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Flevy.com - Blue Ocean Strategy Primer
1. Blue Ocean Strategy | Primer
The soul never thinks without an image
Aristotle
A Primer to Blue Ocean Strategy - 1 -
2. THE ONE PAGER ON BLUE OCEAN STRATEGY
Red vs. Blue - In red oceans, our efforts are focused on the conventional logic that we must outpace the competition with a better solution to a given problem. Blue ocean strategy invites us
to redefine the problem itself. It does so by breaking the value-cost trade-off in view of creating new uncontested market places. Places where no one has been and where we would be the
one defining the rules!
Analytical Tools & Frameworks - The strategy canvas is both the start and the end point of a blue ocean strategy formulation. An initial value curve depicts where the industry competes
on and invests in. It is then transformed via the eliminate-reduce-raise-create actions framework. The resulting value curve shows a focused effort that diverges from existing market
offerings and can be easily translated into a compelling tagline.
Underlying principles - Venturing beyond an existing industry space implies a series of risks. The blue ocean strategy approach to strategy is based on six principles that cater for the
major risks of a new market creation project: search risk, planning risk, scale risk, business model risk, organizational risk and management risk. Together, they define the underlying
philosophy of blue oceans.
Six paths to reconstruct market boundaries - The six paths framework challenges the fundamental assumptions underlying many companies’ strategies. It encourages to look at
alternative industries, strategic groups, chain of buyers, complementary offerings, functional and emotional appeal, and time.
Strategic planning focused on the big picture - Building on the six paths framework, we can depict our “as-is", “alternative” and “best to-be” strategy canvases. To do so, there are four
suggested steps that will help us create a visual representation of our strategy: visual awakening, visual exploration, visual strategy fair, and visual communication.
Reaching beyond existing demand - Non-customers tend to offer us far more insight into how to unlock and grow a blue ocean than do relatively content existing customers. Beyond our
current market are “soon to be”, “refusing”, and “unexplored” non-customers, representing untapped demand waiting to be released.
Getting the strategic sequence right - We should not let costs drive prices. Nor should we scale down utility because high costs block our ability to profit at a strategic price that is easily
accessible to the mass of target buyers. The right sequence for creating value innovation is (1) buyer utility, (2) price, (2b) profit, (3) costs, and (4) adoption.
1. Buyer utility - Does our offering unlock exceptional utility? Is there a compelling reason for the mass of people to buy it?
By locating our proposed offering on the thirty-six spaces of the buyer utility map, we can clearly see how, and whether, the new idea not only creates a different utility
proposition from existing offerings but also removes the biggest blocks to utility that stand in the way of converting non-customers into customers. If our offering falls on the
same space or spaces as those of other players, chances are it is not a blue ocean offering.
2. Strategic Price - Is our offering priced to attract the mass of target buyers so that they have a compelling ability to pay for it?
3. Target Cost - Can we produce our offering at the target cost and still earn a healthy profit margin? Can we profit at the price easily accessible to the mass of target buyers?
4. Adoption - Almost by definition, a blue ocean idea threatens the status quo. As a result, it may provoke resistance among employees, partners and the general public. Often
underestimated or put aside because of its cost, educating the “fearful” can have a make or break impact on our new idea. Identifying threats to employees and third parties
and openly discussing issues upfront helps minimize risks and defuse negative opinions that would be much more costly to address later on.
Mobilizing the organization to overcome key organization hurdles - We all know that strategy execution is at least as important as, if not more important than, strategy definition. The
changes underlying a blue ocean strategy make execution even more delicate. This is why carefully addressing four key organizational hurdles can make or break our initiative, no matter
how strong is our business case.
Building execution into strategy via a fair process - Our company will (continue to) stand apart as a great and consistent executor when our people embrace our new strategy with their
minds and hearts. When of their own accord they will be willing to go beyond compulsory execution to voluntary cooperation. When trust and commitment will align attitudes and behavior to
the spirit of our strategy, not to its letter. Adopting a fair process to strategy execution will help us achieve this goal deep into all the ranks of our company, across teams and departments.
