the most salient workplace and human resource issues others.

others. The book has painted a wide canvas of the

that are becoming important in the world of work. The contemporary world of work in the US and the impli-
analysis is relevant to management professionals as well cations it would have for public policy. The treatment
as to academics. One of the book’s key strengths lies in of issues is authoritative. This book is a significant
its comprehensiveness of scope and balancing the inter- contribution to literature on American worker and human
ests of various stakeholders. The conclusions are largely resource management.
relevant in different degrees for many other countries Debi S Saini
in the developed world as well. With the growing Professor, Human Resource Management Area
importance of convergence thesis in social science and Management Development Institute
management, many formulations will be of immediate Gurgaon
relevance to developing countries like India as also to e-mail:[email protected]

Blue Ocean Strategy: How to Create Uncontested

Market Space and Make the Competition Irrelevant
W Chan Kim and Renée Mauborgne
Boston: Harvard Business School Press, 2005, pp. 240, US$ 27.95

W
hy should companies waste time ‘breaking oceans. An understanding of these industries depends
the competition’ when they can ‘break away’ on the conventional analytic frameworks used to study
from the competition? In other words, why ‘competitive dynamics’ in business schools; these frame-
should companies deplete their attention span in an works and forms of analyses dominate the strategy
endless analysis and tracking of the ‘competition’ when curriculum. Little guidance, however, is available for
they can choose the path of ‘innovation’ instead? W Chan those who wish to swim in the blue ocean. This is partly
Kim and Renée Mauborgne argue that it is time to move because of the origins of business strategy in the history
away from the red waters of saturated markets in order of military strategy. In military strategy, the fight is
to ‘create uncontested market space’ in the blue oceans always over a piece of limited territory which has to be
of innovation since only innovation can actually ‘make occupied and defended; this territory is ‘limited and
the competition irrelevant.’ While the red oceans of com- constant.’ This is, however, not a valid constraint in the
petition will not go away, the primary objective of this context of industry: business history reveals that blue
book is to set out a systematic strategy to make blue oceans have appeared from time to time. Most of the
oceans possible since innovation is not just creativity or leading industries in place today did not even exist a
so-called ‘value innovation,’ but the ability to ‘align few decades ago since the emergence of a new technol-
innovation, with utility, price, and cost positions.’ The ogy can reshape industrial configurations beyond rec-
creation of blue oceans through the process of innova- ognition. Examples of such blue oceans include ‘many
tion, however, is extremely demanding. The authors, industries as basic as automobiles, music recording,
therefore, set out a framework comprising the different aviation, petrochemicals, healthcare, and management
aspects of innovation so that practising managers can consulting.’
go about the task of value innovation in as systematic The crucial questions that companies must ask
a way as possible. themselves today are these: Can the discovery of blue
Kim and Mauborgne begin with an elementary oceans be pursued in a systematic way? Or should it be
differentiation between the ‘red ocean’ and the ‘blue left to the accidental emergence of innovations in the
ocean.’ The former comprises ‘all the industries in ex- economy? Furthermore, why should companies actually
istence today,’ while the latter represents ‘all the indus- bother with value innovations given the risks involved
tries not in existence today.’ The intensity of competition in pursuing anything new? According to Kim and
turns the market space of the former into red, bloody Mauborgne, the economic reasons that will compel com-

