Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant Blue oceans ... are defined by untapped market space, demand creation, and the opportunity for highly profitable growth... Without analytic frameworks ... and principles to effectively manage risk, creating blue oceans has remained wishful thinking that is seen as too risky for managers to pursue as a strategy. ... scant work exists on building a viable alternative to existing strategic planning, which is the most essential management task ... Harvard Business School Press HBSP 0a1e033b-5563-44c7-aaa8-abced7fe8f88 W. Chan Kim Co-Author Performer Renee Mauborgne Co-Author Performer Uncontested market space 78d4c946-cfc5-4b4f-b238-3d1061ea24f8 To make the formulation and execution of blue ocean strategy as systematic and actionable as competing in the red waters of known market space. e03f8581-f210-404a-9dfb-f65a80c555e3 Friendship This is a book about friendship, about loyalty, about believing in one another. Loyalty Strategic Moves ... the strategic move, and not the company or the industry, is the right unit of analysis for explaining the creation of blue oceans and sustained high performance. A strategic move is the set of managerial actions and decisions involved in making a major market-creating business offering. Value Innovation ... instead of focusing on beating the competition ... focus on making the competition irrelevant by creating a leap in value for buyers and your company, thereby opening up new and uncontested market space. Value innovation places equal emphasis on value and innovation... Value innovation occurs only when companies align innovation with utility, price, and cost positions. Utility The six buyer utility layers are: Customer productivity, Simplicity, Convenience, Risk, Fun and image, and Environmental friendliness Customer Productivity Simplicity Convenience Risk Fun Environmental Friendliness Price Cost ... the creation of blue oceans is about driving cost down while simultaneously driving value up for buyers. Strategy ... value innovation is more than innovation. It is about strategy that embraces the entire system of a company's activities... an effective blue ocean strategy ... has three complementary qualities: focus, divergence, and a compelling tagline. Focus Every great strategy has focus ... Divergence ... the value curves of blue ocean strategies always stand apart. By applying the four actions of eliminating, reducing, raising, and creating, they differentiate ... Taglines A good strategy has a clear-cut and compelling tagline. Value Leaps Value innovation requires companies to orient the whole system toward achieving a leap in value for both buyers and themselves. Market Reconstruction ... value innovation is based on the view that market boundaries and industry structure are not given and can be reconstructed by the actions and beliefs of industry players. New Best-Practice Rules In the reconstructionist world ... the strategic aim is to create new best-practice rules by breaking the existing value-cost trade-off and thereby creating a blue ocean. Collective Wisdom ... strategic planning should be more about collective wisdom building than top-down or bottom-up planning. Conversation ... it should be more conversational than solely documentation-driven ... Big Pictures ... it should be more about building the big picture than about number-crunching exercises. Creativity It should have a creative component instead of being strictly analysis-driven. Motivation ... it should be more motivational, invoking willing commitment, than bargaining-driven, producing negotiated commitment. Commitment Reconstruction Reconstruct market boundaries e3102b97-0297-4551-bb9c-b9919bee5c3b 1 ... we found six basic approaches to remaking market boundaries. We call this the six paths framework Alternatives Look across alternative industries 43e72a74-837d-4f4e-adc4-ee1d15ceea64 Path 1 Alternatives are broader than substitutes. Products or services that have different forms but offer the same functionality or core utility are often substitutes for each other. On the other hand, alternatives include products or services that have different functions and forms but the same purpose. 42e274b8-285d-4f13-b684-423a77380273 Groups Look across strategic groups within industries bf132abe-a03e-4231-b452-ce152fe94ac6 Path 2 ... strategic groups ... refers to a group of companies within an industry that pursue a similar strategy. In most industries, the fundamental strategic differences among industry players are captured by a small number of strategic groups. Strategic groups can generally be ranked in a rough hierarchical order built on two dimensions: price and performance. 