Background knowledge to deeply understand ‘Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant’ by W. Chan Kim, Renée Mauborgne
**Authors’ Background and Research:**
W. Chan Kim and Renée Mauborgne are professors of strategy at INSEAD, one of the world’s leading and largest graduate business schools. They are also the co-directors of the INSEAD Blue Ocean Strategy Institute. Their research has focused on market creation and the dynamics of high growth industries. Kim and Mauborgne’s work leading up to “Blue Ocean Strategy” involved extensive empirical research spanning over 150 strategic moves across more than 30 industries over 100 years. This deep dive into historical business successes and failures provided the foundation for their blue ocean framework. Their research emphasized the importance of moving beyond competing in existing, crowded market spaces (red oceans) and instead creating new, uncontested market space where competition becomes irrelevant (blue oceans).
**Core Concepts of the Book:**
“Blue Ocean Strategy” introduces several key concepts that form the foundation of its framework:
* **Red Oceans:** These represent all the industries in existence today – the known market space. In red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. 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 increasing competition turns the ocean bloody; hence, the term red oceans.
* **Blue Oceans:** These 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 rapid and profitable growth. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set. Blue ocean is an analogy to describe the wider, deeper potential of market space that is not yet explored.
* **Value Innovation:** This is the cornerstone of blue ocean strategy. It is the simultaneous pursuit of differentiation and low cost, making competition irrelevant by creating a leap in value for both buyers and the company. Value innovation rejects the traditionally accepted trade-off between value and cost. It involves creating and capturing new demand while aligning the whole system of a firm’s activities with the strategic choices of differentiation and low cost.
* **Four Actions Framework:** This is a tool for systematically analyzing an industry and identifying opportunities for value innovation. It challenges companies to ask four key questions:
* **Eliminate:** Which of the factors that the industry takes for granted should be eliminated?
* **Reduce:** Which factors should be reduced well below the industry’s standard?
* **Raise:** Which factors should be raised well above the industry’s standard?
* **Create:** Which factors should be created that the industry has never offered?
* **Strategy Canvas:** This is a visual tool for capturing the current state of play in the known market space. It depicts the relative performance of companies across the key factors of competition in an industry. The strategy canvas helps to identify opportunities for creating new value curves – graphical depictions of a company’s relative performance across its industry’s factors of competition.
**Relevance to Business Strategy:**
“Blue Ocean Strategy” offers a compelling alternative to traditional competitive strategies that focus on beating the competition in existing markets. Its framework provides a systematic approach to identifying and creating new market spaces where companies can achieve sustainable growth and profitability. The concepts and tools presented in the book have been widely adopted by businesses across various industries, helping them to formulate and implement successful blue ocean strategies.
**Criticisms and Limitations:**
While “Blue Ocean Strategy” has garnered significant praise and influence, it has also faced some criticism. Some argue that the concept of blue oceans is overly simplistic and that truly uncontested markets are rare and fleeting. Others point out that the framework lacks specific guidance on how to execute a blue ocean strategy, particularly in the face of inevitable challenges and competitive responses. Some critics also argue that the book’s case studies are selective and may not be representative of the broader business landscape. It is important to note that creating a blue ocean is not a guaranteed path to success and requires careful planning, execution, and adaptation.
**Related Concepts and Frameworks:**
“Blue Ocean Strategy” draws upon and relates to several other concepts and frameworks in the fields of strategy and innovation, including:
* **Disruptive Innovation:** Clayton Christensen’s theory of disruptive innovation, which focuses on how new entrants can disrupt established markets by targeting underserved customer segments with simpler, more affordable products or services.
* **Value Chain Analysis:** Michael Porter’s framework for analyzing the activities a company performs to deliver a product or service, and identifying opportunities for cost reduction or differentiation.
* **Resource-Based View:** A strategic management perspective that emphasizes the importance of a company’s internal resources and capabilities as sources of competitive advantage.
* **Design Thinking:** A human-centered approach to problem-solving and innovation that emphasizes empathy, experimentation, and iterative prototyping.
Understanding these related concepts can provide a deeper and more nuanced understanding of the principles and applications of blue ocean strategy.
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