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panies to innovate are the following: the excess of supply volume, the reconstructionist view of strategy is in-
over demand in most industries, the reduction in tariff spired by Joseph Schumpeter’s notion of endogenous
barriers as a result of globalization, the loss of niche growth. However, the modalities of endogenous growth
markets, the dismantling of monopolies, and the changes that emerge from innovations that arise from ‘within’
in the demography of the ‘developed markets.’ As a are not clear in Schumpeter’s model—especially since
result of these economic factors, both products and brands it is based on the activities of the ‘lone entrepreneur.’
are being increasingly commoditized. Furthermore, the The challenge is to make such innovations widespread,
authors argue that the performance of most companies a challenge that was initially taken up by the ‘new
has been historically inconsistent. Hence, it has become growth theory’ and, subsequently, by the ‘recons-
necessary, according to the authors, to move away from tructionist view of strategy.’ The reconstructionist model
using the company and/or the industry as the funda- ‘requires a shift of attention from supply to demand,
mental unit(s) of analysis. from a focus on competing to a focus on value innova-
The new unit of analysis that Kim and Mauborgne tion—that is, the creation of innovative value to unlock
propose is the ‘strategic move.’ A strategic move is new demand.’ Only by shifting to the demand side of
defined as a ‘set of managerial actions and decisions the equation and by working out the modalities of value
involved in making a major market-creating business innovation is it possible to ‘achieve a leap in value’ that
offering.’ The empirical base for this book is drawn from is not reducible to competitive dynamics in the tradi-
‘more than one hundred fifty strategic moves made from tional sense of a zero-sum game. The framework re-
1880 to 2000 in more than thirty industries.’ The study quired to do this is referred to as the ‘strategy canvas.’
included analyses of both the winners and the losers in The focus on the demand side of the equation means
their attempts to create ‘blue oceans.’ The differences that companies should concentrate on ‘alternatives’ rather
between the two cannot be explained in terms of indus- than on competitors and on ‘non-customers’ rather than
trial and/or organizational characteristics. The crucial customers. The strategic hope here is that it is possible
difference lay in their ‘approach to strategy.’ The win- to pursue both cost and value by redefining the very
ners were able to negotiate the ‘value-cost trade-off’ nature of the industry that a company finds itself in. In
better than the losers: they did not have to exercise the order to do this and generate ‘a new value curve,’ the
customary ‘choice between differentiation and low cost.’ strategic framework must comprise the following four
They were able to pursue both through ‘value innova- actions in order to redefine the factors which constitute
tion,’ which, as pointed out earlier, must be ‘aligned with the structure of a given industry. The strategic frame-
utility, price, and cost positions.’ Only then can value work should eliminate, reduce, raise, and create the
innovation serve as ‘the cornerstone of blue ocean strat- factors responsible for the generation of a new value
egy’ and take in the activities of the company as a whole. curve given the industry standards at any point in time
The default assumptions in the competitive notion through the application of the ‘strategy canvas.’
of strategy are then identified under the rubric of ‘en- The role of the four actions given above (in gener-
vironmental determinism.’ In this model, the players ating a new value curve) has been illustrated through
work in the belief that they cannot ask questions; they three case studies. These cases include Casella Wines,
can, at best, manoeuvre within the given, historical frame Southwest Airlines, and Cirque du Soleil, a Canadian
of competitive dynamics. While firms put in a heroic circus. Southwest, for example, is not interested in the
attempt to differentiate in this space, they do so at a high competitive dynamics of the airline industry per se. It
cost since they either use the competitor as a benchmark is, instead, focused on providing an alternative to car
or survey the industry mechanically for the available set travel by reducing the cost of flying since it is a low-
of ‘best practices.’ The blue ocean, however, renders the cost carrier. Southwest is also proactive in strategy
possibility of innovating within a ‘reconstructionist’ formulation—avoiding thereby the me-too attitude of
frame (as opposed to a ‘structuralist’ frame of ‘environ- most key players in the airline industry. And, it works
mental determinism’) provided that a given company with an effective tagline: ‘the speed of a plane at the price
or firm can continue to handle ‘opportunity and risk’ of a car—whenever you need it.’ It is alternatives to air
since ‘there is no such thing as a riskless strategy.’ travel and non-customers in the airline industry that
As the authors point out in Appendix B of this matter to Southwest Airlines in the formulation of a new

