for execution.

@ 2014 Kim & Mauborgne. Blue Ocean Strategy. All rights reserved. blueoceanstrategy.com
Page 24

Four Hurdles
to Execution Cognitive Hurdle
An organization
wedded to the
status quo

Resource Hurdle Political Hurdle


Opposition from
Limited Resources powerful vested
interests

Motivational Hurdle

Unmotivated Staff

@ 2014 Kim & Mauborgne. Blue Ocean Strategy. All rights reserved. blueoceanstrategy.com
Page 25

Tipping Point Leadership

The conventional theory of organizational change rests By single-mindedly focusing on points of


on transforming the mass. So change efforts are disproportionate influence, tipping point leadership
focused on moving the mass, requiring steep resources helps managers topple the Four Hurdles to Execution
and long time frames — luxuries few executives can quickly and at a low cost by answering the following
afford. Tipping point leadership, by contrast, takes a questions:
reverse course. To change the mass it focuses on
transforming the extremes: the people, acts, and · What factors or acts exercise a disproportionately
activities that exercise a disproportionate influence on positive influence on breaking the status quo?
performance. By transforming the extremes, tipping · On getting the maximum bang out of each buck
point leaders are able to change the core fast and at of resources?
low cost to execute their new strategy.
· On motivating key players to aggressively move
forward with change?
· And on knocking down political roadblocks that
often trip up even the best strategies?

@ 2014 Kim & Mauborgne. Blue Ocean Strategy. All rights reserved. blueoceanstrategy.com
Page 26

Tipping Point Leadership


Conventional Wisdom Theory of organization change rests on transforming the mass. So change efforts are
focused on moving the mass, requiring steep resources and long time frames.

Mass of Employees
Company

Tipping Point Leadership To change the mass, focus on the extremes — people, acts, and activities that exercise
a disproportionate influence on performance to achieve a strategic shift fast at low cost.

Disproportionate Disproportionate
Influence Factors Influence Factors
Company

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Page 27

Fair Process

Fair process builds execution into strategy by creating It should be noted that any subset of the three is
people’s buy-in up front. When fair process is exercised insufficient. The three criteria collectively lead to
in the strategy formulation phase, people trust that a judgments of fair process.
level playing field exists, inspiring voluntary
cooperation during the execution phase.

There are three mutually reinforcing elements that


define fair process: engagement, explanation, and
clarity of expectation. Whether people are senior
executives or shop employees, they all look to these
elements. We call them the three Ε principles of fair
process.

@ 2014 Kim & Mauborgne. Blue Ocean Strategy. All rights reserved. blueoceanstrategy.com
Page 28

Three E Principles of Fair Process

Engagement Explanation Expectation Clarity

Engagement means involving Explanation means that everyone Expectation clarity requires that
individuals in the strategic involved and affected should after a strategy is set, managers
decisions that affect them understand why final strategic clearly state the new rules of the
by asking for their input and decisions are made as they are. An game. Although the expectations
allowing them to refute the merits explanation of the thinking that may be demanding, employees
of one another’s ideas and underlies decisions makes people know up front the standards by
assumptions. Engagement confident that managers have which their work will be judged
communicates management’s considered their opinions and have and the penalties for failure. When
respect for individuals and their made decisions impartially in the people clearly understand
ideas. The result is better strategic overall interests of the company. expectations, political jockeying
decisions by management and An explanation allows employees and favouritism are minimized,
greater commitment from all to trust managers’ intentions even and people can focus on executing
involved in execution. if their own ideas have been the strategy rapidly.
rejected. It also serves as a
powerful feedback loop that
enhances learning.

@ 2014 Kim & Mauborgne. Blue Ocean Strategy. All rights reserved. blueoceanstrategy.com