Blue Ocean Strategy: How To Create Uncontested Market Space and Make The Competition Irrelevant

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forecastable and is full of risks.

As a good trader, Taleb knows it is also full of opportunities:


Black Swans are not all dangerous, they just seem improbable until they reveal themselves.

Adrian Davies
E-mail:
ahtdavies@aol.com
doi:10.1016/j.lrp.2008.02.001

Blue Ocean Strategy: How to Create Uncontested Market Space


and Make the Competition Irrelevant
W. Chan Kim and Rene´e Mauborgne, Harvard Business School Press (2005), 240 pp. $29.95, hardcover
Instead of competing with rival firms, make the competition irrelevant e this is
the authors’ main message. Throughout the book they use the metaphor of red
and blue oceans e red oceans represent markets where competition is
intense and bloody, while blue oceans are potential markets not yet served
by any firm. While most firms direct their efforts to red oceans, trying to
create and sustain a competitive advantage over their rivals, the authors
argue that a much better strategy is to focus attention on blue oceans, trying
to identify as yet undiscovered market opportunities, thus being able to exploit
the new demand without the head-to-head competition that drives profits down.
They illustrate the importance of their main message with examples from
many firms and industries, as well as provide systematic managerial tools to
assist managers in finding and then taking advantage of blue oceans.
The book has quickly became a bestseller, been translated into thirty languages so far
(with nine more coming soon), and won awards such as being selected as one of
Amazon.com’s Top Ten Business Books of 2005 and as strategy+business magazine’s #1
Strategy Book of 2005. The authors are both professors in strategy and management at
INSEAD, and the book is based on their research over many years, studying 150 strategic
moves in thirty industries over a hundred years.
The book’s nine chapters are organized in three parts, with a brief preface and three
appendices. Part One discusses the main message of the book and presents some
analytical tools and frameworks. Given that no company or industry can be
continuously highly profitable, the authors judge the right unit of analysis to be ‘the
strategic move’. Examining successful strategic moves reveals ‘value innovation’ as the
cornerstone strategy behind creating blue oceans of competitor-free new demand. Instead of
focusing on outperforming industry competitors, value innovation involves a firm creating a
leap in value for both the firm and its customers, making the competition irrelevant by
unleashing new demand and creating a new market where the firm is free from competition,
at least until imitators arrive. Value innovation involves both reducing costs and increasing
buyer utility, and the authors offer two tools to show how both can be achieved. The first is
a diagram called ‘the strategy canvas’. The x-axis shows the various factors the industry
invests in and competes on side by side, while the y-axis measures the extent to which a firm
invests in each factor and the extent to which its goods or services offer each factor. In the
airline industry, for example, such factors include ticket price, frequency of departures and
offerings of meals, lounges, different classes, etc. Competitors’ strategic profiles can then be
depicted on the strategy canvas using a ‘value curve’. In many industries firms follow
similar strategies, and thus a single value curve can often capture various competitors
profiles.