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strategy canvas. it is necessary to focus on the ‘big picture.’ Hence, the
The four principles of strategy formulation and the importance of working out the modalities of ‘visualiza-
two principles of implementation set out in this book tion’ in strategic planning. The authors illustrate the
to generate a new strategy canvas (i.e., a blue ocean), importance of visualization with a case study of the role
however, do not have to be left to the vagaries of business of value innovation programmes at Samsung Electron-
history—they can be formulated and implemented sys- ics. Some of the concrete outcomes of these programs
tematically. Blue oceans are industries that emerge when include LCD TVs and mobile phones which are leaders
companies learn to reconstruct markets, ‘focus on the in their respective categories. A concrete tool that the
big picture,’ go beyond the given demand for a product authors advocate the use of in this context is the Pioneer-
or service, and work out the right sequence in the for- Migrator-Settler (PMS) Map. Such a map can help a
mulation of a strategic goal. The principles of execution company to situate its portfolio. ‘For the purpose of the
involve learning to take the organization down the path exercise, settlers are defined as me-too businesses,
of innovation along with an inbuilt understanding of the migrators are business offerings better than most in the
role of execution in the framing of strategy. The follow- marketplace, and pioneers are the only ones with a mass
ing paragraphs set out the four principles of strategy following of customers.’ Most items in the portfolio are
formulation in some detail along with a brief discussion likely to be in the locus of the settler—the challenge is
of the relevant cases included in the book. to push it towards the locus of the pioneers as repre-
The first principle is reconstructing markets or rather sented in a hypothetical scatter plot diagram.
market boundaries. But, what does it actually mean to The red ocean, given the conventional dynamics, is
‘reconstruct’ a market? What are the paths that compa- bound to be preoccupied not only with the current
nies must traverse to reconstruct rather than merely portfolio of product/service offerings but also with the
penetrate markets? Kim and Mauborgne argue that there customers already in place. The blue ocean must, there-
are six paths of relevance here. They comprise the fol- fore, aim at what is in excess of the current demand by
lowing: thinking of product/service alternatives (as targeting ‘the three tiers of non-customers’ for a given
opposed to mere substitutes); looking across strategic company. The first tier comprises those who are willing
groups within an industry; redefining the traditional to try a new product or service; the second tier comprises
chain of buyers in an industry (comprising influencers, those who are not willing to try; and the third tier
purchases, and users); generating a total solution for a comprises those who have not yet been targeted as
product or service by examining the temporal sequence potential customers. Case studies used to illustrate the
in which it will be used through the notion of comple- dynamics of these three segments include Prêt A Man-
mentary offerings; defamiliarizing the conventional link ger, JC Decaux, and Lockheed Martin’s Jet Strike Fighter
between the emotional and functional aspects of a prod- (JSF) programme respectively. Converting these non-
uct/service; and tracking the emergence of trends across customers into customers, however, demands a business
time. model which must ‘get the strategic sequence right.’
The case studies used to illustrate the six paths of The strategic sequence demands that the company
relevance in reconstructing market boundaries comprise must pay attention to identifying a product/service that
Net Jets and NTT DoCoMo; Curves (a fitness company offers the buyer exceptional utility. It should be at a price
for women); Novo Nordisk and Bloomberg; NABI (a bus affordable to the customer; however, demand should not
company based in Hungary); The Body Shop, Cemex, be just a function of the price. Utility and price will help
and Direct Line Group; Apple Computers and Cisco the company to structure the revenue section of its
Systems respectively. business model. In order to generate a profit, however,
The reconstruction of market boundaries, however, the company must be able to target cost effectively
presupposes the ability to change the strategy planning without letting ‘costs drive prices’—otherwise, the com-
process. Since this process is inevitably enmeshed in the pany’s offerings will not generate ‘a leap in value.’ This
logic of the red ocean, it is extremely tempting for a is especially the case in ‘bottom of the (economic) pyra-
strategic planner to get drawn into the emotionally mid’ initiatives as the Cemex case study (based in Mexico)
comforting routine of number work and operational illustrates. In other words, to summarize, ‘it is the
details. In order to draw up a ‘strategy canvas,’ however, combination of exceptional utility, strategic pricing, and

