Blue Ocean Strategy: Part 1

Part 1

P viiii
These ideas are not for those whose ambition in life is to get by or merely to survive.

Pick unattractive industries

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.

Consider 2 sorts of oceans: red oceans and blue oceans. Red oceans represent all industries in existence today. This is the know market space. Blue oceans demote all inductees not in existence today. This is the unknown market space.

In the red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Here, companies try to outperform their rivals to grab a greater share of existing demand. As the market space gets crowded, prospects for profits and growth are reduced. Products become commodities, and cutthroat competition turns the red ocean bloody.

Blue oceans are defined by untapped market space, demand creation, and the opportunity for highly profitable growth.

Although some blue oceans are created well beyond existing industry boundaries, most are created from within red oceans by expanding existing industry boundaries. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set.

It will always be important to swim successfully in the red ocean by out competing rivals. Red oceans will always matter and will always be a fact of business life. This will not be sufficient to sustain high performance; companies need to go beyond competing. To seize new profit and growth opportunities, they also need to create blue oceans.

The overriding focus of strategic thinking has been on competition based red ocean strategies. Part of the explanation for this is that corporate strategy is heavily influenced by its roots in military strategy (officers, headquarters, troops, front lines). In this way, strategy is about confronting an opponent and fighting over a given ____ that is both limited and constant. To focus on the red ocean is therefore to accept the key constraining factors of war – limited terrain and the need to beat an enemy to succeed – and to deny the distinctive strength of the business world; the capacity to create new market space that is uncontested.


While supply is on the rise as global competition intensifies, there is no clear evidence of an increase in demand worldwide, and statistics even point to declining populations in many developed markets.

The business environment in which most strategy and management approaches of the 20th century evolved is increasingly disappearing.

Business literature typically uses the company as the basic unit of analysis. Book Creative Destruction- success attributed to some of the model companies is the result of industry sector performance.

Neither company nor the industry is the best unit of analysis in studying the roots of profitable growth.

The strategic move is the unit of analysis for explaining the creation of blue oceans and sustained high performance.

Don’t use the competition as a benchmark. Follow a strategic logic called ‘value innovation.’

Value Innovation focuses on making the competition irrelevant by creating a leap in value for buyers and your company, opening up new and uncontested market space.

- It places equal emphasis on value and innovation. Value without innovation tends to focus on value creation on an incremental scale, something that improves value but is not sufficient to make you stand out.
- Innovation without value tends to be technology driven, market pioneering, or futuristic, often shooting beyond what buyers are ready to accept and pay for.
- Distinguish between value innovation as opposed to tech innovation and market pioneering.
- It’s not bleeding edge tech or time of market entry, which sometimes exist, but more often do not
- Value innovation occurs only when companies align innovation with utility, price and cost positions.
- If they fail to anchor innovation with value in this way, tech innovators and market pioneers often lay the eggs other companies hatch
- Value innovation defies one of the most commonly accepted dogmas of competition based strategy: the value-cost trade off.
o It is conventionally believed that companies can either create greater value to customers at a higher cost or create reasonable value at a lower cost.
o Here strategy is seen as making a choice between differentiation and low cost.
- Blue oceans pursue differentiation and low cost simultaneously

- a strategy that raised _____ cost structure without substantially altering the _____ experience

- pay no head to the competition; instead of following the conventional logic of outpacing the competition by offering a better solution to the given problem – redefine the problem itself
- factors had long been taken for granted in the traditional _____ industry, which never questioned their ongoing relevance

- search risk
- planning risk
- scale risk
- business model risk
- organizational risk
- management risk

Strategy Canvas
- captures the current state of play in the known market space; allows you to understand where the competition is currently investing, the factors in the industry currently completes on

Value Curve
- basic component of the strategy canvas; a graphic depiction of a company’s relative performance across its industry’s factors of competition

- conducting extensive marketing research does not reveal blue oceans
- research found that customers can scarcely imagine how to create uncontested marketing space. Their insight also tends toward the familiar “offer me more for less.” And what customers typically want ‘more’ of are those products and service features that the industry currently offers.

- reorient your strategic focus from competitors to alternatives, and from customers to non customers

- 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?

- yellow tail focused on 2 (1 the most popular)
- made retail shop employees the ambassadors
- simplicity allowed for minimizing stock keeping units, max stock turnover, min warehouse inventory
- the elite image did not resonate with the general public

Eliminate-Reduce-Raise-Create Grid
- pushes firms to simultaneously pursue differentiation and low costs to break the value-cost trade off
- immediately flags companies focused only on raising and creating & thereby lifting their cost structure and often over engineering products and services
- 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

3 characteristics
- focus, divergence, a compelling tagline

- breaking the trade offs between speed of airplanes and the economy & flexibility of car transport

- companies let their competitors’ moves set their own agendas

- focus on 3 factors

- when a company’s strategy is formed reactively as it tries to keep up with the competition, it loses uniqueness

Compelling Tagline
- clean cut

A company’s explicit or implicit strategy tends to be trying to outdo its competition on the basis of cost or quality, signalling slow growth unless the firm benefits from being in an industry that’s growing.

It a firm’s market share doesn’t reflect investments in delivering high levels across all factors, if may be oversupplying customers. Offering too much of those elements that add incremental value to buyers.

Are there areas where a company is offering a high level on one competing factor while ignoring others that support that factor?

Are competing factors stated in terms buyers can understand and value, or are they operational jargon?