BLUE OCEAN STRATEGY
Business Strategy Blue Ocean Strategy
Companies have been
engaged in a head-to-head
competition to improve their
profits. They have fought for
competitive advantage and
struggled for
differentiation. But, head-on
competition is creating
bloody red oceans of rivals
fighting for shrinking profits.
The book argues that
companies will succeed not
only by battling competition
but also by creating blue
oceans of uncontested
market space which facilitate
growth.
Authors: W Chan Kim, Renee Mauborgne
Pages: 240; Price: $27.95
Publisher: Harvard Business School Publishing
Corporation
BBeesstt BBooookkss
© 2005 Harvard Business School Publishing Corporation. All Rights Reserved. The ICFAI University Press
holds the copyright for the review.
C
irque du Soleil, is one of Canada’s
largest cultural exports. It was
founded in 1984 by a group of
street performers, and till 2004, around 40
million people in 90 cities have watched the
Cirque perform. In less than 20 years, its
revenues crossed those of Ringling Bros and
Bernum & Bailey, who are the global
champions of the circus. What made this
growth more interesting is that Cirque made
it happen in a declining industry where the
potential was limited. The compelling aspect
of the success of Cirque was that it did not
take customers from the shrinking circus
industry; rather it created an uncontested
market that made competition irrelevant. It
appealed to a whole group of customers,
both adults and corporate clients, who were
ready to pay a price several times more than
at a traditional circus for an unprecedented
entertainment experience. The authors call
the strategy of Cirque a ‘‘blue ocean’’
strategy. Here, the company feels that to win
in the future it is important to stop competing
with each other.
To explain the concept further, the authors
bifurcate the market space into blue ocean
and red ocean. While the red ocean
represents all the industries of today, the blue
ocean denotes all the industries not in
existence today. Red ocean has defined
boundaries and rules of competition known
to all. As the markets gets crowded the
margins shrink and growth is reduced. On
the other hand, the authors define blue
ocean as an untapped market space where
demand is created and opportunities are
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 BUSINESS STRATEGY
created for high growth in profits. The
authors say that though the blue oceans are
created way beyond the existing industry
boundaries, most of them are created from
within the red ocean by expanding the
industry boundaries.
The authors say that though the term blue
ocean is new, its existence is not. The authors
look back a hundred years and search for
industries of today which were unknown then
like aviation, petro-chemical and
management consulting. They say that even
industries like biotechnology and mutual
funds did not exist 30 years back.
Now, the authors ask how many of
today’s industries will survive tomorrow. They
say that industries do not stand still, they
continuously evolve. So, the overriding focus
on red oceans may not help, as the business
environment, on which the management
strategies are based, is increasingly
disappearing. The authors take the example
of “In search of Excellence and Build to Last”
where the companies mentioned, like Atari,
Fluox and National Semiconductor, had
slipped into oblivion.
The authors say that companies caught
in the red ocean follow conventional
approaches to face the competition, while
the creators of the blue ocean surprisingly
do not use competition as benchmarks.
They follow the strategic logic which the
authors call ‘‘Value Innovation’’, which is the
cornerstone of the blue ocean strategy. The
companies following the blue ocean strategy
focus on making the competition irrelevant
by creating leaps in value for the buyers and
opening up a whole new uncontested
marketplace.
It shows that value can be created even
at a lower cost. Cost savings are made by
eliminating the factors that the industry
competes on. A buyer’s value is created by
raising the elements which the industry has
never offered. Over time, the costs are further
reduced by economies of scale. The blue
oceans strategy drives costs down and value
up for buyers.
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About the Authors
W Chan Kim is the Boston Consulting
Group Bruce D Henderson Chair
Professor of strategy and management
at INSEAD, Fontainebleau, Paris.
Renee Mauborgne is a distinguished
Fellow and a professor of strategy and
management at INSEAD.
Formulating a blue ocean strategy calls
for a reconstruction of market boundaries.
Focusing on the big picture and not the
numbers, it also calls for reaching beyond
the existing demand and getting the strategy
sequence right. The principle behind
executing the blue ocean strategy is to
overcome the organizational hurdles and
build execution into the strategy.
Tools and Frameworks
The analytical framework that is central to
the blue ocean strategy is the strategic
canvas. Strategic canvas is both a
diagnostic and an action tool. On the one
hand, it captures the current state of play in
the known market space which tells where
the competition is currently investing, and on
the other, it helps to know who the non-
customers are. The blue ocean strategy calls
for reorienting the strategic focus from
competitors to alternatives and from
customers to non-customers.
The blue ocean strategy calls for a trade-
off between differentiation and low costs and
the creation of a new value curve. The
authors say that there are four key questions
to challenge the industry’s strategic logic
and business model.