226 Book Reviews


Considering their competitors’ value curves, the firm can then use a second tool e the four
actions framework (Eliminate e Reduce e Raise e Create) e to consider what it should do
to achieve value innovation. When the firm believes a factor does not add enough value
to customers (or to non-customers the firm hopes may become customers) to justify
its associated costs, it may choose to reduce the level of its investment in this factor
compared to the industry standard, or even to eliminate it: these two actions help the firm
to reduce its costs. The Canadian Cirque du Soleil, for example, decided to eliminate several
characteristics common in other circuses, such as animal performances, three simultaneous
stages and hiring star entertainers. The two actions of raising a factor higher than the
industry standard or creating something new that the industry has not previously offered
can achieve the increased buyer utility that is also an integral part of value innovation.
Depicting the firm’s proposed strategy alongside the ‘normal’ industry value curve on the
canvas can help determine whether it seems promising. A good strategy should satisfy three
conditions: it should be focused (not spreading its efforts across all competition factors); it
should diverge from the value curve of the industry (offering something different and
avoiding head-to-head red ocean competition); and it should be able to be portrayed in a
simple phrase e a good ‘tag line’.
Part Two’s four chapters discuss how to formulate a blue ocean strategy. The first deals
with reconstructing market boundaries, and offers six paths to look for such
opportunities systematically. By examining these, the firm can get ideas on where new
demand may come from: alternative industries; strategic groups within the industry; the
chain of buyers; complementary goods and services; the functional or emotional appeal of the
industry; and trends that develop over time.
The next chapter suggests firms should ‘focus on the big picture, not the numbers.’ It
advocates four stages of strategy: awakening e comparing the business to its competitors and
examining how the strategy should change; exploration e going to the field to gain
insights about customers and demand; strategy fairs e developing proposals for
alternative strategic directions and getting feedback on them; and communication e
explaining the old and new strategic profiles to workers and supporting only initiatives
that help to achieve the new strategy.
The following chapter discusses how to reach beyond existing demand, dividing non-
customers to three groups: those who are still customers but purchase only small quantities
and may not remain customers much longer those who consider the possibility but still
choose not to buy; and those who do not consider the industry as relevant to their needs. The
firm should focus attention on whichever segment has the highest potential.
The final chapter of Part Two deals with the optimum strategic sequence. The firm should
first consider whether its business idea creates high buyer utility; then think about what
price can attract the most customers; then consider whether the likely costs allow for the
desired levels of profitability; and finally consider potential hurdles to adoption.
Part Three examines the execution of a blue ocean strategy. The first chapter explains how
to overcome key organizational hurdles, divided into four categories: cognitive e making
people realize the need for strategic change; lack of resources; motivational e how to motivate
workers to implement the new strategy quickly and cheaply; and political e overcoming the
resistance to change within the organization. One of the interesting examples in this
chapter discusses how William J. Bratton turned NYPD from a failure into a great success in
a couple of years.
The next chapter explains the importance of fair process in executing strategic change
well. Fair process involves three conditions: engagement e people who are going to be
affected by the change are involved in the process and their opinion is asked for;
explanation e the strategic decisions and their rationale are properly explained to the affected
parties; and making
Long Range Planning, vol 41 2008 227
expectations clear e letting workers know what they are expected to do and how they will be
evaluated under the new strategy. Achieving fair process ensures that workers will trust and
commit to cooperating voluntarily with the new strategy.
The brief last chapter asks a question I was curious about from the very beginning:
suppose that you found a blue ocean: what guarantees your competitors won’t follow you
there and quickly turn it red? The authors suggest firms can often retain a leading position
in the new market they have created and earn high profits because of barriers to imitation.
For example, other firms might not believe the new strategy is sensible; it may conflict
with their current image; the market might be a natural monopoly; proprietary patents
may be involved; the original firm might enjoy significant economies of scale and thus
low costs; in some cases network externalities exist which discourage competition;
imitation might require drastic changes that cannot be achieved quickly by others; and the
original firm’s drastic innovation may give it a lot of brand advertising and loyal customers,
an advantage that imitators may be unable to get. When, despite all these barriers, other
firms eventually enter the market and it becomes a red ocean, it is time to create a new blue
ocean elsewhere.
The book includes three appendices. The first (the longest and most interesting) describes
the evolution of the car, computer and movie theater industries, and how blue oceans were
created in them again and again over time. The other two appendices are brief and deal with
value innovation.
I enjoyed this book very much: it contains many interesting examples of real firms in
various industries that illustrate vividly the principles and ideas that the authors describe. Its
ideas are important, its arguments make sense, and it is easy to read. Moreover, the ideas are
useful for individuals as well as for firms and organizations: for example, analysing the
potential effect of different factors on results and adapting investment into each factor
accordingly can apply as much to individuals contemplating how to divide their time
between different tasks as to firms investing in competition factors. I would certainly
recommend the book to scholars, students and practitioners of strategy and management e
and I believe it can provide an interesting reading also for readers beyond these fields.

Ofer H. Azar
E-mail: azar@som.bgu.ac.il

doi:10.1016/j.lrp.2008.02.003

Private Label Strategy: How to Meet the Store Brand Challenge


Nirmalya Kumar and Jan-Benedict Steencamp, Harvard Business School Press (2007), 336pp.,
$35.00
Reading the dust jacket review (‘The old days of packaging generic brands
in plain white wrapping. are long gone’), I thought this book might be too
oriented to the US perspective. Private Labels aren’t all like that, and more to
the point, if you come from the land of Marks and Spencer, Harrods and
Sainsbury, they never were. But my fears of a US dominated picture of what PL
is and how it works were soon allayed. Although it may at times seem to be
aimed at that market (as a warning of what is to come?), the authors put
forward a much wider appreciation and understanding of the genre,
abundantly illustrated with relevant examples. The accumulation of research
and experience they present makes this a must-read text for anyone involved
in the study or practice of branding as a retailer, but especially as a brand
228
manufacturer. Book Reviews

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