Top 10 management models for your business: #4 Blue Ocean Strategy
16 July 2014 by Infinite Ideas in 100+ Management Models, Business and finance
by Fons Trompenaars and Piet Hein Coebergh, co-authors of 100+ Management Models.
Problem Statement
How can we create a long-term plan for sustained competitive advantage by focusing on new markets, without focusing on competition?
Essence
Kim and Mauborgne developed their Blue Ocean strategy in 2005, building on earlier
publications that also explored the insight that an organization should create new demand in an uncontested marketspace, or a ‘blue ocean’, where the competition is irrelevant. In blue oceans, organizations invent and capture new demand, and offer customers a leap in value while also streamlining costs. The central idea is to stop competing in overcrowded industries, so-called ‘red oceans’, where companies try to outperform rivals to grab bigger slices of existing demand. As the space gets increasingly crowded, profit and growth prospects shrink because products become commoditized. Ever more intense competition turns the water bloody. Blue Ocean strategies result in better profits, speedier growth and brand equity that lasts for decades while rivals scramble to catch up.
How to use the model:
The authors provide many examples of businesses that have created new markets (blue oceans) and present a model for crafting supporting strategies.
- Eliminate factors in your industry that no longer have value;
- Reduce factors that over-serve customers and increase cost structure for no gain;
- Raise factors that remove compromises buyers must make;
- Create factors that add new sources of value.
In addition, Kim and Mauborgne list a number of practical tools, methodologies and
frameworks for formulating and executing blue ocean strategies, attempting to make the creation of blue oceans a systematic and repeatable process. In their 2009 article ‘How Strategy Shapes Structure’, Kim and Mauborgne stress the importance of alignment across the value, profit and people propositions, regardless of whether one takes the structuralist (traditional competitive, Porter-like) or the reconstructionist (blue ocean) approach to strategy.
Results
Blue Ocean strategy should result in making the competition irrelevant. Therefore,
organizations need to avoid using the existing competition as a benchmark. Instead, make the competition irrelevant by creating a leap in value for both your organization and your customers. Another result should be the reduction of your costs while also offering customers more value. For example, Cirque du Soleil omitted costly elements of traditional circuses, such as animal acts and aisle concessions. Its reduced cost structure enabled it to provide sophisticated elements from theatre that appealed to adult audiences – such as themes, original scores and enchanting sets – all of which change from year to year.
Comments
The logic behind Blue Ocean strategy is counter-intuitive, since blue oceans seldom result from technological innovation. Often, the underlying technology already exists and blue ocean creators link it to what buyers value. Furthermore, organizations don’t have to venture into distant waters to create blue oceans. Most blue oceans are created from within, not beyond, the red oceans of existing industries. Incumbents often create blue oceans within their core businesses. A similar idea was put forward by Swedish management authors Jonas Ridderstråle and Kjell Nordström in their 1999 book Funky Business. Blue Ocean strategy is an inspiring way to look afresh at familiar environments with a view to finding a competitive edge. Unfortunately, most companies have marketing and strategy departments that look for benchmarks to be inspired by and copy rather than trying to be different.
Literature
Kim, W.C., Mauborgne, R. (1997) ‘Value Innovation – The Strategic Logic of High Growth’, Harvard Business Review, January/February, pp. 103–112.
Kim, W.C., Mauborgne, R. (2004) ‘Blue Ocean Strategy’, Harvard Business Review, January/February, pp. 71–79.
Kim, W.C., Mauborgne, R. (2009) ‘How Strategy Shapes Structure’, Harvard Business Review, September, pp. 72–80.
