BLUE OCEAN STRATEGY BOOK SUMMARY AND REVIEW
Blue Ocean
Strategy: How to Create Uncontested Market Space and Make the Competition
Irrelevant
Reviewed
by Dr. Sarah Layton
Dr.
Sarah Layton (drsarahl@blueoceanstrategicplanning.com;
www.blueoceanstrategicplanning.com)
is Managing Partner of Corporate Strategy Institute, Orlando, Florida. She is
qualified by the Blue Ocean Strategy Initiative Center – London, in Blue Ocean
Strategy concepts, tools and frameworks and specializes in helping organizations
create their Blue Ocean Strategy future.
Summary
If you ever hear your executives whine about the competition, you will
want to read this book. It is about how a company can do things so differently
that it moves into an entirely different marketplace, even a different industry.
The authors have been called “two of Europe’s brightest business
thinkers,” have written for all the major business publications, and are
distinguished professors at INSEAD.In Blue
Ocean Strategy.
In
Blue Ocean
Strategy, they describe the red ocean as where most companies compete,
seeking customers from the same market as their competitors, Kim and Mauborgne
suggest that companies break out of the red ocean of bloody competition by
creating uncontested market space in the blue ocean that makes the competition
irrelevant. Red Ocean Strategy focuses on existing customers, and has the
following traits:
I
Successful blue ocean companies
include Callaway Golf, NetJets, and Cirque de Soleil. But companies have been
creating blue ocean strategies for decades. Callaway went after nongolfers
intimidated by the sport, gave them a club head so huge they couldn’t miss the
ball, and won over duffers in the process. NetJets took the speed and
flexibility of the corporate jet and the lower cost of commercial travel and
offered the best of both industries in fractional “timeshare” jet ownership.
Cirque de Soleil redefined the circus by eliminating the animals, the travel,
and the three rings, thereby appealing to an upscale market looking for
entertainment.
Guiding Principles
As you create your blue ocean strategies, be aware of four guiding
principles. The first is to
break from the competition and reconstruct market boundaries. For
example: Novo Nordisk looked
past the red ocean of doctors as the market for insulin to the blue ocean of
diabetics and became a diabetic’s care company rather than just a producer of
insulin.
The second guiding
principle is to focus on the big picture, not the numbers. As a
strategist, I have long tried to convince clients that when the strategy is
right and implemented, the numbers will happen. The right strategic planning
process is critical to developing a good strategy. Unfortunately, old habits die
hard, and planning processes become mired in the numbers.
The third guiding principle
is to reach beyond existing demand. Historic strategic planning
processes encourage focusing on current markets and further defining niches,
thus continuing a red ocean existence.
To have a profitable and robust strategy, you must follow the fourth
guiding principle: get the strategic sequence right. The right strategic sequence
of buyer utility, price, cost, and adoptions will ensure commercial
viability.
Business models usually start
with the cost and build the price based on how much profit they want to make.
Blue ocean strategies suggest starting with the utility to the customer and then
setting the consumer price and designing the model so that the cost allows the
profit desired. My experience is that companies juggle cost and price, trying to
decide the highest price the market will bear and adding or subtracting features
until they get a nominal product they think they can sell at the highest profit.
Many times they never even get around to the subject of value to the customer.
How to create Blue Oceans
Value innovation is the
cornerstone of blue ocean strategy and is not new. Porter and others
have espoused innovation for decades. What is new is how Kim and Mauborgne
suggest that innovation align with utility, price, and cost positions while
overcoming the execution hurdles. They decry the value cost tradeoff so common
today and provide useful tools that encourage you to think alternatives instead
of competitors, and noncustomers instead of customers.
One tool is the strategy
canvas used to create value. This is a diagnostic and action-oriented
chart that plots the current state of play (low vs. high activity) in the known
market against the range of factors used to compete. The resulting value
curve shows where the competition is currently investing and what they
offer buyers. This creates the current value curve. Once you have created that,
look at each factor and decide which of four primary actions (eliminating,
reducing, increasing, or creating) could be taken to create value to
noncustomers. These actions will dramatically change your value curve.
For example: What
factors on the strategy canvas should be eliminated that don’t add value?
Casella Wines eliminated the aging and tannin qualities, two factors that
intimidated customers.
What factors should be reduced below the industry standard to avoid over
delivering? Casella Wines limited their offerings to just one white wine and one
red wine (Yellow Tail) to avoid customer confusion.
What factors should be raised above the industry standard so that
customers won’t have to make compromises? Casella Wines raised the involvement
of Yellow Tail retailers by providing them with Australian outback clothing,
which helped make the wine seem friendly instead of intimidating.
What factors should be created that are new to the industry? Casella wines
created new customer experiences for wine drinking; easy drinking, ease of
selection, and a sense of fun and adventure.
Characteristics of Blue Ocean
Strategy
Once these actions have been taken, look to see if your strategy has the
three characteristics of a good blue ocean strategy. Does it have focus? Does it diverge from other
players? Does it have a good tag line? Look to alternatives rather than the
competition.
For
example: SouthWest Airlines chose to look
at automobile transportation, not other airlines, as the alternative for
comparison. By focusing on friendly service, speed, and frequent point-to-point
departures, they were able to price against car transportation. They diverged by
eliminating, reducing, raising, and creating value that differentiated their
profile from the average airline. Their tag line: “the speed of a plane at the
price of a car—whenever you need it,” was very compelling, and sales took
off.
Execution is Key
The final section of the book goes into detail about how to execute the
blue ocean strategy. This is an important section that covers overcoming the
organizational hurdles: how to build execution into the blue ocean strategy, and
how to sustain and when to renew the strategy.
How do you get employees to be aware of the need for the new strategy,
abandon the status quo, and jump on the execution wagon? How can you accomplish
each phase without increasing the resources needed? How do you motivate
employees to become enthusiastic supporters rather than reluctant participants
or, worse, saboteurs? Tipping point leadership—popularized by Malcom
Gladwell’s book, The
Tipping Point—where leaders mobilize a company by flipping
conventional wisdom on its head, is necessary to overcome these hurdles quickly
at low cost, winning support for the strategy in the process.
Before people will execute a new strategic plan, their minds
and hearts must align with the new strategy. Then they willingly go
beyond compulsory execution to voluntary cooperation in implementation. Fair
process is vital here. When management has engaged employees in pertinent
aspects of the strategic decision making, explained the strategic choices, and
effectively communicated the new rules of the game—then employees will judge
the process as fair. A blue ocean strategy successfully implemented provides
strong barriers of imitation, giving a 10- to 15-year lead over the competition.
Copyright
© 2005 Dr. Sarah Layton; first serial rights to C2M – Consulting to
Management. This review was published in slightly different format in the
December, 2005 issue of C2M..
