Blue Ocean Strategy is a business strategy book first published in 2005 and written by W.

Chan Kim and Rene Mauborgne of The Blue Ocean Strategy Institute at INSEAD. The book illustrates what the authors believe is the high growth and profits an organization can generate by creating new demand in an uncontested market space, or a "Blue Ocean", than by competing head-to-head with other suppliers for known customers in an existing industry. Blue Ocean Strategy has been selected by 2 prominent Chinese national book lists as: One of the 40 most influential books in the History of the People's Republic of China (1949-2009) in the category of Economics and Finance amongst Adam Smith's The Wealth of Nations, Milton Friedman's Free to Choose, Joseph Schumpeter's Capitalism, Socialism and Democracy, and Samuelson and Nordhaus' Economics. One of the 40 most influential books in the three Decades of Chinas Reform and Opening to the outside world under the category of Economics and Finance

The Belgian business journal TRENDS selected the book Blue Ocean Strategy as one of the 10 best Management books of the last decade. January 2010. Selected in 2007 as one of the thirty most influential books in the last 25 years in Taiwan. Best Business/Economics Book in: Canada, China, Germany, Iceland, Israel, Italy, Japan, Korea, Latin America, Malaysia, Poland, Scandinavia, Singapore, South Africa, Taiwan, UK, USA Blue oceans, denote all the industries not in existence today the unknown market space, untainted by competition. In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set. It is an analogy to describe the wider, deeper potential of market space that is not yet explored. It is vast, deep and powerful in terms of profitable growth. Therefore, after extensive analysis of the industry, Blue Ocean Strategy has revealed that the strategic move, and not the company or the industry, is the right unit of analysis for explaining the creation of blue oceans and the root of profitable growth. Strategic moves are a set of managerial actions and decisions involved in making a major market-creating business offering. The basis of blue ocean systematic methodology is based on a study of over 150 strategic moves from over 30 industries, spanning from 1880 to 2000. The principles of Blue Ocean Strategy apply across all types of industries from consumer product goods, pharmaceutical, financial services, entertainment, agriculture, IT and even government. In India, we have several opportunities to leverage and apply the principles of Blue Ocean Strategy to create uncontested market space.
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As for defining characteristics, a true blue ocean strategy must have three key components in order to implement and communicate your strategic move: the strategy must be focused, diverge from the competitions strategic profile, and have a compelling tagline that speaks to the market. If you look at the airline industry, the airlines that are either in bankruptcy or close to it remain stuck in the red ocean of competition. Southwest Airlines, on the other hand, created a totally blue ocean by attracting car drivers. Southwest did not compete head-on against other airlines by offering better meals or other incentives. Instead, they attracted car drivers by making flying closer to the car-driving experience. They offered the speed of the airplane with the economics and flexibility of driving. Starbucks and IKEA are other examples of companies that have created new markets for their products through value innovation. Red Ocean vs. Blue Ocean The Red Ocean is where every industry is today. There is a defined market, defined competitors and a typical way to run a business in any specific industry. The researchers called this the Red Ocean, analogous to a shark infested ocean where the sharks are fighting each other for the same prey. The Blue Ocean, on the other hand, is calm, smooth, with lots of food and little or no competition. This is where everyone would like to be and it is possible for you to have a Blue Ocean. Consider some of the well known Blue Oceans created by the New York Police Department, Southwest Airlines, Cirque du Soleil, Casella Wine [yellowtail], Nintendo (Wii), Cemex Cement, and The Body Shop. These organizations created their blue ocean and so can you. Here are the differences between the Blue and Red Oceans.

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Focus on current customers vs. focus on noncustomers. In most industries there is little effort to attract new buyers to the industry, thus the focus on the customers currently purchasing in that industry. In the Blue Ocean, there is a focus on trying to increase the size of the industry by attracting people who have never purchased in that industry. Compete in existing markets vs. Create uncontested markets to serve. Existing markets are all the customers doing business in the industry right now, whether they are doing business with you or your competitors. If someone wins a customer, then it is assumed, someone will lose a customer. For someone to win, someone must lose. In uncontested markets, there is only a winner, you. No one else is fighting for the business because either they dont know about it, or they dont know how. They will try, of course, but if you have done things the Blue Ocean Strategy way, they will not be successful for a very long time. Beat the competition vs. Make the competition irrelevant. The competition becomes irrelevant because they cannot duplicate the ideas in a way that is a commercial success. Remember, the whole idea of Blue Ocean Strategy is to have high value at low cost. If you are doing that, how can anyone compete with you? All the would-be competitors fall by the wayside. Exploit existing demand vs. create and capture new demand. You will be creating value so high that you will be attracting customers that never before would have considered entering the market. Nintendos Wii appeals to families and seniors. Southwest Airlines appealed to auto travelers. Make the value-cost tradeoff vs. break the value cost tradeoff. If you cut your strategy teeth on Michael Porters Competitive Strategy concepts, you understand that there were only two
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strategies to chose from, value or low cost. It was understood that you could not have both value and low cost. Kim and Mauborgne have broken that concept and said that you can have high value and low cost and developed the tools to do it. In fact, if you dont break the value cost tradeoff, competitors will easily duplicate what you are doing and the ocean will once again be very red. Align the organization with differentiation OR low cost vs. aligning the organization with differentiation AND low cost. You cant just say you are going to have differentiation and low cost. You must search every nook and cranny of your processes and organization to strip away unnecessary cost. The entire organization must be aligned this way...anything that doesnt create or contribute to value, gets eliminated or reduced. It is just the most efficient way to run an organization whether in a blue or red ocean. Value Innovation