A Primer to Blue Ocean Strategy - 3 -
3. Ch. 2
Introduction ⎥ Analytical tools and frameworks
The strategy canvas is both the start and the end point of a blue ocean strategy formulation. An initial value curve depicts where the
industry competes on and invests in. It is then transformed via the eliminate-reduce-raise-create actions framework. The resulting
value curve shows a focused effort that diverges from existing market offerings and can be easily translated into a compelling
tagline.
THE STRATEGY CANVAS THE FOUR ACTIONS FRAMEWORK NEW VALUE CURVE
It facilitates the capture of the current state of play in the The four actions framework is used to reconstruct the buyer Our new value curve will
known market space. It visually plots a value curve that value elements that will define our future value curve. depict a viable strategy if it
allows us to understand where the competition is currently First, we should ask ourselves which factors our company should has three characteristics:
investing, the factors the industry currently competes on, eliminate. Often, these are factors the industry has long
and what customers receive from the existing competitive competed on. They are based on implicit assumptions that have (1) FOCUS: it shows that we
offerings in the market. been taken for granted even though they no longer have value, or do not diffuse our efforts
may even reduce value. across all key factors of
Then we look at whether products or services have been competition.
To fundamentally shift the strategy canvas of our industry,
we must begin by reorienting our strategic focus from overdesigned in the race to match and beat the competition. This
(2) DIVERGENCE: the shape
competitors to alternatives, and from customers to non- forces us to reduce those elements that over-serve customers,
of our curve diverges from
customers of the industry. As we shift our focus, we gain and that increase our cost structure for no gain.
those of other players.
insight into how we can redefine the problem the industry At the same time, we should look at factors that are based on a
focuses on and how we can reconstruct buyer value “compromise” within the industry and potentially raise them for (3) The curve can be easily
elements. As a result, we can decide how to reshape our greater customer appeal and satisfaction. translated into a clear,
positioning and related offerings to serve both existing Finally, we can discover entirely new sources of value for buyers strong, truthful and
customers and non-customers of an industry. and create new factors that generate demand and change the compelling TAGLINE.
strategic pricing of the industry.
THE INITIAL VALUE CURVE IS TRANSFORMED THROUGH… … THE ELIMINATE-REDUCE-RAISE-CREATE GRID, TO CREATE A… … NEW, FOCUSED, DIVERGING
VALUE CURVE WITH A
high // COMPELLING TAGLINE
RELATIVE
COSTS
POSITIONING Which of the factors
Which factors should be
// Eliminate that the industry takes
Reduce
OF PLAYERS for granted should be
reduced well below the
industry’s standard?
eliminated?
AND/OR
PLAYERS
// VALUE
GROUPS INNOVATION
low // Which factors should be
Which factors should be
created that the
Create industry has never
raised well above the Raise
industry’s standard?
Factor (a) Factor (b) Factor (c) Factor (n) offered?
BUYER VALUE
FACTORS THE INDUSTRY COMPETES ON AND INVESTS IN Design new factors of competition
A Primer to Blue Ocean Strategy - 5 -
4. Ch. 3
Blue ocean strategy principles ⎥ Strategy Formulation
1. Reconstruct market boundaries
The six paths framework challenges the fundamental assumptions underlying many companies’ strategies. It encourages to look at
alternative industries, strategic groups, chain of buyers, complementary offerings, functional and emotional appeal, and time.
LOOK ACROSS LOOK ACROSS STRATEGIC GROUPS LOOK ACROSS
1 ALTERNATIVE INDUSTRIES
2 WITHIN INDUSTRIES
3 THE CHAIN OF BUYERS
Focus on the purpose of a product or service and
consider alternatives, not substitutes. We should always consider the multiple players directly or
In most industries you can capture the fundamental
Substitutes are those that have a different form but offer indirectly involved in the buying decision: the purchasers
differences among players within a small number of
the same functionality. (who pay for the product or service); the users; and the
strategic groups (i.e. group of companies pursuing a
Alternatives are those that have different functions and influencers. Although these groups may overlap, they
similar strategy).
forms but fulfill the same purpose. often differ and hold different definitions of value.
