the business strategy that makes competition irrelevant, blue ocean strategy
TRANSCRIPT
The Business Strategy that Makes
Competition Irrelevant, Blue Ocean
Strategy
Contributed by Flevy on April 13, 2013 in Strategy, Marketing, & Sales
Blue Ocean Strategy is growth strategy framework focused on the idea of creating an
uncontested market space–i.e. a “blue ocean.” This framework is very innovative, as its
principles challenge the conventional business strategy principles of fighting competitors
head-on. The Blue Ocean Strategy framework evolved from a framework called Value
Innovation developed by Gemini Consulting (now Capgemini Consulting) in the late 90s.
Blue Ocean vs. Red Ocean. What’s the meaning behind the name?
In red oceans, our efforts are focused on the conventional logic that we must outpace the
competition with a better solution to a given problem. Blue ocean strategy invites us to
redefine the problem itself. It does so by breaking the value-cost trade-off in view of creating
new uncontested market places. Places where no one has been and where we would be the
one defining the rules!
The Analytical Tools & Frameworks
The strategy canvas is both the start and the end point of a Blue Ocean Strategy formulation.
An initial value curve depicts where the industry competes on and invests in. It is then
transformed via the eliminate-reduce-raise-create actions framework. The resulting value
curve shows a focused effort that diverges from existing market offerings and can be easily
translated into a compelling tagline.
Core Underlying Principles
Venturing beyond an existing industry space implies a series of risks. The blue ocean
strategy approach to strategy is based on six principles that cater for the major risks of a
new market creation project: search risk, planning risk, scale risk, business model risk,
organizational risk and management risk. Together, they define the underlying philosophy
of blue oceans.
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financial models , and more . We have two beautifully crafted presentations focused on explaining the Blue Ocean
Strategy framework here on Flevy:
The Peaceful Strategy
Blue Ocean Strategy Primer
Value Innovation
At the heart of Blue Ocean Strategy, we have concept of Value Innovation. Value without
innovation tends to focus on value creation on an incremental scale, i.e. something that
improves value but is not sufficient to make us really stand out in the marketplace.
Innovation without value tends to be technology-driven, market pioneering, or futuristic,
often shooting beyond what buyers are ready to accept and pay for.
Value innovation occurs only if we align innovation with utility, price, and cost positions.
The focus here is not time-to-market, bleeding-edge technology or best practices. It is the
ambition to break one of the most commonly accepted dogmas of competition-based
strategy: the value-cost trade-off.
It is conventionally believed that companies can either create greater value to customers at a
higher cost, or create reasonable value at a lower cost. Here, strategy is seen as making a
choice between differentiation and cost. In contrast, to create blue oceans, we need to
pursue differentiation and low cost simultaneously, by looking within and beyond our
industry boundaries and redefining a market altogether.
The right sequence for creating value innovation is (1) buyer utility, (2) price, (2b) profit, (3)
costs, and (4) adoption.
1. Buyer Utility – Does our offering unlock exceptional utility? Is there a compelling
reason for the mass of people to buy it? By locating our proposed offering on the
thirty-six spaces of the buyer utility map, we can clearly see how, and whether, the
new idea not only creates a different utility proposition from existing offerings but
also removes the biggest blocks to utility that stand in the way of converting non-
customers into customers. If our offering falls on the same space or spaces as those
of other players, chances are it is not a blue ocean offering.
2. Strategic Price – Is our offering priced to attract the mass of target buyers so that
they have a compelling ability to pay for it?
3. Target Cost – Can we produce our offering at the target cost and still earn a healthy
profit margin? Can we profit at the price easily accessible to the mass of target
buyers?
4. Adoption – Almost by definition, a blue ocean idea threatens the status quo. As a
result, it may provoke resistance among employees, partners and the general public.
Often underestimated or put aside because of its cost, educating the “fearful” can
have a make or break impact on our new idea. Identifying threats to employees and
third parties and openly discussing issues upfront helps minimize risks and defuse
negative opinions that would be much more costly to address later on.
Instead of focusing on beating the competition, value innovation focuses on making the
competition irrelevant by creating a leap in value for buyers and our company, thereby
opening up new and uncontested market space. The objective here is not to increase our
competitiveness in the market as we know it. Rather, it is to create a whole new market
where the rules of the games are yet to be created, by us!
Learn More Frameworks
You may be interested in these other business strategy framework documents available on
Flevy:
Strategic Analysis Framework
Balanced Scorecard
Hoshin Kanri
Business Model Innovation
Common Strategy Consulting Frameworks
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