Value Innovation is the cornerstone of blue ocean strategy. Value innovation is the simultaneous pursuit of differentiation and low cost. Value innovation focuses on making the competition irrelevant by creating a leap of value for buyers and for the company, thereby opening up new and uncontested market space. Because value to buyers comes from the offerings utility minus its price, and because value to the company is generated from the offerings price minus its cost, value innovation is achieved only when the whole system of utility, price and cost is aligned. Strategy Canvas The strategy canvas is the central diagnostic and action framework for building a compelling blue ocean strategy. The horizontal axis captures the range of factors that the industry competes on and invests in, and the vertical axis captures the offering level that buyers receive across all these key competing factors. The strategy canvas serves two purposes:
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Firstly, it captures the current state of play in the known market space. This allows you to understand where the competition is currently investing and the factors that the industry competes on. Secondly, it propels you to action by reorienting your 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. Refer to the strategy canvas example below of the electronic games industry.

The strategy canvas has three components. First are the competitive factors. Competitive factors are the six to twelve features or benefits considered key or essential to the promotion of a product or service to its intended market. It is a value element used to attract buyers. These are listed across bottom horizontal axis of the canvas. The second component is the Offering level up the vertical axis. The level of a competitive factor that the buyer receives and a company invests. I.e. at what level do you provide education? A high score means a company offers buyers more, and therefore invests more in that factor. In the case of price, a higher score means a higher price. Understand that since you are going to be listing only your top 6 12 factors, the level of the offering is going to be high for each factor and each competitor in the industry. The third component is the Value Curve created when you plot the competitive factor against Page 5 of 17

the offering level and connects the dots. This key component of the strategy canvas is created when the offering level of an industrys or organizations competitive factors are plotted on the strategy canvas and the dots connected. Think of this as a visual representation of the industrys value proposition. A value proposition is what the customer gets for their money. Because competitors benchmark each other, the competitors in each industry will follow the same general curve shape. Thus you can average the results and combine to create the industry canvas representing all competitors. 3 Tiers of Noncustomers Typically, to grow their share of a market, companies strive to retain and expand existing customers. This often leads to finer segmentation and greater tailoring of offerings to better meet customer preferences. The more intense the competition is, the greater, on average, is the resulting customization of offerings. As companies compete to embrace customer preferences through finer segmentation, they often risk creating too-small target markets. To maximize the size of their blue oceans, companies need to take a reverse course. Instead of concentrating on customers, they need to look to noncustomers. And instead of focusing on customer differences, they need to build on powerful commonalities in what buyers value. That allows companies to reach beyond existing demand to unlock a new mass of customers that did not exist before. Although the universe of noncustomers typically offers big blue ocean opportunities, few companies have keen insight into who noncustomers are and how to unlock them. To convert this huge latent demand into real demand in the form of thriving new customers, companies need to deepen their understanding of the universe of noncustomers. There are three tiers of noncustomers that can be transformed into customers. They differ in their relative distance from your market. The first tier of noncustomers is closest to your market. They sit on the edge of the market. They are buyers who minimally purchase an industrys offering out of necessity but are mentally noncustomers of the industry. They are waiting to jump ship and leave the industry as soon as the opportunity presents itself. However, if offered a leap in value, not only would they stay, but also their frequency of purchases would multiply, unlocking enormous latent demand. The second tier of noncustomers is people who refuse to use your industrys offerings. These are buyers who have seen your industrys offerings as an option to fulfill their needs but have voted against them. The third tier of noncustomers is farthest from your market. They are noncustomers who have never thought of your markets offerings as an option. By focusing on key commonalities across
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these noncustomers and existing customers, companies can understand how to pull them into their new market. In the center is your red ocean market. So if we use the electronic game industry as an example, young antisocial males would be at the heart of the red ocean market. They are the primary players of electronic games. Moving away from them, the first tier would be males that have outgrown that stage of their life and may still play games, but are looking for something else. When they find it, they will bolt away from these games. This first tier is followed by girls, who know about games, can play the games, but don't want to. They reject the games in favor of more social activities. So girls are the second tier of non customers. The third tier of non customers is probably everyone else, seniors, families, elderly. See the Three Tiers example below:

4 Actions Framework And ERRC Grid To reconstruct buyer value elements in crafting a new value curve, we use the Four Actions Framework. As shown in the diagram above, 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:

Which of the factors that the industry takes for granted should be eliminated? Which factors should be reduced well below the industry's standard? Which factors should be raised well above the industry's standard? Which factors should be created that the industry has never offered?

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The Eliminate-Reduce-Raise-Create Grid (ERRC) is complementary with the four actions framework. It pushes companies not only to ask all four questions in the four actions framework but also to act on all four to create a new value curve, essential for unlocking a new blue ocean. By driving companies to fill in the grid with the actions of eliminating and reducing as well as raising and creating, the grid gives companies four immediate benefits: It pushes them to simultaneously pursue differentiation and low cost to break the valuecost trade off. It immediately flags companies that are focused only on raising and creating and thereby lifting the cost structure and often over engineering products and services - a common plight in many companies. It is easily understood by managers at any 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.

After you define the three tiers of non customers, the idea is that you poll these noncustomers and find out what it would take to purchase your product or service. For example, Nintendo asked people in their three tiers why they didnt play games. Then they asked what would entice them to play. They took the answers to those questions and designed the Nintendo Wii. It has been a huge hit, attracting noncustomers who never before played electronic games. The typical electronic game was very high tech and difficult to learn, which thrilled the young antisocial males in that market, but turned everyone else off. The average person wanted something easy to learn and have fun with. Looking at the competitive factors researched for electronic games (see Creating Your Strategy Canvas, May 11, 2009), we find out the following regarding the noncustomers we researched from the Three Tiers: 1. They thought the price was high, preferring something more affordable 2. They like the graphics but the very high resolution wasnt necessary 3. The number of games was still important for variety 4. The online play wasnt so important 5. They disliked the complexity, wanting something much simpler 6. The console specifications didnt need to be so broad making the console difficult to learn 7. They wanted the additional feature of activity 8. They wanted the additional feature of being easy to use
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When you look at the competitive factors, there are really only four actions you can take with them. You can eliminate them completely, you can reduce your investment in them, you can raise your investment in them or you can create totally new factors. These four actions then are the basis for creating a new strategy canvas. Here is a picture of the concept:

To help you keep track of your competitive factors and see what you are doing, the EliminateReduce-Raise-Create Grid (ERRC) keeps the factors sorted:

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Once you have this information, now you can recreate your value curve on the strategy canvas.

See how different the Red Ocean and Blue Ocean Value Curves are? These represent both the old (Red Ocean) and new (Blue Ocean) value propositions to the customers. It is easy to see the difference and to show this to the entire company from senior managers to janitorial staff and have them understand how the company or product will be different.
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Pioneer-Migrator-Settler Map How can you determine whether you are in a bloody red ocean or a true blue ocean? How can you determine if there is a possibility of creating a blue ocean for any of your current products or services? The Pioneer-Migrator-Settler Map helps you visualize where your portfolio of products falls in the proverbial ocean. The products and services that are Pioneers offer unprecedented value, have a mass following of customers providing a huge opportunity for growth and diverges from the competition (have no competition). Many CEOs assume that to be a pioneer you must be technologically innovative. That is definitely not true. Examples of Pioneers are the Nintendo Wii, which diverged from the competition to use lower technology rather than higher technology to appeal more to the masses. Also Curves utilizes the lower technology of simple hydraulic exercise equipment, rather than the higher technology equipment of the typical health club competitors. Many companies have products and services that offer increased value but are not particularly innovative, offer the customer more for less, but basically stay within the realm of the industry competitors. These products and services are considered Migrators because they might migrate into either the Pioneer or Settler status. If the product or service can be altered to be more innovative and offer unprecedented value, it will migrate into Pioneer status. If the product competitors copy easily and catch up it will fall into Settler status. The Settlers are the products and services that have a great deal of competition and offer only incremental opportunities for real growth. It is important to understand the value of these Settlers and the Red Ocean business. Red Oceans will always be around and you must be able to navigate these oceans well. The Blue Ocean Strategy tools can help you become more competitive in your bloody red ocean as well as help you create your true Blue Ocean Strategies.