As a minimum, you can generally rank them on the basis
Challenging our industry’s conventional beliefs about
• What are the alternative industries to our of price and performance.
which buyer group should be targeted can lead to the
industry? When looking for a blue ocean, the key is to break out of
discovery of new, locked values. For this, we should look
a strategic group and understand which factors drive
• How do customers make trade-offs across them? across buyer groups to gain new insight and draft new
customers’ decisions to trade up or down among groups.
• What makes them jump from an industry to value curves.
• What are the strategic groups in our industry? • What is the chain of buyers in our industry?
another?
• Why do customers trade up for the higher group? • Which buyer group does our industry focus on?
Focus on the key factors that lead buyers to trade across • If we shifted the attention to another buyer group
alternative industries and eliminate or reduce everything • Why do they trade down for the lower one?
of our industry, how could we unlock new value?
else.
SIX PATHS TO RECONSTRUCT MARKET BOUNDARIES, BREAK FROM COMPETITION AND CREATE BLUE OCEANS
LOOK ACROSS COMPLEMENTARY LOOK ACROSS FUNCTIONAL OR
4 PRODUCT & SERVICE OFFERINGS
5 EMOTIONAL APPEAL TO BUYERS
6 LOOK ACROSS TIME
The total solution buyers seek when they choose a Blue ocean strategies rarely come out from projecting
Competition in an industry tends to converge not only on
product or service may be composed of hidden industry trends. Instead, they arise from business insights
the scope of product and services, but also in terms of
complementary products and services. into how trends will change value to customers and
functional /rational and feeling/emotional appeal. Yet the
A way to define the total solution is to explore what impact the company’s business model.
appeal of most products or services is rarely one or the
happens before, during and after our product or service is The idea is to look across time: the value a market
other.
used. delivers today, vs. the value it might deliver tomorrow.
We should thus ask ourselves: • Does our industry compete on functionality or on When looking at trends, we must focus on those that are
• What is the context in which our product or emotional appeal? decisive to our business, that are irreversible and have a
service is used? • If we compete on emotional appeal, what elements clear trajectory. Having identified these trends, we can
• What happens before, during and after? can we strip out to make it functional? look across time at what the market would look like if they
• Can we identify the pain points? were taken to their logical conclusion. Working back, we
• If we compete on functionality, what elements can
• Can we eliminate these pain points through a can identify what must be changed today to unlock a new
be added to make it emotional?
complementary product or service offering? blue ocean.
A Primer to Blue Ocean Strategy - 7 -
5. Ch. 5
Blue ocean strategy principles ⎥ Strategy Formulation
3. Reach beyond existing demand
Non-customers tend to offer us far more insight into how to unlock and grow a blue ocean than do relatively content existing
customers. Beyond our current market are “soon to be”, “refusing”, and “unexplored” non-customers, representing untapped
demand waiting to be released.
DE-SEGMENTING MARKETS, AGGREGATING COMMONALITIES AND MAXIMIZING THE NEW MARKET
This is the farthest away tier of non-customers from our industry’s existing customers. Typically, these
Unexplored unexplored non-customers have not been targeted or thought of as potential customers by any player in
our industry. That’s because their needs and the business opportunities associated with them have
Non-customers who are in
THIRD somehow always been assumed to belong to other markets.
markets distant from ours Can we reach beyond existing customers and look across multiple markets to aggregate commonalities
TIER
into a new market?
Refusing Refusing non-customers are people who either do not use or cannot afford to use the current market
offerings because they find them unacceptable or beyond their means. Their needs are either dealt with
SECOND Non-customers who by other means or ignored.
TIER consciously choose against What are the key reasons non-customers refuse to use the products or services of our industry?
our market Look for the commonalities across their responses. Focus on these, and not on their differences.
