Blue Ocean Strategy by Chan Kim and Renee Mauborgne
Competition is a hard truth in business. Rival companies compete with each other in a crowded market space leading to a shrinking profit pool. This is a typical red ocean where the potential profit a can company make, gets reduced due to ruthless competition. This well researched book talks about an analytical framework which can be used to unlock new demand, thereby creating “blue oceans” of uncontested market space, making the competition irrelevant. Blue Ocean Strategy is a must read book for any business professional looking to open out newer ways of addressing a market. It is one of the most useful business books I have read in recent times.
A new business can create an uncontested market space or a blue ocean, by challenging the industry’s strategic logic and existing business models. It can unlock new market space by following a four step approach. Firstly, it should eliminate the factors that the industry takes for granted. Secondly, it should reduce the factors that the users might not like to use. Thirdly, it should raise the standard of its offering well above the industry standard. Lastly, it should create those offerings which the industry has never created in the past. A company can follow the Eliminate-Reduce-Raise-Create method to achieve a new value innovation curve to unlock potential blue oceans.
The book explains the concept of drawing a value curve over a strategy canvas. By doing this a company can test for the commercial viability of an idea and derive strategic knowledge of current and future competitors. The commercial viability is proven when the value curve of a company shows three crucial factors – focus, divergence from the competition and a compelling tagline. The book explains with clear case studies as to how a company can plot its value curve and differentiate itself from the competition.
To implement blue ocean strategy a company needs to reconstruct the market reality. The book explains six ways of doing so, using relevant case studies and examples. A company can look across alternative industries or strategic groups across industry. It can look across a chain of buyers and capture them by providing complementary services. It can also change the functional and emotional aspect of a product or look across the use cases over a period of time.
A strategy can be visualised by focusing on the big picture and not the numbers. There are four steps explained in the book to draw a value curve. Visual awakening, exploration, strategy fair and communication are the steps a company can take to visualise its blue oceans. Managers can use the Pioneer – Mitigator – Settler map to plan the company’s future growth and profit. The techniques of using such analytical frameworks are clearly explained with the help of case studies.
The book goes on to explain how a business can increase its reach beyond existing demand. By focusing on the commonalities between various classes of non customers, it can unlock a new mass of customers that did not exist before. The book talks about three tiers of non-customers and explains the strategy to convert each of these non-customers. Read the book to find out this very non-conventional approach used to unlock blue oceans.
Commercial viability of a strategy can be evaluated by checking if a company gets its strategic sequence right. The book explains this sequence in a case to case manner. A strategist has to start with thinking about buyer utility first, and then he should decide on the target price to sell that product. He would then work back to attain the target cost while maintaining healthy profit. Lastly, he has to address any hurdles that might come in adoption of a new idea. One can use the techniques such as buyer utility map and the six levers of utility to check if a blue ocean idea is commercially viable or not. These techniques explained in the book can act as pointers to logically make important strategic moves in any industry.
The later part of the book talks about overcoming the organisational hurdles in implementing blue ocean strategy. Hurdles can be of four types. Cognitive hurdles involve waking employees to the need for strategic shifts. One might face shortage of resource to implement such a strategy. Motivating key players to break from the status quo is another hurdle. One is sure of facing opposition from vested interests when one sets out to implement strategy. The book explains techniques in overcoming such hurdles.
The book recommends the use of fair process to execute a blue ocean strategy. It highlights that people care about the justice of the process through which an outcome is produced as they do about the outcome itself. It explains the importance of engagement, explanation and expectation clarity to employees while executing a shift in strategy. A company should provide intellectual and emotional recognition to ensure voluntary co-operation from all its stake holders.
The book ends by giving a historical account of blue ocean strategy across Automobile, Computer and Entertainment industries. It makes for an exciting read to understand the theory in action. This book is a page turner and can be read over a weekend. I learnt a different approach to competitive markets by reading this book. It is rich with case studies and examples that reflect the extent of research gone into writing this book. Anybody looking to build business acumen should read this book. It provides a systematic approach to build and execute a strategy that helps open up uncontested market space, referred here as Blue Oceans.
Happy Reading !
16th July 2017