They are:
• Which factors the industry has taken for
granted and should, hence, be
eliminated?
• Which factors should be reduced well
below the industry standards?
• Which factors should be raised well
above the industry standards?
• Which factors should be created that the
industry has never offered?
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The authors says that the first question
helps in eliminating the factors on which the
industry competes. The second question
forces the company to determine whether
products or services were overdesigned to
match and beat competition. The third
question pushes the company to uncover
and eliminate compromise which the
customer makes and finally the fourth
question helps to discover new sources of
value for customers. For effective
implementation of the blue ocean strategy
three characteristics are very important. It
should focus on the customers; at the same
time, the strategy should divulge from the
other players and the tagline on the strategy
profile should be clear. This will help the
company see the future in the present.
Formulating Blue Ocean
Strategies
For formulating blue ocean strategies,
remaking market boundaries is very
important. The authors call these as the six-
path framework. They are of the view that
these paths will lead the company into the
corridors of a commercially viable blue
ocean idea. Path one calls for the companies
to look at the other industries that produce
alternative products or services. Among others,
the authors give the example of NetJet which
created a blue ocean of fractional jet
ownership. Within 20 years, NetJet grew
larger than many other airlines. It now
operates more than 250,000 flights to more
than 140 countries with 500 aircrafts.
The second path looks at the strategic
groups within the industry. A strategic group
refers to a group of companies within the
industry. The authors say that the key to
creating a blue ocean across existing
strategic groups is to break out of the narrow
tunnel vision by understanding which factors
determine customers’ decision to trade up
or down and with one group or the other.
The authors give the example of
Curves—A Texas-based fitness company. It
started franchising in 1995 and now it has
BBeesstt BBooookkss
BLUE OCEAN STRATEGY
more than 2 million members in 6000
locations. Rather than competing in the
traditional oversaturated industry, Curves
built a blue ocean by concentrating on two
strategic groups in the US Fitness industry—
traditional health clubs and home exercise
programs.
The third path looks across the chain of
buyers. The authors say that challenging the
industry’s conventional wisdom, i.e., which
buyers’ group to target, can lead to the
discovery of a blue ocean. The authors give
an example of Novo Nordisk, a Danish
insulin producer that created a blue ocean
in the insulin industry. Historically, the insulin
industry was influenced by doctors. The
importance of doctors was affecting the
purchase decisions in the insulin industry.
Nordisk created a blue ocean by
concentrating on patients rather than on
doctors. Nordisk launched Novopen in 1985
which was user-friendly insulin delivery
solution.
The fourth path looks at the
complementary products and services. The
authors say that untapped value is created
by looking at complementary products and
services. The key, they say, is to look for the
total solution the buyers seek when they
choose products or services.
The authors give the example of NABI,
a Hungarian-based bus company. In the
industry, the major customers were public
transport providers, municipally-owned
transportation companies. The industry
competed on offering the lowest purchase
price. NABI discovered that the highest cost
incurred on the customer was not the
purchase price but the cost of maintenance.
Looking at the total solutions, NABI created
a bus, which the industry had never seen
before. It created buses with fiberglass. As
the fiberglass buses are corrosion free it cuts
the cost of maintenance. The repairs can
be made faster and cheaper because
fiberglass does not require panel
replacements; the damaged parts are
removed and new fiberglass is soldered.
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 BUSINESS STRATEGY
Path five looks across functional or
emotional appeal to buyers. The authors say
that some industries compete on price and
functions. Others compete largely on
feelings, appeal and emotions.
The authors say that when companies are
willing to challenge the functional and
emotional orientation of the industry, they tend
to find the blue ocean. The authors give the
example of ‘‘Swatch’’ which transformed the
functional-driven budget watch industry into
an emotionally-driven fashion statement.
Path six calls for looking across time. Every
industry is subjected to external trends that
affect business over a period of time. By
looking at the trends, one can create a blue
ocean strategy. Most companies adapt
incrementally and somewhat passively as
events unfold. The authors say that blue ocean
arises from business insights into how the trend
will change value to the customers and impact
the company’s business model.
The authors give the example of Apple.
Apple observed that Internet music file sharing
was started in the1990s. Music file programs
on Napster created a free network of Internet
music, but it was illegal. This made paying
$19 to an average CD look expensive.
Responding to this, Apple created iTunes
online music store in 2003, by entering into
an agreement with 5 major music companies
– BMG, EMI, Sony, Universal and Warner
Bros Records. iTunes allowed buyers to freely
browse 200,000 songs, listen to 30 second
sample and download individual songs for
99 cents and the entire album for $9.9.
