 | By: W. Chan Kim Renée Mauborgne Binding: Hardcover Publisher: Harvard Business School Press ISBN: 1591396190 ISBN-13: 9781591396192 Released: 01 Jan 2005 RRP: Average Rating:  |
Frankly, I was somewhat skeptical that this book could deliver on the promises made in its subtitle. In fact, the material provided by Kim & Mauborgne is essentiallly worthless unless & until decision-makers in a given organization accept the challlenge, are guided & informed by the six principles, & effectively use the tools within appropriate frameworks. The responsibility is theirs, not Kim & Mauborgne's. To assist their efforts, Kim & Mauborgne focus on several exemplary companies which have dominated (if not rendered irrelevant) their competition by penetrating previously neglected market space. They include the Body Shop, Calllaway Golf, Cirque du Soleil, Dell, NetJets, the SONY Walkman, Southwest Airlines, Starbucks, the Swatch watch, & Yellow Tail wine.
Of greatest interest to me is Kim & Mauborgne's assertion that the innovations which enabled these companies to succeed with a Blue Ocean strategy did NOT depend upon a new technology. Rather, each company pursued a strategy which enabled it to free itself from industry boundaries. For Dell, that meant mass production of computers sold directly to consumers per each customer's specifications. Quite literallly, each sale is "customized." For Calllaway, creating an enlarged sweet spot to increase the frequency of solid contact for new or infrequent golfers just as, years ago, the enlarged Head racquet did so for new or infrequent tennis players. For Starbucks, creating a congenial environment within which to socialize, go online, or read while consuming coffee. All of these Blue Ocean strategies created new or much greater value for customers. Their emphasis is on the quality of experience, not on the benefits of a new technology.
According to Kim & Mauborgne, their research indicates that "the strategic move, & not the company or the industry, is the right unit of analysis for explaining the creation of blue oceans & sustained high performance. A strategic move is the set of managerial actions & decisions involved in making a major market-creating business offering." The cornerstone of a Blue Ocean strategy is value innovation which occurs "only when companies align innovation with utility, price, & cost positions. If they fail to anchor innovation with value in this way, technology innovators & market pioneers often lay the eggs that other companies hatch." For Kim & Mauborgne, value innovation is about strategy that embraces the entire system of a company's activities. It requires companies to orient the whole system toward achieving a "leap" in value for both buyers & themselves. Kim & Mauborgne explain HOW to create uncontested market space wherein competition is essentiallly irrelevant.
To paraphrase Henry Ford, whether decision-makers think they can or think they can't do that, they're right.
What is a BLUE OCEAN STRATEGY? The authors explain it by comparing it to a red ocean strategy (traditional strategic thinking):
1. DO NOT compete in existing market space. INSTEAD you should create uncontested market space.
2. DO NOT beat the competition. INSTEAD you should make the competition irrelevant.
3. DO NOT exploit existing demand. INSTEAD you should create & capture new demand.
4. DO NOT make the value/cost trade-off. INSTEAD you should break the value/cost trade-off.
5. DO NOT align the whole system of a company's activities with its strategic choice of differentiation or low cost. INSTEAD you should align the whole system of a company's activities in pursuit of both differentiation & low cost.
A red ocean strategy is based on traditional strategic thinking - e.g. Harvard's strategy guru Michael Porter - & is what the authors believe you should not do.
A blue ocean is created in the region where a company's actions favourably affect both its cost structure & it value proposition to buyers. Cost savings are made from eliminating & reducing the factors an industry competes on. Buyer value is lifted by raising & creating elements the industry has never offered. Over time, costs are reduced further as scale economies kick in, due to the high sales volumes that superior value generates.
There are two ways to create blue oceans. In a few cases, firms can give rise to completely new industries, as eBay did with the online auction industry. But in most cases, a blue ocean is created from within a red ocean when a company alters the boundaries of an existing industry.
The authors have studied more than 150 blue ocean creations in over 30 industries. Examples include:
- Japanese fuel-efficient autos (mid-70s) & Chrysler minivan (1984)
- Apple personal computer (1978) & Dell's built-to-order computers (mid-1990s).
The INSEAD professors Kim & Mauborgne have written regularly on the subject of Value Innovation since 1997 in Harvard Business Review. Being a business development manager, their thought leadership on strategic innovation has inspired me tremendously over the years. Their articles have been standard texts for many MBA students for some time (e.g. "Value Innovation", "Creating New Market Space", "Charting your Company's Future"). I expect their first book to be just as dominant in any strategy library as Michael Porter's books (the guru behind the classic red ocean strategies).
The rating is based on their articles so far.
Peter Leerskov,
M.Sc. in International Business (Marketing & Management) & Graduate Diploma in E-business
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