42e274b8-285d-4f13-b684-423a77380273 Buyers Look across the chain of buyers d6fc8cbe-fb4a-4757-aa2b-bdfee1737ccc Path 3 In most industries, competitors converge around a common definition of who the target buyer is. In reality, though, there is a chain of "buyers" who are directly or indirectly involved in the buying decision... Although these three groups may overlap, they often differ. When they do, they frequently hold different definitions of value... Challenging the conventional wisdom about which buyer group to target can lead to the discovery of new blue ocean. By looking across buyer groups, companies can gain new insights into how to redesign their value curves to focus on a previously overlooked set of buyers... By questioning conventional definitions of who can and should be the target buyer, companies can often see fundamentally new ways to unlock value. Purchasers Payment paying for products and services Performer Users Usage using products and services Beneficiary Performer Influencers Influence influencing the purchase of products and services Performer 42e274b8-285d-4f13-b684-423a77380273 Offerings Look across complementary product and service offerings 46b7cc36-1527-4ed4-bffa-fe4b45356cb5 Path 4 Few products and services are used in a vacuum. In most cases, other products and services affect their value. But in most industries, rivals converge within the bounds of their industry's product and service offerings... Untapped value is often hidden in complementary products and services. The key is to define the total solution buyers seek when they choose a product or service. Performer 42e274b8-285d-4f13-b684-423a77380273 Appeal Look across functional or emotional appeal to buyers 9f7f0768-fc50-4e55-bedd-12edf1cd7654 Path 5 Competition in an industry tends to converge not only on an accepted notion of the scope of its products and services but also on one of two possible bases of appeal. Some industries compete principally on price and function largely on calculations of utility; their appeal is rational. Other industries compete largely on feelings; their appeal is emotional. Yet the appeal of most products or services is rarely intrinsically one or the other... When companies are willing to challenge the functional-emotional orientation of their industry, they often find new market space. Performer 42e274b8-285d-4f13-b684-423a77380273 Trends Look across time d1d0e9b5-a24c-4678-89f8-48b4b4c95ed2 Path 6 All industries are subject to external trends that affect their businesses over time... Looking at these trends with the right perspective can show ... how to create blue ocean opportunities. Many companies adapt incrementally and somewhat passively as events unfold. Whether it's the emergence of new technologies or major regulatory changes, managers tend to focus on projecting the trend itself... But key insights into blue ocean strategy rarely come from projecting the trend itself. Instead they arise from business insights into how the trend will change value to customers and impact the company's business model. By looking across time -- from the value the market delivers today to the value it might deliver tomorrow -- managers can actively shape their future and lay claim to a new blue ocean. Performer 42e274b8-285d-4f13-b684-423a77380273 Focus Focus on the big picture, not the numbers 932f9bdc-794c-49b9-90ea-9a29829141d5 2 ... few strategic plans lead to the creation of blue oceans or are translated into action. Executives are paralyzed by the middle. Few employees deep down in the company even know what the strategy is... most plans don't contain a strategy at all but rather a smorgasbord of tactics that individually make sense but collectively don't add up to a unified, clear direction that sets a company apart -- let alone makes the competition irrelevant... we have found that drawing a strategy canvas not only visualizes a company's current strategic position in the marketplace but also helps it chart its future strategy. Visual Awakening Draw the value curve of the company's strategy fc0de273-27f4-4520-bfc9-58424bd46073 Step 1 42e274b8-285d-4f13-b684-423a77380273 Visual Exploration Send a team into the field, putting managers face-to-face with what they must make sense of: how people use or don't use their products or services. 