Soon-to-be customers are those who minimally use the current market offerings to get by as they search
Soon to be for something better. Upon finding any better alternative, they will eagerly jump ship. Locked within these
FIRST Non-customers who are on first-tier non-customers is an ocean of untapped demand waiting to be released.
What are the key reasons first-tier non-customers want to jump ship and leave our industry?
TIER the edge of our market
Look for commonalities across their response. Focus on these, and not on the differences among them.
waiting to jump ship
Look for commonalities across tiers.
Our aim is to expand the market
Our and create new demand.
Market
GO FOR THE BIGGEST CATCHMENT
A Primer to Blue Ocean Strategy - 9 -
6. Blue ocean strategy principles ⎥ Strategy Formulation
4. Get the strategic sequence right ⎥ 1. BUYER UTILITY
Does our offering unlock exceptional utility? Is there a compelling reason for the mass of people to buy it?
By locating our proposed offering on the thirty-six spaces of the buyer utility map, we can clearly see how, and whether, the new
idea not only creates a different utility proposition from existing offerings but also removes the biggest blocks to utility that stand in
the way of converting non-customers into customers. If our offering falls on the same space or spaces as those of other players,
chances are it is not a blue ocean offering.
The buyer utility BUYER EXPERIENCE CYCLE ⎥ SIX STAGES OF BUYER EXPERIENCE CYCLE
map
1. PURCHASE 2. DELIVERY 3. USE 4. SUPPLEMENTS 5. MAINTENANCE 6. DISPOSAL
• How long does it take • How long does it take • Does the product • Do you need other • Does the product • Does the use of the
to find the product to get the product require training or products and services require external product create waste
you need? delivered? expert assistance? to make this product maintenance? items?
• Is the product easy to work?
• Is the place of • How difficult is it to store when not in • How easy is it to • How easy is it to
purchase attractive “unpack and install” use? • If so, how costly are maintain and upgrade dispose of the
and accessible? the new product? • How effective are the they? the product? product?
• How secure is the • Do buyers have to product’s features • How much time do • How costly is • Are there legal or
transaction arrange delivery and functions? they take? maintenance? environmental issues
environment? themselves? • Does the product or in disposing of the
If yes, how costly and service deliver far • How much pain do product safely?
• How rapidly can you difficult is this? more power or they cause?
make a purchase? options than required • How costly is
• How easy are they to disposal?
by the average user?
obtain?
Is it overcharged with
bells and whistles?
CUSTOMER
In which stage are the biggest blocks to customer productivity?
PRODUCTIVITY
BLOCKS TO BUYER UTILITY
SIMPLICITY In which stage are the biggest blocks to simplicity?
CONVENIENCE In which stage are the biggest blocks to convenience?
RISK In which stage are the biggest blocks to reducing risks?
FUN AND IMAGE In which stage are the biggest blocks to fun and image?
ENVIRONMENTA
In which stage are the biggest blocks to environmental friendliness?
L FRIENDLINESS
A Primer to Blue Ocean Strategy - 11 -
7. Blue ocean strategy principles ⎥ Strategy Formulation
4. Get the strategic sequence right ⎥ 3. TARGET COST
Can we produce our offering at the target cost and still earn a healthy profit margin? Can we profit at the price easily accessible to
the mass of target buyers?
If you are to arrive at a cost structure that is
STRATEGIC TARGET TARGET both profitable and hard for potential followers
PRICE PROFIT COST to match, you must tackle the price equation
as price-minus costing, not cost-plus pricing.
Three levers to hit
■ Can the service’s or product’s the cost target ■ In bringing a new product or
raw materials be replaced by STREAMLINING service to market, many
unconventional, less expensive 1 AND COST PARTNERING 2 companies mistakenly try to carry
ones? out all the production and
INNOVATIONS
■ Can high-cost, low-value added distribution activities themselves.
activities in our value chain be ■ Partnering provides a way for
significantly eliminated, reduced companies to secure needed
or outsourced? capabilities fast and effectively
PRICING while dropping their cost
■ Can the physical location of our 3
product or service be shifted from
INNOVATION structure. It allows a company to
prime real estate locations to leverage other companies’
lower-cost locations? expertise and economies of
■ If streamlining and cost innovation and/or partnering does scale.
