Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant

Nonfiction | Book | Adult | Published in 2005

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Summary

Background

Chapter Summaries & Analyses

Part 1

Part 2

Part 3, Chapters 7-9

Part 3, Chapters 10-11

Key Figures

Themes

Index of Terms

Important Quotes

Essay Topics

Tools

Beta

Discussion Questions

Part 3, Chapters 10-11Chapter Summaries & Analyses

Part 3, Chapter 10 Summary: “Renew Blue Oceans”

Chapter 10 delves into the topic of dealing with competition and imitation, which will rise up sooner or later to eventually turn blue oceans red. It first explores how companies can set barriers to imitation and then discusses when businesses should start considering breaking into new blue ocean spaces.

Entering blue ocean spaces creates four natural barriers to entry for other companies: The first is the alignment barrier, the second is the cognitive and organizational barrier, the third is the brand barrier, and the fourth is the economic and legal barrier. Alignment barriers occur when a blue ocean company’s strategy on value innovation is difficult to replicate. Cognitive and organizational barriers happen when their production and execution process is so streamlined it is difficult for others to match. Brand barriers usually occur when a product offers unbeatable buyer value, projects an image of reliability, or has a large user base that provides unmatched utility. Finally, economic and legal barriers can be created through purchasing patents or other means to prevent idea theft or imitation.

Businesses who break through blue ocean spaces typically see their monopoly last for a significant amount of time. For example, Cirque du Soleil went uncontested for 20 years and Comic Relief for 30. Of course, other companies eventually break through, and at that time managers and executives must not fall into the trap of returning to bloody competition.

Knowing when to renew blue ocean strategies is crucial for long-term economic dominance. Value curves that converge too strongly with competitors often signal that a company should consider value-innovating. Of course, this entails that when values curves with other competitors have yet to converge, then there is no need to innovate yet, as the current market has not yet been saturated.

The Body Shop, for example, has successfully broken into blue ocean spaces in previous years but has since become overshadowed by competitors and imitators. Its current business model has proven to be unsuccessful at renewing blue ocean spaces, and it is therefore engaging in competition with other businesses who have adopted its model.

To remain relevant in the long term, businesses must know when to renew blue ocean strategies. To this end, the pioneer-migrator-settler (PMS) map described in Chapter 4 serves as a complementary tool to evaluate when the time is right to break free from competing. Companies should maintain a balance between pioneer, migrator, and settler products, where pioneer products inhabit uncontested blue oceans and guarantee future growth while migrator and settler products generate cash flow in the present.

For example, Apple’s PMS map between 1997 and 2014 is well-balanced between settler products (such as Macintosh), migrator products (such as iPods and the iTunes store) and pioneers (such as the iPad, iPhone, and the App store). It first broke through by improving the Macintosh into the iMac, and then breaking through the music industry with the iPod. When other companies began imitating them, they innovated by producing a greater variety of iPod products (such as the mini, shuffle, touch, and nano), and eventually creating the iPhone. By constantly innovating whenever its older products were imitated by competitors, Apple has cemented its trajectory of profitable growth. Seen through a practical light, markets will always have blue and red oceans—breaking through to blue waters is therefore not a guarantee of long-term success.

Part 3, Chapter 11 Summary: “Avoid Red Ocean Traps”

This final chapter addresses 10 common mistakes that trap businesses in red oceans, even when they try to break into blue waters.

The first trap is mistaking blue ocean strategy with customer-oriented strategy. Simply looking to make existing customers happier is not enough: Blue ocean strategy asks businesses to expand their demand to noncustomers as well.

The second trap is believing that companies must break into entirely new industries to profit from blue oceans. This is untrue, as businesses can do well in their core industry by reevaluating its value curve and expanding its boundaries. In fact only a few exceptional companies, such as Apple, have managed to break into different businesses.

The third trap is confusing blue ocean strategy with technological innovation. While cutting-edge technology can sometimes help lower costs or attract interest, it is not fundamentally a part of blue ocean strategies. Even when companies use new technology as a core part of their product, the appeal is not the technology itself, but the ease of use and productivity they bring.

The fourth trap is believing that blue ocean creation is about being the first to market a product. This thinking often causes companies to focus on speed when they should be delivering on buyer value. For example, Apple did not invent the first computer or smart tablet, yet they dominate the market because their products are easy to use and provide incredible buyer value.

The fifth trap is confounding blue ocean strategy with differentiation strategy. Traditionally, differentiation strategy is defined as a process for adding a premium value to a product at a high cost to the supplier and a higher price to the customer. Blue ocean strategy, meanwhile, asks that businesses pursue differentiation without high costs by shifting the value curve and eliminating or reducing spending in areas that do not matter.