963013f2-4572-4cf2-b7e2-ff0257add2c3 Step 2 For each visual strategy ... write a compelling tagline that [captures] the essence of the strategy and [speaks] directly to buyers. Managers Observation A company should never outsource its eyes. There is simply no substitute for seeing for yourself... You should not only talk to ... people but also watch them in action. Identifying the array of complementary products and services that are consumed alongside your own may give you insight into bundling opportunities... [Also] look at how customers might find alternative ways of fulfilling the need that your product or service satisfies. Performer Customers Conversation Performer Beneficiary Noncustomers Conversation Performer Beneficiary 42e274b8-285d-4f13-b684-423a77380273 Visual Strategy Fair Present strategy canvases at a visual strategy fair. 6e2b0004-c5d4-404b-bab4-714b148cc3e8 Step 3 Teams Presentation Performer Executives Beneficiary Customers Performer Noncustomers Performer Customers of Competitors Performer Judges Rating Evaluation of alternative visual strategies Performer 42e274b8-285d-4f13-b684-423a77380273 Visual Communication Communicate the chosen strategy in a way that can easily be understood by any employee. 0335e7d2-9646-4304-bc17-b51fd8b96994 Step 4 Senior Managers Performer Beneficiary Employees Beneficiary 42e274b8-285d-4f13-b684-423a77380273 Reach Reach beyond existing demand cf59b546-0c45-448d-ad33-024909e88361 3 [To] maximize the size of the blue ocean you are creating ... reach beyond existing demand... challenge two conventional strategy practices. One is the focus on existing customers. The other is the drive for finer segmentation to accommodate buyer differences... To maximize the size of [the] blue oceans, companies ... need to look to noncustomers. And instead of focusing on customer differences, they need to build on powerful commonalities in what buyers value... To reach beyond existing demand, think noncustomers before customes; commonalities before differences; and desegmentation before pursuing finer segmentation. Noncustomers, First Tier Buyers who minimally purchase an industry's offerings out of necessity but are mentally noncustomers ... waiting to jump ship and leave the industry as soon as the opportunity presents itself... However, if offered a leap in value, not only would they stay, but also their frequency of purchases would multiply, unlocking enormous latent demand. Buying Performer Beneficiary Noncustomers, Tier Two ... people who refuse to use [the] industry's offerings... buyers who have seen [the] offerings as an option to fill their needs but have voted against them. Buying Performer Beneficiary Noncustomers, Tier 3 ... noncustomers who have never thought of [the] market's offerings as an option. Buying Performer Beneficiary New Markets Focus on key commonalities across noncustomers and existing customers [to] understand how to pull them into [a] new market. 1a0751de-1fc4-4d5f-96a0-74aa177daf87 3.1 ... focus on the tier that represents the biggest catchment ... But ... also explore whether there are overlapping commonalities across all three tiers... The point ... is not to argue that it's wrong to focus on existing customers or segmentation but rather to challenge these existing, taken-for-granted strategic orientations... to maximize the scale of your blue ocean you should first reach beyond existing demand to noncustomers and desegmentation opportunities ... 42e274b8-285d-4f13-b684-423a77380273 Sequencing Get the strategic sequence right 295b362b-02d6-4bd9-ad46-d92b26a15de4 4 ... build a robust business model to ensure that you make a healthy profit ... Buyer Utility Unlock exceptional utility [and create] a compelling reason for the mass of people to buy ... 8c08944f-f650-44dd-93f3-682fec27db24 4.1 check whether [the] offering has removed the greatest blocks to utility across the entire buyer experience for customers and noncustomers. The greatest blocks to utility often represent the greatest and most pressing opportunities to unlock exceptional value. Buyers Recognition Recognition of the exceptional utility of the offering Performer 42e274b8-285d-4f13-b684-423a77380273 Buyer Utility Mapping A buyer's experience can usually be broken into a cycle of six stages, running more or less sequentially from purchase to disposal... Cutting across the stages of buyer's experience are ... utility levers ... ways in which companies can unlock exceptional utility for buyers. Locate proposed offerings on the thirty-six spaces of the buyer utility map. Pricing Set the right strategic price ... to attract the mass of target buyers. 