Focus on the Big Picture
The strategic planning process should be
aligned with the big picture. The company
should go beyond the numbers and visualize
the strategy. The authors recommend four
steps to visualize the strategy. The first step is
‘‘visual awakening’’. Here, the company
should compare its business with competitors
and see where the strategy needs to be
changed. The second step is ‘‘visual
exploration’’. Here, the company should go
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into the field and explore the paths for
creating the blue ocean strategy. Look for
distinctive advantages of alternate products
and services and see which factors should
be eliminated and which to be changed.
The third step is ‘‘visual strategy fair’’. Here,
the company should draw the future
strategic curves based on the insights from
the field. It should get its feedback on the
alternate strategic canvas from all the
stakeholders and wave the feedback to
build a better strategy. The fourth step is
‘‘visual comparison’’. Here, comparison
should be drawn between the old and the
new strategy.
Reach Beyond Existing Demand
The company should go beyond the
customers. They should look at non-
customers. The authors give three tiers of
non-customers that can be transferred into
customers. The first tier is the “soon to be
non-customers’’ who are on the edge of
the market waiting to jump into the ship.
The second tier is the “refusing non-
customers’’ who consciously choose against
your market and the third tier is the
“unexplored non customers’’ who are in the
markets but distant from yours.
Get the Strategic Sequence
Right
While executing the blue ocean strategy, the
authors say that getting the sequence right
is very important. The first step focuses on
the buyer’s utility. The company should see
if there is exceptional buyer utility in its
business idea. The second step is the price.
The company should analyze whether the
company’s price is accessible to the mass
of the buyers. The third step is cost. Here,
the company should see whether it can attain
its cost target to profit at its strategic price.
The fourth step is the adoption. The
company should see what the adopting
hurdles are in actualizing the company’s
business idea and whether it is addressing
them upfront. This will lead to a commercially
viable blue ocean idea.
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Overcoming Key Organization
Hurdles
The company should overcome the hurdles
if the blue ocean strategy has to be
successful. The first hurdle is ‘‘cognitive’’
hurdle which shows whether it is wedded to
the status quo. The second hurdle is the
‘‘resource’’ hurdle. This will help the
company know whether there are enough
resources. The third hurdle is the
‘‘motivational’’ hurdle. This will help the
company to know whether the staff is
motivated and how to overcome if they are
not. The fourth hurdle is ‘‘practical’’ hurdle.
This will let the company to know whether
there is opposition from powerful vested
interest.
Building Execution into Strategy
All members of the organization should align
around the strategy and support it. The
authors say that overcoming the
organizational hurdles to strategic hurdles
is an important step. It removes the road
blocks that can halt the execution of the best
of the strategies. To build people’s trust and
commitment deep into the ranks and inspire
their voluntary cooperation, a company
needs to build execution into the strategy
from the start. For this to happen, the process
should be in place. Poor processes can turn
the strategy execution upside down. What
is important is that the strategy is fair to all.
The authors spell out three E principles
of fair process—Engagement, Explanation
and Expectation clarity. He says these
principles reinforce a fair process.
The authors say that creating a blue
ocean is not a static but a dynamic process.
Once a company creates a blue ocean,
competitors appear on the horizon. So, the
company should constantly look for
reinventing the blue ocean.
— D Satish
Deputy Editor,
The ICFAI University Press,
Hyderabad.
Reference # 13M-2005-12-05-03
BBeesstt BBooookkss
BLUE OCEAN STRATEGY
Book Excerpts
• There is no perpetully excellent industry. The
attractiveness of all industries rose and fell.
• A key determinant of whether a company was
on rising trajectory of strong profitable growth
was the strategic moves of blue ocean
creation. The creation of blue ocean was a
key catalyst in setting the industry on an
upward growth and profit trajectory.
• Blue oceans were created both in industry
incumbents and new entrants, challenging the
lore that start-ups have natural advantages
over established companies in creating new
market space.
• The creation of blue oceans was not about
technology innovation per se. Sometimes
leading edge technology was present, but
often it was not a defining feature of blue
oceans.
• The creation of the blue oceans did more than
contribute to strong profitable growth, this
strategic move exercised a strong positive
effect on establishing a company’s standing
brand name in buyers’ mind.
• Emotionally, individuals seek recognition of
their value, not as “labor”, “Personnel”, or
“human resources” but as human beings who
are treated with full respect and dignity and
appreciated for their individual worth
regardless of hierarchical level.
• In the broadest sense, a company competes
not only with the other firms in its own
industry but also with companies in the other
industries that produce alternative products
or services.
• When companies are willing to challenge the
functional-emotional orientation of their
industry, they often find new market space.
• Youth and skill will win out every time over
age and treachery. True or False? False. Even
the best and the brightest are regularly eaten
alive by politics, intrigue and plotting.
• By thinking across conventional boundaries
of competition, you can see how to make
convention-altering strategic moves that
reconstruct established market boundaries and
create blue oceans.
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