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To see how bloody red or true blue your portfolio is, create your P-M-S Map. Here is the structure. Place a dot in the Pioneer or Migrator or Settler square where each product or service falls today, based on the definitions above. Then look at where the dots are. If you have dots in the Pioneer Square, what can you do to keep the Pioneer status into the future? If most of your products and services are Settlers, you have a lot of company. The Settlers and the Red Ocean markets are now and will always be important. What is critical here is that you be able to navigate this ocean very, very well. Utilizing the tools of Blue Ocean Strategy and making critical strategic moves can keep you ahead of the competition. COMPANIES USING BLUE OCEAN STRATEGY Samsung: Value Innovation is Samsungs core tool for product development and played a significant role in helping Samsung become the worlds top consumer electronics company. Last year there were 2,000 employees working in cross-functional teams on 90 Value Innovation projects at Samsung, and no product is introduced to the market without first getting a Value Innovation Certificate. In 2003 the Digital Media unit launched 40 new products using the VI process, and its first quarter profits were 50 times higher than that of the same period the previous year. Nokia: In 1991 trade with the Soviet Union, Finlands and Nokias largest market, collapsed overnight. At the time the companys core activities were paper and rubber products. By 1994 Nokia was selling off its industrial divisions and was listed on NYSE as the worlds premier supplier of mobile phones, which was just a small, peripheral division three years earlier. IBM: Between 1991 and 1993 IBM recorded losses of USD 16 Billion and the future was looking grim to say the least. In 1993 Lou Gerstner became CEO, the first company leader who was not from within the company, in fact not even from within the industry. He completely reoriented the companys focus from technology driven to customer solution driven, so that by
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2001 $35 Billion of $86 Billion total sales were from the newly created Global Services. This radical shift in company culture and orientation is widely accredited with IBMs exemplary recovery to growth and healthy profitability. Apple: Apple computers invented a new market with the iPOD digital music player. The companys idea was to create a portable music player so people could listen to it anywhere. Apple has sold more than 10 million music players, adding $6.2 billion to the companys revenue. Whirlpool: Whirlpools front-loading washer-dryer combo called the Duet, which the company introduced to a well-saturated market in 2001. The Duet was tagged at US$ 2,300, vs. US$ 600 a pair for most existing models, yet it became a sensation. Because the Duet had features never seen before: It could wash big loads yet used very little water and electricity, and cleaned better. It could also handle silks, lace, and comforters. But best of all, it inspired real affection among women. They said that it changed their lives because it saves them time and gave back some of their freedom, doing laundry in record time. Stokke: Norwegian furniture company Stokke entitled 'Hotweels' from Fast Company (May 2005). When Stokke introduced the Xplory baby stroller in the U.S., priced at a hefty US$ 749, it sold in the first nine weeks what it had planned to sell over six months. Because it offers a package of unprecedented attributes: its flexible design makes life easier for parents by allowing the seat to be raised to eye-level, to face either forward or backward, and enabling the stroller to navigate any terrain. Its flashy, futuristic form creates a strong emotional bond. Netjets: NetJets, which created the blue ocean of fractional jet ownership. In less than twenty years NetJets has grown larger than many airlines, with more than five hundred aircraft, operating more than two hundred fifty thousand flights to more than one hundred forty countries. Purchased by Berkshire Hathaway in 1998, today NetJets is a multibillion-dollar business, with revenues growing at 3035 percent per year from 1993 to 2000. NetJets success has been attributed to its flexibility, shortened travel time, hassle free travel experience, increased reliability, and strategic pricing. The reality is that NetJets reconstructed market boundaries to create this blue ocean by looking across alternative industries. Other companies using Blue Ocean Strategy are:
Cirque du Soleil (the circus reinvented for the entertainment market). Starbucks (coffee as low-cost luxury for high-end consumers). EBay (online auctioning). Sony (the Walkman - personal portable stereos). Page 13 of 17

 Cars: Japanese fuel-efficient autos (mid-70s) and Chrysler minivan Dell (mid-1990s).

4 Hurdles to Execution Once a company has developed a blue ocean strategy with a profitable business model, it must execute it. The challenge of execution exists, of course, for any strategy. Companies, like individuals, often have a tough time translating thought into action whether in red or blue oceans. The challenges managers face are steep. They face four hurdles:

A cognitive hurdle. Waking employees up to the need for a strategic shift. Red oceans may not be the paths to future profitable growth, but they feel comfortable to people and may have even served an organization well until now, so why rock the boat? Limited resources. The greater the shift in strategy, the greater it is assumed are the resources needed to execute it. But many companies find resources in notoriously short supply Motivation. How do you motivate key players to move fast and tenaciously to carry out a break from the status quo? Politics. As one manager put it, In our organization you get shot down before you stand up.