42c02426-2f15-4572-822f-c20802f170e3 4.2 It is increasingly important ... to know from the start what price will quickly capture the mass of target buyers. There are two reasons ... First ... volume generates higher returns than it used to... second ... to a buyer, the value of a product or service may be closely tied to the total number of people using it... the strategic price ... must not only attract buyers in large numbers but also help ... retain them. Given the high potential for free riding, an offering's reputation must be earned on day one, because brand building increasingly relies heavily on word-of-mouth recommendations spreading rapidly through our networked society. Companies must therefore start with an offer that buyers can't refuse and must keep it that way to discourage any free-riding imitations... We have developed a tool called the "price corridor of the mass" to help managers find the right price for an irresistible offer ... Buyers Attraction Attraction to the offering due to its value for the price Performer 42e274b8-285d-4f13-b684-423a77380273 Attraction Attraction to the offering due to its value for the price Identification Identify the price corridor of the mass. d2d65f4d-3c4f-43a4-bb60-3abf9e9011dc Step 1 ... look first at the products and services that most closely resemble [the] idea in terms of form... understand the price sensitivities of those people who will be comparing the new product or service with a host a very different-looking products and services offered outside the group of traditional companies ... that fall into two categories: those that take different forms but perform the same function, and those that take different forms and functions but share the same over-arching objective... Listing the groups of alternative products and services allows managers to see the full range of buyers they can poach from other industries as well as from nonindustries ... The price bandwidth that captures the largest groups of target buyers is the price corridor of the mass. Performer 42e274b8-285d-4f13-b684-423a77380273 Specification Specify a level withing a price corridor. 52275e78-88ee-451f-b827-2773ad7e6b20 Step 2 ... determine how high a price ... to set within the corridor without inviting competition from imitation products or services... companies with uncertain patent and asset protection should consider pricing somewhere in the middle of the corridor... companies that have no such protection ... must set a relatively low price. Performer 42e274b8-285d-4f13-b684-423a77380273 Cost Produce the offering at a target cost easily accessible to the mass of target buyers while still earning a healthy profit margin. 12b6ec8a-ae03-48ec-846e-ce0b35097642 4.3 To maximize the profit potential of a blue ocean idea, a company should start with the strategic price and then deduct its desired profit margin from the price to arrive at a target cost... price-minus costing, and not cost-plus pricing, is essential if you are to arrive at a cost structure that is both profitable and hard for potential followers to match... To hit the cost target, companies have three principal levers. The first involves streamlining operations and introducing cost innovations from manufacturing to distribution... a second lever ... is partnering... the third lever companies can use [is] changing the pricing model of the industry... what is pricing innovation for one industry ... is often a standard pricing model in another industry. Attraction Attraction to the offering due to its value for the price Performer 42e274b8-285d-4f13-b684-423a77380273 Adoption Address the hurdles to adoption. 2486a22a-8f12-4b85-9d38-a6adae5cb3fb 4.4 Adoption hurdles include, for example, potential resistance to the idea by retailers or partners... The need to assess the buyer utility of [an] offering may seem self-evident. Yet many companies fail to deliver exceptional value because they are obsessed by the novelty of their product or service, especially if new technology plays a part in it. Company Stakeholders Almost by definition, [a blue ocean strategy] threatens the status quo, an for that reason it may provoke fear and resistance among a company's three main stakeholders: its employees, its business partners, and the general public. Before plowing forward and investing in the new idea, the company must first overcome such fears by educating the fearful... In educating these three groups of stakeholders ... the key challenge is to engage in an open discussion about why the adoption of the new idea is necessary... explain its merits, set clear expectations for its ramifications, and describe how the company will address them. Stakeholders need to know that their voices have been heard and that there will be no surprises. Performer Beneficiary Employees Before companies go public with an idea, they should make a concerted effort to communicate to employees that they are aware of the threats posed by execution of the idea. Companies should work with employees to find ways of defusing the threats so that everyone in the company wins, despite