This book is a breath of fresh air for everyone who is in Innovation. I read it again every few years. You can buy the expanded version of 2015 at Amazon (click here https://www.amazon.com/Blue-Ocean-Strategy-Expanded-Uncontested/dp/1625274491/ )
This is the key sentence that comes before everything:
Effective blue ocean strategy should be about risk minimization and not risk taking.
(chapter 2, 1st para)
If possible, don’t build a new product! Now if that is not against everything that we learn in Innovation?
In other words: if possible, stay put with your current product and rather find a pocket, a so-called “uncontested market space”, where you are the only shark in the water, “… creating and capturing new demand.”
You are now all set for what is to come.
A Short Outline
“Market-creating strategy” is “Blue Ocean Strategy”, without any other shark.
“Market-competing strategy” is “Red Ocean Strategy” where many sharks fight about the same fish.
Businesses that employ “Red Ocean Strategy” accept as given what is standard practice in the and they just compete for a larger slice of market share of existing markets, mostly by lowering prices or –seldom – by more bending over for their customers. Competition is fierce and profits are limited.
In contrast to that, companies that take a “Blue Ocean Strategy” approach new, uncontested market pockets by to new customer segments. Blue Ocean Companies provide a strategy of high differentiation to appeal to new, untapped market segments by focusing on what makes your product or service stand out to your target audience.
Example: The Nintendo Wii
The book focuses on this old example that most contemporary readers will not understand anymore. What made the Nintendo Wii to be so blue ocean strategy? Well, the Wii created new demand among large parts of the general population who traditionally didn’t play video games: the Wii introduced wireless game controllers for simulating typical sports movements that in turn control a video game. That way, even untrained people with no computer game knowledge could play virtual sports games such as tennis or clay pigeon shooting.
Only a little R&D was necessary for that new product as at the time when the Wii was created all technical components were there. It was merely about targeting that new market pocket “untrained people with no computer game knowledge” that provided tremendous growth for Nintendo.
This Is Where The Authors Are Coming From
As the authors are scholars they did their research and they found out that companies do approach market strategy in one of only two ways: most companies pursue a market-competing “Red Ocean Strategy,” which focuses on increasing their market share in established markets where competition is intense. The problems that come with that approach include that capital for investments is difficult to find because the profit margins are slim.
But the authors also found so-called “market-creating companies” that adopt a “blue ocean strategy,” whereby, regardless of what is happening in the broader industry, they develop a “new space” that allows their business to grow.
“Red Ocean” Is All About Remaining In The Status-Quo
This is what the getabstract.com people write (click here):
Market-creating companies allow the established industry structure to dictate their strategies, and they don’t challenge the status quo. Thus, red ocean firms exhaust their resources trying to secure a larger proportion of existing customer demand. By contrast, market-creating companies use their strategies to shape their business environment. These blue ocean firms focus on generating entirely new demand, expanding the industry as a whole. Red ocean strategy takes one of two approaches to competition: Sell at the lowest cost or be the most differentiated player in the industry. But if you provide a highly differentiated offering, your costs will be dear and your product less affordable. Whereas red ocean strategy assumes a trade-off between high differentiation and low cost, blue ocean strategy argues you can achieve both at once while creating new demand in a manner that is difficult for competitors to replicate.“Blue ocean strategy is about the alignment of the value proposition…, profit proposition…and people.”
Example II: JC Decaux Outdoor Advertising
In the old days, outdoor advertising also was an industry with small profit margins. Ads were manually placed on billboards alongside roads and highways. The book describes the French company JCDecaux which provided outdoor advertising that can be found in bus shelters, metro stations, and airports. The JCDecaux company today dominates the outdoor advertising market. Read the Blue Ocean book if you want to find out how they achieved that!
How this book is different from others in the field
What makes this book different from other books that have been written by scholars is its Part Three which talks about executing the Blue Ocean Strategy. I would recommend that you start reading here because it would immediately tell you whether or not you have the mindset to live with the Blue Ocean Strategy in your daily life as a business owner or co-owner.
Part Three talks about key organizational hurdles that have to be overcome and what it takes to build the Blue Ocean Strategy into your company strategy. What is new in the expanded 2015 edition are the chapters about “alignment” (how to ensure that the key components of an organization, from value to profit to people, are aligned to support the strategic shift blue ocean strategy requires), “renewal” (how to have a dynamic renewal process for creating sustainable economic performance both for a single business that has reached for a blue ocean and for a multi-business organization that has to balance both red and blue ocean initiatives), and about so-called “Red Ocean Traps” that keep companies in the red ocean even as they attempt to set sail for the blue ocean.
How this book is the same as most in the field
The teaching of the Blue Ocean Strategy is not new at all. The basic concepts are all set in literature. Names like Al Ries with his classic “Positioning – The Battle For The Mind”, Jack Trout in “Differentiate or Die”, or Rosser Reeves in “Reality in Advertising” come to my mind. These are all must-reads which are about exploiting a Unique Selling Proposition” (USP). A USP is what differentiates your product or service from similar products or services — the key selling point you build your marketing campaign around. For instance, what will sell your light beer best — “tastes great” or “less filling?” The USP concept was originally worded for market penetration purposes.
The Blue Ocean Strategy takes this USP concept at least one step further and expands it into an active diversification strategy for a business: where should we aim with our improved product in order to be able to operate in a Blue Ocean? Very often, the key is in simplification which is a long-known concept, too.
How to implement this information productively
I believe that it takes a very open mind to change to a Blue Ocean Strategy when it comes to sales. How easy is it to fall into one of the Red Ocean traps, such as “just do this little standard work outside your Blue Ocean, it sits right under nose. Make hay when the sun is shining!”
Once the concept of Blue Ocean is commonly understood and it became part of your company culture it is more easy to decline such requests and to send the enquirers away. But it takes a long way until that happens naturally. I will show you books with specific examples that show you how that can be done in practice, please follow my blog.
The Three Most Important Ideas to Remember
This is my own way to remember the three most important ideas best: a Venn diagram.
And the three most important concepts are to distinguish between:
- what the customer wants, what we can do, and what our competition can do,
- the Red Ocean and our Blue Ocean, and our competitors’ Blue Ocean, and
- what nobody wants.
Did my book review make you curious about the “Blue Ocean Strategy”? If yes then please get your own copy, either on your Kindle or as a pdf from the Internet
And if after reading it, you also think that it is a keeper then buy the hardcover version. I believe that it is worth it.
Martin “big picture” Schweiger