Blue Ocean Strategy

The problem it solves

In most markets, companies copy each other. They study the competition, match the features, and cut the price to win a deal. Over time everyone looks the same and margins fall. The usual advice is to be better, faster or cheaper, which sounds sensible and is hard to sustain.

Blue Ocean Strategy proposes a different question. Instead of asking how to beat rivals in the market as it is drawn, ask how to change the market. The authors, both professors at INSEAD, call crowded markets red oceans and unclaimed space blue oceans. The book gives you tools to look for the second kind.

What changes in how you work

You stop benchmarking against competitors as the main exercise. You draw a picture of what you and they offer, factor by factor, and look for places where everyone overinvests in something customers do not value. Then you ask what could be removed, and what has been ignored.

You also pay attention to people who do not buy at all. They are not stupid or lazy. They have found the current offers too expensive, too complex or not worth the effort. Understanding why gives you a route to a new kind of customer.

When to read it

Read it when you are in a mature or crowded market and your growth is flattening. It is also useful at the moment you define a new product, because it makes you decide what to leave out. It suits strategy workshops, since the canvas gives a team something concrete to argue about.

Skip it if you are still looking for any customers at all. The book assumes you have a market to analyse. For earlier stages, a book on customer discovery is a better start.

What to be careful about

The case studies, such as Cirque du Soleil and the wine brand Yellow Tail, are told in hindsight, and success stories are easy to fit to a framework. The book can make a blue ocean sound simple to find. In practice you must test whether people really want what you imagine, and whether the economics work.

Making the strategy visible

This book fits well with how I think about decisions. The strategy canvas is a record of choices: what you raise, what you cut and why. If you write those choices down with the reasons, the team can see what the strategy is, and you can revisit it when evidence changes. It also turns a vague idea of being different into a list of concrete decisions that other people can act on.

Kim and Mauborgne argue that the best way to grow is not to out-compete rivals in an existing market but to create a new market where competition is irrelevant. They call the existing, crowded market a red ocean, full of rivals fighting over a fixed demand. They call the new, uncontested market a blue ocean. The book was first published in 2005, with an expanded edition in 2015, and is based on the authors' study of many strategic moves across industries.

Value innovation

The central concept is value innovation. Traditional strategy tells you to choose between differentiation, which costs more, and low cost, which gives less. The authors claim that companies that create blue oceans pursue both at once. They raise the value customers get and cut costs by removing what the customer does not care about.

This is the idea that holds the book together. The aim is not to be a bit better than rivals, but to offer a different mix of value that makes comparison less meaningful.

The strategy canvas

The strategy canvas is a chart. Along the bottom are the factors the industry competes on, and the vertical axis shows how much each firm offers of each factor. Plot your own line and the competitors' lines, and you see where they all bunch together.

If your line looks like everyone else's, you are in a red ocean. A distinctive shape, with a clear focus, a divergence from the rest and a plain message, suggests you have found something different. It is a simple tool, and its value is that it makes strategy visible and debatable.

The four actions framework

To change the shape of your line, the authors use four questions. Which factors that the industry takes for granted should be eliminated? Which should be reduced well below the industry standard? Which should be raised well above? And which factors should be created that the industry has never offered?

The eliminate and reduce questions are the ones most companies skip. They are what reduce the cost structure, while raise and create lift the value. Together they are laid out in a grid for discussion.

Looking beyond existing customers

The book encourages you to look at non-customers. It describes tiers of them, from people who barely use the industry's offering, through those who reject it, to those who have never considered it. Each group is a source of new demand.

It also describes six paths for looking at the market differently, such as looking across alternative industries, across buyer groups and across complementary products. The idea is that fresh insight comes from looking in places your competitors ignore.

Why price and cost belong in the same conversation

Many strategy exercises stop at the customer's side. The authors insist on looking at the price a large group of buyers will accept and the cost you must hit to make money at that price. You work backwards from the price, and the cost target then tells you what you must eliminate or reduce.

This keeps the idea honest. A new offer that delights people but costs more than they will pay is not a new market, only a niche. Starting from the price forces the four actions to produce a real business, not just an appealing concept.

Reading an example from the book

The authors illustrate the framework with Cirque du Soleil, which merged elements of circus and theatre. It dropped the animal acts and star performers that drive circus costs, and raised the elements it borrowed from theatre, such as a story, artistic music and a refined setting. The audience changed too, from families with children to adults who would pay theatre prices.

The example shows the four actions at work on a single canvas. Elimination cut costs, creation added value, and the result was a different group of buyers paying a higher price. You can repeat the exercise on your own market with a pen and a sheet of paper.

Execution and fair process

Strategy fails in execution if people do not believe in it. The authors argue for fair process: involve people in decisions, explain the reasoning clearly and set clear expectations. People accept hard choices when they feel heard.

They also say the offer, the price and the cost structure must support each other, or the move will not be profitable. A great idea that costs too much to deliver is not a blue ocean.

What to do with it

• Draw a strategy canvas for your market, with the factors customers compare you on, and add your main competitors.
• Answer the four actions questions for your offer, and write down at least one thing to eliminate.
• Interview three people who could buy but do not, and record why.
• Check that your new idea is cheaper to deliver, not only better to experience.
• Share the reasoning with your team before announcing the change, and ask for objections.