shifts in people's roles, responsibilities, and rewards. Production Performer Beneficiary Partners Potentially even more damaging than employee disaffection is the resistance of partners who fear that their revenue streams or market positions are threatened by a new business idea. Partnership Performer Beneficiary The General Public Opposition to a new business idea can also spread to the general public, especially if the idea is very new and innovative, threatening established social or political norms. Buying Performer Beneficiary 42e274b8-285d-4f13-b684-423a77380273 Organizational Hurdles Overcome key organizational hurdles 1f3c8ddd-070e-4d80-b879-5b1ad85837c4 5 ... blue ocean strategy ... hinges on a shift from convergence to divergence in value curves at lower cost. That raises the execution bar... four hurdles [must be overcome]: One is cognitive: waking up employees to the need for a strategic shift... The second is ... limited resources... Third is motivation... The final hurdle is politics. Leaders Tipping Point Leadership Tipping point leadership ... overcome[s] these four hurdles fast and at low cost while winning employee's backing in executing a break from the status quo... there are people, acts, and activities that exercise disproportionate influence on performance... contrary to conventional wisdom, mounting a massive challenge is not about putting forth an equally massive response... Rather, it is about conserving resources and cutting time by focusing on identifying and then leveraging the factors of disproportionate influence ... Cognitive Hurdles Break through the cognitive hurdles 43021e57-9630-4ab3-99e0-03dc8b5d8e40 5.1 Leaders Tipping Point Leadership Tipping point leadership does not rely upon numbers to break through the organization's cognitive hurdle... [They] zoom in on the act of disproportionate influence: making people see and experience harsh reality firsthand... Tipping point leadership ... inspire[s] a fast change in mindset that is internally driven of people's own accord. 42e274b8-285d-4f13-b684-423a77380273 Operational Problems To break the status quo, bring employees face-to-face with the worst operational problems. ID-b5c924f5-19b1-4945-9f2d-c7d6432bb42d 5.1.1 Employees ID-21687cf0-cf7e-4f94-9d2d-a9d3180d4248 ID-efe3807a-5079-479b-9088-1f1ed239f3b8 Disgruntled Customers Meet with and listen to disgruntled customers. ID-6e684c30-b7ee-4cfa-a075-ea29700ec9f6 5.1.2 There is no substitute for meeting and listening to dissastisfied customers directly. Disguntled Customers ID-d7a5f7a2-7be0-4eea-b828-305e81ae3bae ID-9f36d957-3076-439d-8c56-0b3e2151eac2 Resources Jump the resource hurdle. ID-8cc6c1cb-7cce-4df2-81fb-a52689413aab 5.2 Tipping Point Leaders Resource Multiplication Instead of focusing on getting more resources, tipping point leaders concentrate on multiplying the value of the resources they have. Performer ID-d90e7076-348b-4d7f-9b39-a2a49f0313c6 ID-8a2c4f60-86a4-4cf7-816b-91e580af1fc7 Hot Spots Redistribute resources to hot spots. ID-65e9696e-a44d-403e-9cb0-146d7ce97976 5.2.1 ID-093e41f3-ddd3-4755-a4c3-fb2ecf1d8537 ID-c828ebd5-51cc-4924-99c8-197d1b36c761 Cold Spots Redistribute resources away from cold spots. ID-a8279368-6202-4a97-b86c-78c18f31dd96 5.2.2 Free up resources by searching out cold spots. ID-a2559eaf-983a-4d5f-a263-988fee9c4726 ID-4c8b1cc3-15b2-4c53-897e-1d2864142c74 Horse Trading Trade unneeded resources for those that are necessary. ID-d9b00536-2713-422f-9c7b-72677bcbd83a 5.2.3 Tipping Point Leaders Horse Trading ... tipping point leaders skillfully trade resources they don't need for those of others that they do need. Performer ID-4effde46-ed95-4850-9709-2c60e97ece0e ID-402abc21-0909-43bc-8b19-7982276d9407 Motivation Jump the motivational hurdle. ID-3a5f20c8-a838-4323-aac8-d1cb6763e9f6 5.3 ... overarching strategic visions often inspire lip service instead of the intended action... Tipping point leadership [challenges the conventional wisdom of transforming the mass by taking] the reverse course. To change the mass it focuses on transforming the extremes: the people, acts, and activities that exercise a disproportionate influence on performance. By transforming the extremes, tipping point leaders are able to change the core fast and at low cost to execute their new strategy... [Focusing] on acts of disproportionate influence ... aligns employees' actions with the new strategy. Tipping Point Leaders Employee Motivation Instead of diffusing change efforts widely, tipping point leaders follow the reverse course and seek massive concentration. They focus on three factors of disproportionate influence in motivating employees ... kingpins, fishbowl management, and