Book Review: Blue Ocean Strategy – How to Create Uncontested Market Space and Make the Competition Irrelevant
Author: W. Chan Kim and Renée Mauborgne (2015).
Format and Publisher: Hard Cover – 287 Pages. Published by Harvard Business School Publishing Corporation
This book ticks all the right boxes for businesses in these hyper-competitive times. That over 3.5 million copies of Blue Ocean Strategy sold in the first 10 years is testimony to book’s worth. Authors W. Chan Kim and Renée Mauborgne have filled a sorely missed strategy gap, by creating and explaining a process for established corporations to not only survive disruptive innovations, but to successfully use disruption for their own future revenues and wellbeing.
Part One: Blue Ocean Strategy
Blue Ocean Strategy is explained and introduced in two chapters, ‘Creating Blue Oceans’ and ‘Analytical Tools and Frameworks’. Don’t let the easy reading and instructive real-life examples, fool you – this book is seriously researched, and its principles have been put to the test, and found working! The notes-bibliography is as long as my arm – actually a little longer than both my arms – I measured this.
Creating Blue Oceans
This part of the book looks at what blue oceans are. Cirque du Soleil is put forward as a good example of how to escape from red and move into blue oceans. The need to move into blue oceans is underlined, and the principles of formulating the blue ocean strategy and executing it with minimal risk are touched upon.
The Expanded Edition of the Book
The 2015 edition of the book is expanded to provide answers to questions asked by earlier users of Blue Ocean Strategy. The new material explains why competition should not be central to strategic thinking, how industry structure is not a given but can be shaped, and how strategic creativity can be unlocked systematically in the face of new business demands such as the rise of public megaphones.
What are Blue Oceans?
Red and blue oceans are metaphors about operating conditions. Red oceans are bloodied oceans because of intense competition, rising costs, and commoditisation. Blue oceans are oceans representing endless possibilities about the future your organisation can create for itself.
Escape to Blue Oceans
Cirque du Soleil escaped from a flagging 234 year old industry of circus productions, to become the largest theatrical producer in the world today, excluding Governments who can also put on quite a show (wink). In 1984 to 1987, when Cirque du Soleil launched, the circus Industry was in steady decline of audience, revenue, and profit and it was experiencing growing negative publicity about animal acts. Star performers had supplier power and audiences had other entertainment alternatives. The first performance of Cirque du Soleil was named “We Reinvent the Circus”. Cirque du Soleil escaped from what the authors call a red ocean with its defined and accepted industry boundaries, and its known rules of the game. Cirque du Soleil attracted new suppliers and customers, and changed the industry boundaries and the rules of the game. In doing this it entered Blue Oceans.
The Why and How of Blue Oceans
Companies are seeing an imperative to get profit and growth from new offerings as their current offerings mature or decline with changing demographics, rapidly advancing technologies, and globalisation. Value innovation is core to achieving a Blue Ocean strategy. Value innovation is achieved by affecting an organisation’s value proposition to buyers and its cost structure. How one goes about formulating a strategic new offering is detailed in part two of the book, where part three deals with executing the strategy to get the Blue Ocean benefits which were forseen.
Eight Principles of Blue Ocean Strategy
Defining new strategy and launching new offerings comes with considerable risks. Blue Ocean strategy puts forward four strategy formulation principles and four strategy execution principles to proactively deal with eight risks matching each of the principles. For example the formulation principle of ‘reaching beyond existing demand’ deals with the scale risk, where typically new offerings sell to smaller or niche markets and therefore risk being unattractive as offerings for large corporations. An example strategy execution principle is ‘build execution into strategy’ which reduces the associated management risk. The other six principles and associated risks to mitigate can be found on page 23 of the book for the interested reader.
Analytical Tools and Frameworks
The strategy canvas, four actions framework, and the eliminate-reduce-raise-create grid are introduced by means of discussions and demonstrations for the reader’s enlightenment. I found that first reading this chapter, and then applying the tools to my own strategy-in-the-making, was a good way to familiarise myself with the tools and the frameworks. Parts two and three of the book carry even more tools and frameworks useful for putting your own Blue Ocean Strategy into practice.
Part Two: Formulating Blue Ocean Strategy
This section of the book comprised formulating the blue ocean strategy, with one chapter per formulation principle. The first chapter, ‘Reconstruct Market Boundaries’, opens one’s thinking somewhat and therefore leads one in the value innovation process in a systematic way. I will dip into the chapter to provide a taste of the extra information on the one hand and the level of technical detail and support given, on the other hand. The other chapters in this part of the book similarly provide new learning opportunities for the reader, and detailed support and guidance the strategy formulation process.
No We Can’t!
Left alone, we would have all reconstructed market boundaries according to our own experience and therefore we would have most likely missed the valuable strategic guidance the book offers. For starters six boundaries (or paths) are offered. Stop reading here and try and imagine six types of market boundaries that your organisation could reconstruct. OK don’t peep at the next paragraph. How did you do?
Yes We Can!
Alternate industries, strategic groups within an industry, the chain of buyers, complimentary product and service offerings, functional or emotional appeal to buyers, and time, are the six boundaries we can reconstruct. Technical advice offered on each of these is thorough. As a taste, Blue Ocean Strategy differs from Red Ocean Strategy for industry as a boundary, in that Red focuses on rivals within its industry whereas Blue looks across rival industries. One more: For time as a boundary, Red focuses on adapting to external trends as they occur, whereas Blue participates in shaping external trends over time. Red suffers, Blue leads. This is true for each of the paths, and remains true for each of the chapters.
Part Three: Build Execution into Strategy
Five chapters cover Blue Ocean Strategy execution. I like one aspect covered in this execution section, which I find lacking in many businesses today – much to their own disadvantage. ‘Poor process’ can ruin strategy execution. Sure, everybody knows and agrees with this one. The one I like is much less obvious, ‘fair process’ is essential. Kim and Mauborgne go into ‘fair process’ in some detail – perhaps sensing that the need to spell it out. They teach ‘The Three E Principles of Fair Process’; They contrast two plants, one ‘fair’ the other ‘not fair’; They show why ‘fair process’ matters even to the point of spelling out ‘Intellectual and Emotion theory’ – I hope you are getting this; They place ‘fair process’ as the intangible capital of an organisation; Lastly they talk about ‘fair process’ and external stakeholders.
The Perfect Alignment
Chapter nine is titled, ‘Align Value, Profit, and People Propositions’. This chapter talks about and shows the reader how to align customers, supply chain personnel, the customers’ customers, and staff. They place responsibility for these alignments on the top executives. Blue Ocean Strategy, they explain, is when the value, profit, and people propositions are in support of differentiation and low cost.
The book is expensive at around R700 (~45 USD) but extremely good value for money.