Although all companies face different degrees of these hurdles, and many may face only some subset of the four, knowing how to triumph over them is key to attenuating organizational risk. To achieve this effectively, however, companies must abandon perceived wisdom on effecting change. Conventional wisdom asserts that the greater the change, the greater the resources and time you will need to bring about results. Instead, you need to flip conventional wisdom on its head using what we call tipping point leadership. Tipping point leadership allows you to overcome these four hurdles fast and at low cost while winning employees backing in executing a break from the status quo. The key questions answered by tipping point leaders are as follows: What factors or acts exercise a disproportionately positive influence on breaking the status quo? On getting the maximum bang out of each buck of resources? On motivating key players to aggressively move forward with change? And on knocking down political roadblocks that often trip up even the best strategies? By single-mindedly focusing on points of disproportionate influence, tipping point leaders can topple the four hurdles that limit execution of blue ocean strategy. They can do this fast and at low cost.
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Principles of Blue Ocean Strategy Principles of Blue Ocean Strategy are the six main principles that guide companies through the formulation and execution of their Blue Ocean Strategy in a systematic risk minimizing and opportunity maximizing manner. The first four principles address Blue Ocean Strategy formulation: 1. Reconstruct market boundaries. This principle identifies the paths by which managers can systematically create uncontested market space across diverse industry domains, hence attenuating search risk. It teaches companies how to make the competition irrelevant by looking across the six conventional boundaries of competition to open up commercially important blue oceans. The six paths focus on looking across alternative industries, across strategic groups, across buyer groups, across complementary product and service offerings, across the functionalemotional orientation of an industry, and even across time. 2. Focus on the big picture, not the numbers. Illustrates how to design a company's strategic planning process to go beyond incremental improvements to create value innovations. It presents an alternative to the existing strategic planning process, which is often criticized as a numbercrunching exercise that keeps companies locked into making incremental improvements. This principle tackles planning risk. Using a visualizing approach that drives managers to focus on the big picture rather than to be submerged in numbers and jargon, this principle proposes a fourstep planning process whereby you can build a strategy that creates and captures blue ocean opportunities. 3. Reach beyond existing demand. To create the greatest market of new demand, managers must challenge the conventional practice of aiming for finer segmentation to better meet existing customer preferences. This practice often results in increasingly small target markets. Instead, this principle shows how to aggregate demand, not by focusing on the differences that separate customers but by building on the powerful commonalities across noncustomers to maximize the size of the blue ocean being created and new demand being unlocked, hence minimizing scale risk. 4. Get the strategic sequence right. This principle describes a sequence which companies should follow to ensure that the business model they build will be able to produce and maintain profitable growth. When companies meet the sequence of utility, price, cost and adoption requirements, they address the business model risk and the blue ocean idea they created will be a commercially viable one. The remaining two principles address the execution risks of Blue Ocean Strategy.
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5. Overcome key organizational hurdles. Tipping point leadership shows managers how to mobilize an organization to overcome the key organizational hurdles that block the implementation of a blue ocean strategy. This principle deals with organizational risk. It lays out how leaders and managers alike can surmount the cognitive, resource, motivational, and political hurdles in spite of limited time and resources in executing blue ocean strategy. 6. Build execution into strategy. By integrating execution into strategy making, people are motivated to act on and execute a blue ocean strategy in a sustained way deep in an organization. This principle introduces, what Kim & Mauborgne call, fair process. Because a blue ocean strategy perforce represents a departure from the status quo, fair process is required to facilitate both strategy making and execution by mobilizing people for the voluntary cooperation needed to execute blue ocean strategy. It deals with management risk associated with people's attitudes and behaviors.
Principles
Formulation Principles
Reconstruct market boundaries Focus on the big picture, not the numbers Reach beyond existing demand Get the strategic sequence right Search risk Planning risk Scale risk Business model risk

Risk Factors

Evaluation principles
Overcome key organizational hurdles Build execution into strategy Organizational risk Management risk

REFERENCES http://www.1000advices.com/guru/strategy_blue_ocean_principles6.html
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http://www.blueoceanstrategy.com/abo/Blue_Ocean_Strategy_Glossary_Lookup.php? Term=principles-of-blue-ocean-strategy http://www.blueoceanstrategy.com/abo/vi.html http://www.blueoceanstrategy.com/abo/bos_tools.html http://en.wikipedia.org/wiki/Blue_Ocean_Strategy

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