The sixth trap is misinterpreting blue ocean strategy as simply lowering costs and pricing. Rather than lowering costs for the sake of it, blue ocean strategies ask businesses to offer a leap in value without an equivalent leap in costs. The key is not low pricing, but strategic pricing paired with value innovation to attract noncustomers and expand demand.

The seventh trap is equating blue ocean strategy with innovation. Innovation simply means creating something new; it does not mean that the product must appeal to a great number of buyers or be profitable. Blue ocean strategies require value innovation, a type of novelty and change that creates a leap in buyer value and attracts mass customers.

The eighth trap is mistaking blue ocean strategy for being simply a marketing or a niche strategy. Whereas niche strategy is about targeting a specific segment of customers with niche tastes, blue ocean strategy targets masses of noncustomers through expanding industries and finding commonalities across buyer groups. Similarly, marketing strategy is an analytical process to increase sales, but it is inherently different from blue ocean strategy, which also focuses on execution and requires an alignment across the strategy positions of value, profit, and people.

The ninth trap is believing that blue ocean strategy condemns all forms of competition. While its purpose is to help businesses break out of the waters of bloody competition, it also highlights that understanding how to compete is crucial to long-term success. Blue ocean strategy challenges the traditional economic belief that competition is the only force that pushes companies to innovate and improve by helping companies expand existing market spaces when that competition becomes unprofitable.

The tenth and final trap is confusing blue ocean strategy for creative disruption, which happens when a new product or service displaces another. This is the case for digital photography, which displaced the market for the use of physical films. Blue ocean strategy, however, is not synonymous with disruption or destruction, as it does not seek to replace old markets. Rather, its goal is to expand existing industries and challenge traditional boundaries to generate new demand. In other words, rather than focus on innovation for the sake of lowering costs and displacing costlier options, blue ocean strategy wishes to redefine the problem itself, and by doing so, complement existing market products.

Part 3, Chapters 10-11 Analysis

Chapters 10 and 11 are new additions to the 2015 revised edition of the book. They were added to address some common misconceptions and criticisms Blue Ocean Strategy has received since its publication. They address the third theme of this study guide, which highlights that A Company’s Long-Term Success Lies in Knowing When to Renew Their Blue Ocean Strategies in order to remain relevant over time.

To this end, Chapter 10 first attempts to dispel the mistaken assumption that blue ocean strategies are long-term solutions to market competition. Kim & Mauborgne are quick to remind readers that as long as there is the possibility of making profit, businesses will wish to serve that market, and every blue ocean will eventually turn red. Therefore, for companies to enjoy uncontested blue waters for longer, they must actively find ways to create barriers to entry. Some of these barriers (such as organizational, cognitive, and alignment barriers) might naturally occur due to the radicality of blue ocean strategies, which require intense value innovation, buyer value maximization, and tipping point leadership, none of which are easy to copy. Other barriers can be intentionally created, such as through purchasing patents.

Nevertheless, even with these measures in place, other companies will eventually catch up and compete in these once-blue waters. This is because markets are ever changing, and innovation cannot be monopolized. Before blue oceans turn fully red, businesses must seek to renew some of their products and services toward new uncontested spaces. Only by repeating this cycle can companies remain relevant in the long run.

Chapter 11 serves to highlight Kim & Mauborgne’s new approach to market strategy as a radical departure from traditional theories. This addition was necessary to address common criticisms the authors received from readers, scholars, and even organizations who have been unsuccessful in putting their strategy into practice. Kim & Mauborgne felt that some of these critiques stem from a misunderstanding of topics the authors addressed in previous chapters and sought to redress them here. This final chapter therefore functions as a reminder of the differences between blue ocean strategy and traditional market strategies.

Chapter 11 thus addresses 10 common misconceptions people still have of blue ocean strategies. Among them, the most common mistaken belief is that blue ocean strategy is purely about innovation or disruption. This is untrue, because innovation on its own is directionless and certainly does not necessarily benefit buyers or allow for the creation of demand. New ideas might be attractive on paper, but without an efficient way to produce them, promote them, and price them, they may not be adopted by the masses and thus might fail to be profitable in the short or long term. Therefore, the authors underline time and again that these misinterpretations can directly affect a company’s success, especially when the misunderstanding causes them to effectively remain trapped within the same mental framework used for red ocean competition. In sum, Chapter 11 highlights once again that thinking outside the box, using the right approach, and avoiding fighting along traditional market strategy lines are crucial to breaking into blue ocean spaces.