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target costing that allows companies to achieve value tiation of value innovation. In addition to utility, price,
innovation.’ Value innovation, however, is not the same and cost, a company should be aware of the resistance
as technology innovation; technology does not auto- that may emerge to the adoption of a blue ocean strategy.
matically translate into ‘exceptional utility’ for the For example, SAP experienced a lot of resistance in the
customer as illustrated by the failure of Motorola’s development of Accelerated SAP (ASAP) from consult-
Iridium project. ants who feared the possibility of a loss in revenue from
The authors advocate the use of a ‘buyer utility map’ ‘the development of best-practice templates’ for small
comprising six utility levers across ‘the six stages of the and mid-sized companies in the market for business
buyer experience cycle’ as a reality check instead of application software. SAP had to convince the consult-
conflating technology innovation with value innovation. ants that the loss of revenue from the reduction in time
This utility map can help to identify the ‘blocks to buyer to implement ASAP could be compensated for by an
utility.’ Value innovation (as opposed to technology increase in the client base for affordable business appli-
innovation) involves the identification and elimination cation software.
of such utility blocks. A relevant example in this context The modalities of formulating blue ocean strategy
is Ford’s pioneering entry level automobile, the Model culminate in the tool that the authors term ‘the Blue
T (1908), which exploited the fact that most automakers Ocean Index (BOI).’ The index embodies the strategic
in the pre-Ford era concentrated on luxury automobiles ‘sequence of utility, price, cost, and adoption.’ The
(in an attempt to make money) without realizing that different claimants to value innovation can then check
the real hurdle in selling automobiles had to do with the attributes of their product against this index. The
inadequate roads and routine maintenance. Since the authors contrast the failure of Motorola’s Iridium project
cars were customized with multiple options and me- vis-à-vis the launch of the ‘i-mode’ by NTT DoCoMo in
chanics were scarce, the utility of these luxurious vehi- Japan in 1999 as a way of illustrating the usefulness of
cles were severely limited by road and weather condi- the BOI. The failure of the former and the success of the
tions. The Model T did away with these problems by latter are mapped onto the structure of the BOI. The i-
building a durable car of standardized design making mode was a project to offer Net access on cell phones.
automobiles available to the ‘multitudes.’ Ford was able It was so resoundingly successful that DoCoMo was not
to pioneer successfully at the level of the product, the only able to address the problems of utility, price, cost,
price, and the manufacturing process (the assembly line). and adoption that structure the BOI, but, have also
In order to get into place the dynamic combination of become, in the assessment of the authors, ‘the only
exceptional utility and strategic pricing, a company must company that has been able to make money out of the
identify the target cost as early as possible. To generate mobile Internet.’ Interestingly, ‘DoCoMo now exceeds
a blue ocean, ‘a company should start with the strategic its parent company, NTT, in terms of market capitali-
price and then deduct its desired profit margin from the zation as well as potential for profitable growth.’
price to arrive at the target cost.’ The assembly line Finally, the two principles of strategy implementa-
helped Ford to reduce the costs and time involved in tion: overcoming the inevitable hurdles in the organi-
the manufacture of the Model T. zation and learning to build execution into strategy. The
Cost innovations then are absolutely crucial: strat- first principle is illustrated by a detailed case study of
egies to attain such innovations include streamlining police commissioner Bill Bratton’s attempt to reduce the
operations, partnering, and changing the model of pric- levels of crime in New York City and turn around the
ing in place. As the authors explain in Appendix C on demoralized New York City Police Department (NYPD)
‘the market dynamics of value innovation,’ blue ocean in the 1990s. Bratton used a model of leadership known
strategy aims to avoid the practice of ‘price skimming’ as ‘tipping point theory.’ This theory is based on the
which is endemic in monopoly markets. The strategic simple principle ‘that in every organization, there are
intent should be ‘on creating new aggregate demand people, acts, and activities that exercise a disproportionate
through a leap in buyer value at an accessible price.’ influence on performance.’ Hence, the focus should be
Keeping costs at low levels over a sustained period of on working with these disproportionate influencers rather
time can, in addition to benefiting the customer, make than seeking a massive response to a massive challenge.
it very difficult for the competition to emulate an instan- Disproportionate influencers can help to break through

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the cognitive, the political, and the motivational hurdles away with red oceans forever since these two models
in the organization and overcome the resource constraints of competition and strategy are often found to co-exist
inherent in the implementation of blue ocean strategy. in many industries. Nevertheless, Kim and Mauborgne
And, finally, the process of implementation must seek to “balance the scales so that formulating and
include execution from the very beginning through the executing blue ocean strategy can become as systematic
notion of ‘fair process’ comprising ‘engagement, expla- and actionable as competing in the red oceans of known
nation, and expectation clarity’ to garner the cooperation market space.”
of employees. While a blue ocean strategy can offer
companies some protection against imitation, it is im- Shiva Kumar Srinivasan
portant to know when to value-innovate again. The right Assistant Professor, Communications Area
time is when a company’s ‘value curve begins to con- Indian Institute of Management
verge with those of the competition.’ The pursuit of blue Ahmedabad
oceans, however, does not mean that companies can do e-mail: [email protected]

The books that help you most are those which make you
think the most. The hardest way of learning is that of
easy reading; but a great book that comes from a great
thinker is a ship of thought, deep freighted with truth
and beauty.

—Theodore Parker

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