atomization. Performer ID-cce45936-8997-4c54-855d-eda60f9a9463 ID-63e5dbe7-2581-422a-bd76-f4b075800439 Kingpins Concentrate efforts on kingpins. ID-ed80975d-f2b3-46aa-aada-5cfa7f4fed30 5.3.1 Kingpins the key influencers in the organization. Performer ID-8edb3e68-19d5-44c4-9dac-aff42854b38c ID-bf987c81-f744-4e65-8011-554f04a7ae46 Fishbowl Place kingpins in a fishbowl. ID-21de70c5-fbac-4562-923f-6dfffbf0cd7c 5.3.2 At the heart of motivating kingpins in a sustained and meaningful way is to shine a spotlight on their actions in a repeated and highly visible way... "fishbowl" management, where kingpins' actions and inaction are made transparent to others ... For fishbowl management to work it must be based upon transparency, inclusion, and fair process. ID-347d875d-0149-4943-bc94-92a5c9432f52 ID-19baa8f7-c44f-48cd-8d3d-9a113a63f44e Atomization Atomize to get the organization to change itself. ID-fffb1974-cad5-42bd-a310-935c2f6dcabf 5.3.3 Atomization relates to the framing of the strategic challenge ... Unless people believe that the strategic challenge is attainable, the change is not likely to succeed... To make [a] challenge attainable [break] it into bite-size atoms ... to make it actionable to all levels ... ID-1ac41305-1de2-44a8-aa23-dd319638faa5 ID-cfecdee7-c1eb-4cff-9942-7d5feb989222 Politics Knock over the political hurdle. ID-266ea9f8-6b02-4f08-8791-29eccafb7c5d 5.4 Identify ... detractors and supporters -- forget the middle -- and strive to create a win-win outcome for both. But move quickly. Isolate your detractors by building a broader coalition with your angels before the battle begins... Key to winning over ... detractors or devils is knowing all their likely angles of attack and building up counterarguments backed by irrefutable facts and reason. Tipping Point Leaders To overcome ... political forces, tipping point leaders focus on three disproportionate influence factors: leveraging angels, silencing devils, and getting a consigliere on their top management team. Performer Angels Those who have the most to gain from the strategic shift. Beneficiary Devils Those who have the most to lose [from the change]. Consiglieres A politically adept but highly respected insider who knows in advance all the land mines, including who will fight [the change] and who will support [it]. Performer ID-cc46223b-4926-4bd0-87e4-0b7c680d949d ID-3c80b218-e6f0-4dad-b686-bd8ba127d174 Execution Build execution into strategy bcdcecf5-5914-44ce-81bb-d607c1f9953b 6 ... it is only when all the members of an organization are aligned around a strategy and support it, for better or worse, that a company stands apart as great and consistent executor. Culture Create a culture of trust and commitment. 370bcc3f-66f2-494d-b74e-1f791e79ede3 6.1 Create a culture of trust and commitment that motivates people to execute the agreed strategy -- not to the letter, but to the spirit. People's minds and hearts must align with the new strategy so that at the level of the individual, people embrace it of their own accord and willingly go beyond the compulsory execution to voluntary cooperation in carrying it out. 42e274b8-285d-4f13-b684-423a77380273 Start Build execution into strategy from the start. ID-c3fed8c6-749b-4878-80ee-62fa0cf9b82e 6.2 To build people's trust and commitment deep in the ranks and inspire their voluntary cooperation, companies need to build exectution into strategy from the start. ID-63104f60-4181-4dfa-8a71-fcc8f50328b4 ID-a4a20e30-7bc3-4e7e-ba62-5325bf570d91 Process Reach to fair process in the making and executing of strategy. ID-5377d057-d34c-465f-8b72-e9c6badef301 6.3 Companies must reach beyond the usual suspects of carrots and sticks. They must reach to fair process in the making and executing of strategy... There are three mutually reinforcing elements that define fair process: engagement, explanation, and clarity of expectation. ID-5be4df1a-9e73-431e-9cb0-6b40c1ee9f0a ID-7cf71a16-9ecc-4634-94e3-d5a6d7a100ec Engagement Involve individuals in the strategic decisions that affect them by asking for their input and allowing them to refute the merits of one another's ideas and assumptions. ID-b8b90341-ba48-40fc-8f88-fd201e3d5b6d 6.3.1 ID-db529bb3-4275-4867-997f-2264a4c9a34b ID-0c8aee0f-e7e4-4199-b615-a7c960107131 Explanation Ensure that everyone involved and affected understands why final strategic decisions are made. ID-718ae6c6-28af-4b8e-af3a-6c710d7aba92 6.3.2 ID-dca00140-216d-47b4-aa4d-23b3379e9b94 ID-88a47648-1e0f-4982-97a9-545ffa4195f4 Expections Clearly state the new rules. ID-7794bea5-7cbc-49a4-9278-21ef8a9dc301 6.3.3 ID-9f0741da-ac53-4f68-8026-36d26021f2cb ID-f428793b-5f2d-486a-ad9a-d7d2ce3c1c00 2013-12-15 Submit error.