■ Can we truncate the number of
parts of steps used in production not bring us to the desired target cost, is changing the ■ Partnering includes closing gaps
by shifting the way things are pricing model of the industry a viable alternative? in capabilities through making
made? ■ The aim is not to compromise on the strategic price, but to small acquisitions when doing so
hit the target through a new price model, e.g. is faster and cheaper, providing
■ Can we digitize activities to
renting/leasing vs. selling, equity interest in the customer’s access to expertise that has
reduce costs?
business, etc. already been mastered.
A Primer to Blue Ocean Strategy - 13 -
8. Ch. 7
Blue ocean strategy principles ⎥ Strategy Implementation
5. Key organizational hurdles
We all know that strategy execution is at least as important as, if not more important than, strategy definition. The changes
underlying a blue ocean strategy make execution even more delicate. This is why carefully addressing four key organizational
hurdles can make or break our initiative, no matter how strong is our business case.
COGNITIVE HURDLE POLITICAL HURDLE
What are the three most important facts and How do we overcome potential corporate
figures that we will use to make people aware politics, intrigue and plotting?
of the need for a strategic shift and agree on TIPPING POINT LEADERSHIP APPROACH Who are the possible negative influencers who
its causes? can fiercely and vocally oppose the new
Identify, focus on and leverage people, acts and activities
strategy? Are they only internal? Are they also
How can we make people, and especially
that exercise disproportionate influence on performance. external to our department, organization, or
leadership, see the reality first hand? How can Fundamental changes can happen quickly when the beliefs company?
customers or third parties help us? and energies of a critical mass of people create an The Consigliere will help us identify in advance
epidemic movement toward an ideal. Key to unlocking an the possible land mines. He/she will profile
What are the three most effective and practical epidemic movement is concentration, not those who have the most to win and to lose
ways we could leverage to make executives dispersion/diffusion of effort. from the new corporate direction. He will help
and employees experience and feel the need us isolate the detractors and discourage them
for change? Employees with Employees with before their war starts to get any steam.
disproportionate disproportionate
influence influence
Against Mass of In favor
employees
KINGPINS: Who are the people inside our
HOT SPOTS: Which of our activities are group that are the most respected and
currently poorly staffed but have a high persuasive natural leaders and influencers that
potential to deliver superior results? have the ability to unlock or block access to
“Consigliere” key resources?
COLD SPOTS: Which activities do we pursue One of the key factors of our success, no matter how FISHBOWL: Can we motivate the kingpins by
today that require a high input of resources but putting them in the spotlight and showing to
strong our business case, is to know in advance all the
deliver a low impact on our performance? others their actions (and inactions) in a
likely angles of attack to our proposal. The Consigliere, a repeated and highly visible way?
HORSE TRADING: How could we reshuffle highly respected insider, will help us know whom will fight
ATOMIZED CHALLENGE: What are the “bite-
our resources allocation for greater impact and us and whom will be naturally interested in aligning size atoms” of our initiative that are individually
business performance? him/herself with the new strategy. attainable and collectively allow us to
implement our strategy?
RESOURCE HURDLE MOTIVATIONAL HURDLE
A Primer to Blue Ocean Strategy - 15 -
9. Disclaimer and In this document, no parts of any publication is copied as such. We summarize the key concepts by giving you
recommendation the essentials and the most practical knowledge in simple terms. Sure, you can grasp it all via us, but however
good is our material, we encourage you to buy and read the original publication for a full background. You can
buy it from any authorized reseller or via our web site.
If you already own a publication, our Primers are a great complement, especially if you have read the original a
while ago and want a 15 minutes reminder.
If you have recently bought the publication and are yet to go through it, our material will help you frame your
learning and accelerate its translation into usable ammunition for your next project.
A Primer to Blue Ocean Strategy - 17 -