Blue Ocean Strategy

How to create uncontested

market space and make
the competition irrelevant
The Book and the Authors

© JOHN ABBOTT © JOHN ABBOTT

Prof Chan Kim Prof Renee

Mauborgne

2
Red Oceans

Red Oceans represent all industries in existence today.

They have defined rules, competitors, and market

boundaries.

Key words might include competition, price wars,

market share, commoditization, benchmarking,
strategic positioning, value add.
Blue Oceans

Blue Oceans represent all industries

NOT
in existence today.

This is undefined market space, otherwise known as

OPPORTUNITY.

Key words might be value innovation, focus,

differentiation, creation of demand, new marketplace
Most blue oceans are created from
red ocean companies expanding
industry boundaries.
The phrase “Blue oceans” is new,
but the concept is not. Think of
what industries existed in 1900.
Red Ocean Versus Blue Ocean Strategy

In the red ocean, differentiation costs because firms compete with the same best-practice principle.
Here, the strategic choices for firms are to pursue either differentiation or low cost. In the
reconstructionist world, however, the strategic aim is to create new best-practice rules by breaking the
existing value-cost trade-off and thereby creating blue ocean.

Red Ocean Strategy 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 Align the whole system of a firm's
strategic firm's activities with its activities in pursuit of
choice of differentiation or low differentiation and low cost.
cost. VALUE INNOVATION
 The premise is simple

To win in the future, companies must

stop competing with each other.

The only way to beat the competition

is to stop trying to beat the
competition.
 BOS Logic: The Core Principles

Reconstruct Market
Boundaries
… overcome believes.

Evaluating your
current strategy
… go for strategy canvas. COST

VI
VI
Looking for the
new alternatives
VALUE
… value [innovation]
 BOS Logic: Reconstruct market boundaries
Boundaries of Head-to-Head Creating
Competition Competition New Market Space
Looks across alternative
Focuses on rivals within its
Industry industries (Air Deccan Airlines)
industry

Looks across strategic groups

Focuses on competitive position
Strategic Group within its industry (TATA Nano)
within strategic group

Focuses on better serving the Redefines the buyer group of the

Buyer Group industry (OTC Drugs )
buyer group

Looks across to complementary

Scope of Product Focuses on maximizing the value
product and service offerings that
and Service of product and service offerings
go beyond the bounds of its
Offerings within the bounds of its industry
industry (NFR)

Focuses on improving price- Rethinks the functional-emotional

Functional-emotional orientation of its industry (Ginger
performance with the functional-
Orientation of an Hotels)
emotional orientation of this
Industry
industry
Participation in shaping external
Focuses on adapting to external
Time/Trends trends over time (iPod)
trends as they occur
 BOS Logic: The Core Principles

Reconstruct Market
Boundaries
… overcome believes.

Evaluating your
current strategy
… go for strategy canvas. COST

VI
VI
Looking for the
new alternatives
VALUE
… value [innovation]
 The Strategy Canvas

Captures the current state of play in the market by

detailing the factors players compete on in product,
service and delivery
 The Strategy Canvas
Each factor is plotted on the canvas, with a high score
reflecting the level of investment a specific company
makes in that factor (for example a high score on Waiters
means that the amount paid per waiter is high)
 The Strategy Canvas
To differentiate yourself in the market place, you
must focus on alternatives and non-customers to re-
define the marketplace
 Four Actions to create a Blue Ocean
The four actions framework offers an technique that breaks the trade-
off between differentiation and low cost and to create a new value
curve. Raise
What factors should
be raised well beyond
the industry
standard?

Eliminate Create
What factors should What factors should
be eliminated that be created that the
the industry has industry has never
taken for granted? offered?

Reduce
What factors should
be reduced well
below the industry
standard?
 BOS Logic: The Core Principles

Reconstruct Market
Boundaries
… overcome believes.

Evaluating your
current strategy
… go for strategy canvas. COST

VI
VI
Looking for the
new alternatives
VALUE
… value [innovation]
 Value Innovation

Value innovation is the “new” strategic logic behind

Blue Ocean Strategy.

Instead of focussing on beating the competition, you

focus on making it irrelevant by creating a leap in
value for buyers and creating uncontested market
space.
Value innovation only occurs when organizations have
aligned innovation with utility, price and costs.

The market must be ready to accept the product,

meaning that timing is key.

The focus is on both differentiation and low cost to

provide value to both customers and the organization.
Graph of Value Innovation
 3 Characteristics of a Good
Strategy
 It is focused; it is not diffused across
all potential aspects of the market
 The shape of the value curve

diverges from any potential

competitors.
 It has a compelling tagline.